HFCL Ltd
NSE:HFCL
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
American Express Co
NYSE:AXP
|
Financial Services
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Target Corp
NYSE:TGT
|
Retail
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
66.45
161.61
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Estee Lauder Companies Inc
NYSE:EL
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Church & Dwight Co Inc
NYSE:CHD
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
American Express Co
NYSE:AXP
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Target Corp
NYSE:TGT
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
Mueller Industries Inc
NYSE:MLI
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
HFCL Ltd
Earnings Call Analysis
Q3-2024 Analysis
HFCL Ltd
The financial narrative for the third quarter of the financial year 2024 reveals a mix of ebbs and flows. Revenue took a slight dip to INR 1,032.31 crores from the previous quarter's INR 1,111.49 crores and was also short of the corresponding quarter from the last year, which posted INR 1,085 crores. However, there is a silver lining as the earnings before interest, taxes, depreciation, and amortization (EBITDA) rose to INR 163.45 crores from INR 149.77 crores in Q2, and despite a slight year-on-year fall from INR 193.33 crores, it highlights a solid margin resilience, standing currently at 15.83%, a leap from the last quarter's 13.47% but still shy of the 17.8% from the same quarter in the previous year.
The company's Profit After Tax (PAT) showed a welcomed quarterly improvement, reaching INR 82.43 crores from INR 70.17 crores in Q2, though it still trails year-on-year when the PAT was at INR 101.62 crores. This reflects in the PAT margin which now stands at 7.99%, an increase from the second quarter's 6.31% but below the 9.36% of the prior year's quarter.
Across the globe, all major manufacturers, including our firm, are grappling with a decline in optical fiber cable revenue. Nonetheless, the company anticipates a turnaround in demand in the subsequent quarters in both Indian and global markets. Bolstered by their R&D, which fosters innovation and development of optical fiber cables, alongside the rollout of new 5G telecom network equipment, the company is poised for a rebound in sales and envisages this will contribute to both revenue growth and profitability.
Marking 2024 as a transformational epoch, the company accentuates its strategic focus on pioneering new products, widening its global reach, and reinforcing both capacity and capabilities through backward and horizontal integration. The steadfast commitment to enhance market share and technological leadership with continued investment in innovation is expected to translate into superior cost-effectiveness and performance benefits.
While initial 5G network investments may have peaked, the company envisions growth fueled by new applications beyond just mobility—ranging from IoT, medical fields, education, to industry 4.0. The company anticipates the 5G networks will extend their reach in alignment with the application advancements, signaling further capital expenditures in areas such as fixed wireless access.
The optical fiber cable segment has faced a slowdown attributed to a global inventory buildup by telcos and distributors based on earlier expectations of higher demand. However, the United States market shows signs of an upturn, and similar expectations are held for the European market within the next few quarters. The U.S. government's financial support intended for broadband expansion in underserved areas is likely to catalyze this growth. In light of these factors, the company projects normalizing demand that will see a revival in fiber optic cable sales over the coming quarters.
The company has begun to reap the benefits of its strategic initiative to design indigenous 5G equipment under the 'Make in India' campaign. With a significant order of INR 623 crores secured for their 5G networking product, they anticipate subsequent large orders. Emphasizing their cost competitiveness and the prospects of international exports, the company is setting sights on capitalizing on opportunities presented by the government's BharatNet project and the global export market. Their indigenously designed routers and other networking equipment are poised to meet the growing demand both domestically and internationally in the upcoming financial year.
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to Q3 FY '24 Himachal Futuristic Communications Limited Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit. Please, over to you, sir.
Yes. Hi. Good afternoon, and thank you, everyone, for joining us for this call. In this call, we have Mr. Nahata, Promoter and Managing Director of the company; Mr. Vijay Jain, CFO; Mr. Manoj Baid, Company Secretary; and Mr. Amit Agarwal, Head, Investor Relations. So without further delay, I would now hand over the call to Mr. Nahata for the opening remarks, and then we will open the floor for Q&A. Thanks, and over to you, sir.
Technical glitch at the end of the conference agency, which has caused this delay. I'm really sorry for that. Good afternoon, once again, ladies and gentlemen, and welcome to HFCL's earning call for the third quarter and 9 months ended December 31, 2023 of Financial Year '24. I clearly appreciate and express my gratitude to all of you for making it to today's earning call of the company. I'm sure that you've got a chance to go through our financial results, press release and investor presentation, which are available on the website of the company and also on the website of stock exchanges.
To begin with, I would like to express immense satisfaction in witnessing the resilience of Indian economy. India growth still remains intact despite a subdued global growth outlook. Global economy sense a weakest half decade performance in last 3 decades, says the World Bank in initial reports and warned that global growth in 2024 is set to slow for the third year in a row. Unless this Indian growth story is promising, and World Bank sees India retaining the fastest-growing major economy lately, it forecasts a growth rate of 6.4% in FY '25, accelerating to 6.5% in FY '26.
India witnessed an extraordinary decade-making significant progress on innovation led by technological advancement. India's telecom market is now the second-largest in the world and this is currently valued at USD 48.61 billion, and we expect it to reach to USD 76.16 billion by 2029 growing at a CAGR of 9.4% during the forecast period of 2024 to 2029.
India's digital public infrastructure is testimony to its technological progress, and we are well poised to become a global leader in information and communication technology and becoming a global digital powerhouse. The ongoing digital revolution and investments in building a robust 5G network makes us optimistic about significant upswing in the demand for fiberization in both India and globally. This heightened demand is further fueled by increased government focus on fiberization, including BharatNet project, the expansion of fiber-to-home network, [indiscernible] data centers, widespread option of cloud computing, the rise of Internet of Things, investment in 5G CapEx and the continuous improvement of telecom infrastructure in key global markets, that is India, United States, United Kingdom, France, Germany, middle east and other nations.
From being an importer of telecom technology, India has taken a significant step and lead in developing technologies indigenously. KPMG estimates that 3 technologies 5G, 6G, satellite communication and semiconductors collectively, will add USD 240 billion to the Indian economy in the next 5 years and add 1.6% to India's GDP by financial year '28.
Government initiatives like BharatNet, implementation of fiber to home, PLI scheme and growing demand of our high-speed 5G connectivity will further foster indigenous manufacturing as a result of which India is fast becoming an attractive global investment and manufacturing destination. As our company aggressively moves towards a product-centric approach to embark on a transformative journey aimed at amplifying our global footprint and solidifying our position as an industry leader. With a strategic shift away from product-centric endeavors, we are proud to unveil an era of innovative telecom products tailored to meet the diverse needs of both domestic and international markets.
This strategic evolution underscores our unwavering commitment to cover excellence and customer satisfaction, indicating a new era of sustainable growth and expansion. By harnessing cutting-edge technology and leveraging our deep-rooted industry expertise, we are poised to captivate global audiences with solutions that transcend geographical boundaries and redefine the benchmarks of excellence. Underwriting an export-focused strategy, we are trying to unlock and tap the opportunities for the strategic partnerships and establish a formidable progress in key markets.
Sharp focus on innovation. HFCL unveiled a comprehensive suite of next-gen connectivity and 5G data in products like fixed wireless access equipment, MPLS routers, point-to-point unlicensed and reduced and unified cloud network management systems during Indian Mobile Congress 2023 for both India and international markets. We also launched 1,728 high-fiber intermittently bonded ribbon cable, promising high-speed data transmission, expansion of FTTH connectivity and addressing the demand of hyperscale data centers in Indian Mobile Congress.
As per end of December, 45 new data centers covering 13 million square feet are expected to come up in India by the end of 2025. HFCL is well positioned to capture the growing impetus from data centers with the launch of 728 high-fiber IBR cable. Before launching our telecom and communication products in Q3, HFCL is poised to have transformation impact in the defense sector as well. HFCL through its 90% owned subsidiary, Raddef Private Limited, a R&D enterprise specializing in cutting-edge radars and RF solutions and designed a range of surveillance of these radars to address and meet diverse operational needs.
These radars employee sequence modulated continuous wave technology offering numerous advantage over other radar technologies. This includes high accuracy, low power consumption, lightweight and resistance to interference. HFCL is also actively engaged in the development of state-of-the-art drone detection radar poised to be an important component of modern drone detection system.
HFCL's ongoing cutting-edge research and development initiatives extend to diverse the range of radar technologies. This includes Doppler weather radar, threat emulators, LTE-based passive radars, fog and foliage penetration radars, coastal surveillance radars, avalanche detection radars, altimeters and more. HFCL received an advanced purchase order aggregating to INR 1,127 crores to transform the optical transport network infrastructure across BSNL pan-India network. Within the dynamic landscape of India's technological revolution, HFCL stands unequivocally at the forefront of innovation and progress. The order aimed at revolutionizing BSNL's optical transport network is a testament of our unwavering commitment advancing the Nation's technology prowess.
Our comprehensive network upgrade will not only address the heightened demand of enterprise and FTTH and broadband services. It strategically positions BSNL for the seamless launch of 4G services and anticipation of 5G services. Another very significant achievement is a receipt of INR 623 crores order during the current quarter from a leading telecom service provider for 5G telecom networking equipment. This is first such large order for 5G networking equipment based on any Indian company but in the telecom service provider. This strategic win is a testament to HFCL's vision of designing and manufacturing high-technology telecom equipment in India.
The newly secured purchase order underscores HFCL's commitment to providing cutting-edge solutions tailored to the unique needs of telecom landscapes. Moreover, with enormous export market potential, these indigenously developed products are in line with the country's Make in India for a Global Stage vision. HFCL with its strategy rightly positioned to not only bolster revenue, but also enhance profitability leading to increased dividends for the shareholders. In recognition of our superior quality products, HFCL has secured several orders exceeding INR 1,700 crores from its customers in the last few months. With these new orders, the current order book of the company as on 31 December 2023 stands at INR 7,678 crores.
Moreover, HTL Limited, a subsidiary of the company has secured an order from a defense PSU for a supply of fiber optic expanded beam plug cable assemblies. This assembly slide with the 3D central acquisition radar, medium-range, high-resolution, surveillance radar designed to detect and simultaneously track multiple targets in hostile environments. HTL has already established themselves will go to wiring harness supplier for a leading OEM, which is a largest supplier of logistic vehicles to Indian Army. HTL wire harness is all set to be deployed in a popular high mobility and specialized truck vehicles of the OEM that caters to the diverse needs of personnel and logistics across the armed forces. HTL is also securing an order from one of India's leading vehicle manufactures for wire harnesses. The order encompasses 1282 BS-VI diesel buses intended for significant transport needs.
Our Hyderabad optical fiber plant, the Silver Certificate of Merit for manufacturing excellence in Frost & Sullivan Indian Manufacturing Awards of 2023 [indiscernible] for good practices in digital systems at [indiscernible] Industry 4.0 award ceremony. The automotive team at HTL won the gold award at Quality Circle Forum of India in the ninth convention of quality concept held recently. Our recent order wins are clearly a testament that our strategy of moving from projects to margin-accretive products, launching new products, reaching out to new customers and new geographies is paying us well and will bolster our position even further in 2024.
Expansion of optical fiber manufacturing capacity is progressing well and shall be operational as planned. In addition, the company is also in process of expanding its optical fiber cable production capacity from 25 million kilometers to 35 million fiber kilometer. This expansion will also lead to a significant increase in revenue and profitability. The capacity is added in a phased manner with the completion of targeted by FY '24/'25.
Let me now give you on the key performance metrics of quarter 3 of financial year '24. Revenue of Q3 FY '24 stood at INR 1,032.31 crores as compared to INR 1,111.49 crores in quarter 2 of FY '24 and INR 1,085 crores in quarter 3 of FY '23.
EBITDA for the quarter stood at INR 163.45 crores as compared to INR 149.77 crores in quarter 2 FY '24 and INR 193.33 crores in quarter 3 of FY '23. EBITDA margin stands at 15.83% for quarter 3 of FY '24 as compared to 13.47% for quarter 2 FY '24. And this stood at 17.8% in quarter 3 of FY '23. Profit after tax for quarter 3 of financial year '24 stands at INR 82.43 crores as compared to INR 70.17 crores in quarter 2 and INR 101.62 crores in quarter 3 of FY '23. PAT margin stands at 7.99% in quarter 3 as compared to 6.31% in quarter 2 and 9.36% in quarter 3 FY '23.
Segment revenue for telecom products during quarter ended stood at INR 363.83 crores that is 35.24% of quarter 3 of FY '24 revenue as compared to INR 473 crores in quarter 2 of FY '24, which is a 42.63% of the revenue. During this quarter, our product revenue declined quarter-on-quarter basis and year-on-year basis due to the continued softening of demand of optical fiber cable. This temporary decline is in line with the worldwide trend seen in the last quarter, and it can be attributed to inventory buildup with major operators, resulting an overall reduction revenue in absolute terms as well as lower sales realization per kilometer fiber.
Revenue of all major manufacturers of optical fiber cable has declined worldwide. We are optimistic that demand will be restored from next quarter onwards in both India and 3 global markets. Furthermore, we are confident that our continued efforts in designing and developing innovative and robust optical fiber cables for international markets, along with the introduction of new 5G telecom network equipment will further yield results in coming quarters. These efforts are expected to provide impetus to both revenue growth and profitability along with potential to increase our margins.
To conclude, 2024 is poised to be a transformative year for HFCL. We can confidently affirm that our strategic focus on new products, global expansion, focus on building both capacities and capabilities backward and horizontal integration has begun to yield positive results. Our commitment to strengthening market share and technology leadership positions remain steadfast as we continue to invest in innovation for both cost and performance benefits.
Ladies and gentlemen, thank you once again for your keen participation. With this, I conclude my opening remarks and open the floor for question-and-answer session. Thank you very much.
[Operator Instructions] The first question is from the line of Balasubramanian from Arihant Capital.
My first question regarding 5G CapEx side. One of the Indian telco talked about the 5G CapEx is peaked out in this year. On the global level also, 5G CapEx are coming down. Like what's your view on overall demand environment on 5G? This is my first question.
So let me answer the first question. Yes. Thanks, Mr. Balasubramanian. 5G, when you said CapEx has peaked out, it has to be seen with respect to the application. 5G networks will again start growing. In the initial stage, the 5G networks have been put down. Now the 5G network will grow at the new application strategy. But we find that one of the new applications that has come is a fixed wireless access is to the mobility. So we started increasing in the CapEx in that area. So as the applications for 5G grow related to IoT and other areas, medical, education, industry 4.0, you will find that 5G networks will again get expanded.
Expansion will again take place. So mobility is not the only thing, which will drive 5G growth, it will be the applications, which will drive the 5G growth. So you find the new applications coming, the growth pattern is restarting in the 5G. It's a temporary decrease, not kind of a decrease on a permanent basis. Once the application is coming, it will start increasing again.
Okay, sir. Sir, as per our channel checks indicated, like still the majority of the inventories are with global telcos and distributor levels. Like are we getting repetitive orders and new orders from the telcos levels? And what's your view on this inventory issue like when the things are expected to shut out?
I think you are talking about fiber optic cable, but you did not mention, we understand that possibly, you are talking about fiber optic cable.
Yes, sir.
It is true. But there has been an inventory built up with the telcos as well as distributors. As a result of which you will find share of fiber optic cable has slowed down, which I said in my opening remarks also, not only us but worldwide. What had happened a year ago in U.S. market, for example, delivery of fiber optic cable becomes 7 to 10 months. As a result of these, telcos around the world and there was a situation in many other places, telcos around the world had bought a lot of cable anticipating that demand will be so high that cable availability would be low.
So they have lot of stock so is the situation with distributors. But as it happened, Chinese demand was less than what was expected. And as a result of which, there was inventory buildup in China, which was going into the market worldwide. So that, including the inventory equipment leases with the operators, let to the lending -- temporary lending this demand. So we expect U.S. market is started looking up again. European market, we believe will start looking up again in the next 1 or 2 quarters. U.S. market, particularly with the government funding, which has been done to access the inaccessible areas of fiber is going to pick up very significantly in the next couple of quarters.
So you're right, this inventory buildup is very unlikely the demand and that you will find in our results also that fiber optic cable sales has gone down drastically in the current quarter and in the last quarter also. But this is all expected to again come back to the normal levels in the next couple of quarters.
Got it, sir. Sir, right now, we are in the progress of new products on 5G. Like right now, you mentioned about the new applications are coming up. Like when the benefits are expected to realize on this new product side?
Look, we have already started realizing those benefits. As I said, again, in my opening remarks that an order of INR 623 crores has been received for -- in our 5G networking product by HFCL. Now Let me tell you, which I said in my opening remarks also that we are the first Indian company to receive such a large order for 5G equipment or indigenously designed product, first Indian company to receive such a large order for indigenously designed 5G products. Nobody else has done so. So this speaks itself of our initiative, which we took to design equipment in India keeping in view of our Make in India initiative of government. And today, we are able to receive 5G orders in large quantity. And not only this, we will be exporting these products to different countries also as we are doing in fiber optic cable.
So we have done 5G fixed wireless access equipment, other networking equipment, routers for example, which are used in 4G and 5G both. But specifically, the routers which we have designed are going to be used in large quantity in BharatNet, which government has already announced and draft RFP has been sourced for industry consolidation, and we expect the final tender would come out in next 2 to 3 weeks' time, which would also see a large demand of fiber optic cables as well as routers. There is a demand of about 6 lakhs kilometers of cable, fiber optic cable, equivalent to about 20 million fiber kilometer equivalent cable and about 160,000 or so of routers. All these are very large opportunities for HFCL because if these are indigenously designed products -- indigenous products and more cost competitive.
So not only in India, but we are able to export these products also in the coming financial year. So benefit of these products which we're designing has started accruing and number of large orders are further expected for these indigenously designed products. And I'm sure that export also would be a good market opportunity for HFCL.
Got it, sir. Sir, my last question is regarding on the telecom product side. So in the last 2 quarters, we have reported single-digit margins. I just want to understand like the lower performance because of volume driven or price realization driven. And I just want to understand about the OF and OFC site realization in this quarter.
Basically a decrease in margin has been the lower sales for optical fiber cable because lower sale of optical fiber cable has resulted in higher cost because the fixed costs are still remaining same. So it has been driven down by the lower sale of optical fiber cable. And these sales pick up, the margin will pick up once again. And, moreover, for the new products which we're building, 5G products and all that, their margin is reasonably good and it is expected to remain reasonably good.
Okay, sir. So on the realization side, sir, OF and OFC side, like what are the current realization in Q3? How much it changed compared to last quarter?
Realization in fiber optic cable, if you look at fiber, the realization are, roughly, I would say, has come down by some percentages, it has come down. Practically, if you see that per fiber kilometer realization has come down roughly almost about 20%. What used to be in Q2 about INR 1,200 per fiber kilometers has come down to about INR 1,000-some per kilometer. So about 15% to 20% decrease in the realization per kilometer is there. But that kind of some decline is there in the raw material cost also, particularly in case of fiber.
Got it, sir. On the OF side, sir, optical fiber side?
Optical fiber, again, as I said, the prices have come down. What used to be the prices of something like INR 350 to INR 380 per kilometer has come down to something like INR 250 to INR 260 per kilometer.
The next question is from the line of Santosh Sinha from Emkay Global.
My question is regarding the BharatNet. Now government has -- actually, the cabinet has approved around INR 1.3 -- 1.5 trillion for BharatNet project. So are there opportunities for areas other than optical fiber and optical fiber cable? Is -- are there other products that HFCL can supply? And what can be the overall opportunity size for this -- and what are the margins that we can expect from BharatNet 3 projects? And yes, I will ask later the other question.
Mr. Sinha, thanks a lot for your good question. BharatNet is a large opportunity for everybody, all tele companies involved. It's about INR 1.4 lakh crores, out of which, but let me be clear, out of which roughly about INR 40,000 crores to INR 50,000 crores would be CapEx rest would be OpEx, which would incur over 10 years. So it is going to a turnkey contract whoever wins. There are 16 different -- they have carved out. It will be 16 different tenders. And maximum 4 would be given to 1 company, not more than that. And it is divided into CapEx as well as OpEx as I just mentioned.
Something like HFCL, where are the opportunities? One, I first said we limited ourselves to CapEx. One, if we do EPC projects as we've been doing, still now, the payment conditions are not 100% clear because the current payment conditions are a little bit onerous on the vendors in a sense that part of the payment will be received much later with overall project execution. So all the vendors have represented that the payment condition need to be improved.
So whatever draft tender has come that is undergoing some changes, and we would see the final tender coming up in the next 2 to 3 weeks' time. There's no other payment situation then. Assuming that payment situation will improve, which I'm pretty confident of, I think the opportunity maybe we don't want to go for a very large scale opportunity for EPC projects. But yes, there are EPC opportunities because we are trying to transform our company -- product company from an EPC company, from an EPC more of EPC legal for years, we are making our company not only trying in real sense, we've done so, to a product-led company. So one opportunity is there in the EPC business, Second opportunity is there which is in the EPC business, and there is a continuous revenue on every year basis for O&M, operational and maintenance, there will be an annuity revenue coming up for 10 years.
Now but the good opportunity in the equipment side also and the fiber optic cable side. As I said, there is a demand of 6 lakh kilometer of fiber optic cable in this tender for 3 years. This implementation period is 3 years. So every year, there is requirement of about 2 lakh kilometer of fiber optic cable. So that's a good opportunity for us. Number two, then there is opportunity for selling either also because, let us say, somebody else wins a fiber optic cable from some other EPC players, we need fiber because there are not many people who manufacture fiber in India, we'll supply the fiber.
The routers. Routers is a significant part of the equipment, a significant part of equipment. One of the, I feel, most significant part of the equipment required and routers are required about 160,000 sets in the quantity. Let me tell you we have designed our own router. We are now one of the 2 companies who have got indigenously designed routers required by BharatNet, indigenously designed routers, only one of the 2 companies, we and Tejas which is Tata-owned company, they have routers and we have routers. So I think we enjoy a significant cost advantage over our multinational friends on account of our local production as a result of which we should be able to have a good opportunity for selling routers also.
So fiber, fiber optic cable, routers, some of the other optical equipment, we have a good opportunity coming up in front of us. And I think BharatNet should be a very significant opportunity, not only for HFCL, but all indigenous vendors who manufacture in India. However, HFCL has a very significant footprint with its fiber, fiber optic cable, routers, other optical equipment. And then if you go to the next phase of BharatNet, which is going to be implemented not by government, but which is going to implemented by private enterprises for giving connectivity to the houses. The government is taking the network to the panchayat building or whatever.
From there on, it would be the private enterprises, which will be giving connectivity. They may be using WiFi, they may be using optical ONTs. Again, those are the areas where HFCL is present. And those will also present significant market opportunity to HFCL.
My last question is regarding the PLI benefit. So how much of the product of HFCL is actually eligible for PLI benefit? Is it only the optical fiber and cable or the other products also? And when is the first year from which this actually a PLI benefit will start coming from?
PLI benefit is not available on fiber optic cable. It is available on telecom equipment, and we will start receiving this from -- this coming financial year '24.
The next question is from the line of Pranay Gandhi from Green Portfolio.
So firstly, I would like to express my gratitude to the management, including you, Mr. Jain and Mr. Agarwal, for accommodating our request to connect with the management on a one-on-one basis in the last con call. The proactive outreach from Mr. Amit after the last conference call reflects positively on the management, and it has really helped us understand the company prospects in a better way. So thank you so much. Now turning to my questions, I would appreciate if you could provide more details on the recent order from 5G telecom equipment secured from domestic telecom operator.
Could you elaborate on the nature of the products that the company will be supplying? And considering the fact that the INR 600 crore order is already on hand, are there any upward revision to the projected revenue of INR 1,000 crores from this segment in FY '25?
5G networking equipment for subscriber access. So wireless equipment for subscriber access. So that's the equipment because there are certain nondisclosure agreements, so I cannot go in more detail, but it is subscriber access equipment on wireless for broadband on 5G. And this is INR 623 crores order, which has to supply within the next financial year or as soon as possible, if you can do it early. If we do it early, we can certainly expect more orders from our customers.
And then this is the demand from 1 customer. But we would be going ahead to sell this to other customers also in India and abroad booth because this equipment has a very significant demand opportunities worldwide because fixed wireless access and a broadband access has come up by a significant use case for 5G networks. So we can definitely look forward for more revenue from this equipment in the next financial year. Now coming to INR 1,000 crores or so, whatever numbers you're using, I think indigenously developed equipment, we should be able to do quite more than INR 1,000 crores, which we might have projected earlier, it should be quite more than that because we are expecting more orders of reasonable size in coming weeks. We are expecting more orders including from BSNL, including from private operators. So I expected -- I have no doubt that it would be significantly more than INR 1,000 crores.
Okay. And so these orders would be for telecom equipment itself and not for the projects, right?
Well, this will be telecom equipment itself. I'm not talking about projects. Project is different. This is a telecom equipment itself because why I'm saying so. One, the project should be INR 3 crores is already there. Some large orders are in pipeline, which I should be able to receive very, very soon, very, very soon. Then, as I said a little while ago, BharatNet is coming up. BharatNet has got huge demand for routers, which are, again, we have and we have indigenously designed them, which is a very major thing. We are only 1 of the 2 companies who have designed routers in India. We and the other is the Tata TCS company Tejas, nobody else. All others are international -- multinational companies. So there is significant demand opportunity there.
Then we have a significant demand opportunity for unlicensed band radio which are being used for enterprise connectivity, but not only that, but backhaul of the traffic of the 4G network. So there is also a good demand opportunity. In fact, BSNL came out with a large tender for that about INR 200 crores for 5G, this backhaul for the unlicensed band radio. And we have been L1 in that. So we expect that we should receive order for that also. So these are all equipment orders, which I'm talking about, and we can say that we should definitely cross INR 1,000 crores without iota of doubt.
Perfect, sir. Sir, just an add on to this, I believe, previously, you had mentioned that regarding the UBR equipment, you had received a very strong feedback from one of the international companies. So is there any progress? I mean in terms of it getting converted to orders?
No, we are talking to quite a few companies, quite a few companies. I would not name them, but we are talking to quite a few companies internationally and locally also. Locally, we have deployed a huge quantity of this -- we have been noticing a large tender of BSNL also. And likewise, we are talking to a number of international companies also where I believe we will be receiving reasonably sized orders sometime in near future.
Perfect, sir. Sir, my second question pertains to the defense side of the business. Previously, you had mentioned electro optics that we had participated in one tender, and there was an upcoming tender. So if you could give a brief on that, and same goes by munition fuses, I believe the company had approached Indian Army for trials. Any update on that? And lastly, the FDR, which was still under development and was scheduled to be completed by mid of this year. So if you could just shed some light on all these 3 aspects.
I will go through all the defense products, which we are doing. Some are under development, some are being tried in army. Coming to one of the projects, which is -- recently we have participated is upgradation of BMP-2 armored fighting vehicle where fire control system and optical sites are to be upgraded. We have successfully gone through UTRI, which is usual trial readiness, something like that, they call it. And now we'll wait for the RFP to come where we will be participating.
On SDR, which is already under development, as I told you. On the other hand, the radar, which is a recent development where we have already gone through development cycle of some of the radar and others are under development. So we expect this year to receive reasonably good quantum of orders for the radars also. On the few sites, we have not been lucky so far. We have asked for a retrial by Indian Army, which, I think, expected to happen in next 2 to 3 months' time.
After we go through those trials, then would be the question of orders will come. So until now, we have no orders received, but yes, this is a consumable item, this is a consumable item and there is continuous demand for 3 years. So I'm sure that once we pass through these trials in next 2 months' time, there should be demand coming up for figure.
So again, since all the defense orders take a lot of time, we have not included in our projections even for '24, '25 any orders from the defense. When we do AOP, they have not included anything but we expect -- still we expect products like radars, products like electrooptic sites should give us some revenue, should give us some revenue.
On the optical side, yes, we have some products under development. One of the tenders we participated there has been a little bit unlucky. We could not get that order. But yes, nevertheless, our fight has proven very successful. So we should be able to get more orders in future. So as I said, this year, we have not included in our projections any orders from defense but we are very bullish about it, particularly this BMP-2 upgradation, then for this electrooptics products then radars, we are quite bullish about that, that they should fetch us good results in the next financial year. But yes, results will start coming in '24, '25 also.
The next question is from the line of Path Mehta from M Capital.
Sir, my first question was, what is the new products on the 5G plant that we are developing at Raddef? The R&D expenses, are they deducted on the P&L? Or how do we capitalize them?
No, Raddef, we are not doing any 5G product. Raddef, we are developing radars. There is no 5G products in Raddef. So nothing has been developed as a -- nothing has been developed as a 5G product in Raddef.
Okay. So whatever R&D expenditure we incur at Raddef for radar...
Please repeat it, I could not follow you.
Any of the 5G R&D that we do an indigenous products that we develop, is that being capitalized on the P&L?
Yes. Yes. It is being capitalized and they are being amortized over a period of time.
Okay. Sir, my second question is whatever products that we have developed, do we need approvals for these 5G products even if we are exporting globally, will we need a blanket approval or we will need an approval from each country for making it to the P&L?
Well, look, any operator, which buys any telecom products go through its own approval cycle. There are some countries where there are agencies, which approve the products omnibus basis for all the operators. But most of the places, operators have their own testing facilities and they go through their own approval cycle, whether the product suites to their requirement or not. So there is no such global approval that is you get it approved from one source then it is approved for everybody, it doesn't happen that way. It is more of a individual operator -- like India for example. BSNL has got its own approval TAC. Jio has got its own approval, their own lab is there where they put the product, so is Airtel, so is Voda, so is Idea, So every operator goes through its approval cycle where it includes lab testing as well as field trials, which is very normal.
Okay. So do we think that will happen in this financial year, and we'll see some contribution from those 5G products in the financial year '24, '25?
So yes, INR 622 crores order has been received after approval...
More on that, we are looking to see in the next...
We are looking for more such orders. There are, I think, 2, 3 places where trials are already going now.
So they are domestic or they are export orders?
No. No, this INR 623 crores is the domestic, others I'm talking about are domestic as well as international.
Sir, my last question is on the front of contribution from projects and contribution from products, the line has been -- we have been going more on the product, 70-30 was the contribution that we were looking at. But if you look at contribution for this quarter, it has been tweaked on the other way. So more from the project side and less on the product side, apart from the fall in prices of OFC, what has gone wrong for the product side?
No, there's nothing gone wrong. It is because of the lower sales of OFC. As I said, optical fiber cable sale has gone down significantly It has gone down significant in the last quarter and the current quarter as a result of which, product-led has gone down. If you look at same quarter last year, it was INR 693 crores; in the current quarter, it is INR 364 crores. So this kind of a number. What -- just let me correct this number. So it may be wrong, just hold on a second.
Yes, this is more or less the same question, there would be some small difference will be there. But more or less, OFC sales, yes, I've given on the right numbers. Last quarter, it was -- December quarter of the last financial year, it was INR 625 crores. This year, it has been INR 295 crores. It is less than half. So this is what is getting reflected in this ratio, which was changed. And as I said, the ratio will further improve again as the demand of optical fiber cable improves and also -- with this large orders we have received for products this current quarter, which is about INR 2,000 crores, which is about INR 1,800 crores. This will also improve the ratio of products into the overall revenue because INR 1,800 crores orders for products is a very significant number.
And also the fiber optic cable demand is expected to improve. So our overall strategy for becoming a product-led company is very, very successful, very, very successful. There is -- we can't compare it, take it on a quarter-to-quarter basis because quarter-to-quarter ups and downs may happen. On a overall basis, we are going very smoothly on that strategy. If you just exclude the optical fiber cable for temporary lull in the demand, you've seen that this quarter we've received orders worth INR 1,800 crores for the products alone, INR 1,800 crores for the products, which is a very, very significant thing, which includes INR 623 crores and a little bit more other products we have received orders in the quarter for indigenously designed products. So our strategy is very successful, and I'm pretty sure that with this strategy, company's return ratios will improve significantly in coming future.
Sir, are we doing any CapEx for these products, new products to be developed last time, I think we have said that we are doing a little -- out of INR 100 crores, we are doing CapEx for developing these products.
Yes. There are 2 kind of CapEx. One is R&D. One is setting up of the facility for manufacture of products. So we are doing both. R&D is happening, which would be a continuous process in the company. And also there would be expense of about INR 80 crores to INR 100 crores on setting up the facility for manufacturing of the products. So still, we can start taking benefit of realizing from the next financial year. And this will be for all the products put together and we don't need to go for HFCL...
Okay. So it is across products.
Yes, yes.
Okay. And I expect OFC cycle to improve a couple of quarters from now.
Absolutely.
[Operator Instructions] The next question is from the line of Saket Kapoor from Kapoor & Co.
Sir, out of this order book of INR 7,678 crore for Q3 ending FY '24, INR 2,051 crore is towards the operation and maintenance. So when this [Foreign Language] and out of this balanced amount, how much is towards the OFC, especially about are we exporting optic fiber cables also, sir, if you could give that number?
Order of what you mentioned about this O&M, this is the next 7 years. Optical fiber cable, we are exporting, no doubt, last year, we had a good year of export about INR 800 crores. This year, worldwide demand has slowed down. The export will also go down. But yes, we keep on receiving continuous order for exports. These are not major orders at one point of time. Orders keep on coming, and we keep on supplying. We are expected to cross INR 1,000 crores in this current financial year. But with this downturn in demand all over the world, of course, we are going to be falling short of our estimation through a large number. But as I said, from next year onward, it is expected to become better in the next 2 quarters, and it will further increase.
Sir, as you just explained in the earlier reply that both OF and the OFC prices are corrected by 20%, correct me there. And then also the demand is down. So where have the things gone wrong? And is it -- I think one of the key players did mention about the demand fall from the U.S. -- in the U.S. market fall in the U.S. market has resulted in this percolating to the domestic Indian market. So do you think only when the demand from U.S. and Europe improve, then only our domestic OF and the OFC market will improve or when the BharatNet comes into foray, that is the time when things will start -- looking up. If you look at our operational numbers, sir, if we -- barring this other income component, we have done -- the numbers are not up to the mark. If you exclude the other income part.
Demand of fiberoptic cable for Indian companies, when I say improvement will come from 2, 3 different areas. If you look at domestic, BharatNet is going to play a major role because that's 6 lakhs kilometers of fiber optic cable, it's a large quantum. And now it should be translated into more than 20 million kilometers of fiber. So which is a large quantum, that is one. Second, U.S. demand is going to go up significantly in the next financial year.
I tell you why. The U.S. government has announced a large subsidy for serving unserved or low-served areas by fiberoptic cable to ensure people are able to have a seamless broadband connectivity from their homes and offices. Total subsidy for the last mile, only for the last mile announces about $61 billion and statewide division has also been announced. Disbursement of this subsidy is expected to start from middle of this financial year -- sorry, this coming -- this current calendar year.
So once that subsidiary disbursement picks up, the demand of fiber optic cable would increase significantly took up. This is for the broadband connectivity over fiber. So U.S. demand will start happening in the next couple of quarters itself, which [indiscernible] and all those names are there, broadband subsidiaries, U.S. Government has announced. Similarly, when -- as I said a little while ago, the stocks with the distributors and operators go down as was there in a case in the beginning of the year demand for Europe will also pick up. Demand will pick up not only because of BharatNet, it is demand from U.S., demand from Europe, all these places, either we will pick up from the another couple of quarters or maybe quarter more, depending upon country to country, place to place. But demand is certainly going to pick up in fiber optic cable in the next financial year itself.
Right, sir. So just to conclude on this point, then it is only the OF prices that has corrected led to be lowering of realization. The fresh capacity in OF has been added or the lower utilization levels for OFC worldwide has led to this decline?
This is both factors. One, the prices have come down; second the utilization has also gone down. That is why this revenue reduction of roughly about 50% is there. To some extent, prices have gone down 15% or so versus the less demand at this point of time, which, as I said, again, next couple of quarters, we are pretty sure will start improving.
Okay. So 1 more question I would like to add, as you about.
Sir, second question...
[Operator Instructions]
The next question is from the line of Rajesh Agarwal from Moneyore.
Sir, going forward, what will be our product component, the mix, how the percentage mix will change and from when? And second, the margins in telecom products are more than the optic cables is higher?
No. Look, market for telecom instrument is not only optical fiber cable, but it is for telecom equipment also. We have large orders for telecom equipment, which are indigenously designed telecom equipment also. But as I said, INR 1,800 crores orders we have already received in the last quarter for equipment. But again, I would like to emphasize that we are becoming a product-led company. See this quarter was a particular aberration quarter because of a lower demand of fiber optic cable, but which is factored very quickly. From the equipment side also, we are doing significant amount of work. And I think, I can say with a lot of pride that your company has received the largest 5G orders, which any Indian company received till now, INR 650 crores. Nobody else has received till now, which is -- which itself speaks of the kind of development we are doing, and I am expecting -- I don't know the size of the new orders, which will be there.
But yes, I'm expecting more orders to come for the equipment in near future for HFCL. So if I -- my target is to become at least 70-30, 70% product, 30% EPC or if possible, even reduce that also, maybe 75%, 25%, something like that. But with 70-30, we should definitely be able to reach at least 2/3, 1/3 we should be able to reach in the next financial year itself.
And when you will start delivering this order, sir?
We should be -- this particular order, I'm talking about 5G related order, our target is to start delivering from April end.
In a year's time.
I would try to do it quicker than that. I would try my best to do earlier than that.
And what would be EBITDA margins on that?
Well, EBITDA margins, I don't want my customers to know my EBITDA margins and that would be a problem for me.
But overall, the company's EBITDA margin will go up from here?
It will go up -- definitely go up because what has pulled down the EBITDA margin is fiber optic cable reduced sales. Once that increasings, EBITDA margin will definitely go up.
Okay. And what your view on the optic fiber, from when it will improve, sir?
Start improving from the first quarter of the next financial year, but a significant improvement in the second quarter.
The next question is from the line of Dipesh Sancheti from Manya Finance.
Just wanted to know what is the capacity utilization in optical fibers out of the 25 million kilometers. And what gives us the confidence for the capacity expansion because if -- we're going to do plus-35-kilometers?
So it is about 50%, even a little less than that.
In this quarter?
Yes, this quarter, I'm talking about. Now capacity expansion is the right thing to do. If you see when we started capacity expansion, the market was really booming -- we didn't have any still capacity. Our factories were running 24/7 and we were not able to fulfill the demand of customers. So in the lay-terms, we expanded our capacity. But this is a cyclical thing, every 3, 4 years for some time, demand goes down and then comes up again. You have to see the overall need of the fiber optic cable and then we have to plan capacity, not on the basis of 1 year up or 6 months down. Because if you see, as our need for broadband goes up, as the need of a data goes up, as the need for -- as video and kind of applications go up, today Netflix and Amazon Prime, all these OTT applications, you know how far we have up.
Without fiber optic cable, would you have been able to access Netflix at your home, would you have been able to watch live television at your home without having access to fiber optic cable? Nothing of this would have been possible. This is all becoming possible because of fiber optic cable. So as these applications grow, demand of fiber optic cable is going to keep on going immensely.
So there's few month downturn because of certain factors does not mean that it is a downturn forever. It is only a temporary and which happens every 3, 4 years, it happens once. It has happened now, it will come up again. So increase in capacity was commensurate with this expected demand of increase in the fiber optic cable, and you would find the next couple of quarters, the demand will go up again, and this capacity would again reach to the previous levels.
Since you mentioned that it is cyclical. Generally, there's downturn remains, I mean in your experience that this downturn remains for how many quarters?
This is -- there is no fixed rule for that. There's a fixed rule for that. So it will remain for how many quarters. Now this has gone down, but the U.S. demand is going to be there in the next couple of quarters. It is going to come up again. Indian demand is going to increase again, maybe next 3 quarters -- 2 to 3 quarters with BharatNet happening. So normally 2 to 3 quarters is our number, I would say the demand slows down and then comes up again. There's no fixed rule for that.
Right. So what is the risk in the U.S. market as well as the Indian market, if something like for Tesla is developing a direct satellite Internet, what will be the risk to our optical fiber business?
No, satellite is a...
Have we assessed that?
Yes, we have discussed that. We have understood that. Satellite is a completely different segment of market. It can never compete with fiber. What bandwidth fiber can provide, satellite can never provide, at least not in a foreseeable future that satellite would provide that kind of bandwidth. And number two, handsets are very costly, service pricing is costly, satellite would be more used for remote areas where fiber accessibility is not there, broadband accessibility is not there, telephone accessibility is not there. So those would be the places where satellite would be used. For in terms of bandwidth, satellite will never be able to compete with the fiber optic cable. So it's not a competition, more of a complementary approach.
Okay. And just last question, is -- BharatNet will give more opportunities on product base, is it the product-based opportunity or a project-based opportunity?
It's both. It's both. It's a mixed opportunity.
In what ratio?
At least, there are 3. One is product, one is project and third is operations and maintenance, which is going to be annuity revenue for the next 10 years. There are 3 opportunities in this.
And when we are bidding for BharatNet opportunities, we are going to look at more product based or we're going to explore in all the opportunities?
So we are currently working on analyzing all the aspects of the tender. When the final draft of the tenders come out, then only we will decide how are we going to do about that because final tender has not come out. It is -- first draft come in just a consultation. Many suggestions have been given. But once the final number comes out, final shape of the tender comes, we will decide at that point of time. We're evaluating, but yes, no doubt it's a good opportunity for us.
Okay. And I was just going through the presentation, and it shows that domestic railway opportunities. How many orders have been received as Kavach and because that has been a buzz word for...
We are not in Kavach.
We are not in Kavach?
Part of product. We are in telecom systems for railways. So we are working on telecom. Kavach is signaling product.
And how much of the orders we've received is from the railway sectors?
Railway order should be around INR 600-some crores, Yes, it is about INR 620 crores or something like that.
Okay. I would really appreciate if you can divide the order book into how much is railways, how much is telecom, how much defense in telecom, how much it is for optical fibers? Because that will help us to understand how we're going to go...
I noted your suggestion, and we'll publish it in our website, definitely.
That was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thanks a lot, ladies and gentlemen, for attending this earning call third quarter FY '24. As I have been saying that we have got 3 strategies, more number of products, more customers, more geographies. And we are very successful at that. This quarter, though, you would see the results are a bit subdued because of fiber optic cable demand going down, and we see a worldwide factor and nothing to us, nothing in particular to us.
But if you look at the product side of it, we have received orders for INR 1,700 crores, INR 1,800 crores just for the products alone. And this aspect of making company a product-led company is becoming successful, and we will remain successful and we will keep on increasing our revenue from products and more so from indigenously designed products, not only for Indian market, but for the world market. And that strategy through our R&D is proving to be very successful.
And I can assure you that this will improve the -- not only the revenues but on the return ratios of the company also. And with the demand becoming better for fiber optic cable in near future, I expect this ratio of product to the total revenue will definitely go up, return ratios will improve.
So we are -- with the growth of Indian economy, which is really growing at a faster pace than even the world market rate estimated and we are growing despite of world economy going down, thanks to the leadership of and the policies of our honorable Prime Minister Shri Narendra Modi's government, I'm sure that the telecom sector, which is already doing well will further do better and companies which are more focused on indigenized development, indigenized manufacturing, like your company, HFCL will do even better in the future. Thank you very much, gentlemen. Thanks a lot.
On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.