This conference is being recorded. Now I hand the conference over to Mr. Mahendra Nahata. Thank you, and over to you, sir.
Good afternoon, ladies and gentlemen. I'm sorry for the little delay that happened because of some connectivity issues. I would like to welcome you all to HFCL's annual call for 2023 financial year ended 2023. I trust that you got a chance to review our financial results at length and investor presentation. All of which are available on the website of the company and also on the website of stock exchange. During financial year 2023, as global economy faced challenges such as financial market volatility, high inflation, slower growth. Despite these headwinds, India remains a promising economy and is expected to emerge as the fastest growing in the world.
The telecom industry during financial year 2023 has witnessed significant growth and expansion both in India and globally, with increasing adoption of broadband technologies, including broadband wireless technologies, 5G macro rollouts, and the growing demand for high-speed data connectivity driving continued innovation and investment in the sector. Indian government has maintained a focus on key priorities such as the nationwide implementation of 5G networks, fiberization as part of BharatNet, and Initiative, and also encouraging participation in PLI schemes to promote indigenous design and manufacturing of telecom and network infrastructure. These priorities have been fueled by the all-around rapid digital transformation and the amplified need of high-speed data, together with integration of advanced technologies such as artificial intelligence, IoT, and machine learning. Right.
According to reports, the implementation of 5G technology will add $1.3 trillion to the global GDP and create an economic impact of up to $2 billion to the Indian economy by 2030. This backdrop makes us confident to start the new financial year on a positive note. HFCL has been tirelessly working in these transformational areas by designing relevant new technology equipment and thereby also increasing scope of its network services portfolio. These efforts will result in expansion of its addressable market and will also boost its revenue and profitability. FY23 was a year of transformation for HFCL. We continued with several key initiatives to design 5G and radio access broadband wireless products.
These products included 8T8R macro radio unit, cell site outlets, 2 and 12 point-to-point and point-to-multipoint unlicensed band radios, indoor and outdoor small cells, outdoor fixed wireless access, autonomous instruments, and various kind of aggregation products. All these products are scheduled to be launched during the current financial year and are expected to have huge demand opportunity globally. Launch of these products will bring in higher revenue and profitability to the company in coming years. Recognizing company's efforts and initiative in designing top telecom instruments, Government of India has already sanctioned designing incentive of up to INR 650 crores to the company. Furthermore, the company has entered into crucial technology partnerships with Qualcomm, Microsoft, Wipro for developing customized 5G products and solutions. These partnerships have strengthened the company's R&D capability and are also helping to develop and professionalize new products at much faster pace.
During the year, we also strategically worked towards our expansion into global markets like United States, Europe, and Middle East, with an aim to become a global player in optical fiber cable, telecom and network products, and system integration space. Our continued focus on creating and expanding capacities and tapping new geographies has not only led to an increase in share of product revenue to 56% in FY 2023 as compared to 43% in FY 2022, but has also resulted in the increased share of revenue from private customers to 83% in FY 2023 from 68% in FY 2022. These are two very important achievements. We are currently operating in over 30 countries with 50-plus clients and building long-term relationships across large and fast-growing markets, pursuing higher export revenue.
Specific efforts are being made by the company by appointing employees and engaging agents and distributors in key markets like France, Germany, England, Poland, Australia, UAE, Turkey, Kenya, United States, and several other countries. All these endeavors have led to significant increase in our export revenue during FY23 to INR 817 crore from INR 363 crore in FY22, which shows a growth of 100.5% on year-on-year basis. One of the significant developments is our collaboration with Microsoft to launch Private 5G solution for enterprises. Our partnership will help us offer highly scalable and rapidly deployable solutions for enterprise 5G. We foresee that Private 5G networks can offer numerous benefits to the manufacturing sector, including increased productivity, improved efficiency and cost savings, and enable enterprises in their next 4.0 journey.
The company is also developing new strategies from these areas to offer integrated solutions to enterprises, which will lead to competitive advantage to the company to improve profit margin. I'm proud to share that HFCL emerged as India's first enterprise to enable the deployment of Wireless Broadband Alliance OpenRoaming access its entire in Wi-Fi portfolio. Currently, we are working with multiple telecom operators in India and few other countries to deploy OpenRoaming, and we are trying to scale its reach across the globe and make the most of this first mover advantage. In quarter four FY23, we signed distribution agreement with EPS Global to extend our footprint in global markets such as North and Latin America, Europe, Middle East and Africa.
Through this partnership, we are tapping new markets for our products and solutions, ranging from advanced indoor and outdoor Wi-Fi 6 access points and commercial and industrial switches, high-power gigabit PoE+ injectors, and the world's first open source enterprise-grade Wi-Fi 7 access point among others. Further, HFCL has also signed an exclusive distribution agreement with U.K.'s leading distributor, Purdicom Ltd, to further strengthen its footprint in U.K. and Ireland markets. We have also entered into a strategic partnership with 6WIND, a leading green-tech networking company, for optimized, sustainable and cost-effective 5G solutions based on its innovative and market-leading Virtual Community of Interest software products. The Government of India at the same time is doing a commendable job to fast-track the deployment of 5G network and rollout for OFC networks in the country.
HFCL is working to capture a larger share of this expanding optical fiber cable market, which is projected to reach a cumulative value of $250 billion worldwide and $10 billion in domestic market during the period of financial year 2023-2028. In order to further strengthen the supply chain and improve the profit margin, the company is expanding its optical fiber capacity to a existing 10 million fiber kilometers and to 25 million fiber kilometers by the two of FY 2025. With this expanded capacity of optical fiber, company is expected to generate additional profitability of INR 150 crores every year on annualized basis, computed at prevailing market price vis-a-vis current cost of in-house production of optical fibers.
In addition, the company is also in the process of expanding its optical fiber cable production capacity from 25 million fiber kilometers to 35 million fiber kilometers. This expansion will also lead to a significant increase in revenue and profitability. The company has also created Center for Excellence for development of newer types of optical fiber cables in its manufacturing facility in Hyderabad. These new types of cables are expected to further increase company's revenue from external markets. The company's subsidiary, SPL Limited, has also developed special optical fiber cables required for different purposes.
Guys, I also wish to update you on that the development of various 5G radio access network and transport products is progressing well, and we will be launching 5G fixed wireless customer premises equipment, 5G small cell, 2 and 4 Gb capacity point-to-point and point-to-multipoint backhaul UBR, routers and radios of various capacities and AAU or macro radio unit during the current financial year. Total addressable market from such products worldwide is expected to be $550 billion by 2028. Company has been successful in setting up facility for the manufacture of these products and targeting a revenue INR 800-1,000 crores in FY 2024-2025, as compared to only INR 130 crores achieved in FY 2022-2023 from existing product portfolio.
These products are also eligible for PLI incentives of INR 50 crores over a period of years as per approval received by the company from Government of India. Increase in revenue from these products, which are owned, designed and manufactured, will also lead to higher margin and profitability. This quarter, the Q4 of FY2023, was marked with HFCL winning some key purchasing orders. As a result, our order book has grown to more than INR 7,000 crores as compared to INR 5,300 crores in the same quarter last year. Some of our major wins in the quarter have been contracts of INR 283 crores from Uttar Pradesh Metro Rail Corporation Limited and INR 575 crores from Reliance First Technical Private Limited.
Let me now brief you on the key performance metrics for 12 months ended on March 2023 and also quarter four FY2023. For the 12 months ended March 2023, the company reported consolidated revenue of INR 4,743 crores as against INR 4,727 crores in March 2022. As you can see, INR 64 crores as against INR 690 crores in March 2022. Profit before tax was INR 430 crores as against INR 440 crores in March 2022. Profit after tax was INR 317 crores as against INR 326 crores in March 2022. Revenue for the quarter four of FY2023 stood at INR 1,433 crores as compared to INR 1,066 crores in FY23 and INR 1,183 crores in of FY2022.
It's an increase of 61.16% on year-on-year basis. EBITDA for the quarter stood at INR 168 crores as compared to INR 194 crores in Q3 or FY2023 and INR 150 crores for Q4 of FY2022. EBITDA margin stood at 11.7% for quarter four of FY2023 as compared to seventeen eight point eight percent of of Q3 FY2023 and it stood at 12.99% at quarter four of 2022. From quarter four FY2023, profit after tax stood at INR 79 crores as compared to INR 102 crores for quarter three of FY2023 and INR 68 crores in quarter four of FY2022.
Gross margin stood at 5.49% in the quarter under consideration in compared to 9.36% of Q3 FY23 and 5.76% in Q4 FY22. Segment revenue for telecom products during the quarter stood at INR 650 crores, INR 54 crores as compared to INR 693 crores in Q3 FY2023 and INR 585,000 crores for FY2022. Margin stood in quarter under review are low compared to previous and corresponding quarters due to execution of some low margin contracts this quarter. Overall margin for FY2023, however, increased despite increased input costs and supply chain disruptions followed by Russia-Ukraine war and other global economic changes. The margin tends to vary in particular quarters due to the nature of contracts executed, bidding of those competitions, et cetera.
Overall EBITDA margin ranges between 14%-15%. With various strategic initiatives such as expansion of capacity, launch of indigenously designed products, continued backward and horizontal integration, investment in R&D, and geographical expansion, operational margins are aimed to be increased by 3%-5% in two years' time. The current growth being witnessed in telecom market holds our recent optimism and new opportunities. We look forward to financial year 2024 and beyond with great optimism as our strategic initiatives are expected to bring significant growth in revenue and profitability. At the end, I would like to reiterate that we remain focused on our vision to become a leader in our industry.
With all initiatives being undertaken such as huge emphasis on R&D, backward integration, capacity expansion, geographical expansion, developing margin and becoming products, we are confident that these strategic initiatives will position us for long-term success. The team is dedicated to delivering value to our shareholders, and we'll continue to work tirelessly to achieve our goals. Thanks. Thanks 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'll now begin with the question and answer session. Anyone who wishes to ask a question may press star one on their touchtone cell phone. If you wish to remove yourself from the question queue, you may press star two. Other persons are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Thank you. We take the first question from the line of Mr. Bala Subramaniam from Arihant Capital. Please go ahead.
Good evening, sir. Thank you so much for taking my question. My first question. We are launching around 7-8 5G products from Q3 FY2024 to Q1 FY2025. What would be the telecom revenue share is expected to reach in FY2025? In last two quarters, telecom products margins are around 19%. We may expect about 20% of these margins to do these new launches. These are my first questions.
Look, as I said that telecom and networking products revenue is targeted to reach INR 800,000 crore in FY2025. This significant growth is going to come from new products which we are launching. As I said in my opening remarks, a number of new products are going to be launched in the current financial year, and we are in advanced stage of development. Once these products are launched, revenue is definitely going to increase multiple times, and we can target it to be INR 80,000 crore in FY2025. Number two, as margin concerned, these are products are our own design and manufacturing. Certainly a very better margin. Certainly a much better margin than 90%.
Awesome. Thanks, sir. Sir, in Q4 FY 23, turnkey contracts witnessed margin less than 5%. Any specific reason for that?
You know, many times contracts are, you know, designed in such a way or bidding is done in such a way that, you know, in a particular phase the profitability is high, higher, but payments are received earlier in that phase. In some phase the profitability is lower. It varies. Margins from EPC contract may vary from quarter-on-quarter depending on the type and part of contract executed in a particular quarter. What happened in this particular quarter, the EPC contract which has been executed, the part of that was at a lower margin. You see lower margin in this particular quarter. It will become an operation also, but it has happened like that. However, overall EBITDA margins we anticipate a range between 8%-10%.
Now, with increasing share of revenue contribution business, EBITDA margin on basis are also increasing year on year to year and currently ranging between 14%-15%. The margins are planned to increase further with high rail level backward integration and introduction and launch of indigenous rail personnel overall. Turnkey margins, this particular quarter, you know, it was low because, you know, particular type of contract. However, the overall margins are intact and it will increase in future.
Okay, got it. Sir, on the railway side, recently we won, we got Surat Metro Rail Project phase I . Any further tender or projects are lined up? Like, how we are comfortable to execution on railway projects? Because nowadays, sir, railway projects are more competitive and the margins are slightly lower. What's your thought process on that, sir?
You know, we have got a very pre-eminent position in railway communication business in the country. In a sense that not only we have executed projects in India, but we have executed contracts in other countries also, like Mauritius, Bangladesh. We will continue to be in this business. Also the margins vary from contract to contract. Yes, it is competitive, but it is a niche area which will give us good revenue and profitability both. As far as Surat Metro contract, this we executed as planned, and we are bidding to many other contracts also between metro, you know, where metro expansions are coming up or new metro lines are coming up. We are bidding to the contracts. We are confident that we should be able to get more orders.
As you know, Kanpur and Agra Metro, we have got direct orders. They are already getting executed by us. Similarly, we are working on various other metro contracts where we expect a reasonably good order position.
Sir, on the margin side on railway projects, like how the margins are?
It is something like turnkey contracts only. Only problem with the railway projects is the revenue comes late. You know, in a sense that, you know, telecom is the last thing to be done. If the contracts are awarded when the metro is planned, then, you know, civil work is done, electrical work is done and all kind of things are done. The, you know, this telecom business comes up. It's, you know, it's not like, you know, you got the order and it will be getting executed in one year. It will take three, four, five years to get it executed because the civil work and all that in metro takes time. Margins are like the turnkey contracts. Margin should be 14%, 15% without doubt. It is like something like a turnkey contract only.
Okay, got it, sir.
Sir, on the cable side.
Sir, Bala subramanian. You've been requested to join the question queue, sir.
Yes.
Participate.
Yes. Thank you so much, sir. I will come back to you.
Thank you, Mr. Balasubramanian.
Thank you, sir. We take the next question from the line of Mr. Sanjay Shah from KSA Securities . Please go ahead, sir.
Thanks for the opportunity, sir. I wanted to understand how do you see the global OSP market, and what is the likely impact on the company's performance going forward? You've stated that.
Can you repeat the question? I missed few words.
Right. Actually, I wanted to understand how do you see the global OSP market, and what is the key impact on the company's performance going forward? We've increased our expectation from 7% to around 17% revenue mix. Any color you give on the OEM segment of this global market?
I can tell you. You know, the one thing which has happened in the global OSP market, particularly after pandemic, you know, this demand of high speed data has grown. Work from culture, even outside of pandemic, has so widely spread that there is a huge need of data in every home. Subsidies are being given by many countries to have high speed data availability at every office, every home where it is not there or either the legacy data is available. For example, I'll give you U.S. They have announced a subsidy of $61 billion to connect homes over fiber optic cable. $61 billion just to connect homes with the fiber optic cable.
These kind of numbers for fiber optic cable connectivity through homes and offices has increased the demand of fiber optic cable worldwide, coupled with implementation of high speed wireless networks like 5G, for instance. Some other, 6G or other networks will come in future. Demand of optical fiber cable has increased quite a bit, and it is expected it will keep on increasing every year. The current year, consumption is about 600 million fiber kilometers. It is expected to reach 750 million fiber kilometers in three years timeframe globally. Similarly, demand in India has also picked up because of large scale implementation of 5G as well as application has majorly been done by Reliance Jio, the demand has picked up. Globally there is increase in demand in fiber optic cable.
What HFCL is doing in this case, one, we are increasing our capacity from 25 million fiber kilometers to 35 million fiber kilometers per annum for optical fiber cable. For the fiber itself, from 10 million fiber kilometer to 25 million fiber kilometer. Both of these are under progress at this point of time. Fiber optics, for optical fiber, once we produce such high capacity of fiber, company will be making additional profit because currently, I'm saying that the current data, the current rate difference between own manufactured fiber and the fiber which we bought from outside, the difference is INR 100. Once we produce additional 15 million, the benefit of INR 150 crores to the company on every year basis.
Demand of optical fiber cable worldwide has picked up significantly, and company is, you know, increasing its capacity to meet demands from its customers. Now, coming to exports, what you asked. You know, we have grown our exports consistently every year.
Right. My second question would be, are you taking any-
Sorry.
Ladies and gentlemen, the line for the management is disconnected. Please hold while we reconnect them.
Hello? Hello?
Ladies and gentlemen, we have the line for the management. Please indicate. Rakesh , you may go ahead, sir.
Yeah, sorry. You know, I'm in U.S. at the moment, and somehow the lines are malfunctioning. What I'm saying is that with the increase in demand of optical fiber cable worldwide, we have taken effective steps to meet the demand of our customers. Our exports have increased by 125% in the last financial year, which we believe that INR 837 crore export. We are targeting the fiber optic cable export itself between INR 1,500-1,500 crores in the current financial year, which is financial year 2023-2024. These exports are going to increase further in the next financial year with the export of networking and telecom products we propose to start, which we are bringing in the market and manufacturing in the current financial year progressively.
Optical fiber cable, good proposition, good opportunity, and company is making out, you know, good profits from this opportunity and increasing revenue also.
All right. Thank you, sir.
Thank you, sir. We'll take the next question from the line of Mr. Siddharth Mallya from Ed Group. Please go ahead, sir.
Yeah. Thanks for this opportunity. Just a follow-up to the discussion that you're doing. Basically any... You're not seeing any recession, etc., across in countries like Europe, U.K., or maybe some U.S. perfect. I mean, you're looking at exports to be little robust currently as well as next year.
You know, I don't foresee any recession as such. Demand may be stagnation for some time. Stagnation in a sense that if you are selling, you know, worldwide demand is 60 million fiber kilometers per month, it may remain 60 million. It may not reach to 60 million in a particular month. Stagnation is not expected, you know. The demand of 600 million, which is there, will continue. Our capacities have increased worldwide, no doubt about that. Capacity will increase because demand has increased, every manufacturer increased capacity. Now issue is in export is who is able to get the market share. What HFCL is targeting to get a market share is, you know, minuscule to the whole worldwide market.
We don't see any problem in reaching to our targets, of, you know, INR 1,300 crore-INR 1,500 crore in the current financial year, because we have gone into the additional markets in the countries we are operating through our sales people, our own employees or agents, we've increased the number. More significantly, we are working with the United States at this moment. U.S. had a different kind of cable requirement which we have developed, and this year we expect some significant revenue to come from United States. In our case, we are increasing the geographical expansion, and within countries going to more customers. Major markets like the U.S., which we had not entered into, till last financial year, we are now entering into those markets.
I don't foresee any reason to, you know, see that, we will not be able to meet our targets. Last year you know, we were able to do more than our target. I think this year also we will definitely be able to meet our target.
Fair to assume that exports can be more than 20% or 25% of the overall going ahead.
You know, when I say that, about INR 1,300-1,600 crores, yes, it can be around that number. I would not commit on exact 25% or 27% or 22%.
Okay.
Yes, it will be around that number, surely.
If you can give some perspective with regards to margins in export markets or overall with the increasing the optical fiber capacity, how should one increase incremental EBITDA or overall margins playing out in the next period?
Look, you know, in terms of net margins, net margins on optical fiber to the export and on an overall basis, you know, it will vary from contract to contract, but overall basis, 10% should be the number you should take into account for calculation of, you know, margins on exports. Overall basis, you know, net margins about 10%, you can assume.
Okay. At an EBITDA level, it depends on contract, or would it be kind of any different from the domestics?
You know, again, it's as I said, you know, it depends from contract to contract, you know.
Okay.
Sometimes the contract will be giving you less margin, sometimes more. Inherently export margins are bit higher than the domestic margins, because our domestic. Go ahead.
Working capital cycle for exports would be?
You know, generally the payments are working capital. You know, you can say 90 days payments. You know, generally the payments from the customers are 90 days.
90 days. Got it. Got it.
Yeah.
Last question from my side. Would we be free cash flow positive this year or within...?
I definitely expect that this year we should be free cash flow positive. You know, only, you know, issue I would like to raise is that we have been incurring CapEx also. Expansion in, you know, fiber optical cable, R&D investment. Those are targeted for long-term growth, you know. Even if we are not cash flow positive in a particular year, the point is we are making substantial investment for future growth. What we have seen, you know, like, for example, whatever investments are being done now are bringing in results. You know, many R&D investment, a lot of R&D investment has been done, which is bringing in new products in the current year, and this will bring an additional revenue possibility.
Fiber, for example, as I told you, that, we are increasing capacity by 50 million, which will cost us around INR 300 crores. That will bring in, expected to bring in INR 150 crores of profit every year because of price difference between manufactured and own, domestically, our own produced fiber. I would not be very much concerned about this year's cash flow positivity because these investments are going to make, but they are going to bring in long-term profitability to the company in a very near future.
Fair. Thank you. Thank you, sir.
Thank you. 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 a follow-up question, please join the queue. We take the next question from the line of Mr. Saral Seth from Indsec Securities and Finance Limited. Please go ahead, sir.
Yeah. Sir, thanks for the opportunity and congratulations for good set of results. My first question, how company is likely to achieve higher revenue with initiatives taken through its R&D procedures? Want to understand how R&D is going to play an important role for increasing our revenue.
Look, you know, Mr. Seth, R&D is going to play most important role in increasing the revenue as well as profitability. You have to understand that, you know. There are two ways you can bring in new products. Either you have a collaboration with somebody or you design your own products. If you design your own product, inherently you have higher profitability and you are not restricted to a particular market, you can sell it anywhere. What we have done in our R&D, designing a good number of telecom and networking products, which, as I said, one line is led by Wi-Fi and UBR kind of equipment, second is 5G related equipment. Some of the similar which can be used in both the cases.
With this kind of a R&D infrastructure, where we have got our own R&D for telecom equipment and networking products in Bangalore and Delhi, and also we have partnerships for R&D contracts we have given to companies like Vicco, companies like VVDN, companies like Capgemini. Those kind of companies where we have given R&D contracts. New products are coming at a faster pace. What is happening with this, these products once they come in, not only we will be able to meet the demand of operators in India, but we will also be able to meet the demand of operators abroad. We have already started seeking for these products to different operators.
As I said, what we are expecting, these R&D related products will bring in additional revenue of roughly about INR 800-1,000 crores in the financial year 25 itself. If you see, comparing the current revenue from these products is only INR 138 crores. With the launch of new products, these products which I am talking about, revenue is going to increase significantly. Because these are our own designed products, inherently they have a higher margin, our profitability will also increase significantly. This is a very transformational step continuously in designing this telecom products locally, because this will give us higher margins. Moreover, on the top of it, there is a PLI incentive given by Government of India to ascension to us for INR 650 crores.
All these are going to be added to the margin of this company, because it completes. Moreover, second thing what we are doing, R&D is not limited to telecom and networking products only. It is the cables also. Fiber Optic cables also we are doing lot of R&D. We have got our R&D center of this in Hyderabad, and also at the same time having R&D people in the U.S. also, who are helping us design various new kind of cables which are required in the export market. With this design of new kind of cables, with new construction, we are able to get higher market share in the Fiber Optic cable market. R&D is playing a significant role in increasing revenue profitability growth.
Understood. Sir, when we say that we are procuring products from a partner-l ike
Mm-hmm.
Are we paying any royalty to them, or how is it accounted for, sir? it's like-
We are, you know, we have a contract R&D, you know, where, you know, one or two cases we may be paying small royalties, but this is our own IP. They're designing for us. We've given them contracts to design the products for us and transfer the design and IP completely to us. Our own team is totally involved in designing those products. We do R&D.
Understood, sir. Sir, you've given a good color on the margin. I want to understand what could be the blended FY 2024 margin outlook and what steps are we taking to sustain the current profitability level, which has seen a huge increase over last couple of years?
Okay, now, we have taken, as I said in my presentation, few very important steps to increase our revenue and profitability growth. I will describe these four and five points which are really transformational steps and need to be understood clearly that these steps which we have taken are positively going to impact the working of the company. What are these steps? One, what we thought about strategy of the company. One, high impact R&D, design own products, increase revenue from them, and they will bring in more profitability and higher addressable market. Bigger market opportunity, higher profitability, increased revenue, which is products we have explained in detail in earlier question. Second step we have taken, increase our revenue from private operators.
As you have seen, we have gone to 83% now in our revenue from private operators, which used to be less than 30% previous months. It's 83% now. Government revenue is only 17%. Third, what we have done, increase our revenue from products than the EPC contracts. What you have seen this year, revenue from products is almost about 50%-57%, which used to be much lower than that couple of years ago. Fourth, what we have said that we need to increase our exports. Exports this year has increased from INR 360 crores to INR 837 crores, which is increase of 125% year-to-year on this. Capacity expansion, including that with higher throughput utilization.
Fiber capacity is being increased to 15 million, and I think bringing an additional profitability of INR 150 crores tax effectively, owing to the difference in the current prices, and increasing cable capacity, which is going to bring a higher revenue and profitability growth. These steps, export increase, market size increase, our own products, higher value creation products, going to more to the private operators, going more to the products than the EPC contracts. All these are bringing in higher revenue and profitability and will make it sustainable for long term for the company in terms of increasing revenue and profitability growth.
Sir, can you share your capacity utilization on blended basis for the quarter and the full year?
Capacity utilization in Fiber Optic cable is almost 100%. Almost 100. All our factories are working 24 by 7.
Okay, sir. I'll follow back. Thank you.
Thank you.
Thank you, sir. We'll take the next question from the line of Mr. Sahil Sanghvi from Monarch Networth Capital. Go ahead, sir.
Yeah. Thank you for the opportunity and, the admissions, for a very good business townhouse. Sir, I have mainly two questions. First, you have
Mm-hmm.
How much is product-based orders and EPC orders? Also-
Look here.
It's product orders.
Sahil, one thing I would like to make clear, that product revenue and product orders are received on a regular basis. It's not like EPC contract, where you receive an EPC contract of 2,000 crores, and that is recognized over five-year timeframe. It is the product, you know, those EPC contracts are, you know, those orders are of different kind. When it comes to product orders, they are received on regular basis. Like, for example, fiber optic cable. You keep on receiving orders, 60 crores, 80 crores, 40 crores, 50 crores, 100 crores. You keep on receiving orders like that. Whereas orders for, you know, contracts, you know, EPC contracts come in bulk. Orders do not reflect the correct position.
In terms of order book right now, I would say, just let me get the numbers. In terms of orders, I would say about 70% orders are of EPC contract, 30% would go into product contracts.
Right, sir. This product-based orders proportion will keep on increasing, right? I mean, once we, you know, next quarter we launch.
Yes. Yes, this will increase. This will definitely increase because of increased number of products which are being inducted, and also at the same time increase in capacity.
Right. Sir.
Let me tell you one more thing. In terms of revenue, if you see, the position is reverse. Reverse by 10-15%. That is the difference I want to talk about. Like, you know, orders does not represent real revenue. Orders are EPC contracts are like orders coming at one point of time. Product orders are coming in a large number of orders but small quantities. That's how you see that, okay.
Right, sir. What would be the export and domestic mix over here?
Export and domestic mix, you know, our export has been about 17% of the revenue. 83% has been domestic. Last year it was 7% and 93%. It is now 17% and 83%. What we are targeting to reach to 25% in the current financial year, around 25%.
Right, sir. Right. My second question would be, you said the margin got affected because of these telecom products. What could that be? I mean, I understand it differs product to product, but what range can we expect for these telecom products?
You know, it differs from product to product, you're right. You know, some products which are, you know, highly competitive and number of manufacturers are more, but demand is high, the margin is less. Generally it will vary. Generally, the net margins will vary between 15%-20%. Generally.
15%-20% is the net margin number?
Net margin.
EBITDA would be, sir? Any idea?
EBITDA could be around, I think, 35%-40%.
Okay. Okay. That's all from my side, sir. All the best. Thank you, sir.
Thank you.
Thank you, sir. We take the next question from the line of Mr. Hemang Kotadia from Anvil . Please go ahead, sir.
Yeah, sir. Congratulations on the good set of numbers. Just one part, when will the defense product revenue contribution will rise significantly in which year actually, where we will see?
You know, defense, as I've said in the last conference call also.
Mm-hmm.
You know, it's a market which, lot of perseverance is required.
Okay.
We are being, you know, working on various, you know, products, which includes electronic fuses, which includes upgradation of BMP-2, which includes night vision sights, all, you know, three, four, which include software-defined radio, these kind of products. I don't expect any significant revenue coming in 2023-2024. I expect revenue start showing up 2024-2025. When it shows up, it is going to be highly sustainable because as it is difficult for us to enter into the market, it is going to be difficult for others to enter into the market. What are the products which we have gone ahead with? Night vision sights for the small arms, which is for rifles and light machine guns we have designed ourselves.
Mm-hmm.
With 12 micron technology, which core has also been designed by us. What I mean, you know, any company in India would have designed 12 micron core. Worldwide also not many companies have designed 12 micron core. We are now going into the next version. We are going to be working on 8 micron core also. That is the part. This 12 micron core-
Mm-hmm.
based night vision device, it is already located in tenders. We have already participated in tenders. I expect to get some orders in the current year, which we will start fulfilling in the current year. Some small revenue may come up from these contracts. The higher revenue, I expect starting from next financial year only. you know, it's long-term. It takes long time for testing, trials, all kind of things, you know. Night vision devices, upgradation of BMP-2, you know, fuses, all that time, you know. you know, we have to invest money, but finally the return would come and it will be a long-term, you know, long, long-term sustainability.
Right. What is the annual demand from the, like, Indian defense industries for this kind of product in a number basis?
Oh, I think, you know, I don't have current number right now. Out of the defense budget of INR 260,000 crores, they are spending about 40% on capital acquisition. You can easily say INR 1 lakh crore is being spent. INR 1 lakh crore plus is being spent by Government of India in acquisition of, you know, arms every year. The government all the time saying increase production of these arms and ammunitions indigenously.
Okay.
There is a huge impetus on that. Which is resulting in increased domestic production and domestic acquisition of these arms. Though we are in that sector, but whoever are there in the market, they are having increases their revenue, and that would be in our case also, because we have entered late but products are coming up. Demand is officially huge and government is now saying produce indigenously. Indigenous demand would go very high, which is good for us.
Is it possible, say, we can achieve, like, INR 1,500 crore of turnover from defense products in, like, next, let's say next five years? Annually.
Panaya, it would be very, you know, difficult to, you know, commit like that. Yes, I can say that opportunity is good, and we can definitely target INR 800 crore-INR 1,000 crore of revenue in next four to five years. We can definitely target. It all, you know, depends upon how the contracts are finalized. Yes, four to five years we can definitely target because we have done huge amount of work in defense electronics. We can definitely target that. You know, one of the products we have already started bringing in the market, radars.
Mm-hmm.
We have already designed and bringing to the market where customer qualification are being done. These surveillance radars for border and critical infrastructure protection. For short range, medium range, long range radars, all three have been developed, designed and developed by us with higher technology, latest technology radars, which are already in the market.
Yes. Yes. Yes. That's great. Great. Hopefully achieve INR 1,000 crore numbers over four years.
We definitely can target.
Right. Right. Right. My next question, because, coming year is the election year for India, so how uncertain, you about, your EPC and really order book side of the business where we can have a large contract getting-.
Well, I don't think it would much impact these numbers. you know, this EPC contracts, you know, customer demand-based. Private operators are not impacted at all. You know, they would do contracts as they require. These government contracts sometimes are at increased pace.
Yes.
before the, one year before election because government would like to show-
Yes.
-completion of more projects. When the election comes, it's natural for any government, you know, state or central government. Yes, that may have some increased, you know, award of contracts. Yes, I don't see any major upheaval here.
Okay. My last question for FY 2025, what type of console revenue vision, what we are aiming for actually, as a company level? What kind of.
Look, you know, the roughly INR 700 crore revenue which we have achieved in the current financial year.
Right.
We are definitely aiming for increase in about 15% to 20%. Definitely aiming to increase because of the increased capacity and bringing new products, 15% to 20% is aim is there, of course.
Okay, sir. Okay. Fair enough. Thank you very much. All the best.
Thank you, sir. We take the next question from the line of Mr. Rakesh Roy from Kumkum Capital. Please go ahead, sir.
Hi, sir. Sir, my first question regarding to the defense business. Sir, how much margin we are making in defense business?
Look, you know, Rakesh, as I said, we have not started making revenue on the defense business, so there's no question of margin right now.
Yes.
But when-
Yeah. Yes, please. Please, sir.
Once the defense business starts and revenue starts increasing, yes, I expect something like 15% margin to net margin to come from this business. It is so difficult to enter in. Entry barriers are so high, so at least you would make 15% margins in the defense business when the revenue starts coming.
Okay, sir. Sir, are we looking any joint venture with any foreign player to bring in new technology for in India or for-
No, no. Right now we are not looking at any of such joint venture. You know, discussions keep on going on, you know, a number of companies. These are going on at this point of time. These are, you know, not at a serious level where I can say that we are bringing in this or that. Our more emphasis is to develop products indigenously, so that even if you have small number of products, maybe revenue is less, but your profitability is high. That's the way we are working.
Okay. Sir, in defense business or defense products, we would directly bid to government or we get that order from the others like a BEL or like this one?
Mostly we have directly bid, you know, into the army and air force, you know, these kind of contracts. Not BEL and all that.
Okay.
A couple of orders have come on a turnkey, which are through, you know, not through, you know, some other PSU has got and he got orders from them with pre-agreed terms and conditions. Like with RailTel we have got a contract for, you know, one of the air force network for about INR 700 crores, which is under execution.
Okay.
Yes, other equipment, you know, like thermal weapon sights and all that, we have bid directly.
Okay, sir. Okay. Sir, thank you so much. That's all.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address the questions from all the participants in the conference, we are requested to please limit your question to three per participant. We'll take the next question from the line of Mr. Balasubramanian from Arihant Capital. Please go ahead, sir.
Thank you so much for my taking my question again, Sir, on the balance sheet side, operational buyers credit and suppliers credit has increased to INR 15 crore to INR 168 crore in FY23. Can you please share more details under balance sheet item?
yeah. Balasubramanian, the DSN decide. This is a normal business in transition and securities being offered by these commercial banks. What happens in some cases, wherever we open sites or this, banks on their own have a scheme to give us a credit of 60 days or 90 days. That is covered under the supplier credit. That is being shown in separately in the balance sheet.
Okay.
These dues are against LCs only. They're being shown separately.
Okay, got it, sir. Thank you.
Yeah.
Understood.
Next question from the line of Mr. Dipesh J. Sancheti from Maanya Finance. Please go ahead, sir.
Yeah. Am I audible?
Yes.
Yeah, yeah.
Yes. Yes, sir. First, my first question was actually regarding the antidumping duty. Have you applied to the government for any antidumping duty for optical fibers? Today on few of the business channels it was, there was a flash that there might be an antidumping duty. Companies have applied for antidumping duty on optical fibers.
Look, we are neutral. We are neutral to this, you know. We have not applied. We are neutral to this because our own fiber optic capacity for production of fiber is going up. If the duty is more, we are.
Mm-hmm.
We have no problem. What has been recommended by Commerce Ministry to Finance Ministry is yet to be accepted and finalized, but yet it has been recommended by the Commerce Ministry. We are quite neutral to this because we produce so much of fiber by ourselves that even if the duty is there, it is not effective. Moreover, important point is that there is no antidumping duty on the fiber which you use for export of cable. If I manufacture some cable for exports, there's no antidumping duty there. When we are importing fiber, lot of it is for exports only.
Mm-hmm.
we would not be impacted by that either. Domestic market, we produce enough fiber for, I guess, our domestic consumers, so we would be rather protected than, you know, harmed in any way. With our increasing capacity, we have a further protection. The problem would be to the smaller players. You know, smaller players who are not producing their own fiber, they will have a lot of a problem because they will have to pay higher price and their competitiveness will be little lower. I really don't support this, you know, antidumping duty because people should be competitive enough to face competition. I really don't support, but as a company, we are not impacted.
Okay. If there is any antidumping duty, it will be beneficial for our company since we are integrated in all terms.
I'm neutral to that. I am neutral to that, you know. Ultimately it will be empty.
Ultimately it will be beneficial. Can you tell me, can you share the number of, how much has been recommended by the Commerce Ministry?
You know, it can, nothing we can change. It's yesterday only. Because, you know, different from company to company, country to country. China, for an example, where the most of the fiber is coming, there some of the companies are about INR 60 per fiber kilometer in terms of transformation to dollar. No, no. INR 50 or, half a dollar. Sorry, half a dollar. Half a dollar per kilometer, which would amount to about INR 40-45. Some of them are little higher, some of them are little lower.
Okay. As a percentage-wise, how much is it to the?
As a percent, if you take the price of fiber as $4 on average, it would be about 11%, 12%.
11%, 12%. Wow. Okay. Sir, if you, my second question, the last one, is actually if you can give me, if you can give us a revenue mix product-wise, for this quarter or for this year?
Today revenue mix, you know, if you ask only for the, you know, you look at revenue mix for the products or you are talking on overall basis?
No, overall basis. As in how much revenue is optical cables has done, how much has done in the products?
I can tell you. You know, on a consolidated basis, 57% or 56% of revenue has come from products. 54% from turnkey. If you go to the products itself, within products, 87% has come from optical fiber cable. Rest has come from other areas.
Okay. This is set to increase in the coming years.
Yeah. You know, two things are going to happen. You know, one, the revenue from other products, telecom and networking products, is going to increase significantly. Overall revenue from fiber optic cable will increase, but percentage may go down. You know, like for example, our optical fiber revenue, cable revenue, has been INR 2,300 crore in this last financial year, which was INR 1,787 crore in the year before that, and maybe INR 1,200 crore years before that. INR 1,200 crore, INR 1,700 crore, INR 2,300 crore. This kind of number, this is increasing. Currently year, we are targeting INR 2,800 crore. Number will increase, but the INR 108 crore of revenue from products which I mentioned, in two years from now it will go to INR 1,000 crore. It will go to INR 1,000 crore.
Percentage in cable may decline, but overall revenue from cable is increasing and networking products will increase.
From the current order book, what is the, how much is the percentage of products in optical fibers?
Seven thousand five hundred crore.
INR 7,500 crore order book. How much is the optical fibers percentage?
It is 10%. It is 10% of the total order book currently. In optical fiber cable, we have a running order book. We keep issuing orders regularly and those are executed. Yeah. That's what I said in the beginning. You know, in products, orders keep on coming in small quantities, and they are keeping on being executed. That is not going to reflect you percentage of revenue on overall basis. Yes, orders are there, and it keep on coming on regular basis.
Right. Thank you so much, sir. Thank you.
Thank you, sir. We take the next question from the line of Mr. Hardik Vyas from Economic Times. Please go ahead, sir.
Hi, sir. I had a couple of questions. The first one is, you guided that roughly INR 5,000 crore of TPC order book we have. I hope that they are not low-margin orders like we saw in the current quarter, less than 5% margin. It would be of the normal margin kind, like 8%-10% margin.
Yes, yes, definitely. I think we have maintained. Our overall basis margin has been maintained. Despite an observation that particular contracts we executed were at a low margin in the current, in the last quarter, I can assure you that overall basis, the margins are going to be totally intact, and in future are going to grow only because we are not taking contracts which are low margin contracts now.
Okay. The other question, sir. What is the idea on OFC pricing? Has the pricing been gone up because of the demand increasing in the U.S. and worldwide, or the pricing remains more or less the same?
The prices has gone up a bit. I will tell you, the fiber realization per fiber kilometer has been higher. Quarter one of the last financial year, it was about INR 1,100 per fiber kilometer for that cable. In the Q4 , we have achieved a number of INR 1,254 per fiber kilometer. It does not mean that everybody would have achieved that. It all depends on the mix of the products and how much you have exported, how much you have given to the private operators, how much you have sold in the export market. Generally, yes, it has gone up by, let us say, 10%.
Okay.
Which is significant. 10% is very significant.
Yeah. My last question is, what is our status on 5G products? Contribution is limited, as we speak right now.
Yes.
how execution is likely to pan out over the next, six to eight quarters, because a lot of products we are going to introduce in the market in the coming year and the next.
You know, as I said, you know, 5G products are being brought up by the company. From another two months, it will come, start coming 1 by 1 in the market. I would say that, you know, you will see the products being in market in this two-three months. Since I'll and all that being done by operators and, you know, orders are being placed. Orders would start getting executed somewhere around Q3 of the current financial year. After it has started getting executed in Q3 , it will continue overall basis for many quarters to come. Absolutely. They are going to be upgraded. They are going to be new demand. Going to be demand from different, other completely different operators. It is going to be increased every quarter.
This is for the products for 5G ETC as well, because operators would also be wanting us to do some E-ETC contracts with them.
these are products, you know. Many times operators give you a contract installation, commissioning included. That is not really etc. That is not really etc. That is contract with selling products including installation, commissioning.
Okay. Okay. From third quarter of this year on-
Yes. Yes. Yes. Revenue start coming up.
Okay. Okay. Thank you so much and all the best.
I think, operator, now we will take one or two questions more because it's already quite a lot of time.
Thank you, sir. Ladies and gentlemen, your time call stream. That was the last question for the day. I would now like to hand the conference over to the management for closing comments. Back and over to you, sir.
Thank you very much to all of you for having patience and listening to the results of the company for financial year ended 2023, and quarter four of 2022, and giving me the time and opportunity to explain you what steps company has taken to sustain revenue. Not only sustain, but increase revenue and profitability significantly in future coming years. What steps company has taken. I really enjoyed the questions, and I am sure answers would have given you would have satisfied the queries which you had. Thank you very much once again for your time, for being on the call. Thank you very much.
Thank you, sir. Ladies and gentlemen, you may directly connect to the company for any further questions. On behalf of ICICI Securities, this concludes this conference. Thank you for joining us, and you may now disconnect your lines.