Ladies and gentlemen, good day, and welcome to the Q2 FY 2024 Results Conference Call of HFCL, hosted by ICICI Securities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. From the management team, we have with us Mr. Mahendra Nahata, Promoter and Managing Director, Mr. V.R. Jain, CFO, Mr. Manoj Baid, Company Secretary, Mr. Amit Agarwal, Head IR. I now hand the conference over to Mr. Mahendra Nahata. Thank you, and over to you, sir.
Thanks a lot. Good afternoon, ladies and gentlemen. I welcome all of you to HFCL's earnings call for the second quarter and half year of the financial year 2024. I would like to express my sincere appreciation and gratitude to all of you for joining the call today. I'm sure that you got a chance to go through our financial results, press release, and investors presentation, which are available on the website of the company and also on the website of stock exchanges. Friends, the outlook for the global economy still remains somewhat uncertain, marked by various macroeconomic conditions across different regions and uncertainty, which has been triggered off by the recent global conflicts. Despite that, International Monetary Fund has upped India's economic growth forecast to 6.3% for the current fiscal year 20 24, primarily due to Indian economy's robust growth prospects.
India's digital transformation is making a significant difference in creating a new model of economy. India has offered its indigenously developed 5G technology to other countries and has also demonstrated its digital public infrastructure to the world. The country is now well positioned to take on bigger challenges with the Bharat 5G Stack. That holds immense promise, given India's technological expertise in the field. India's technological progress in the telecom sector has positioned it as an attractive global investment and manufacturing destination. In just one year after the 5G rollout started, India has emerged as one of the top three 5G ecosystems in the world. The growing demand for high-speed 5G connectivity, fueled by government initiatives like BharatNet, implementation of Fiber to the Home, different PLI schemes, and anti-dumping duty on optical fiber cables will not only build indigenous manufacturing but also open up promising avenues for growth.
In addition, the telecom industry is also taking significant steps to create roadmap for 6G. This was evident with recent signing of MoU between Bharat 6G Alliance and NextG Alliance at G20 Summit. The collaboration is poised to foster innovation in the dynamic telecom landscape and deepen public-private cooperation. Against the backdrop of digital transformation and building a robust 5G network infrastructure, we are expecting strong demand in near future for fiberization, both in India and globally. This expected strong demand is fueled by increased government thrust on fiberization, Fiber to the Home, rise in data centers, adoption of cloud computing, IoT, investing in 5G CapEx and telecom infrastructure across key global markets including India, USA, U.K., France, Germany, Middle East and other countries.
In India, progress in the PLI scheme and fiberization in the BharatNet and FTTH projects by private operators will result in good opportunities for players like us. The government in United States conceived a BEAD vision, which is Broadband Equity, Access, and Deployment program of $43 billion, which is intended to extend last mile across the U.S. Under this and such other programs, and subsidies equivalent to $61 billion is expected to be dispersed for fiberization across the United States. On the other hand, new countries, including Germany, Italy, France, Australia, are also seeing massive CapEx, besides funds allocated by U.K. government recently to accelerate 5G innovation and to put all U.K. households in reach of fiber to the premises by 2033 as part of its Project Elizabeth.
HFCL has carved out distinct space in telecom industry by continuing on its strategic priorities of expanding optical fiber and optical fiber cable capacities, along that, along with key initiatives to design 5G networking solutions and various other broadband wireless products. These products include the revolutionary 864-Fiber Count Intermittently Bonded Cable, 5G Fixed Wireless Access Customer Premises Equipment, Cloud-based Network Management System, 5G Radio Access Network, 5G Transport Products, along with high-capacity Unlicensed Band Radio and Wi-Fi 7 Access Points. We plan to launch some of these key products during the current financial year, and we are confident that the launch of these products will further contribute to higher revenue and profitability in coming years. During the quarter under review, we launched our revolutionary 864-Fiber Count Intermittently Bonded Ribbon Cable in U.K.
IBR cables enable easy installation of high fiber counts in smaller diameter ducts, especially useful in congested areas with very limited space. We also unveiled our new high fiber density flat ribbon cable at Fiber Connect event 2023, held in United States. A strong market reception highlights the significance of our innovative cables. HFCL is emerging as a leading provider of product solutions that consistently address the evolving needs of our valued customers. Further, Fiber Reinforced Plastic rod and Impregnated Glass Fiber Reinforcement manufactured at HFCL Hosur plant have been accredited with Registration, Evaluation, Authorization and Restriction of Chemicals compliance, with REACH, for short, which permits the sale of these cable reinforcement products in countries across the European Union. HFCL is actively pursuing business opportunities by leveraging its domain expertise, technological strengths, and established market presence to enhance nation's defense capabilities.
I am proud to inform you that our Aerospace and Defense division in HFCL Limited, a subsidiary of ours, secured a prestigious order from prominent defense public sector undertaking for a supply of 18 different type of cable assemblies that provide interface and interconnection between subsystem of Identification Friend or Foe radar systems. We have also successfully cleared the User Trial Readiness Review by the Indian Army for the BMP-2 Armament Upgradation Project under Make-II Program of the Indian Army, underscoring our commitment to meeting the defense sector's requirements and contributing to the national self-reliance. In Q2 of financial year 2024, optical fiber manufacturing plant in Hyderabad achieved a run rate of 12 million fiber km per month through sustainable improvement in efficiency, higher quality, and capacity building. It has established the best Overall Equipment Effectiveness, performance and also resulted in increased 10% throughput.
I also wish to update the expansion of optical fiber manufacturing capacities from 10 million fiber km-33.9 million fiber km is progressing well and shall be operational as planned. In addition, process of expanding its optical fiber cable production capacity from 25 million-35 million fiber km. This expansion will also lead to significant increase in revenue and profitability. The expansion will be added in a phased manner, with a completion targeted in the financial year 2024-2025. During this quarter, we also witnessed softening in demand of optical fiber cable and telecom networking products from telcos, resulting into decline in product revenue both on quarter-to-quarter and year-to-year basis. This temporary decline can be attributed to an inventory build-up with major operators, resulting in overall reduction revenue in absolute terms, as well as lower sales realization per km of fiber.
Aside, the overall demand across U.S. has slowed down as the BEAD program, which I talked about little earlier, that funding got delayed, which took a hit on the CapEx by the telcos, but now it is expected in July, August next year. In China, mass orders were released by China Mobile. In India also, situation was not much different. The BharatNet program of Government of India got delayed, and insistent rains across the country during the monsoon season also impacted the overall demand by the Indian telcos. These are resulted in decline of demand of optical fiber cable worldwide for some time. During the quarter under review, however, we were able to win some significant orders from our customers. As a result, we closed Q2 of the financial year 2024 with an order book exceeding INR 7,000 crore.
HFCL also successfully raised INR 352 crore through QIP during this quarter. The QIP has received an overwhelming response from institutional investors. I extend my heartfelt gratitude to all the investors for their unwavering support and trust in HFCL's long-term growth strategy. The proceeds from QIP are primarily being used to fund capital expenditures for the expansion of our optical fiber and optical fiber cable capacity, support expenditures related to R&D initiatives, including the acquisition of technology to facilitate the repayment, payment of short-term borrowings, and fulfill working capital requirements. Friends, let me now brief you on the key performance metrics of Q2 o f financial year 20 24 and H1 of financial year 2024.
Revenue of Q2 of FY 2024 stood at INR 1,100.49 crores, as compared to INR 995.19 crores in Q1, and INR 1,173.47 crores in Q2 of financial year 2023. EBITDA for the quarter stood at INR 149.77 crores, as compared to INR 159.60 in Q1 of financial year 2024, and INR 174 crores in Q2 of financial year 2023. EBITDA margin stands at 13.47% for Q2 2024, compared to 16.04% of Q1 2024, which stood at 14.88% in Q2 of financial year 2023.
Profit after tax in Q2 of FY 2024 stands at INR 70.17 crore, as compared to INR 75.56 crore in Q1 of FY 2024, and INR 84.31 crore in Q2 of FY 2023. Profit margin stands at 6.31% in Q2 of FY 2024, as compared to 7.59% in Q1 of FY 2024, and 7.18% in Q2 of FY 2023. Segment revenue for telecom products during the quarter stood at INR 473.81 crore,2 that is 43% of Q of financial year 2020, as compared to INR 62.43 crore, that is 67% of Q1 2024 revenue, and INR 671 crore, that is 57% of revenue Q2 of FY 2023.
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Profit margin stands at 6.90% in H1 FY 2024, as against 6.18% of H1 of financial year 2023. Segment revenue for telecom products during H1 2024 stood at INR 1,136.24 crore. That is 54% of the revenue of H1 of FY 2024, as compared to INR 1,291.14 crore, which is 58% of revenue of H1 of financial year 2023. The growth in key global telecom markets and the upcoming opportunities in India fuel our optimism.
To conclude, I would like to reiterate that with our strategic focus on capacity expansion, geographical expansion, shifting revenue mix from projects to products, backward and horizontal integration, strong R&D commitment, and developing margin-accretive new products have begun to yield results, and we are confident that our strategy will continue to enhance our revenues and profitability in the coming years. With an unyielding focus on delivering value, our team is determined to pursue our goals relentlessly. We are excited about our participation in upcoming India Mobile Congress from 25th, seventh to 29th October 2023. We look forward to unveiling various key futuristic products that are set to play a crucial role in the telecom industry and revolutionize the 5G expansion movement in India. Thank you very much once again for your participation.
With this, I conclude my opening remarks and open the floor for question and answer session. Thank you very much.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have follow-up questions, we would request you to rejoin the question queue. The first question is from the line of Balas ubramanian from Arihant Capital. Please proceed.
Evening, sir. Thank you so much for taking my question. My first question on the financial side, intangible asset under development has increased from INR 98 crore to INR 299 crore from FY 2022 to actual FY 2024. Could you please clarify on the same, like, what kind of development we have in?
No, look, all the expenses what you see, the increase in the R&D expenses, the license fee paid, R&D expenditure incurred, and that could be amortized once the products are launched. They will be amortized over a period of time. Because R&D is an expensive effort, and we are incurring these expenses, you know, as different products are being undertaken for R&D, which I've been mentioning all the time. This totally relate to R&D expenditure and also the equipment which we buy for, you know, the software licenses and all that we get for developing various equipment.
Got it, sir. My second question on that segmental mix, like in Q2 FY 2022, how do we understand on segmental revenue mix margins going forward?
Please repeat your question, Mr. Balas ubramanian. Your voice was cracking in between.
Yes, sir. Segmental revenue mix reflects to FY 2022. Like, how do we understand on segmental revenue mix and margins going forward?
Look, you know, as you would have noticed in the current quarter, the product revenue has gone down a bit, and that has happened because of a decreased demand of fiber optic cable, which I explained in detail in my opening remarks. It went down quite suddenly, quite unexpectedly, and for various reasons. In India, because of monsoon reasons and operators not expanding that network that fast, you know. In different other countries, the U.S., for delay in the subsidy programs and accumulation of inventory with the operators. People earlier thought that supplies will be quite delayed, so people had accumulated inventory. All that led, you know, a decrease in the revenue of fiber optic cable in the last quarter.
I'm expecting this to continue little bit in the current quarter also, and then expect it to improve again with all these programs coming back. Overall, fiber optic cable demand is going to be remaining good, exceedingly well, because of, you know, FTTH, 5G, BharatNet in India, and various other subsidy programs being launched by various governments worldwide, including the developed countries, to take fiber reach to every home. Overall, demand is going to remain very good, but this has been a temporary. Going forward, if you ask me, segmented revenue is going to become better and better, and our objective is to reach to a kind of a ultimate 30 kind of a product and project revenue.
Whereas 30% of the project revenue would be from the good cash flow kind of a project, and product revenue, out of the 70% maximum, would be out of the products to be developed by us or are being developed by us. Some of the products which we have developed are already launched in the market and are getting good traction, you know, like Wi-Fi access points, like Unlicensed Band Radios, they are a very good traction in the market. Going forward, I would say the objective of the company is to reach to a 70/30 kind of a, you know, revenue mix. However, for current quarter, result I am presenting to you, in the current quarter, the mix might be little different because of the current situation of fiber optic cable I was explaining to you.
However, in Q1, it is again expected to improve, sorry, Q4. The Q1 of calendar year I was talking about, because we're increasing the demand of procurement, increase demand of cable, and some of the new products which we are planning to launch will be launched in the first quarter of the fourth quarter of the financial year, that revenue will also kick in. Definitely, if you go to Q1 of the next financial year, this would have a dramatic change. Since all the products would have been launched, cable demand would have been improved, so that would put less stress on the cash flow and also increase the revenue and profitability.
Moreover, by that time, a lot of revenue which is unrealized still from the one of the major project, which is Network for Spectrum Indian Army project, a large part of that revenue would have also been realized. That will further improve the cash flow of the company to a very good extent.
Okay, got it, sir. Sir, my next final question. On that export market side, like, we have some inventory built up with major telcos in US market. How do we anticipate demand and supply environment, not only U.S., the overall global market? Because our revenue export share is 17% in FY 2023, right now, we have seen little bit dip to 14.4%. Like, how do you understand on the global markets, because of inventory build-up, it is problem with the US market only? How do we understand on the overall markets?
Look, this is a higher. The problem is in U.S. I tell you, before a few months, before, not few months, you know, I would say two or three quarters back, U.S. was in a situation where the delivery was four to six months. Unfortunately, at that time, our products were under approval. You know, we had not started exporting in this market. We were preparing ourselves. Now, what has happened because of increase in capacity in U.S. and also late start of those programs which I mentioned about, operators had already built up inventory, meaning that if the delivery is going to be continuing four to six months, they are accumulating, accumulating stock by taking increased delivery from suppliers.
When the programs got delayed, naturally the output, the installation of fiber-optic cable did not take off that kind of a speed which it was expected. As a result of which, there was a buildup of the inventory with the operators. Simultaneously, supply had increased, keeping in view the demand would increase and the supply had increased. This has resulted in twofold impact, that your inventory buildup is there and very quick, which is expected to ease out, as I said, next four to six months or even maybe less than that. This is expected to ease out.
Good thing which has also happened, of the total requirement in US market, more than 60% products we have already got approved by Telcordia and other approving agencies, which itself is a big feat, because the US market cable requirement is completely different in terms of construction and material you use than Indian and European market. Those approvals have been taken. Once the demand picks up, we expect a reasonable amount of opportunity for us. We have already started appointing distributors, agents. We have already got our own employees also in US market. We are totally ready to take advantage of this market once the demand picks up. Anyway, we have already started selling. We have done some selling in US market.
I don't have the exact number in my hand, but yes, I think something like $8 million -$10 million, $7 million-$8 million of sales has already happened in the US market.
Thank you, sir. I'll come back and check.
Thank you.
Thank you. The next question is from the line of Sahil Sanghvi from Monarch Networth Capital. Please go ahead.
Yeah. Good evening, sir. Just two questions, sir. One, now thinking about the second half, sir, can we still expect a low single-digit growth this year, or should we expect a flattish number on the revenue front for this year?
You know, Sahil, I would not like to give any future guidance or predictions, but I am sure, you know, with the demand picking up in next few quarters, there should be reasonable growth in our revenue, which we had anticipated. This particular quarter, the revenue growth was there, but because of the reduced sales on the products, margin took a hit if you compare from the quarter one. Once the product sale improves, the margin are also going to improve. Though the revenue has grown, but if you compare it to the last year, you know, it's not really revenue has gone down, but it's more or less the profitability has gone down. I expect that next two quarters, we should expect the demand should pick up.
If the demand picks up, our revenue and profitability will grow.
Right, sir. Right, sir. My second question is, sir, all these new products that we are launching, would you be able to give a number as to what kind of incremental revenue can we expect maybe by next year?
Looking the new products which we are launching, which number of times I mentioned, I am expecting that there should be at least an increased revenue of about INR 800 crore-INR 1,000 crore coming up from this product on a very pessimistic basis. It could be more, because some of the products we are launching, the demand is huge. Huge demand opportunity is there, but at least INR 800 crore-INR 1,000 crore minimum I expect that kind of a revenue to come up from these products.
This will be in FY 2025 or would be over two years, two to three years?
No, I'm talking of FY 2025.
Okay. Okay. That's great to hear, sir.
I'm quite confident of that, you know, because all these products I'm talking about would be launched before the expiry of this financial year.
Right.
You know, maybe little bit earlier than that, and, you know, one by one. By the next financial year, we would be totally in the market, including the export market, to sell these products. Once that happens, and demand is, demand of these products is billions of dollars.
Right.
There is absolutely no lack of confidence in us to get this kind of a revenue.
Sure, sir. Sure, sir. Thank you so much, sir, and all the best.
Thank you. The next question is from the line of Saral from Indsec. Please go ahead, sir.
Hi. Yeah, sir, thanks for the opportunity. Sir, what would be our blended capacity utilizations, if you could give a sense?
Would you repeat your question once again?
Sir, my question pertain to our capacity utilizations.
Oh, thank you.
For the first half.
Yeah. You know, look, in the capacity utilization, the fiber optic is low. As I said, the cost of this market has slowed down. It has gone down by roughly one-third or so. As you've seen, the product sale has gone down by one-third, so capacity utilization has almost gone with that. Maybe little bit more than that, because inventory which was there has been also been part of the sales numbers. Around that, you know, it has gone down, the capacity utilization. You know, once the demand improves, it will go up again. Very easy to increase that, you know, it's very modular.
Sir, you highlighted that our margins have fallen because of the weak product mix, the product revenue has fallen. Any other reason apart from this or this is the only reason?
The major reason is this one, but there has been decrease in the price also. Because once you have a decrease in demand, consequently there will be some decrease in the price also. The realization of fiber optic cable per fiber kilometer has gone down by about INR 100 per fiber kilometer. That is the first upon decrease in demand. Let me tell you, these are very temporary phenomena in the market, you know. Market cannot always remain sky-high, and every time the demand is very, very high. These are temporary things which come in the market, this is one of them. I am quite confident this will come back to its normal level very, very soon.
This will also improve once the demand improves, and also at the same point of time, capacity utilization will also improve. All that would be reflected in the P&L of the company.
Sir, what should be the margin trajectory? Because it has been volatile over the last four, three, four quarters, just wanted to get a sense. Where can we lined up in FY 2024, if you could give a directional guidance?
Yeah, look, it's not proper for me to give guidance, but yes, I can say that the increase in the product and the allied revenue margin trajectory would also become better. Average out, you average out for last six, two quarters, it would be around that.
Understood. That was helpful. Sir, can you share some outlook for exports? How is it shaping up? We've seen very good traction over the last three to four years. Going ahead, how do we see that going?
Yes, I'm very bullish about that. I'm very, very bullish about that. We have taken various steps to increase exports for fiber optic cable as well as equipment. I think we would have contacted in last two months more than 200-250 different customers across the world about our fiber optic cable. Now starting to build them, you know, from L0 level to L1, L2, L3 level, when L4 you make a final sale. These are kind of the customers we are now contacting, apart from the customers we are selling. These are the new customers we are contacting by dedicated team. We receive replies from many, and then we start taking the next steps and all that.
We have got approvals from, as I said, in Telcordia for the US market, which has been approved technically. We have got approval from various other well-renowned operators for our fiber optic cable. I have a very promising outlook of the cable sales in the export market. Of course, I expect it to pick up in the next couple of months. As far as equipment are concerned, I'm very bullish because the market of equipment is far, far larger than the fiber optic cable market. Of course, equipment are also quite a lot, but the equipment which we are manufacturing, we are designing and we are manufacturing, there also demand is billions of dollars. I am talking about INR 80 crore-INR 2,000 crore.
We have already started making in that direction, effort in that direction also, to start writing to the operators that these are the products which are going to come out of our manufacturing in next few months, this, this, this, and these are the specifications. We are already looking at that, yes, we are getting good response from operators, and once the products come out and we give it for testing, I am sure that this INR 800 crore or INR 1,000 crore of revenue would be absolutely peanuts, nothing. In fact, we have already sent one of our product samples for testing to a very large US operator, and they've already gone through the first level of testing, and they have expressed a complete satisfaction with our product.
I don't say that has resulted in any demand immediately, but getting a satisfactory report from such a large operator itself is a good thing. Moreover, one of our 5G products, and this was a 5G product. Another 5G product is getting tested in another operator's lab in India. There also we have satisfactory report. Cable revenue from exports and also cable revenue from exports, I am very bullish about because of the efforts we have taken, because the customer base we are creating, and in terms of products, good, efficient products at a price which is very competitive, we have developed. I'm sure this will all result in good export revenue in the next year and years beyond that.
Sure, sir, that was delightful to hear. Sir, you spoke in detail about that inventory buildup with one of the key clients.
Hello, Mr. Saral.
Yes.
Sorry to interrupt. Could you please rejoin the question queue again?
Sure, sure. I'll fall back in. Thank you.
Thank you so much. The next question is from the line of Darshit from Robo Capital. Please go ahead, sir.
Hello, am I audible?
Yes. Yes, sir. Yes.
Yeah. Thank you for taking my question. Although you have partly answered my question, but I just requested that if you can just, not about proper guidance, but just give a view of the medium term, say two to three years down the line, about margins, revenue, or any kind of key drivers you think.
Look, Darshit, thank you for your question. I would not give a guidance, but what I can say is the strategy which we have got in the company, two-threefold, you know. One, increasing our revenue from products, and that is happening with increasing the capacity of fiber optic cable manufacturing capacity, fiber manufacturing capacity. Backward integration, which reduces reduction. Two, you know, product design by ourselves, which is resulting in number of products which can be sold in export market, and also reducing our revenue from project, increasing from products. All these, if you look at combined way, you would find that revenue are expected to go up as well as profitability is also expected to go up in next two to three years, mid-term what you're talking about. The reason is simple.
One, products have a high, better profitability, lower cash required, which is the interest burden. Also, at the same time, increased capacity would mean that you would be able to export to more customer and more countries, thing which we are banking upon heavily. Because if the export is good, then that is where the 90% of the demand lies. With more number of customers, we expect increase in the revenue. That is where we are putting up a lot of effort, apart from our customers in India, of course, because India is our home market, where customers like Jio and Airtel are, we hope they would have also revised the hope. BSNL is coming up with a lot of incentives from the government.
Programs like BharatNet are coming up because, and that has a, you know, budgeted outflow of INR 130,000 crore for next 10 years, including maintenance. Out of which INR 30,000 crore is set up in next three years, and we expect to get reasonably good orders out of that, because we should be one of the more qualified parties. In two to three years time frame, I expect future should be good.
Okay. Okay, great to hear that. I just missed one thing you said about products already approved in the US markets. What was the number?
That I talked about the fiber optic cable, and that was roughly we estimate that consumes about 60% of the demand on the cable markets of U.S.
Okay. Okay. Okay. Thank you so much.
Thanks.
Thank you. Ladies and gentlemen, please limit your questions to two per participant. If you have any follow-up questions, we would request you to rejoin the queue. The next question is from the line of Aman Vij from Astute Investment Management. Please go ahead, sir.
Good evening, sir. My first question is on the defense side and then on the product side.
Aman, your questions are always on defense side.
Yeah, yeah, yeah. I have a question on product side also, sir. First, on the defense side, sir, if you can give an update. Last call, you talked about some potential tenders in BMP upgrade and fuses as well, and on the SDR and nitrogen. If you can update on all these three-four products.
Look, on the BMP upgrade, UTRR for our upgrade has already happened. UTRR is with readiness time, and I'm very happy to inform that we have already gone through that UTRR. Some of them have failed, and I don't want to name who has failed, because it's not my job to name the competitors who have failed. Now, you know, I think the last phase of trial is going on for the remaining companies, and I think they're finishing the trial within this month. Whoever passes through, they will get the RFP and the tender to participate. We have already passed through the trial, that is I'm happy to inform you. In terms of SDR, which is under development, it is still not fully developed. We have done more or less 50%-60% of the development.
There were some issues where we got stuck in terms of, you know, technical part of it, which is particularly the radio frequency part, which we have now got a solution and resolved. Resolved in a sense that theoretically resolved, but practically when we put it through as an equipment, we would know, and now we know the solution. Then the SDR would be developed sometime mid of next year and will be submitted to army. But it's a long-term project. Demand of SDR would continue for decade to come, more than a decade to come. So there is no problem for us, even if it has got delayed by six months or so. You know, in R&D, nothing new. It's a very, very complicated product.
There is a delay of six months or so, but fine, you know, it's a product which would in demand for... You know, a couple of decades, so we have no issue with that. Huge new tender is yet to come. We are hearing that new tender would come. Whenever it comes, we'll participate, but we have already approached Indian Army for trial, even without a tender, because there is a procedure by which they try by themselves. If you submit it without a tender, and they certify it for a military use. Once they certify it for military use, then whenever a tender comes, you don't even have to go through this test and trial again in many cases. Many cases you may have to, many cases you may not.
In terms of defense, we have participated in another tender which is yet to be opened, which is for tactical fiber optic cable, which is, I think, about 7,000 km, about few days back, about 10 days back, and that to be opened. Once it opens, we'll know the results. I think there should be only three or four participants, as much as I know. It has not been declared, but as industry information is there, there should be about three or four participants. We are very hopeful that we should be one of the parties who would be asked to go for the reverse bidding, you know. It's a two-stage bidding, you know, one is what you submit, and then the reverse bidding happens. We are quite hopeful of that.
You know, that's a program which we've already participated. UTRR, we are approved and waiting for RFP. Tactical cable, we have already participated in the tender. We are quite hopeful of that. SDR development is bit delayed, but which would come up the mid-next year. Fuze, we are submitting for approval to the Indian Army, already we've written to them. Now, waiting for the ammunition to be made available and the firing range to be made available. For the artillery guns, firing range are limited. Firing range availability, we are waiting for. Electro-optics, we have one tender coming up where we participated. One tender already came, where there has been some problem with number of private companies in a particular class of firing, which was all are represented.
It was a technical problem at their end, not really problem with the electro-optic devices of the company. So that is under reconsideration at this point of time.
Sure, sir. That was helpful. The second question is on the product side. Earlier, we had a target of around maybe INR 300 crore-INR 400 crore sales for this year and INR 800 crore-INR 1,000 crore for next year. I believe we are still on track for next year target, but what would be the revised target for the product side for this year?
This year, we are, you know, instead of INR 3-INR 400 crore, we are expecting INR 250-INR 300 crore, around INR 250-INR 300 crore, because you know, some of our products which we are already in the market, you know. For example, Unlicensed Band Radio, you know, that has got a good track record, that is in undersupply. We got an order of 10,000 links which we undersupplied. Another order of 5,000 links is expected very soon, which we will supply. We usually estimated about INR 250 crore-INR 300 crore instead of INR 3-INR 400 crore. Next year, INR 800-INR 1,000 crore, I believe there won't be any problem in achieving that.
Okay, sir. Thank you, and all the best.
Thank you. The next question is from the line of Saket Kapoor from Kapoor Co. Please go ahead, sir.
Saket, sir, firstly, sir, for this EPC segment part, I think so for the Madhya Pradesh Jal Nigam, we bagged an order for INR 1,015 crore. If you could give us some more details and also whether it is one of the project or a package in the project, if you could throw some more light.
No, it is one of the projects, not really a package in the project, and it is expected to be completed in two years' time frame. Work, survey work and all that would start in four to months from now after Diwali, let me say. As I said, you know, our effort is to somehow come up with a technology where we can put fiber optic cable with that.
In U.K., we are already working on that, the technological part, how to do that and how to make it robust and not something which can be damaged with the water pipeline. Various methodologies, whether it can be inside the pipe, outside the pipe. We are working on that, but then no hurry to, you know, come up with a solution with... We're working with a solution which works in a, and it could be different in different parts of the network. We are working on that. The topology of the Madhya Pradesh network is little different, but we would still work on that kind of a solution. It's a two-year thing which is to be completed and work will start in a month's time.
Sir, as you have earlier mentioned that we will be more inclined towards the product segment and more R&D being done there only. How would the revenue profile look forward? I think so now with this participation in the Jal Nigam projects, I think it further out there in the annual, what should be the likelihood and the percentage in the revenue mix?
Look, you know, as I said, currently, as I said, you know, our overall strategy is that product revenue should increase, and that's spending in FOP of the company, in R&D, in cable, as well as your products, which is telecom products and defense products all. Of course, you know, when I see 70/30 is our ultimate objective, where 30 being from the projects, well, you know, good cash flow projects, like what we are doing for Jio. Very good cash flow. Now, at the same point of time, you know, there are things, you know, like for example, current quarter, the revenue price is low, and for the reasons which I have already explained, I need not go in detail again. Current year, you know, at this quarter three also, I expect it to remain almost like that.
Q4 , it would improve, that's my expectation. Q1 onwards from the next, so different, you know, scenario altogether. With so many products coming in market, scenario will be completely different. This year it could be about 50/50 or maybe a little better than that. Next year, I think I should be able to go into a 60/40 situation, then leading to 70/30 situation.
Correct, sir. One more question, sir. You mentioned about some CapEx in-
Yes, ma'am.
I'm sorry to interrupt.
If I may complete.
Could you please rejoin the queue? There are other participants also waiting for you.
Yes, ma'am. Yes, ma'am, please provide opportunity again.
Thank you. The next question is from the line of Parth Mehta from Emkay. Please go ahead, sir.
Sir, I had a couple of questions. The first one is, when we are going to launch these new products, be it on the defense side or the 5G side, will we need any kind of CapEx or investment to convert those launched products to revenues, which we are probably looking at INR 800 crore-INR 1,000 crore of revenues in the next financial year?
You know, there will be some CapEx required, which is INR 50 crore-INR 60 crore, around, you know, you can say less than INR 75 crore. We want to in the market.
INR 75, INR 75 crore of CapEx would give us revenues of INR 800 crore-INR 1,000 crore?
Absolutely, absolutely. Because a lot of money is spent on R&D was, you know, there is also CapEx. It's not only machinery, it's like how you design the product, that is also very, very important. You know, I could have done without this INR 75 crore also going for total contract whenever change. Since I have to take advantage of the DLI incentive which has been sanctioned to the company of almost INR 600 crore, that's why we have to establish this manufacturing facility, so that we can take advantage of that INR 600 crore of which has been sanctioned to us.
Okay. Sir, my second question and the final one is, after the new capacity for OFC and OF. comes on stream next year, how much revenues are we looking at at these prices where they have corrected in the last quarters?
I am looking something around INR 2,800 crore-INR 3,000 crore, which includes the fiber optic cable, fiber, and also accessories, which are sold together with fiber optic cable. This is what I am looking for, around INR 2,800 crore-INR 3,000 crore.
At the expanded capacity?
At the expanded capacity.
Okay. Sir, how much price?
That could increase further. Next year, it could increase further.
Next year only I'm asking that how much, how much do you think after the expansion?
I'm talking about next year only, but then year next to that, it will only increase.
Year next to that, how much will that increase from 3,000?
Pardon me?
In F.Y. 2026, how much are you expecting from these, the same-
I would say it's another INR 200 crore, INR 200 crore-INR 300 crore.
More. Okay. Okay. Okay. Thank you so much, sir. That is all from me.
Thank you. The next question is from the line of Mr. Pramod, who is an individual investor. Please go ahead, sir. Hello, Mr. Pramod? Hello, Mr. Pramod? Since the participant is not answering, we'll move on to the next question. The next question is coming from the line of Jeel Thakkar from Nirala Securities. Please go ahead.
Thank you for the opportunity. Sir, I just wanted to know, what is the optical fiber price and volume compared to the previous year? Also I would like to know, are we bidding for Kavach?
For what?
Kavach, Kavach.
Okay, okay. Really, that is the signaling requirement, not the telecom.
Yes, yes.
Okay. No, first of all, you know, if Kavach has telecom part, we will be definitely bidding for that. When it comes to the realization of fiber, you know, in terms of pricing, you know, as I said in my opening remark, it has gone down, but roughly by... Not opening remark, in answering one of the question, I think. That pricing has gone down by roughly about INR 100 per fiber km in terms of realization. So what was cable, I'm talking of cable, what was the realization about INR 1,300 per fiber km for land cable, it has gone down to INR 1,200. In terms of... But you know, it, depending upon what count of fiber and all that, you know, this is average.
In terms of price of fiber per kilometer, it has gone down from Q1 to Q2. Earlier, it was about INR 380 per km, now it has become around INR 355 per km. That is the fiber price I'm talking about.
All right. Right now you can say it is about INR 1,300?
Right now, the price of fiber cable, I'm not talking of cable, fiber.
Yes.
Price of cable per fiber kilometer, it is about INR 1,200, INR 1,213 on average. It is, again, as I said, it is average for us. Somebody will have a different average, because somebody might have sold fiber of lower count, where price will be different. Higher count, price will company to company and construction to construction. For us, it has gone down by INR 100.
How much was this last year?
INR 13, INR 15.
Okay. Okay. Thank you.
Thank you. The next question is from the line of Pranay Gandhi from Green Portfolio. Please go ahead.
Hi, good evening, sir. I hope you are doing good. My first question is in regards to the defense segment. As you just discussed, that the company is actively bidding for tenders and going for product trials as well. I want to understand what kind of numbers are we looking at? I understand it's difficult to comment on it before we get the tenders, but I just want to understand the scale of tenders that the company participates in. Could you please give an insight on that?
[audio distortion]
Sir, even if we participate at that number, and I know in a real case scenario, in real world, I hope it happens, but the company will not be able to secure all the offers. Even if it does, is it in a position where it can deliver that number?
Look, you know, let us not even expect to get all those numbers, you know? Let us not even expect. I would not say that we're in a position or not. I would be very happy even if I get 15% or 20% of that. Very, very happy with that, and that certainly would be in a position to deliver.
Okay. In next few years, do we see that number increasing in terms of our scalability?
Sure, sure, sure, because we will be increasing our product range, you know. One more decision we have taken, you know, in defense, we are not only going to depend upon product we design, we are going to do the transfer of technologies also. Taking technology from outside for our manufacturing. Like the BMP-2, which I talked about, nothing is manufactured by us, it is all partnerships. Their system integration will be done by us. We will take more such opportunities because defense products are very complex products and go through testing cycle, which is, God forbid, you know, so strict and sometimes unrealistic also. Let me be very frank, very unrealistic also, you know, which is not even required. That's their prerogative.
You know, to design the things and go through those cycles all the time for every product is not possible. It's better, you know, take technology transfer also, with proven products can increase the revenue through them also. It's a two-pronged approach. One is our own products, second is TOT. Like the BMP-2, where it's a transfer of technology, but system integration by us. We expect to do more such projects for ourselves coming up in the future.
Thank you so much, sir. My next question would be in regards to telecom equipment.
Sorry to interrupt, Mr. Pranay. Could you rejoin the queue for any follow-up?
I have only one question.
Oh, okay, give him one question. Let him, let him. No problem.
Sure, sir. Sure.
Thank you so much, sir. Sir, in regards to telecom equipment, I understand as you previously mentioned, that the market is huge, it's bigger than the optical cables itself. What are the products that we feed, our flagship products or feed products on which we will have competitive advantage and the scope beyond FY 2025, beyond INR 1,000 crore revenue mark? Could you please comment on that?
Look, you know, flagship products, you know, like for example, the product which are currently there, Telia launched UBR, Unlicensed Band Radio. For the first time, it is being tried, not only being tried, it is being commercially used for backhauling the 4G and 5G traffic. Even the Qualcomm, which is a chip supplier, they were also amazed. We had a meeting with the Qualcomm people last week only. They are very senior people, number two or number three people had come from U.S. They were amazed the kind of usage here for the Unlicensed Band Radio, which they had not done anywhere else in the world, which we are able to do in India. The product is used for backhauling the 4G and 5G traffic, which has not happened anywhere else in the world.
You know, we have been able to build radios, which is giving multiple Gbps of backhaul traffic, backhauling the traffic of 4G, 5G. That is going to have a good demand, India and many other countries. Wi-Fi, Wi-Fi 7, which we had developed last year, but now we are, you know, making a cost-reduced version of that, because at that time, what chipsets were available in the market, prices were so high that it was not, you know, cost-effective for home switch. Now that new chipsets have come, we are going to rationalize that, and that is going to be a flagship product. More, much more importantly, the wireless-
5G wireless customer premises equipment, which are develop, not under development, some of the development is already done, which is under trial, and a couple of other versions of that would be, you know, coming into for field trial in next one month. I expect very, very good demand coming out of that, though I'm not willing to give any numbers, but it can be much more than the overall turnover I've assumed from the our product, you know, next year. One product itself can be more than that. Such is the high demand for those products. 5G-related products, unlicensed radio, Wi-Fi, routers. Routers are a huge opportunity in BharatNet, you know? BharatNet, whenever comes up, indigenously designed products, and I think we and only one more company have indigenously designed products for Bharat, for routers.
Whenever this BharatNet comes, demand is going to be, you know, more than 100,000 routers. I believe there would be good demand opportunity for routers also. These are, which I can say that very good demand is, opportunity is there. Now, how much we'll be able to take up, how much we will be able to sell is bit immature to say, but yes, INR 800 crore-INR 1,000 crore is nowhere, nowhere, it's very, very pessimistic. We can do much more than that. If my sales people, you know, are not able to do that also, after they deserve to be sacked, and I don't think they are that bad, you know, they should able to do more than that.
Got it, sir, and good luck with that. Sir, I just have one request. We were trying to schedule a plant visit or a meeting with the management.
Anytime, anytime, just let us know our.
We've not been able to secure one. Is there a concerned person I can get in touch with?
Yeah, you will get in touch with Amit Agarwal, our, you know, Head of Relation, and he would be too happy to organize your visit. If you want to visit fiber and cable both, visit Hyderabad. Hyderabad, very good. Where are you based?
We are based out of Gurgaon.
Gurgaon, then visit Hyderabad or Chennai, whatever you want.
Okay. Thank you so much, sir, and good luck.
Thank you.
Thank you. The last question is from the line of Mr. Priyansh, who is an individual investor. Please go ahead, sir. Hello, Mr. Priyansh, please go ahead.
Yeah.
Hello. Yes, Mr. Priyansh, please go ahead.
Yeah. My first question is regarding this expansion of optical fiber and fiber cable. In which month are we going to complete it, number one, and number two, what kind of additional this turnover we will be generating from this?
Fiber manufacturing, the completion is expected, you know, going by stages, but, you know, partly it will be completed in, let us say, July 2024, and partly it will be completed in January 2025. You know, it's in two stages, we are doing expansion. Time stages because of different machine deliveries, so that is going to happen, but it's going to be in two stages. In the cable manufacturing, it would be completed in the stages in the, in financial year 2024-2025. In stages, I say, because of different kind of cable which we are going to be manufacturing, so deliveries are different for machines. It is stages we are doing, 2024-2025, it will be completed. If you compare the present revenue and the expanded revenue, the difference could be roughly about INR 800 crore-INR 1,000 crore.
You are saying that, like, additional incremental revenue will be INR 800 crore-INR 1,000 crore from the cable?
Yes, yes. Accessories. You know, cable plus accessories.
Yeah, yeah, yeah. In a full financial year?
Yeah.
Yeah. My second question regarding this 5G equipments which we are manufacturing. Just on a, like, on a, like, rough understanding, how many number or how many types of equipments are we developing now, and whether all the equipments will be launched within this financial year or something will stretch to next financial year also? Yeah, this is number one, and number two, whether there is any impediment or hurdle which can delay this thing?
Look, you know, the number of equipment, if you take, there are categories and there are sub-categories. If I include sub-categories, you know, if I take just the categories, the categories would be Wi-Fi, UBR, 5G, customer equipment, Wi-Fi customer, you know, HMR, because, you know, there will be six or seven categories of communication equipment. If I include sub-cat, within that category, it could be more than 25. You know, it is something like that. Now, in terms of impediment, it's a research and development. R&D is always something which you cannot always succeed in the first time. Sometimes you will, sometimes you may not. There are 50% of the cases you succeed first time, 50% cases you make modification and then you succeed.
There's no impediment as such that there is something which you will not succeed at all. You will succeed. Sometimes it gets delayed, and that is true with all R&D.
We agree. Agree.
It happens. It could be time, could be delay, but finally it happens. That's how it happens.
No, sir, my only point was that since we are now approaching very, like, very soon to the end of this financial year. Like this last few, like, during last control also, you mentioned the same thing regarding this new product and everything. Now, like, this idea is maybe like, because now we only four, five months left. Maybe the surety of launching all products, like, should be much more as compared to three months before.
We are quite sure that all these products will be launched in the current financial year. There may be one or two products, may be another one or two months delay, but I don't expect more than that.
That's fine, sir. Sir, like, one thing you mentioned, which I missed, that you said that, like, you are also developing some product which the revenue, which can be very huge. If you just can kindly recap that, recap this one?
Yeah, this is like for example, five new customer premises equipment, which I talked about. Demand opportunity is very, very high, so that one product itself can give more revenue than what I am expecting from all the products in telecommunication sector. I'm not saying that it would give, but it has the potential. Potential is there, but how much finally revenue comes, that depends upon the order and, you know, customers and all that. Potentially, just one product is there to give more than that revenue.
Very good, sir. Very good. Thank you so much. Like, I wish you all the best.
Thank you.
Thank you. For the remaining questions, the participants can get in touch with Mr. Amit Agarwal individually. Now, I would like to hand over the conference to Mr. Nahata for closing comments. Please go ahead, sir.
Thank you very much, and thanks a lot, ladies and gentlemen, for attending this earnings call for Q2 of FY 2024. As I said, gentlemen, you know, this quarter in terms of product demand aberration, because of lower demand of fiber optic cable, because of various reasons, which we expect to improve next couple of months. In U.S., Europe and India also, I think there will be significant improvement. Company has taken enough steps to increase the production capacity to supply the increased demand from its customers. Moreover, the products which we have undertaken to design R&D for the telecom products, those are also now in a very advanced stage, and one by one they will be launched in the current financial year itself.
I expect very good revenue to come from the next financial year, not only from Indian market, from export market also. There is a very, very high potential for those products for revenue to come. Moreover, programs like BharatNet, which has got a outflow of, total outflow of 140,000, INR 840,000 crore, the CapEx of around INR 40,000 crore. Again, there is a good demand opportunity for the company there. Apart from this fiber to home being launched worldwide, 5G happening, so there is an immense demand opportunity. Product-led revenue, which is the strategy of the company, is expected to really yield results not only in Indian market, but actually improve the revenue and improve profitability and improve cash flow.
Moreover, one of the projects, which is Network for Spectrum, which had consumed a lot of our existing cash flow because of delay in payments, well, business not attributable to us. We expect that also to start, you know, project getting handed over to army one by one. Even yesterday there was a discussion and one of the command, a rmy command, we are expected to hand over to the army from the within before Diwali, before Diwali, and another one before expiry of next month.
That revenue, the cash flow, would also start kicking in, and we are expecting that within this financial year, out of the total INR 900 crore due from that project, at least we should be able to receive very significant portion of that money in the current financial year, which would also improve the cash flow situation of the company. I look forward very optimistically for the time to come because of the reasons of product development, because of expected demand coming from fiber optic cables, and increased revenue from products not only in telecom but different sector also in coming years. Thank you very much, and thanks a lot again for participating in the call, and wish all of you a very, very happy Navratri and very, very happy Diwali. Thank you very much.
Thank you, sir. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.