HFCL Limited — Q2 FY26 earnings call

Call held 17 Oct 2025

Management summary

HFCL Limited reported a strong sequential recovery in Q2 FY26, with revenue reaching ₹1043.34 crores and EBITDA margin expanding to 19.49%. The company returned to profitability, driven by improved OFC realizations and strategic focus on high-growth areas like defence and digital infrastructure. Management reiterated its 20% revenue growth guidance for FY26 and highlighted significant progress in capacity expansion and export orders, despite some challenges with chipset supply and state government payments for EPC projects.

Highlights

  • Revenue for Q2 FY26 increased to ₹1043.34 crores from ₹871.02 crores in Q1 FY26, indicating a strong sequential recovery.

  • EBITDA margin significantly improved to 19.49% in Q2 FY26 from 4.93% in Q1 FY26, driven by better OFC realizations.

  • The company returned to profitability with a PAT of ₹71.92 crores in Q2 FY26, compared to a loss in the previous quarter.

  • Secured export orders exceeding ₹650 crore for Optical Fiber Cables, to be executed by April 2026, strengthening global footprint.

  • Strategic divestment of 15.19% stake in Nivetti Systems Private Limited for ₹52.51 crore to sharpen focus on core strengths.

Concerns

  • Revenue for Q2 FY26 at ₹1043.34 crores was slightly lower than Q2 FY25 revenue of ₹1093.61 crores.

  • 5G product revenue was lower in Q2 FY26 due to a chipset supply problem, though management stated it has been rectified.

  • EPC projects for UP Jal Nigam face non-payment issues from state government authorities, slowing execution.

Key financials

  1. Revenue ₹1,043.34 Cr -4.6%YoY
  2. EBITDA ₹203.37 Cr +18.4%YoY
  3. EBITDA Margin 19.5%
  4. PAT ₹71.92 Cr -1.9%YoY
  5. PAT Margin 6.9%

What they filed

Q1 FY27: revenue up 119.9%, net profit up 948.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,094 1,012 801 871 1,043 −5%1,211 +20%1,824 +128%1,915 +120%
EBITDA158 152 -37 28 190 +20%228 +50%314 +949%414 +1379%
Net profit73 73 -83 -29 72 −1%102 +40%184 +322%246 +948%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Telecom Products
    51.4% Revenue Share₹536.69 Cr Revenue

Order book

high confidence

Total value

₹9,981 Cr

as of 2025-09-30 quantified

-4.8% QoQ

Pipeline

other

Additional orders for routers under BharatNet project for West Bengal Circle and participation in two additional circles. Expect meaningful order inflows.

The company's strong financial results reflect the robustness of its business, with a clearly defined journey by innovation, diversification, and execution excellence.

Source: Prepared remarks

Capital allocation

high confidence
  • Capex Capex disclosed
    • Hosur defence facility expansion ₹50 Cr
    INR50 crores more, we expect to do that maximum.
  • Debt 0.3× EBITDA
    Very low debt equity ratio, 0.35 is the debt-equity ratio. So, there's nothing to worry about.
  • M&A Nivetti Systems Private Limited Divestment · Announced · Consideration ₹[object Object] (undisclosed)

    To sharpen focus on core strengths in telecom and defence.

    Capital redeployment will support high-growth, innovation-led initiatives aligned with our long-term vision.

    HFCL has taken a strategic decision to divest its entire 15.19% stake in Nivetti Systems Private Limited for 52.51 crore. While the transaction is currently underway, this move reflects our intent to sharpen focus on core strengths in telecom and defence. The capital redeployment will support high-growth, innovation-led initiatives aligned with our long-term vision.

Guidance & targets

Revenue

  • Revenue Growth Revenue · this year (FY26) · High confidence 20%
    First of all, yes, we are maintaining that guidance of 20%, and you will see increase in revenue coming up from the current working quarter. So I'm maintaining that guidance, number one.

    — Mahendra Nahata, Promoter and Managing Director

  • Defence Revenue Revenue · this year (FY26) · Medium confidence ₹200+ crores
    When you come to revenue expected, next year, coming year, which is in the current year, I would say, I expect roughly about INR200-plus crores of revenue from defense.

    — Mahendra Nahata, Promoter and Managing Director

  • Defence Revenue Revenue · next year (FY27) · Medium confidence exceed ₹500 crores
    Next year, it should exceed INR500 crores.

    — Mahendra Nahata, Promoter and Managing Director

  • Passive Connectivity Solutions Revenue Revenue · this year (FY26) · Medium confidence ₹400 crores
    We expect that revenue from our passive connectivity solution, including that for telecom, which we expect this year to be around INR400 crores, should reach to 4 figures in the next financial year.

    — Mahendra Nahata, Promoter and Managing Director

  • Passive Connectivity Solutions Revenue Revenue · next financial year (FY27) · Medium confidence 4 figures (₹1000+ crores)

    Previously ₹400 crores → 4 figures (₹1000+ crores)

    — Mahendra Nahata, Promoter and Managing Director

  • Hosur Defence Facility Revenue Capability Revenue · per year · Medium confidence ₹400-500 crores
    Hosur facility itself has a capability to give INR400 crores to INR500 crores per year.

    — Mahendra Nahata, Promoter and Managing Director

Profitability

  • EBITDA Margin Profitability · current financial year (FY26) · Medium confidence 18% to 20%
    In this current financial year, we expect to be around that only. Specifically, I cannot tell you what which product would get how much margin at what timeframe. ... And EBITDA margin would remain about in any way 18% to 20% kind of a number. But I think we should be able to maintain the same number what we are seeing right now.

    — Mahendra Nahata, Promoter and Managing Director

  • O&M Contract Margin Profitability · next financial year (FY27) · Medium confidence 20% or so
    O&M contracts, major contribution will start coming from next financial year. And margin will be decent, about 20% or so margin should always be there in O&M.

    — Mahendra Nahata, Promoter and Managing Director

Capacity

  • Total OFC Capacity Capacity · upon completion of expansion · High confidence 42.36 million fkm per annum
    Upon completion, HFCL's total OFC capacity will reach 42.36 million fkm per annum, positioning us among the top global OFC manufacturers.

    — Mahendra Nahata, Promoter and Managing Director

  • High Fibre Count Cable Manufacturing Capacity Capacity · by June 2026 · High confidence 19.01 million fkm p.a.

    Previously 1.73 million fkm p.a. → 19.01 million fkm p.a.

    This quarter marks a transformative milestone for HFCL as we begin the planned expansion of high fibre count Cable manufacturing capacity from 1.73 million fkm p.a. to 19.01 million fkm p.a.. This expansion has already commenced and is partially operational. It will be fully operational by June 2026.

    — Mahendra Nahata, Promoter and Managing Director

Product Development

  • Electronic Fuzes Testing Completion Product Development · within the month of November · High confidence completed
    I expect that within the month of November, the testing would be completed.

    — Mahendra Nahata, Promoter and Managing Director

  • Drone Detection Radar Production Product Development · within the current financial year (FY26) · High confidence enter production
    In parallel, we are developing a state-of-the-art drone detection radar with a soft kill option, which is expected to enter production within the current financial year.

    — Mahendra Nahata, Promoter and Managing Director

  • UBR Point-to-Multipoint Development Product Development · after a month · High confidence start development
    We will start the development after a month.

    — Mahendra Nahata, Promoter and Managing Director

What to watch in Q3 FY26

Electronic Fuzes Testing Completion

November 2025
Current In final trial stages
Target Completed

Why it matters

Successful completion of trials is crucial for large-scale production and securing significant defence orders.

I expect that within the month of November, the testing would be completed. And I'm very sure that our fuzes will pass those tests. And I expect a very, very good demand coming up for those electronic fuzes, not only from India, but from many other countries.

Risks & concerns

  • Non-payment by state government for EPC projects (UP Jal Nigam)

    medium

    Non-payment by state government authorities for UP Jal Nigam projects has slowed execution, but the Chief Minister has promised funds.

    The UP Jal Nigam and those projects, yes, there are problems because of the non-payment by the state government authorities because they are not receiving fund from central government. So there is a payment problem at that end. As a result of which, execution also has slowed down. But 2 days back, Honorable Chief Minister has taken a meeting in Uttar Pradesh, and he has promised fund to be released from state government, even if funds are not received from the central government, and that we expect to be picked up once the payments are released by the state government authorities.

    Management acknowledged

  • Impact of US tariffs on exports

    low

    Management stated minimal impact due to legal mitigation procedures.

    With relevance to certain U.S. court decisions and customs ruling, we have been able to minimise a tariff impact on HFCL, that much I can say. So there is very minimal impact on HFCL's exports, which is mostly optical fiber cable to United States.

    Analyst downplayed

  • Chipset supply problem affecting 5G product revenue

    low

    A supply problem from a chipset vendor impacted Q2 FY26 5G product revenue, but it has been rectified.

    The reason 5G product revenue in this quarter was low because we had a problem in supply of chipsets from one of the big chipset vendors. ... Yes, that problem has been rectified. We have started receiving those chipsets from last week.

    Management acknowledged

Q&A highlights

6 direct, 1 evasive
Impact of US tariffs on business Partial
There's nothing misdeclaration or nothing illegal about it, very legal procedures. With relevance to certain U.S. court decisions and customs ruling, we have been able to minimise a tariff impact on HFCL, that much I can say. So there is very minimal impact on HFCL's exports, which is mostly optical fiber cable to United States.

Analyst sought clarity on a potential geopolitical risk, and management provided assurance of minimal impact through legal mitigation.

Asked by Abhishek Jain

Margins on the defence segment Direct
Generally, since defense is a market which is a bit of a difficult market, margins are better than normal communication products, I would say. So you can say 15% net margin as a general rule, I'm saying. Somewhere it could be 10%, somewhere it could be 20%. But as a general rule, I'm saying. In export, it can be as high as 20% to 25%.

Management provided specific net margin expectations for the growing defence segment, differentiating between general and export margins.

Asked by Abhishek Jain

Value unlocking via demerger for different business segments Evasive
We have not really thought about any such thing at this point of time. If we think about it, we'll come back to you.

Analyst probed a strategic question about potential restructuring, but management indicated it's not currently under consideration.

Asked by Abhishek Jain

Passive connectivity solutions for hyperscale data centers and revenue targets Direct
We expect that revenue from our passive connectivity solution, including that for telecom, which we expect this year to be around INR400 crores, should reach to 4 figures in the next financial year. That is our expectation, because we are developing those passive connectivity solutions for data centers also, which is taking a little time because those are very specific, very high-tech solutions.

Management detailed specific product developments for data centers and provided clear revenue targets for passive connectivity solutions, highlighting a new growth area.

Asked by Balasubramanian

Telecom product margins and OFC pricing trends Direct
This quarter, our EBITDA margin has been 19.49%. In this current financial year, we expect to be around that only. ... Like, for example, last quarter, fiber optic cable margin was very bad. This quarter, it has improved. ... the price, of course, of the fiber optic cable realization has improved from previous realization of fiber optic cable in terms of fiber per kilometre, which was roughly about INR850 per kilometre in last quarter, just the last quarter. It has gone up to about INR950 per kilometre or so.

Management clarified the current margin trajectory and provided specific data on the improvement in OFC realization, which is a key driver of profitability.

Asked by Balasubramanian

Current capacity utilization Direct
90%.

Management provided a clear figure for current capacity utilization, indicating high demand for existing production capabilities.

Asked by Pranav Kshatriya

Potential for OFC price increase due to demand-supply dynamics Direct
I expect not only capacities to be filled up very quickly, but also at the same time, there could be some increase in the pricing also. ... today, there is a rush to book capacity by the buyers. We have a situation where buyers are asking us for three years' commitment to supply a particular quantity. And we are not able to give that kind of a commitment. We don't want to give that kind of a commitment because we expect better pricing to come in future.

Management indicated strong pricing power and demand for specialized OFC, with buyers seeking long-term commitments, suggesting future margin expansion.

Asked by Bajrang Bafna

Impact of China on the global OFC market Direct
Look, China is not a factor in many of the developed markets, Europe and U.S. Most of U.S., not at all. Europe, most of the countries don't use Chinese cable because telecom as such, they don't want to use Chinese because of geopolitical reasons, not for any other reason. ... So I don't find China is a big threat in our current market opportunities.

Management addressed a key competitive concern, stating that China is not a significant threat in HFCL's target developed markets due to geopolitical and quality considerations.

Asked by Bajrang Bafna

2 min read 6 chapters

Detailed narrative

Strategic Shift and Capacity Expansion

HFCL is undergoing a strategic shift from 'Make in India' to 'Innovate in India,' focusing on cutting-edge products for domestic and global markets. A key milestone is the planned expansion of high fibre count Cable manufacturing capacity from 1.73 million fkm p.a. to 19.01 million fkm p.a., with full operationalization expected by June 2026. This expansion will increase HFCL's total OFC capacity to 42.36 million fkm per annum, positioning it among top global manufacturers and enabling it to meet rising demand driven by AI and cloud applications.

Defence Business Momentum

The defence business is gaining significant momentum, with subsidiary HTL Limited securing a ₹101.82 crore contract from the Indian Army for Tactical Optical Fiber Cable. HFCL also secured a ₹50 crore order for Thermal Weapon Sights, with execution underway at the Hosur facility. Electronic fuzes are in the final stages of trials, expected to complete by November, and a state-of-the-art drone detection radar is anticipated to enter production within the current financial year, reflecting strong market interest.

Digital Connectivity Programs and BharatNet

HFCL continues to play a critical role in India's digital connectivity programs, including BharatNet. The company has received additional orders for routers under the BharatNet project for the West Bengal Circle and expects meaningful order inflows from other circles. This reflects HFCL's growing relevance as a technology-driven solutions provider for telecom, enterprise, and broadband applications, with plants operating at full capacity utilization.

Q2 FY26 Financial Performance

For Q2 FY26, HFCL reported a revenue of ₹1043.34 crores, an increase from ₹871.02 crores in Q1 FY26. EBITDA significantly improved to ₹203.37 crores, resulting in an EBITDA margin of 19.49%, up from 4.93% in the previous quarter. The company returned to profitability with a PAT of ₹71.92 crores, compared to a loss of ₹29.30 crores in Q1 FY26. Telecom Products contributed 51.43% of the Q2 FY26 revenue.

OFC Market Dynamics and Pricing Improvement

The global Optical Fibre Cable (OFC) market is experiencing a strong revival, driven by demand from hyperscalers and data center operators. HFCL has seen an improvement in fiber optic cable realization, with prices increasing by approximately ₹100 per kilometre, from ₹850 to ₹950. Management anticipates this positive demand trend and pricing improvement to continue for the next three to five years, supported by continuous increase in demand and the company's expanded capacity.

Divestment and ESG Focus

HFCL has strategically decided to divest its entire 15.19% stake in Nivetti Systems Private Limited for ₹52.51 crore, aiming to sharpen its focus on core strengths in telecom and defence. The company also demonstrated an unwavering commitment to sustainable business practices, improving its ESG rating from 63 to 65 (Strong) by ERAIL and achieving a rating of 73 by CFC Finlease in October 2025, reflecting strong environmental stewardship and governance.

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