HFCL Limited — Q3 FY25 earnings call

Call held 4 Feb 2025

Management summary

HFCL reported a mixed Q3 FY25 with a slight revenue decline but improved EBITDA margins, driven by a higher product mix. The company secured significant BharatNet Phase III orders, boosting its order book to over INR 10,410 crores. Strategic decisions include leveraging its unique position in the EU OFC market by serving it from India, saving substantial capex. While OFC prices have stabilized, the defense sector and BharatNet implementation are expected to drive future growth.

Highlights

  • Revenue for Q3 FY25 stood at INR 1011.95 Crores, a decline of 1.97% YoY and 7.47% QoQ.

  • EBITDA for the quarter was INR 171.89 Crores, growing 5.16% YoY and 0.04% QoQ.

  • EBITDA margin improved to 16.99% in Q3 FY25 from 15.83% in Q3 FY24 and 15.71% in Q2 FY25.

  • Profit After Tax (PAT) was INR 72.58 Crores, down 11.95% YoY and 1.02% QoQ.

  • Current order book stands at a robust INR 10,410 Crores, significantly up from INR 6,151 Crores last quarter.

  • Secured over INR 4,650 crores in BharatNet Phase III orders, including INR 2,501.30 crores for Punjab and INR 2,167.65 crores from Rail Vikas Nigam Limited.

  • Telecom products segment revenue mix increased to 58% in Q3 FY25, up from 35% in Q3 FY24, aligning with the strategic shift towards products.

  • HFCL is the only Indian company exempted from EU anti-dumping duties on OFC, leading to a decision to halt the Poland manufacturing project and cater to Europe from India, saving INR 175 crores in capex.

Key financials

  1. Revenue ₹1,011.95 Cr -2%YoY
  2. EBITDA ₹171.89 Cr +5.2%YoY
  3. EBITDA Margin 17%
  4. PAT ₹72.58 Cr -11.9%YoY
  5. PAT Margin 7.2%
  6. Order Book ₹10,410 Cr +69.2%QoQ

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
    58% Revenue Share
  • Turnkey Projects
    42% Revenue Share
  • Optical Fiber Cable (within Telecom Products)
    50% Revenue Share
  • Equipment (within Telecom Products)
    50% Revenue Share

Guidance & targets

Market Growth - OFC Demand

  • OFC Demand Growth Market Growth - OFC Demand · Q4 FY25 · Medium confidence ~15%
    I believe this quarter would see some growth in demand, definitely, current quarter from the last quarter, I would say, roughly about 15% growth in demand would be there.

    — Mahendra Nahata, Promoter and Managing Director

  • OFC Demand Growth Market Growth - OFC Demand · Q1 FY26 · Medium confidence even better improved demand
    Q1 of the next financial year would see even a better improved demand, particularly coming from data center areas and rural connectivity areas.

    — Mahendra Nahata, Promoter and Managing Director

Revenue Mix

  • Products Revenue Share Revenue Mix · null · High confidence 70%
    Target is 70-30. 70 for Products, 30 for EPC. That is the target.

    — Mahendra Nahata, Promoter and Managing Director

  • EPC Revenue Share Revenue Mix · null · High confidence 30%

    — Mahendra Nahata, Promoter and Managing Director

Equipment Revenue

  • Equipment Revenue Equipment Revenue · When total revenue reaches INR 10,000 crores · Medium confidence INR 3,000 crores
    we expect that we are aspiring to reach to a INR 3,000 crores kind of revenue from national and international market when we reach to a INR 10,000 crores revenue in total.

    — Mahendra Nahata, Promoter and Managing Director

PLI Claim

  • PLI Amount PLI Claim · Next financial year · Medium confidence INR 40-50 crores
    Tentative amount, I can't say at this point of time. But if at all we are able to claim, this should be around INR 40 crores to INR 50 crores.

    — Mahendra Nahata, Promoter and Managing Director

Defense Revenue

  • Revenue Flow Defense Revenue · Next financial year · Medium confidence reasonable size of orders
    So, 1.5 years, I think, we expect to receive reasonable size of orders from all this. Revenue should also start flowing in from the next financial year.

    — Mahendra Nahata, Promoter and Managing Director

OFC Capacity Expansion

  • Completion of Capacity Expansion OFC Capacity Expansion · By March 31, 2025 · High confidence Completed
    That capacity expansion of fiber would be completed by more or less by 31st March 2025. It is already happening in Hyderabad, so it should be completed by 31st March or so.

    — Mahendra Nahata, Promoter and Managing Director

Turnkey Project Execution

  • Execution Cycle Turnkey Project Execution · From signing BSNL agreement · High confidence 3 years
    Yes, yes. This would be executable in three years of signing of the agreement between us and BSNL, which is in process.

    — Mahendra Nahata, Promoter and Managing Director

Risks & concerns

  • Delay in Government-funded Programs (BharatNet, Defense)

    medium

    BharatNet Phase III implementation delayed by 6-9 months, impacting equipment supply. Defense electronic fuse testing delayed by 9-month ammunition supply.

    Management acknowledged

  • Global OFC Market Slowdown & Price Decline

    medium

    Attributed to geopolitical tensions, large operator inventory, and delays in major government programs worldwide. Prices for fiber and OFC declined significantly YoY, impacting margins.

    Management acknowledged

  • Customer Readiness & Software Changes

    low

    Customers required software changes and trials, delaying equipment delivery by roughly INR 250 crores.

    Management acknowledged

  • Competitive Pricing in BharatNet

    low

    10 out of 16 centrally done BharatNet circles not yet awarded due to L1 bidders' prices being out of BSNL's budget range or technical issues.

    Management acknowledged

Q&A highlights

3 direct
BharatNet Phase III Order Book & HFCL's Share Direct
All BharatNet orders are included in this figures. All orders of BharatNet, which have been currently received in order are included... So, it is totally HFCL. Consortium order was INR 13,000 crores. This INR 2,400-some crores, which you're saying it is totally HFCL, 100%.

Clarifies HFCL's significant direct share in the large BharatNet orders, which is a major growth driver.

Asked by Jinesh Shah

Defense Sector Revenue Flow & Delays Direct
As a result of that, we have not been able to test our fuses as per the requirement of that particular country, and we have not been able to start supplying. This is a travesty that we have a large 3-figure LOI reaching near to 4 figures... So, 1.5 years, I think, we expect to receive reasonable size of orders from all this. Revenue should also start flowing in from the next financial year.

Reveals specific operational challenges (ammunition supply delays) impacting the realization of defense orders, pushing revenue recognition to the next fiscal year.

Asked by Manoj Jethva

OFC Market Outlook & Price Stabilization Direct
The average price for good quality fiber... has been roughly about INR 266 per fiber kilometer... So, this trend INR 266 or so, which have come up, I think this should almost at the low end, almost. There may be some more variation coming up. But with the increase in demand, which we can see now, I think may not go down further except a few rupees here or there.

Provides specific price points for fiber and OFC, and management's expectation of price stabilization, which is crucial for margin recovery in a key segment.

Asked by Rishubh

3 min read 7 chapters

Detailed narrative

Q3 FY25 Financial Performance Overview

HFCL reported Q3 FY25 revenue of INR 1011.95 crores, a slight decline of 1.97% YoY and 7.47% QoQ. Despite this, EBITDA improved to INR 171.89 crores, up 5.16% YoY, with EBITDA margin expanding to 16.99% from 15.83% in Q3 FY24. Profit After Tax (PAT) stood at INR 72.58 crores, down 11.95% YoY, with PAT margin at 7.17%. The company's order book significantly increased to INR 10,410 crores from INR 6,151 crores in the previous quarter.

Strategic Shift Towards Products and BharatNet Success

The company's strategy to increase its product-based revenue mix is progressing, with telecom products contributing 58% of total revenue in Q3 FY25, a substantial increase from 35% in Q3 FY24. HFCL has secured over INR 4,650 crores in BharatNet Phase III orders, including INR 2,501.30 crores for the Punjab Telecom Circle and INR 2,167.65 crores from Rail Vikas Nigam Limited for Uttar Pradesh circles. The management aims for a long-term revenue mix of 70% from products and 30% from EPC.

OFC Market Dynamics and Price Stabilization

The global optical fiber cable (OFC) market experienced a slowdown due to various factors, leading to a decline in prices. The realization per fiber kilometer for OFC was INR 840 in Q3 FY25, down from INR 1,073 a year ago, while fiber price dropped to INR 266 per kilometer from INR 329. However, management believes prices are now at the low end and expects stabilization, with demand picking up from international markets and data centers. HFCL is increasing its IBR cable manufacturing capacity in Hyderabad, expecting completion by March 31, 2025.

Defense Sector Opportunities and Challenges

HFCL is making decisive progress in the defense sector, with a new manufacturing facility in Hosur. The company has secured an LOI for electronic fuses worth a '3-figure, near 4-figure' amount from a NATO country, but testing is delayed due to a 9-month lead time for ammunition supply from government factories. Additionally, HFCL was the lowest bidder for a INR 43 crore tactical OFC contract for the Indian Army. Management expects defense revenue to start flowing in from FY26.

EU Anti-Dumping Exemption and Capex Savings

HFCL is the sole Indian OFC manufacturer exempted from European Union anti-dumping duties. This strategic advantage led the Board to temporarily halt the planned OFC manufacturing facility in Poland, saving INR 175 crores in capital expenditure. Instead, HFCL will leverage its existing Indian manufacturing capacities to cater to European customers directly, reinforcing its presence in the market.

Government Initiatives and Future Demand Drivers

The Union Budget's emphasis on digital connectivity for primary healthcare centers and government schools is expected to boost demand for broadband equipment and OFC, benefiting HFCL. The company is also developing point-to-multipoint UBRs to cater to the significant demand expected from BharatNet Phase III's rural connectivity initiatives, where 80% of the world market demand is for point-to-multipoint radios.

Product Portfolio and Market Share in India

HFCL highlighted its strong position in the Indian market, claiming the highest market share for fiber optic cables. In equipment, it is the only Indian producer of 5G FWA CPE (100% market share) and holds a 90% market share for point-to-point UBRs. The company's product order book stands at INR 2,500 crores, split between INR 1,100 crores for OFC and INR 1,400 crores for various equipment, including INR 800 crores for routers and INR 500 crores for 5G products.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Telecommunication earnings calls