HFCL

HFCL reported Q2 FY25 revenue of INR 1094 Crores, a slight decline of 1.53% YoY and 5.53% QoQ. EBITDA grew 14.67% YoY to INR 172 Crores, with EBITDA margin improving to 15.71% from 13.47% in Q2 FY24. PAT increased 4.29% YoY to INR 73 Crores. The total order book stands at approximately INR 6151 crores as of Q2 FY25, with INR 1,500-1,800 crores allocated to O&M over 5-6 years, and the remaining >INR 4,000 crores to be executed in the next 12-18 months.

The fiber optic cable market experienced a worldwide depression for the last three quarters, impacting HFCL's Q2 revenue. However, management is bullish on a recovery, expecting the market to pick up significantly from Q4 FY25 onwards, returning to old levels. Current OFC capacity utilization is around 45%, with a target to increase to 80% or more from the next quarter. The company also noted its exemption from anti-dumping duties on OFC in Europe, providing a competitive edge.

HFCL is strategically expanding its international presence, particularly in the US and UK markets, driven by FTTH demand and government incentives. The company aims for a significant increase in export revenue, targeting up to 70% of its optic fiber segment revenue and 40-50% of its telecom segment revenue from international markets within the next three years. New product lines, including high-density ribbon cables and Nano Thin microcables, have been developed for the US market.

India's defence sector presents a lucrative opportunity, with HFCL actively developing indigenous technologies like Electronic Fuzes and Surveillance Radars. The company has been selected to develop critical sub-systems for General Atomics' Unmanned Aircraft Systems. Field trials for several radar variants began in Q2, with commercial availability expected from Q4 FY25. Revenue from electric fuzes is projected to start from next year onwards, with inquiries in 'lakhs of fuzes'.

BharatNet Phase III represents a substantial opportunity, with BSNL floating tenders worth approximately ₹65,000 crore for capex over three years, plus an additional ₹40,000 crore for O&M. HFCL estimates its opportunity from BharatNet to be between INR 5,000 to INR 8,000 crores. Technical evaluation for bids is expected to conclude by mid-November, with contracts awarded by Q1 next calendar year (Q4 FY25). The company also expects to achieve INR 2,000 crores in telecom product revenue for the current financial year.

HFCL's H1 FY25 EBITDA margin stood at 15.86%. Management expects short-term margins to remain stable, with medium-term margins improving slightly due to increased product revenue and backward integration initiatives. The company plans to fund its approximately INR 900 crores capex over the next couple of years through equity, debt, and internal accruals, aiming to maintain a comfortable debt-equity ratio in the range of 0.25 to 0.30.

HFCL continues to innovate, launching 1 Gbps and 2 Gbps UBR products and developing a 3,400 fibers in 1 optic fiber cable, expected to be finalized in 2-3 months. The company is also expanding its market share in Passive Connectivity Solutions, projecting this business segment to grow to INR 750 crores in the next 2-3 years. This aligns with the strategy to become an end-to-end solution provider in the telecom infrastructure space.