Ladies and gentlemen, good day, and welcome to the HFCL Q3 FY23 earnings conference call 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 and then zero on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Mahendra Nahata, MD, HFCL. Thank you, and over to you, sir.
Thanks a lot, good afternoon, ladies and gentlemen, and greetings for the new year, 2023. A warm welcome to HFCL's earnings call for quarter three of financial year 2023. I truly appreciate and express my gratitude for making it to HFCL's earnings call for the third quarter of the financial year 2023. I'm sure that you got a chance to go through our financial results, press release, and investor presentation, which are available on the website of the company and also on the website of stock exchange. Friends, our country has recovered to a large extent from the aftermath of macroeconomic challenges posed due to pandemic and geopolitical situation. We all applaud our government, the Reserve Bank of India, and our policymakers for handling the situation so well and setting India on a path of economic growth.
As a result, World Bank has upgraded India's economic forecast for financial year 2023, citing the country is showing high resilience to global shocks and robust domestic demand. The telecommunications sector has been at the forefront of India's technological growth, ushering into new advancements and enabling innovations. Impact of supply chain disruptions due to ongoing Russia-Ukraine conflict also seems to have eased a bit further during this quarter. For us, quarter three of financial year 2023 was earmarked with some significant developments, including the launch of our 5G products and services during India Mobile Congress of 2022, coupled with a prestigious partnership with Qualcomm for the development of innovative and futuristic 5G products.
Further, we received the approval to avail incentive up to INR 652.79 crores under the PLI scheme from Government of India, which will give us a boost to the production of indigenous telecommunication from India. With the favorable industry tailwind, we bagged key orders from prominent domestic and global players. The demand for our new range of optical fiber cables in key markets remained high, leading to a stellar performance on export front, which grew by 140.38% on year-to-year basis. We have been able to close quarter three with an outstanding order book of more than INR 7,000 crores. As India undertakes one of the fastest and largest 5G infrastructure rollouts, there has been significant progress on homegrown 4G and 5G stack.
The next couple of years will be exciting for the telecom equipment industry as the leading telcos are planning massive orders for 5G rollout. During the fiscal of period of 2023 to 2028, the addressable market size of various 5G products and services globally, which includes, of course, 5G transport products, 5G RAN products, and system integration services, is estimated around $400 billion. To meet this impending demand emerging from the 5G network rollout in India and also the global market, we launched some key innovative products at the India Mobile Congress 2022, which is Asia's largest telecom, media, and technology forum, held during October 2022. We launched world's first open source Wi-Fi 7 access point, 5G 8T8R Macro Radio Unit, which combines power of vRAN and open standards to accelerate 5G deployment.
We also launched 5G network service facility to accelerate rollout of 5G solution services. To sustain innovation and technological breakthroughs, we collaborated with industry leaders like Qualcomm Technologies for designing and developing various 5G products. The telecom industry has continued to witness a strong investment momentum on the backdrop advent of 5G, deepening of five FTTH penetration in the country, ongoing BharatNet projects, proposal for modernization of railway and defense telecom network, and NHAI's telecom initiatives launched by the Government of India. Also, with hyper-scaling of data centers and 5G networks, we are seeing a manifold rise in the demand of fiberization and telecom networking products in India. In order to create a strong 5G network infrastructure in India, the telecom industry will witness an investment of at least INR 2.5 lakh crore - INR 4 lakh crore in the next five years to facilitate 5G rollout in India.
The domestic optical fiber cable market environment continues to be strong, with the current market demand for optical fiber cable product at 25-30 million fiber kilometer per annum is expected to grow significantly over next few years on account of creation of 5G network across country, expansion of existing 4G networks, deployment of fiber to home network. Implementation of BharatNet project and creation of multiple data centers across the length and breadth of the country. In India, BharatNet alone will lead to an opportunity of laying 16 lakh kilometers of optical fiber cable, translating into almost 50 million fiber kilometers of fiber. Until June 2022, the level of fiberizing India was at 35% against the ideal requirement of 75% for the launch of 5G services.
Indian telcos are estimated to have spent $1.5 billion-$2.5 billion on optical fiber cable in the next 3-4 years. The current global demand for optical fiber cable is around 650 million fiber kilometer equivalent cable, which is expected to grow significantly on account of 5G roll-outs, FTTH expansion, and creation of multiple hyperscale data centers. As the largest supplier for optical fiber cable in India, HFCL has been focused on developing the new age, low diameter cables like microduct cables, FTTH cable range, micro-module cables, aerial cables and underground cables for meeting the growing global demand. As already informed, significant development during this quarter was our export growth of 140.38% on a year-over-year basis, and we are optimistic to continue with the same trend in coming quarters by accessing more geographies.
Our powerful and robust innovation has helped us in establishing a global footprint of 30-plus countries and serving up to 80-plus clients on the global front. With our own employees in places like Dubai, France, Germany, England, Netherlands, Kenya and the US, we are further deepening our customer relations and widening our global presence. Leading global economies, including the US, UK and Europe, are some of our key focus markets. During the quarter, one of the key milestones was to receive approval under the Production Linked Incentive Scheme from Government of India, avail incentive up to INR 652.79 crores over a period of five years during the financial year 2022/2023 to financial year 2026/2027.
As part of the development, we have earmarked an investment of INR 425 crores over a period of next 4 years, starting from financial year 2022/2023, for manufacturing of various telecom products, including 5G equipment. In order to avail the benefits under the PLI scheme, board in its meeting of 23rd January 2023, has given its approval for setting up a manufacturing facility for telecom and networking products in Gurugram, in the state of Haryana. The participation in the PLI scheme will enable us to support the government's initiative of Make in India and make us more competitive in global markets. The board in the said meeting also decided to further the existing optical fiber manufacturing facility by 15 million fiber kilometer per annum in Hyderabad, where company's optical fiber manufacturing facility already operates at.
Instead of our earlier plan, setting up through its wholly owned subsidiary, HFCL Technologies Private Limited. The estimated CapEx for this proposed capacity expansion would be INR 357 crores, and the total consolidated capacity of optical fiber manufacturing, post-expansion will reach to 25 million fiber kilometer per annum from the existing capacity of 10 million fiber kilometer per annum. Further, HTL Limited, our material subsidiary, was recognized as Emerging Company of the Year during the 8th International Aerospace and Defence Awards, conducted in the recent DefExpo 2022 in Gandhinagar, Gujarat, making it a stepping stone towards expanding our presence in the defense arena. During the quarter under review, company has bagged prestigious orders from various Indian and global customers amounting to approximately INR 3,000 crores.
We have a stable order book of more than INR 7,000 crores as of 31st December 2022. Ladies and gents, now briefly on key performance metrics of Q3 of FY23. Revenue for Q3 stood at INR 1,086 crores as compared to INR 1,173 crores in Q2 of FY23 and INR 1,215 crores in the Q3 of FY22. However, EBITDA for the quarter stood at INR 193 crores as compared to INR 175 crores in Q2 of FY23 and INR 174 crores in Q3 of FY22.
EBITDA margin stood at 17.8% for Quarter Three of FY 2023 as compared to 14.88% in Quarter Two of FY 2023 and 14.36% in Quarter Three of FY 2022. For Quarter Three of FY 2023, profit after tax stood at INR 102 crores as compared to INR 84 crores of Quarter Two of FY 2023 and INR 81 crores of Quarter Three of FY 2022. PAT margin stood at 9.36% in quarter under consideration as compared to 7.18% in Q2 of FY 2023 and 6.67% in Quarter Three of FY 2022. Segment revenue for telecom products during the quarter stood at INR 693 crores as compared to INR 671 crores in quarter two of FY 2023.
From our financial metrics, you will kindly appreciate that on the backdrop of easing supply chain disruptions and reduced pressures on input costs, we have been able to demonstrate healthy growth in our order book, profitability and margins over last quarter. We are optimistic about tapping into future opportunities and believe that our order book, revenue and margins will continue to grow with the initiatives taken in the last few quarters. With 5G driving telecom operators and their innovation to a new high, HFCL is also witnessing a transformation towards emerging as a high-tech global enterprise and integrated next-gen network solutions provider. Having established a strong footing in industry as a leader in optical fiber cable manufacturing in the country, we'll continue to offer more robust and high-tech solutions with open source technology.
In financial year 2023, 2024, we'll further continue to invest in R&D and focus on our strategy of tapping new customers, new geographies with new products. We aim to grow with strong contribution coming from exports, product segments and private customers. We are also looking at strengthening our order book further, which is over INR 7,000 crore in the quarter three of financial year 2023. To conclude, I would like to say that given the opportunity landscape in India owing to the 5G rollout, deepening of FTTX penetration, ongoing BharatNet, railway, defense and NHAI telecom projects and hybrid scaling of data centers, we will continue to leverage our capabilities and make the best out of available opportunities to innovate further. Thank you once again for your keen participation. With this, I conclude my opening remarks and open the floor for question and answer session. Thank you very much.
Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star two. Participants are requested to use handsets while asking a question. Anyone who has a question may enter star one. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Aman Vij from Astute Investment Management. Please go ahead.
Good afternoon, sir. First of all, congratulations on the very good performance on the optical fiber segment. Sir, I wanted an update on the other segment as well, which is the defense segment. If you can talk about what is the update on the electronic fuse tender as well as electro-optic tenders?
Aman, the performance has overall been robust, not only on optical fiber cable business, but other areas also, including the project and the services. Project for fuse is concerned, that is yet to be decided. There are a lot of issues going on and which are under discussion. A defense related project, I would not like to go in more details at this point of time, but it is yet not decided, and I believe that, you know, the tender is under consideration and let us see, you know, what decision finally the military authorities take, keeping the best interest of the country in view, in next two weeks' time. No decision has yet been made. In electro-optics, a tender we have participated, which is under evaluation. Technical testing is going on.
We have submitted samples for totally indigenously designed electro-optic products. Not only indigenously designed product, but the core, which is the heart of the system, has also been designed by us. I think we are one of the probably the only Indian company which has designed a 12-micron core by ourselves. Only the sensor has been purchased from outside. The rest is design is done by ourselves. We are probably the only Indian company which has designed a 12-micron core by itself, which increases our competitiveness and quality performance also. It is under evaluation, technical evaluation at this point of time.
Other couple of areas also, we are making good progress in Defense, though, as you know, Defense revenue takes time, and I have been saying repeatedly on every call that we don't expect any revenue in the current financial year from Defense because all evaluation and its performance checks and all these are going on. It should start picking on from the next financial year and then increase further in the coming of financial years. We are already working on couple of more projects for Defense, including, as I had informed earlier also, modernization of BMP-2 armored personnel carrier that is going on. A bench test has already happened. We are now equipping the BMP-2 with our optoelectronic products and control systems. That evaluation will take place in the month of March.
Similarly, we are working on software-defined radios, high-capacity radio relays. These are the four, five different projects we are working. Revenue would start coming from the next financial year, but a major growth would be from year next to that.
Sure, sir. Just a clarification on this, and then I'll move to my next question. On the fuse side, sir, you had explained that the tenders last time, there were some issues and the government had given, sorry, the army had given the tender to this public sector companies rather than the private.
There is no tender has been awarded to anybody. No such tender award has happened.
Okay, okay. They were supposed to come in with new tenders-
They were allowed to participate.
Award has not happened.
Okay. What I understood from the last call you had mentioned that I think only the public sector company's products were allowed to go through the second level of trial, and private companies' products were not allowed to go, and that is why private sector had complained to the Ministry of Defense. I just wanted.
That still remains the same.
After all this representation by all private sector companies, no decision has yet been made to award tender to anybody. Let us see what decision government finally takes, in terms of, giving, you know, chance to private sector companies again to try their products. Private sector companies, to my knowledge, best of my knowledge, out of the three, you know, have indigenous technology with own IPR. At least HFCL has got own technology with own IPR, and which serves the real purpose of self-reliance, Atmanirbhar, particularly in defense sector, and which is under consideration of defense authorities. That is much I can say.
sir, the trial has stopped for everybody or only the private players now?
Pardon me?
The trials which were going on, have it stopped for everybody or only the private players and public sector, trial has still?
It's not not stopped in a sense that decision is yet to be taken that whether, you know, as a second chance had been allowed to the public sector companies, our representation is that once you have given a second chance to those companies, you have to give the same parity to the private companies also.
Sure, sir. That's right. On the electro-optic side, you said, sorry, what is the tender that you have already bid for?
This is a tender for, I think, light machine guns or assault rifles, one of them, because their equipment is same.
about 5,000 sights for, you know, this night vision devices, and that is under evaluation.
Sorry, what is the rough order size of such for?
I cannot say. The price has not been opened up, Aman, so I cannot say the price, you know, the size. It's a 5,000 unit and more such tenders are coming.
Sure, sir. You said we are among the only players who have the indigenized product in this.
No, no, I said indigenized core. Product, other people have also indigenized, but within that, you know, within the whole product, the major cost is the core. The core we have indigenized. It's not only the indigenous product, the core has also been indigenized. You know, it's something like equipment where chipset, for example, you indigenize. Here the core is the basic heart of the system, heart and mind of the system. We have indigenized that.
Sorry, how many players were there in private sector who have bid for this?
I think there must be six, seven players. I don't remember exactly, but there must be six, seven players.
Sure, sir. Last question on the defense side. You had mentioned that FY 2023, there won't be any revenue. FY 2024, maybe some, and FY 2025, the scaling will happen.
Yeah.
According to your rough estimates, what can be the numbers in FY 24 and 25 in defense for us? We have four, five products. Which do you think will commercialize first?
Right now I can't, you know, project a number because it's too early to say that. Yes, next year I expect some INR 200 crores of revenue come from this. To project the year next to that would be too much of a forward-looking statement I would not like to make at this point of time. Yes, there will be significant growth, that much I can say.
Out of the 4, 5 categories in defense, which do you think we will be able to commercialize first?
I think electro-optics will be the first one to be commercialized.
Okay, followed by which one?
Followed by, it may be the upgradation of BMP-2, it may be the filters also, yes.
Sure, sir. This time you have updated the presentation, and you have talked, a lot about the addressable market. In defense itself, you have talked about, domestic.
Aman, can you come back with the question because there are too many questions and other people are also there.
Sure. Sure, sir. I'll come back in the queue. Thank you.
Thank you very much. Ladies and gentlemen, we would request you to please limit your questions to two-three per participant. Time permitting, we request you to come back in the queue for a follow-up question. We'll take the next question from the line of Balas ubramanian A., from Arihant Capital. Please go ahead.
Good evening, sir. Congratulations for good set of numbers. Recently we have secured one of the EPC contracts in UP, like which is laying fiber optic cables to implement rural water supply network. We don't have expertise in rural water supply network, like how we are going to manage this project and what kind of profitability we can expect in this project? What kind of margins we can expect? Because right now, we are facing pressure on EPC contracts on margin levels. What are the minimum criteria we have, we are looking to select the projects?
Good question, Mr. Bala Subramanian. First of all, let me tell you know, I'll first coming to expertise, and then I will come to the rationale. As far expertise of laying water pipeline is concerned, it is the same as BPE duct which you lay for telecom network. There's absolutely no difference except the diameter. Only difference is that you have to keep the gradient in view, which you don't keep in view while laying telecom cable because water has to flow. In telecom, no liquid has to flow, so gradient you don't keep in view. Here, only the gradient you keep in view, otherwise the methodology of laying duct used of the material which is IPP duct in telecom, the same IPP duct is used here. Absolutely there's no difference in laying.
It is a combination like what we do in a backhaul network for fiber optic cable and fiber to home network. There is absolutely no difference than that. Technology is same. Way you do it is same. Only the gradient is the thing which you have to keep in mind, which is not a very not a difficult thing to do at all, number one. Our rationale of taking. You know, worldwide many places I've seen that when you and even in India, Telangana, it has been done by the government in a Mission Bhagiratha project, that you lay down fiber optic cable while laying down, you know, water pipelines. Because the cost of laying fiber optic cable, if you look at, more cost is in digging than the fiber itself.
Here you're digging anyway for laying the water pipeline, you might as well put the fiber also. What I said, let HFC do this experimentation in Chhattisgarh and many other parts of the country, if this is successful, that we lay fiber optic cable together with this. Because here this project is making pipeline reach to every home, we will make fiber optic cable reach to every home, which is anyway the objective of Government of India under BharatNet program. Also at the same point of time, operators are also looking at taking fiber to home at a lower cost because ARPU from the villages may be lower. Lower cost can only happen if the CapEx is low. Here, since the cost of digging is not there, cost of ROW is not there.
The cost is expected to be much lower than what you would have incurred if you had laid down fiber optic cable alone for the telecom use. Since the cost will be lower, expectation of ARPU would also be lower from the rural subscribers. It is expected to be beneficial to operator also, to government also, and we get additional revenue. This is a new experiment we are doing in the country, so as that if this is successful, we would like to do this in the more number of areas. This is the first such project where anyway only water pipeline, we have decent profit. We are doing survey for the telecom purpose also, and we are going to lay fiber optic cable also in selected areas.
Coming to profit, we are targeting at least about 10%, profit before tax margin, 10% PBT in the project, which we have no reason to believe that why it would not be there. I mean, certainly it would be there. 10% PBT is expected out of this.
Okay, sir. Got it. Sir, my second question, our telecom product share increased to 64% versus 42%, like our margins also substantially improved, EBIT margin improved to 19%. Like, if the telecom product shares crosses above 70%, we may, what kind of EBIT margins we may expect, and what kind of working capital cycle improvement we may expect, sir, in over medium term?
Look, this is one of the strong performance, area of the company, which you have really pointed out very well, Mr. Balasubramaniam. You know, if you look at in the current quarter, our product revenue is 64%, as against it was 57% in the last quarter and 42% in the same quarter of the financial year 2021. 42% in 1 year has become 64%. If you really take it 9 months of the year, then this year we have, you know, you know, reaching to the 64% in the current quarter, but 60% in the 9 months. Compared to the same 9 months in the last year, it was 41%.
If you compare one year back, go back by one year, financial year 2021, it was only 27%. Financial year 2022, it became 43%. This year, this quarter it is 64%. We have been rapidly growing our revenue from product, which has been my key initiative, as I have been talking every earnings call. That we have been rapidly growing our revenue from products rather than projects. Project which was 73% in March 2021, it has gone down to 36% in the current quarter under review. We expect to continue this. Our strategy is to, you know, not to stop taking projects. We will keep on taking projects, but which are not draining our cash flow, number 1, and at the same point of time, which are profitable.
If you look, we have not taken any major telecom turnkey project in the current quarter. We have taken this water supply together with telecom, where the payment conditions are good and the profitability is there, but we have not undertaken any large telecom turnkey project. There were many under offer. We could have taken INR 2,000 crores, I can tell you, INR 2,000 crores, but we did not take it because payment conditions were not good. We just left that at that. Strategy is to take more revenue from products, but not to forget the projects. If it is cash flow, negativeness is not there and profitability is there. For example, we are doing this Reliance's telecom turnkey projects.
We are implementing their fiber optic cable network in North India and FTTH network in North India. Payment condition is good. So we have no problem keeping on implementing that project because there is no, you know, negative cash flow. There's no cash flow problem in that project. We'll continue to do that. Yes, we will not take highly negative cash flow projects which have, you know, which creates a cash flow problems for us.
Sir, what is the average, working capital cycle for telecom products, and EPC contracts, unlike if you could?
Overall basis, I would tell you, it is about 125 days working capital cycle. Products and this mixture, you know, if you do is on an average. If you say only products will be roughly 90 days, and that could be roughly 150 days or so, 170 days or so.
Okay. sir, on that, optical fiber CapEx around INR 357 crore. What is the CapEx for optical fiber cables?
No, this is INR 356 crore only for optical fiber.
Okay.
Optical fiber capacity enhancement of 15 million fiber kilometer.
Mr. Balasubramanian, may be requested to please return to the queue. There are several participants waiting for their turn.
Yeah. Thank you so much, sir. I'll come back in queue.
Thank you. We'll take our next question from the line of Abhishek from Arihant Capital. Please go ahead.
Sir, thank you for taking question and congratulations in good set of margin. On the railway business, we are hearing last year.
Sorry to interrupt. Abhishek, I think you're on a hands-free mode. Can you switch to handset mode and speak? We can't hear you clearly.
Now it's audible, sir?
Yes.
Audible, ma'am? Okay. Congratulations on good set of numbers. I want to understand on the railway communication side, we have an order book of INR 309 crore. Railway is talking about the incremental CapEx, the higher budgetary allocation by at least by 25% going forward. Sir, what kind of work we are doing? Can you throw some light on how you see the railway business going forward?
Abhishek, again, a very good question. I must appreciate. You know, we have developed a good expertise in railway telecommunication. If you had seen yesterday's Times of India, there was a full page ad by Thales Integro that they have switched on the metro rail network of Mauritius. There was a full page advertisement. You must have seen that. Point I'm trying to make here is the telecom network of that was done by HFCL. Mauritius Metro, which was started, you know, overall construction was by L&T, and which was, you know, flagged off two days back. There was a full page ad by L&T yesterday on that. Telecom network of that project was by HFCL.
Few days back, I think couple of weeks back, if you would have seen another news item, where Dhaka Metro phase one was also switched on, flagged off by Sheikh Hasina, the Prime Minister of Bangladesh. There also the telecom network was done by HFCL. Similarly, number of projects in dedicated freight corridor here has been done by HFCL for telecom. Kanpur and Agra Metro telecom network is being done by HFCL. We have participated in couple of more projects at Ahmedabad, Surat. The tenders are yet to be opened. There also the express original side have already come to us. Point I'm trying to say, not only in India, but abroad also. Abroad also, we are doing a lot of telecom projects like Mauritius, Dhaka, I just mentioned.
In India also, some of the projects are subcontracted to us by the large contractors, turnkey contractors. Some are like Kanpur, Agra, we are doing directly. We participated directly in Surat and Ahmedabad. We have developed good amount of expertise. Now, there are more than 15 new metros, you know, cities are being planned on the metro network. We will be participating in all these projects also. I see reasonable growth in revenue coming up on these areas. Yes, between order and execution order, it takes a lot of time because order comes when they start building the infrastructure, the pillars, the lines and all that. The completion of that takes long time. I think our revenue from railway next year onwards, something like INR 500 crore per annum should be able to reach, growing steadily by some % every year.
What will be the margin on those projects? Just a follow up.
Margin, Abhishek, depends. Different in different projects, you know. Generally, you can see something like 10%-12% margin can be there. Generally. You know, around 10% you can say. You know, it differs from different project to project.
My second question will be what is the follow-up, so how the PLI benefits will be coming on the picture right now? What level we'll be getting the PLI benefits? Is there any timeline or anything is there right now?
No, PLI benefit, you know, is the next five financial years, starting from the current financial year. What we produce after a new investment, which will be done by us, INR 425 crores in next four years. There is a, you know, percentages they have provided. You know, this year how much % and next year how much %. Since we have got approval within the PLI, DRI scheme, Design Linked Incentive scheme. R&D expenditure is also taken as a part of CapEx for the purpose of calculation of this total investment of INR 425 crores. Total investment INR 425 crores and the PLI incentive given to us is INR 653 crores. This will be available to us in the next five financial years, including the current year.
Current year is not expected to be much because we are yet to start making investment, which would be start doing now, you know, except R&D. Infrastructure investment, we are still not done. We are going to start it now in Gurugram, near Delhi. From next year onwards, when we start producing this equipment, four years timeframe, we expect to receive over INR 600+ crores as incentive out of the production we telecom equipment we do in India.
Thank you, sir. I have few more questions, but I'll come back in the queue, sir. Thank you.
Thank you. We'll take our next question from the line of Sanjay Shah from KSA Securities Private Limited. Please go ahead.
Good evening, gentlemen. Sir, commendable, congrats on the front of shifting of private customer business, which is a very huge achievement company has done, and also on product side, shift is really a remarkable achievement company has done. My question was regarding our slide 18, I suppose. In slide 18, you have mentioned about key partnerships. There are 12 partners with us, will it be possible to highlight briefly on the opportunities with these partners and what business they throw to us as an asset to our company?
Yes, yes. I will definitely do that. Before I do that, you know, one of the point I would like to highlight.
Yeah.
You rightly said that, you know, there is a good performance in the area of products and all that. There have been three key areas I would like to highlight. Here company has done a robust growth in terms of robust strategic decisions we took, where we have been very successful in implementing those decision, and they have been a long-term benefit to the company. They would be long-term benefit to the company. One, if you look at, you know, our revenue from product and, you know, projects which I've mentioned little while back, that it has grown to 64% in this quarter what it was 27% in the financial year 2021. 20% to 64%. Naturally, this turnkey has gone down from 73% to 36%.
Last few earning calls I have been repeating this, that this is our policy, this is our strategy to reduce our revenue from projects and increase from products. Generally, this has been pretty successful. 27% of products revenue going to 64% is a good performance. Number one. One first strategic decision and the performance is the revenue mix. Second, increase in exports. There is another area I've been talking, that we want to increase our export. Not marginally, but geometrically we want to increase our exports. If you look at in the current financial year till now, our exports have already crossed more than INR 600 crores up to December. My target for export in the current financial year was INR 750 crores, which is more than double of INR 360 crores of last year.
It was INR 180 crores year before that. Hundred and eighty crores become INR 360 crores, then the target of the current year was INR 750 crores. Let me tell you, this year we'll be crossing INR 850 crores. Hundred eighty crores become INR 360 crores, and INR 360 crores would becoming INR 850 crores in the current financial year. I can tell you, we will maintain the same kind of growth trajectory. As a company, we have taken the target of reaching to our export revenue INR 1,500 crores in the next financial year. Hundred eighty, three sixty, eight fifty, and the target of INR 1,500 crores.
This is the kind of another success has been in the company, increase in export revenue, which is the strategy we have taken up as a second cornerstone, apart from revenue increase of products, which automatically leads to revenue increase from exports. What is second thing which is happening in export, which is also very critical. Though we have taken only pilot project as this point of time, but the kind of inquiries we are receiving, we are not sure that whether we can take that quantum of orders, which is implementation of projects in Europe. European projects payments are very good. You get paid every 15 days. Every 15 days on the basis work completed.
We are getting inquiries, not only inquiries, firm inquiries, where they are saying, "Come and do." After looking at the work we have done in Germany, the kind of pilot work we have done. We are getting inquiries for hundreds of crores for implementation of projects in Europe. Only point is that I am not able to ramp up my implementation team to such a quick extent to get to undertake those number of projects. We are really looking at how much order we should be taking, wherein we don't dissatisfy the customer. We do less work, but we keep customer satisfied.
In export front, when I say 1,500 crores, that does not include revenue we would be getting from project side whenever we start taking these projects, which we believe that we should start taking in next 1 or 2 months timeframe after ramping up our team, which we have decided to recruit some people and do that, but that would be in addition. Second initiative of growth of export has also been very successful. Third initiative we have taken, increase of revenue from private sector, decrease revenue from government. When I say this, our policy is to take only those government projects which are not negative in cashflow. Cashflow is better, payments are better. Only those government projects we'll take or even the private. The policy of decreasing revenue from government has also been very successful.
In the quarter under review, government revenue has only been 20% and private has been 80%. If you go back financial year, March 2021, government revenue was 49% and private was 51%. It was more or less 50-50. 50-50 has now become 20-80 in terms of private sector. The three key initiatives, Mr. Sanjay Shah, one, increase in product revenue, increase in exports, and then increase in revenue from non-government. This, you have been in the calls earlier also, I remember.
Last four, five, six calls, I have been repeating this. Now we have demonstrated that how successful we have been implementing each of this strategy. Let me again come back, that we will continue on these strategies. We'll keep on increasing our exports. Our strategy on new products, you know, by our R&D efforts is on, new customers, new geographies is on, we will constantly improve our exports and revenue on the basis of strong demand, not only India, but abroad also. Let me put it like this: If the world market is 100, Indian market is 6%-7%. 90%-93% market sits outside India. Take out Chinese, you know, where we can't go. You know, let us say take out Chinese, which might be 25%-30%.
Still 65% of the market is beyond India, which is accessible to us. While we concentrate on our 6% or 7% of the market, we should go out and grab some share of the 65% market also, which we have successfully demonstrated in optical fiber cable. We are now getting good success in implementation of projects also, we will get good success in the product segment also, which I have been saying we would start working on this from the next financial year. Working means working has already started, we will start getting export revenue from the next financial year on the product side also. That is as far as the
You talked about projects and turnkey, and so I thought not only that, but there are three very strong strategic strategy points which company has undertaken and been very successful, I thought I should mention to the benefit of all participants on the call. Coming to the key partnerships which you have said. One, we discussed about Qualcomm. You know, Qualcomm is a world leader in tech wireless technologies. We had a partnership with Qualcomm for development of Wi-Fi, backhaul radios, and now 5G products. 5G products is very critical. I myself visited the top leadership of Qualcomm 1 month back. It's a very successful partnership going on in terms of they're helping us in development products, the technical know-how systems and all that.
We believe that will start coming out from the 5G products with Qualcomm technology starting from the free trial, I would say from the first quarter of the next financial year. The non-5G products, which is Wi-Fi and the backhaul radio are already there. They are in production. New versions of that, including Wi-Fi 7. First Wi-Fi 7 based on Open RAN standards, we have already demonstrated. That are already under production. Wi-Fi 5, 6 are already under production. They are being sold. It's a very profitable partnership. Wi-Fi and radio are already there.
This 5G radio networking product, which includes macro cells, small cells, indoor, outdoor, and fixed wireless access, which is going to be a very, very successful product, are going to come up gradually starting in field trials from the first quarter of the next financial year. This is one partnership. Coming to two particular partnerships here, BigCat and Nivetti Systems. Here, you know, we have invested money in their company. BigCat, we have invested about 50% of their equity. As against that investment, they're designing software-defined radio for us for army application. That radio is expected a huge market opportunity, some INR 40,000-50,000 crores in next 6-7 years. Nivetti Systems, again, we have invested in their company 15%.
Their design of switches is being taken by us, switch again has a huge market of $10 billion-$12 billion worldwide in L2/L3 switches. These switches are being manufactured and sold by us as they have been designed by Nivetti Systems. Now, other opportunities like Wipro, Comm Agility, VVDN, these are the companies where we have done partnership for designing of products for us. Because when you design so many products, you can't ramp up your own R&D by yourself into such a manner. We have given them contracts for designing products for us. Contracts. They are doing work for us for designing our products. The IPR belongs to us. For example, Wipro is designing routers for us, where design parameters, testing, architecture is being done by us, development is being done by Wipro.
Wipro is doing for three kinds of routers: 120 Gbps, 300 Gbps, and 700 Gbps. After that, we will go above 1 terabit also. Wipro is designing routers for us. This VVDN is also helping us in designing of some of the wireless products. Similarly, Comm Agility is also helping us in designing of the 2x2 small cell for indoor application. You know. Well, we have more than about 250 R&D engineers within our company, but we need many more. These are the R&D contracts or the partnerships where we have invested money. They are helping us in designing these different technologies and equipment where IPR belongs to us. I would say not less than 400-500 people put together must be working in these companies for designing products for us.
That's an R&D strength which belongs to us because they are working on contract for us. Other companies like, you know, Metanoia or IP Infusion, you know, they are software stack partnerships, you know. You need software stacks for different products, which they are supplying software stacks to us. There are different kind of partnerships starting from contract R&D to technology partnerships like Qualcomm or partnerships like SUTI partnerships we have done with the systems of BigCat. All lead to new products for us. All lead to new products for us where IPR belongs to us. That is the advantage we have got. All these partnerships are strengthening our R&D, strengthening our R&D by getting more and more manpower, better manpower to design products for us.
Once these products come in the company, they will be manufactured and sold, which will increase our revenue and profitability both.
Mr. Shah, may we request you to please repeat.
Good. I think it ready stage for us for growth for HFCL for next three years. Thank you, sir. Thank you very much, sir, for detailed explanation.
Thank you. We'll take our next question from the line of Hardik Vyas from Economic Times. Please go ahead.
Sir, I just had one question. You have enlightened us enough on all my questions. Just one question, that we have been taking all these initiatives, but where do we see our next phase of growth for the next 4 quarters coming in from? As in, not asking you the numbers, but the way you have said that you probably would exceed INR 1,500 crore on the product export revenue side. Will that be the same contribution as in, roughly, 15%-20% of the overall revenue or, could you please guide us on that?
Hardik, you know, growth would continue. Growth would continue on the back of strong demand, India and globally, because now we are not only talking about Indian market or global market, but that's one area where we are now concentrating. The performance has shown that. You know, till now we have been working on exporting fiber optic cable. As I say, started working on export of projects also. Third, we would now be working very seriously on export of products also. You know, overall growth is coming on indigenous demand, local demand on the back of 5G, NHAI, defense, railways and all that, and Bharat Net and all that, and a strong global market. Growth will come from which areas? Let me tell you that. One, fiber optic cables. Fiber optic cable revenue has been increasing consistently.
This year it would be around INR 2,300-INR 2,400 crores in the current year, which we are talking about. Last year it was about INR 1,700 crores. Year before that it was INR 1,200 crores. Year before that it was INR 700 crores. INR 700, INR 1,200, INR 1,700, INR 2,300, INR 2,400. This has been the kind of growth. We will maintain this kind of a growth trajectory in the next financial year also. This growth trajectory will be maintained, and major growth would be coming from export market. As I mentioned, you know, INR 750 would be INR 850 this year, but we expect to reach to INR 1,500 crores. This is in fiber optic cable alone. There would be projects on the top of that. There would be products on the top of that.
This INR 1,500, again, I tell you, for only for fiber optic cable. Projects and products would be on the top of that. How much that would be, it's too early for me to start talking about because we have to still jump into the water and swim there. That is one. Second growth opportunity or rather the growth first would happen in the product business. As I said, products are going to be launched, all 5G related product routers and all that are going to be launched starting from the first quarter of the next year. Well, it's R&D. R&D gets delayed many a times. It always happens. First quarter we are starting field trials of the equipment, and it will continue field trials and launching of products throughout the year.
Second growth is going to come from your, this, product revenue, wherein we believe that next year reasonably good number of products will be launched and revenue would come from nationally and internationally both. Third growth would come from those projects which are financially profitable and also cash flow positive. That is another area where we look forward, the growth would come. Not that we are stopping projects. No. Where the profitability is there and cash flow is not so much negative, we would keep on getting projects. That is another area of growth which it is going to come. All this put together, growth would be there locally, internationally, cable, projects and products, all three areas.
Mr. Vyas, thank you. We will be moving to our next question now. Ladies and gentlemen, before we take our next question, we request participants to please ask only one question at a time. Time permitting, we will take you in the queue. Our next question is from the line of Abhishek from Arihant Capital. Please go ahead.
My question is largely on the export side. You have given the numbers right now. What will be the mix on the export side, if you can throw some light, which are the segment difference and how you see difference as an opportunity for an exports?
Look, we have not at all looked at defense as an opportunity export till now. Once we start supplying in India, then only we would be starting looking at you know, opportunity of export in defense, you know. A few, for example, we are registered in NATO as a possible supplier. NATO, some CAGE code is there which is allotted to us. We are not working on any of such opportunity at this point of time because let us first establish ourselves in a good way in India, then we look forward for export in defense equipment. That revenue is not in my projection at this point. Not that we would not do that, but I don't visualize doing that in next one or two years. That is number one.
Now, coming to exports right now, the entire exports mostly has been fiber optic cable till now. As I've been saying that till now we have been concentrating actual fiber optic cable. Project, very small work we have started as a pilot, but next year we will be doing more of that. Product, yes. That's one area that there would be another growth opportunity apart from fiber optic cable. When I say INR 1,500 crores, as I said, that is fiber optic cable. Product and, you know, project will be added on the top of that. These are the export opportunities we are working on.
Okay. Thank you, sir. Thank you, sir.
Thank you. Our next question is from the line of Hitesh K. Patel from KK Patel & Company. Please go ahead.
Hello.
Yeah, Hitesh.
Yeah, sir. Good evening, sir, and congratulations for the good quarterly numbers. I would like to clarify one thing, sir. In the month of October, around INR 21,600 crore expansion plan of optical fiber cable was announced. Right now, sir, what is the on stream of that expansion? Are we 100% expanded on the capacity announced in the October month?
No. Hitesh, no. Fiber optic, as I mentioned, INR 356 crore expansion has already started. Construction has already started in Hyderabad. That work is going on. Fiber optic cable, we are yet to start construction, but machinery orders and all are almost placed. Construction activity is yet to start because of land acquisition work and that is going on, which is expected to be completed in next one month timeframe. Immediately that work also would start. A lot of land has been acquired, payment has been made, but construction is yet to start. Once the land acquisition is completed, we will start construction of that. Fiber work has already started.
One more question, sir. How would you see the future margins of the company on the product side?
The product-
Around six months back, because of the COVID, the margin was shrunk by huge margin. In this quarter we have seen some spike in the operating margin. How will you see the future?
Look, you know, as you would have seen, the profit margins have grown in the current quarter. There has been a reasonably good growth in the profit margins. I believe that, you know, going forward, margins will keep on becoming bit better. Reason being, as we bring in more telecom products in our, you know, product portfolio, I believe that margins will keep on growing further. Because once we have products with our own IPR, our own control on the technology, the margins are expected to grow. The margins have grown into the, in current financial year, current quarter, and we expect that the margins will grow further. You know, to put up a number would be very difficult right now that how much growth would be there. Yes, I expect the margins to grow.
Thank you. We'll take our next question from the line of Dipesh from Maanya Finance. Please go ahead.
Hello, am I audible?
Yes, yes.
Sir, you mentioned about setting up a new manufacturing facility for benefiting from the PLI scheme. Now, the project cost, you said that it will be funded by a fresh fundraise. Will the fresh fundraise come through as a preferential allotment, as you had planned before? Will it come in this quarter or maybe in the next quarter?
I didn't say that it will be by fresh fundraise. I never said that. I said.
No. In the press release, sir. In the press release it has been mentioned that the project cost will be funded by term loans, internal accruals, preferential issue of warrants, which has already been given, and the fresh fundraise.
Yes, yes. That's what you're referring to. I thought you were referring to what I said just now. No. Fresh fundraise, you know, though there has been a resolution passed by Enabling resolution has been passed by shareholders and the board also, but, and the warrant has been already been issued, as you know. We have not really decided when are we going to do the fundraising and all that. We are waiting, you know, because this investment is to be made in next few years, not immediately. We are waiting for the right moment and when the funds to be raised. No such decision has yet been taken to raise the funds at this point of time. Whenever we take, we'll definitely come back to you. See, only enabling resolution which has been passed.
Okay. Just one more question, sir. I mean, what is the reason of the sales declining? Going ahead, do we see, I mean, how strongly do you see, do we see 20-25% growth in our volumes?
Look, you know, I would like to say one thing here. Decline in sale is not important. Improvement in profitability and overall profit is more important. If you get the same profit or more profit on less sale, it is I think the good performance parameter for any company. In the current quarter, if you see the sale has been small decline, and I will explain the reason also, but profitability has increased. That is the key parameter one should look at, you know. That's what we are looking at the company, that profitability should increase. Revenue should also increase. No doubt it has to increase. More effort should be on increase of profitability.
Now, small decline in the sales in the current quarter has been because that some incomplete work in the project could not be billed because the customer testing had not happened, particularly in the army related projects. The customer testing could not happen because of various issues related to the customers, you know. That is why this, bill, billing of that particular work could not be made. Otherwise we would have surpassed what, the last quarter's revenue was. It was the reason was this, that we could not bill that, so it could not be part of our, you know, revenue.
Thank you. Ladies and gentlemen, we take that as the last question. I would now like to hand the floor back to Mr. Nahata for closing comments. Over to you, sir.
Thank you. Thanks to all of you gentlemen for being part of this call. I am sure you would have got a good view of what kind of a strong performance company has given, what kind of a strong, strategical path we have created for our company for future growth, and our strategy of new products, new customers, new geographies on track. We are increasing our product range by innovation, which is improving our profitability, increased our exports. We have increased our revenue from private sector. We increased our revenue from products. We are sure to continue on that course and continue to improve the revenue and profitability of the company. Thank you very much, gentlemen, and again wish you a very, very happy and prosperous new year. Thank you very much.
Thank you very much, sir. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.