Ladies and gentlemen, good day, and welcome to the HFCL Limited Q2 FY23 earnings conference call hosted by ICICI Securities Limited. We have with us on the call Mr. Mahendra Nahata, Managing Director and Promoter, Mr. V.R. Jain, Chief Financial Officer, Mr. Manoj Baid, Company Secretary, Mr. Amit Agarwal, Head Investor Relations. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Mahendra Nahata. Thank you, and over to you, sir.
Good evening, ladies and gentlemen. A warm welcome to HFCL's earnings call for quarter two of financial year 2023. I truly appreciate and express my gratitude for making it to HFCL's earnings call for second quarter of first half of 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. For HFCL, quarter two of financial year 2023 has turned out to be quite promising. We were able to continue on our sustainable growth path, which is fueled by some key product launches, including world's first open-source Wi-Fi 7 access points, 5G 8T8R Macro Radio Unit, and 5G network service during India Mobile Congress 2022, South Asia's largest digital forum.
As a technology-driven enterprise, we put significant trust on innovating future 5G products for which we have collaborated with industry leaders like Qualcomm. This will create huge opportunities for our new products based on 5G technologies, like 5G 8T8R Macro Radio Unit, 5G indoor and outdoor small cell, and 5G millimeter wave fixed wireless access customer premises equipment products in the domestic and global markets. The other strategic priority during this quarter was on expansion in key global markets, including United States and Europe, to further support our strategic direction to become a product-led global player in optical fiber cables and telecom products and solutions space. By winning some key orders from Reliance, Airtel, BSNL, and RailTel, we have been able to close quarter two of financial year 2023 with an order book of more than INR 5,200 crores.
The global macro environment continues to be challenging and dynamic. However, with the advent of 5G, the opportunity landscape for manufacturers in the telecom and technology industry looks promising and has grown manifold. It has also given rise to a spike in demand for optical fiber cables and telecom and networking products. The deployment of robust 5G infrastructure in the next couple of quarters will enable enterprises to embark on the digital transformation journey across the sectors. The current global demand for optical fiber cable is 600 million fiber kilometer equivalent cable. Since over 95% demand is witnessed in global markets and given the competitiveness of our portfolio in optical fiber cable, equipment, and end-to-end network solutions, we aspire to cater to more markets and more customers.
The development of revolutionary yet indigenous technology and products has positioned Indian companies like us in the forefront of global technology leadership. We have already established a successful and strong footprint in 30+ countries, serving 80+ clients globally in optical fiber cables and telecom products. We have our employees in Dubai, France, Germany, England, U.S., Kenya, who further widespread our presence and deepen our customer reach. Apart from this, we have also appointed dealers and distributors in many countries to cater global demand. Over the next few years, we aim to build upon our global customer relations and export footprints expeditiously and emerge as a large global player in this space. Our export revenue has grown by 88% in quarter two of financial year 2023 on year-over-year basis.
In this half-year of financial year 2023, export revenue stood at INR 376 crore compared to INR 171 crore in H1 of financial year 2022, showing an increase of 120%. We are all well on our mission to double the export revenue during the current financial year. This trend is expected to continue in coming years as well. Zooming into the Indian context, in order to create a strong 5G network infrastructure in India, the telecom industry will witness an investment of INR 3.5 lakh crore-INR 4 lakh crore in next five years to facilitate 5G services rollout. Indian telcos are estimated to spend between $1.5-$2.5 billion on optical fiber cables alone in the next three-four years.
The domestic optical fiber cable market environment continues to be strong, with the current market demand of optical fiber cable products at 35-40 million fiber kilometers per annum, which is expected to grow significantly over the next few years on account of creation of 5G network across the country, expansion of existing 4G networks, deployment of fiber to the home networks, implementation of BharatNet projects, which will lead to all the villages of the country being connected by optical fiber cable, 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 to almost 50 million fiber kilometers. There is tremendous opportunity in global markets as well.
We have witnessed that the governments of leading economies, including United States, United Kingdom, Germany, and in Europe, are investing heavily on building robust fiber connectivity for the deployment of 5G networks and FTTH networks. The global market demand of optical fiber cable is about 600 million fiber kilometer per annum, and it is estimated to grow to 1,000 million fiber kilometer per annum over the next 5 years. We also see immense opportunity for telecom and networking products and system integration across the globe as part of 5G rollouts, especially in markets like Europe and US. We have identified Europe and US to be the key markets to focus on for further deepening our global footprints.
During this quarter, we also entered into a special partnership with Qualcomm for design and development of 5G millimeter wave fixed wireless access customer premises equipment products and 5G outdoor small cell product development. All these initiatives and significant alliances will enable HFCL to expand its 5G product portfolio by launching various products gradually for India and global markets. These products shall enhance 5G user experience and contribute for efficient utilization of 5G spectrum. Another significant highlight in our participation at the India Mobile Congress this year, the largest digital technologies forum in South Asia, with our honorable Prime Minister inaugurating the launch of 5G at the event. The world witnessed every key telecom and technology players showcasing their latest and most innovative solutions. HFCL took this opportunity to launch some significant new offerings, including world's first open-source Wi-Fi 7 access points, which is launched.
We are becoming the world's first and only in India to launch open source Wi-Fi 7 access points designed to deliver extremely high throughput, generating speed of more than 10 Gbps. With a strong background of R&D, our line of Wi-Fi 7 products is bound to enable telecom operators to deliver better user experience than earlier, bringing us a step closer to metaverse. At the India Mobile Congress, we also launched the first products from our 5G product family. 5G-8T8R, our macro radio unit, which is modular in design and can be easily customized to support any subsequent gigahertz frequency band to address the global markets. 5G is bound to accelerate the adoption of virtualization and cloud-native technologies. Our next-generation radio unit combines the power of vRAN based on open standards to accelerate 5G deployment.
5G Lab-as-a-Service was another significant launch at the India Mobile Congress. HFCL is one of the few companies in the country to launch 5G Lab-as-a-Service. Telecom operators are adopting multi-vendor networks based on cloud-native technology for faster and cost-effective rollout of 5G services and for improved user experience. Our Lab-as-a-Service, situated in Bangalore, will provide an automated test environment for the private sector, academia, and government to work together on product innovation from concept to reality, thereby accelerating rollout of 5G solution and services both in India and globally. I would also like to mention that HTL Limited, our materials subsidiary, has established a state-of-the-art polymer compounding facility and backward integration at its Hosur plant in Tamil Nadu for manufacturing of polythene-based compounds of various grades and colors, which are required as raw material for manufacturing of optical fiber cables.
With our optical fiber capacity expansion coupled with the vast opportunity landscape, this backward integration will enable us improve our profitability, and with availability of multiple grades of polymer, it will further help us to tap more customers in domestic and global markets. Let me now brief you on key performance metrics for quarter two of financial year 2023. Revenue of Q2 financial year 2023 stood at INR 1,173 crores as compared to INR 1,051 crores in Q1 of financial year 2023 and INR 1,122 crores of Q2 of financial year 2022. EBITDA for the quarter at INR 175 crores is as compared to INR 130 crores in quarter one and INR 173 crores in quarter two of FY22.
EBITDA margin stands at 14.88% for quarter two of financial year 2023 as compared to 12.35% of quarter one and it stood at 15.44% in quarter two of FY 2022. For quarter two FY 2023, profit after tax stands at INR 84 crores as compared to 53 crores for quarter one of FY 2023 and 86 crores for quarter two of FY 2022. Tax margin stands at 7.18% in quarter two as compared to 5.05% in quarter one of FY 2023 and 7.66% in quarter two of FY 2022.
Segment revenue of telecom products during the quarter stood at INR 671 crores as compared to INR 620 crores. From our financial performance, we would kindly appreciate that on the back of the increasing supply chain disruption and improvement in input costs, we have been able to demonstrate healthy growth in our revenue and margins over the last quarter. We believe that our revenue and margins will continue to grow with all initiatives taken in last few quarters. We have also applied for Design-Linked Incentive Scheme for telecom and networking products and are committed to invest a sum of INR 425 crores over a period of four years. We expect to receive the approval from the government any time now, and this investment will support various stages of the development and deployment of futuristic range of technology products and solutions.
With a major focus on the 5G revolution, HFCL is witnessing a transformation towards emerging as a high-tech global enterprise and integrated next-gen network solution provider. As a result, a leader in telecom equipment optical fiber cable manufacturing in the country, we will continue to offer more robust and high-tech solutions with open source technology. To conclude, I would like to say that as we are already witnessing strong demand for our 5G products, optical fiber cables and integrated network solutions both in India and globally, we will continue to leverage our capabilities and continue with our strategy of serving new customers, new geographies and new products. 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 very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Reminder to the participants, anyone who wishes to ask a question may press star and one at this time. The first question is from the line of Aman Vij from Astute Investment Management. Please go ahead.
Good evening, sir. My question was you have built a very good defense portfolio. My questions are on that part of the business. If you can talk about a little bit on the electronic fuses and electro-optical devices. What is the order book like? Where we are in terms of scaling that business? That would be helpful.
Yeah. Aman, thank you very much for a good question. In fact, you know, as you would know, defense equipment being developed and being put in operation takes a lot of time because of the very rigorous testing going on. In terms of our electronic fuses, we have already offered it to the Indian Army for testing and the testing work is still in progress, you know. It has still not ended. There have been certain issues in testing which the Indian industry has gone back to government and told them to redo the testing because of certain issues. Those work is in progress. Results are not yet out. I expect good business to emerge from electronic fuses, not only in India, but abroad also because we are IPR on this.
Yes, there are no orders available at this point of time because the testing and all that takes a long amount of time in defense sector. Same extends for electro-optic devices, where we have got a small order from Northern Command, which is under execution. Larger orders, we have participated in tenders which results are not yet out, so it will take a certain amount of time still. I, as I have been telling earlier also, expect revenues to start from defense products in the next financial year, that is 2023-2024 only. This is the time for development and testing. Revenues will start flowing in from 2023-2024.
Sir, okay. Little bit clarification.
Sorry to interrupt, Mr. Vij. The audio is breaking from your line, sir. Please check.
Yeah. Is it better?
Yes, sir. Please proceed.
Yeah, sir. I just wanted more clarification, sir. We had mentioned that we had bid for 5 million fuses. So that order is canceled or what has happened to that order?
No, no. The testing is in progress. There have been certain issues for all the Indian private companies who had participated, and we have gone back to government and asked them to redo the testing part of it. That is under consideration in government. It has still not been finalized. Neither the order has been finalized on anybody, nor the financial bids have been as yet opened.
Okay, sir. You have mentioned in the presentation that this, say for example, electronic fuses can be INR 0.39 billion in FY 2025. In this year, what is the current size of the market in FY 2024?
In the current financial year, no orders have been placed on the private industry. Government is buying from the PSUs only. We don't know the real size of the market. Yes, from the two years of 25 and all that, you know, whatever we have mentioned in the presentation, that holds good.
How much market share do you think we can gather out of that INR 0.39 billion market size? How many private players have bid for the same tender, if you can talk about it?
Three private players have bid for that. Three private players. It's very difficult, Aman, at the moment to say the market size because you know the tender would be awarded to one company or maybe Government of India or Defence to multiple companies, we do not know. It's very difficult to predict that how much market share we will have. Yes, you know, numerically I think we should expect some 20-25% market share at least.
If you can mention the names of the other players who have bid?
Other players apart from us, I think HBL from Hyderabad is there, and there is one more company from near Delhi which I don't remember the name, but yes there is one more company. There are three private companies.
Is it, sir, AAM Enterprises?
I don't remember the name, Aman Vij. I don't remember the name.
Sure. That helps. On the fuses side, sir, there are different kind of fuses. On your website you have mentioned proximity fuses and all those things. We have developed all these products in-house?
Yes, these are all developed by our own company with help from some foreign partners who are R&D contractors. The IP are completely resting with the company. You can call it an in-house development.
Okay, but you had mentioned in the presentation we are the only Indian company to do it. The other two players don't-
One company at least I know they have got a foreign collaboration. The company near Delhi. The HBL I do not know very sure that whether it's their own development or whether they have got any partnership. I'm not too sure. At that time when we said this in the presentation that is all these kind of fuses have been developed by us, it was true. HBL I do not know at the moment whether it is they're in partnership or local development.
Right, sir. You mentioned next year you expect some revenue. If you can quantify, okay, how the scaling can happen, say FY 2024, what's the revenue?
This all depends upon when the tender is opened, Aman.
Do we expect, say, INR 100-INR 200 crore kind of-
Aman, there must be more questions. You know you can come back in the queue once, you know, I think, there are too many questions. You can come back to that, but your last question.
I
What is the last question you can ask?
Yeah. Sir, my last question was on the, say, electro-optics part. So the market is quite big. You have mentioned $3 billion. We are only developing, say, for example, one product. I don't know how many products we are developing. Say, night vision goggles we are developing as per your presentation.
It is not a goggles. It is a night vision sight mounted on a rifle or a machine gun. It's a night vision sight, not a goggles.
Yeah, sorry. My mistake, sir. You have mentioned electronic fuses maybe can, maybe get 20-25% market share, but electro-optics is a much bigger market.
I'm again expecting. I'm not sure whether it is 20%, 15% or 50%, but that is what our reasonable expectation is. In terms of electro-optic devices, you know there are multiple players in the country. There are six, seven different players in my opinion. Again, you know, one should expect some 10, 15% market share on a numerical basis, but then it will depend upon tender to tender how much you will.
Thank you, Mr. Vij. May we request that you return to the question queue for follow-up questions. Thank you. The next question is from the line of Hardik Vyas from Economic Times. Please go ahead.
Good evening, sir. Sir, we have been talking a lot about the 5G opportunity and things seem very
Mr. Vyas, sorry to interrupt you. Please use the handset mode.
Yeah, I'm on the handset. Can you hear me now? Hello?
Hardik, please speak little loudly.
When do we see the execution for the 5G products happening and the 5G services as in laying down the network for various network operators and of course the BharatNet happening? How soon do we see the execution happening for 5G?
Look, you know, BharatNet and 5G are two separate issues. BharatNet is not envisaging any 5G. BharatNet, you know, government is very keenly working on this at present, as I understand, and they are looking at a model of EPC kind of a model, where they will select companies out of a tender to build this BharatNet network, which is connecting every village of the country through fiber optic cables. Now, the cable will reach to some center point of the village, but from there on, I think government would ask operators to give connectivity to different households on a commercial basis. What this project entails is laying down fiber optic cable and related equipment to all these villages. This does not contain 5G.
5G may come later on in this area. Now coming to the 5G products, as I said, we will be putting it in the operators, you know, networks on a trial basis starting two-three months from now. Once the trials are over, you know, if operators require some change, we will have to do that. That is a normal issue because different operators have different software and graphical user interface issues, which will require changes as to their requirement. We expect revenue to start coming up in the beginning of the Q1 of the next financial year.
Okay. As I understand it right, in the current revenues and up to now, there has not been any 5G component. It's been a regular business apart from 5G.
Yes. Yes, you are absolutely right. There's no 5G component at the moment. We have launched the product just recently. It has to go through the field trials on the operators' networks and then the production and then the revenue. It's a bit of a few months cycle. We are very well on.
Next financial year.
the process.
Okay.
Yeah.
And, uh-
Very-
Okay. My second question is on the Software Defined Radios. How big is the opportunity, and when are we likely to tap into it in terms of revenues, and when do we see it in numbers?
Look, Software Defined Radio is for the army, and that development is in progress. We have to submit samples sometime in December to Indian Army after development. Then the sample will be field tried and, you know, tenders will be there. I think it's reasonable to say that major market opportunity for this Software Defined Radio is 2024-2025. But the market size is very large in the sense that, you know, majority of the radios of Indian Army, maybe all of them, will be switched on to the Software Defined Radio in few years' time. The total market opportunity, if I remember well, it's not less than INR 40,000 crore.
Okay, the next year is going to be 5G heavy in terms of execution and revenues and margins and everything will be triggered on the back of exports and 5G, more or less, if I'm understanding it right.
Look, in the next year, you know, we expect good amount of revenue to come from not only 5G, but other products also, telecom products which we have.
Yeah. The current business plus 5G.
The current business and the new product which we are also doing right now, it will be routers, switches. Those are also the products which are required in 5G and non-5G applications also on all kind of networks. Those products coupled with 5G and then of course our current range of products will bring in revenue for the next year.
BharatNet as well.
Including also the-
BharatNet as well would contribute to the revenues and profitability in the next years, right?
Look, you know, while doing our internal projections for next year, we have not taken into account BharatNet as yet.
Okay.
Once the BharatNet comes, you know, it may be, we may be able to improve our internal projection. As yet we have not taken that into account.
Okay, thank you so much. That is all from my side.
Thank you.
Thank you. The next question is from the line of Sanjay Shah from KSA Securities. Please go ahead.
Yeah. Good evening, gentlemen. Sir, congratulations again on the exciting presentation and explanation. Sir, my question was more regarding towards the opportunity on rail networking, which we have not highlighted in your comment. That was number one. Second was I want to-
Repeat. Mr. Shah, repeat. Which networking?
Rail.
Oh, rail networking. Okay.
Yeah. Connect-
Yeah.
Yeah. My question was regarding that you threw out some of doing a CapEx of INR 425 crores with some government. Can you elaborate on that? Do we need to understand on that, sir?
Okay. On the railway network, good question, Mr. Shah. You know, in a few minutes presentation, I could not highlight every opportunity. That's one area we are doing good business. In fact, as I've been saying, we are implementing couple of networks abroad. In India also we are working on 6 or 7 different railway projects, which are subcontracted to us by the key turnkey players. Now directly we are implementing the metro network of, telecom network of the metros of Kanpur and Agra. This is directly awarded to HFCL for INR 230 crores or so for that particular railway network. We have also participated directly for Surat and Ahmedabad metro rail networks, telecom, metro telecom networks.
We are going to participate in couple of more such opportunities. I'm sure this revenue from railways, telecom networking should result in giving us a reasonable revenue every year, something like INR 500 crore or so. I reasonably expect with so many tenders we have participated, so many more opportunities are there. We should be able to get a reasonably good amount of revenue. You know, government is going to modernize telecom and signaling network of entire railways in any case. There will be more such opportunities coming up. We are developing this business. We have emerged as one of the leading company in the country which is doing such kind of a networking for railways.
Which is, as I said, multiple places we are doing in India, couple of places we are doing abroad. Now, coming to your second question, INR 425 crore.
Mm.
This of course includes expenditure on R&D also.
Mm.
As per this DLI scheme, Design-Linked, you know, Equipment Manufacturing Incentive Scheme which government has announced, and we have projected the investment of INR 425 crores, which includes R&D investment. Because the DLI scheme allows R&D as an investment, as a part of the overall incentive scheme. From INR 425 crores is R&D, and the new infrastructure which we will create for manufacturing telecom products, it's worth put together into INR 425 crores. This DLI scheme is under consideration of government, and I understand, whatever discussion I had with the government officials during India Mobile Congress, they are expected to announce finalization of this scheme, you know, I think at mostly within next one month they should announce it.
That is what I expect, and I expect that HFCL will definitely be a part of it.
That's great. Sir, we are entering into an exciting period as you cited, was the 5G, defense, rail, this DLI scheme. What incremental CapEx we need for next 2, 3 years, and how we line up that?
Look, you know, some of the CapEx which we are implementing projects right now, this fiber optic cable manufacturing capacity expansion and the fiber manufacturing expansion. Part of the money we already raised in the last QIP, and the balance is being funded through the debt from the banks. The next phase of expansion, when we do, of course, we have not decided the numbers as yet, but it is under consideration. Whenever we do, it would be a mixture of debt and equity.
Will that be a major CapEx needed for that to participate in the growth story?
Well, I don't know at the moment the current, you know, what amount of CapEx will be required, but it would not be so big, you know, that is out, you know, outnumbers size of the company. It would be within the reasonable numbers.
Understandable. Right, sir. Thank you. Thanks for explanation, it was really helpful. Thank you, sir.
Thank you. Thank you.
Thank you. The next question is from the line of Balasubramanian from Arihant Capital Markets. Please go ahead.
Hello.
Hello. Yeah, Mr. Balasubramanian. Good morning. Please go ahead.
Sir, I'm audible. Sir, I have few questions regarding the R&D. Past few years we have spent around INR 125 crore. Right now we are focusing around INR 150 crore target. Apart from the INR 150 crore, we have to spend the remaining amount for CapEx, right, sir, for this year? What kind of quantum we may expect for next six months?
Look, you know, this year's expenditure in R&D is INR 150 crore we have estimated, and that is what the burn rate is at this point of time. Because we are doing R&D in multiple areas, as I have explained. Wi-Fi, UBR, 5G, routers, switches, software-defined radios. Some of the R&D is being done by really by our team. Some of the places R&D is being done by the contract R&D players, you know, which are working for us and designing equipment for us with our own IPR. So all this put together is the amount of money which we have talked about. Now, when you say that, if you're asking the question of INR 425 crore, how it is going to be spent? As I said, part of that would be R&D, part of that would be capital infrastructure.
Sir, I'm looking into CapEx plan. Right now we are into 10 million fiber kilometer for optical fiber capacity. It is mentioned around 22, the target, million fiber kilometers. What is the timeline for that?
I think, you know, that expansion is going to happen in Hyderabad in our current facility. The timeline, you know, the work is already starting. I think it should take about 12 months to complete this.
Okay.
About give or take to, give or take couple of months here and there, but about 12 months.
Okay, sir. Okay.
Because, you know, the construction time and delivery time of fiber optic manufacturing equipment is very, very high at this moment because of the worldwide demand that's which has happened. The delivery times on machines, you know, it takes almost nine months to a year, and then installation, commissioning. The construction of building will itself take a long time because forty-five meter high towers and all that, it takes a lot of time, but within 12 months we should be able to commission it.
Okay, sir. Okay, got it. Sir, in terms of demand in defense exports, the market size around INR 10,500-13,000 crore, and it is expected around INR 42,000 crore by FY 2025. It's almost more than 3 years, but we are focusing on growing double-digit. We can expect more or it is sufficient?
No, no. I think, you know, I think you are talking of two different things, you know. We are not talking of growing exports in defense. We are talking of growing exports in fiber optic cable and telecom equipment, you know. If you really look at our exports have grown up. You know, it's a good question, but in a slight different way I can answer. You know, exports, we have been putting a lot of emphasis. Our exports, if you look at in year ending March 2021, financial year 2021 was just INR 193 crores. It increased to INR 353 crores in 2022, financial year 2021, 2022. Now, in this year itself, in the first six months itself, we have crossed that. We have reached to INR 376 crores.
As I have been saying, we double our exports this year from the last year INR 3-INR 3 crores. We are on the track. The first six months itself, we have gone to INR 376 crores. We have absolutely no reason to say that we will not be able to grow to 100% from the last financial year. We are working on a target of INR 750 crores. Our run rate is very, very much within that target, and we should be able to double our exports. We have a high thrust on exports, you know, which is cable and equipment. Right now it is more of cable, but as I said, from the next year onward, we will start exporting our equipment also. Some export has started this year, but major export will happen in the next year.
With increase in export of fiber optic cable and then export of telecom equipment, we expect to continue this trend of increased exports every year from our company.
Okay, sir. Okay, got it. Sir, you were talking about that polymer or polythene based manufacturing plant for backward integration. Could you please throw more light on that?
Yeah, sure. You know, look, we use this plastic compound for manufacture fiber optic cable, like HDPE. All our factories put together, we have about consumption of 2.5 crore kgs of this HDPE polymer for manufacture of cable. Now, you get natural color this HDPE compound from the refineries. Now, earlier what we used to do, there are people who do the compounding, making it in different colors because in fiber optic cable, different people want different colors and different tubes have got different colors. You need different colors. We used to buy it from different people who do the compounding and then sell it to us. They were intermediaries. We did the economics, and we said that if we do ourselves this compounding, we will save a lot of money.
Roughly about INR 6 a kg, we would be saving by doing the compounding ourselves. This means on 2.5 crore kgs, we will be saving something like, you can say INR 18, INR 19 crore. INR 15 crore-INR 18 crore. INR 6-INR 7 a kg per year by doing the compounding ourselves, whereas the whole project cost was INR 17-INR 18 crore, something like that. By investing about INR 17-INR 18 crore, we will be saving INR 6-INR 16 crore every year. Its ROI is just one year. This saves us money and gives us better profitability and better competitiveness. This production has already started in Hosur, in our plant, which is owned by HTL, our subsidiary. This manufacturing has already started.
Okay, sir. Okay, got it. Thank you, sir. That's it from me.
Thank you.
Thank you. The next question is from the line of Pranav Khandwala from Khandwala Securities. Please go ahead.
Good evening, sir. Congratulations for the fantastic results. Two questions. Time of AC would like to understand the latest news which came on HFCL and Qualcomm. Like, what is the opportunity for HFCL? And if you could give us some fair bit of idea in terms of this 5G outdoor small cell development and how that will benefit HFCL and Qualcomm in this entire 5G network opportunity. The second question is, if you could give me some fair bit of idea on the order book. And, in the presentation, you mentioned that if there is some USD breakup given so and the export market. If you could give me a clarity on that, please.
Yeah. Thank you, Pranav. First of all, let me come to the 5G product development. We have done two agreements with Qualcomm. Not one, two. One is of course this 5G outdoor small cell, and second is 5G fixed wireless you know access terminal. Now let me explain both the products. Outdoor small cell is required for filling the gaps in the network. You know, when the telecom operators do the networking and install large cells, there are gaps in between where the signals are not able to reach. Particularly in 5G, the spectrum used is of a higher level, you know. In 2G, 3G, we were using up to 2.3 GHz in 3G, for 4G for example. But here it has become 3.5 GHz.
There are gaps or holes in the network at various places. Wherever the capacity requirement is high, operators start putting small cells instead of large cells. It has happened on quite a large scale in 4G networks also. A huge amount of small cells have been put by the operators. The requirement of outdoor small cells in 4G would be even higher. We are going to manufacture, design and manufacture these 5G small cells for outdoor application using this Qualcomm platform. The Qualcomm platform will be designing and manufacturing the small cell. The market is expected to be very, very high, India and abroad both, because 5G networks are being implemented all over. The second product which we have done is the fixed wireless access CPE, again using the Qualcomm platform.
Now, FWA CPE is required in the places where you need fiber-like speed at home or at office without fiber. You know, What would happen, this FWA CPE would be acting on the 5G network, would be installed at home. Taking throughput from 5G network, it will give a fiber-like connectivity at home. Operators are doing FTTH as well as they would do FWA also. Now, FTTH, they would do at a place where the dense requirement of fiber optic connection is required. There they would lay down fiber. Wherever the requirement is not so big, you know, those parts where few people would want fiber-like connectivity in homes or offices. Where it is not economical to lay down fiber network, there they would be using FWA.
Where without laying the fiber line, fiber optic network, from 5G network itself, you will be getting high-speed connectivity at home or enterprise. The market of FWA CPE is expected to be very, very high all over the world. Billions of dollars of market is expected of FWA CPE. This is our second partnership we are doing with Qualcomm.
Okay.
We expect to put in the field trial with the operators from the beginning of the next calendar year. Revenue expected from the first quarter of the next financial year.
What will be the revenue opportunity on a quarter-on-quarter basis or year-on-year basis for HSA?
For these two products?
Yes.
Well, you know, it's very difficult to target, give you a number at this point of time. I can say that, you know, it will be hundreds of INR crores. It will be hundreds of INR crores.
Okay. Okay.
Your second question was on exports. Now, as I said in the answer to my previous question on revenue, that, you know, we have been putting a lot of emphasis on exports because, you know, if you look at the world market and the Indian market, Indian market is probably, though it's a big market, but probably 5% of the size of world market, whether it is fiber optic cable or telecom equipment. 95% of the market sits outside our country. While putting a lot of effort and emphasis on Indian market, we need to go out of the country to access this 95% of the market also. If you are able to explore or get into this small percentage of this 95% market, you are able to increase your sales.
Now, particularly when you have your own products, your own technologies, your own IPR, you are free to go and market anywhere if your technology is at par with other manufacturers. What we have seen, we started with fiber optic cable, for example, and as I've mentioned in the figures, we are doubling, almost doubling every year. 2021 financial year, INR 193 crores. 2022, it became INR 353 crores. This half year itself it has become INR 376 crores. We are on path to reach to INR 750 crores, which I talked about in my last presentations also. We expect to continue this trend in future also because it, there will be increase in export of fiber optic cable as well as then there will be export of equipment also.
Export is something which, you know, we are putting a lot of emphasis because that's the 95% of the world market.
Okay. If you could give me a slight breakup in terms of your order book currently.
Yeah.
Uh.
Current order book is about INR 5,000 crore, about INR 5,300 crore, which comprises of government and non-government both. Almost, 55% is government, 45% is non-government. We are you know getting regularly repeat orders from our customers. We keep on getting INR 100 crore, INR 200 crore, INR 50 crore, INR 40 crore, INR 60 crore. We keep on getting orders. Our orders are have a regular flow. Current order book is, as I said, INR 5,280 crore.
Okay, fine. Thank you so much, sir. Thank you.
Thank you. The next question is from the line of Sahil Sanghvi from Monarch Networth Capital. Please go ahead.
Yeah. Good evening, sir. Am I audible?
Yeah. You're audible, Mr. Sanghvi.
Yes. Congratulations, sir, on a very fine set of financials and the opportunity ahead looks very encouraging. I just wanted to understand two things, sir. One, on the order book that you have announced, how much is that coming from exports, like current order book from exports?
Yeah, well, exports, you know, you don't get large orders in one shot. Orders keep on flowing in. The current order book from export out of INR 5,300 crores should be about something like INR 300 crores or so. But, you know, they keep on flowing. Orders, we keep on supplying, orders keep on coming, and we are well within our target to reach INR 750 crores, as I was explaining just recently. Orders keep on flowing. It should be well over INR 300 crores at this point of time.
This will be largely, OFC orders?
Yeah. This is largely OFC at this point of time.
Okay. Got it, sir. Secondly, sir, I mean, we have some pledged shares right now, and I just wanted to understand two things on that front, sir. One,
No, no. There are no pledged shares at this moment, Mr. Sanghvi. There are no pledged shares, zero. It's only a non-disposable undertaking. See, the institutions, when you take loan from the financial institutions, they take a non-disposable undertaking from the promoters that, you know, promoters should not sell the shares and walk out without informing the institution and taking their approval. That's a normal procedure. It's a non-disposable undertaking. There's no pledge at all. Zero pledge.
Okay. On the exchange, how it shows up is, it shows up as a pledged share. We are not liable, right, in any ways, in case of any-
There is absolutely no pledge. It is a non-disposal undertaking. There's no pledge.
It is otherwise encumbered, sir, because Exchange does not permit us to whether it is pledged or otherwise encumbered. There is only one column, so it is basically not pledged. It is otherwise encumbered, sir, by way of non-disposal undertaking.
Non-disposal undertaking, there's no pledge at all.
Got it. Thank you, sir, and all the best.
Thank you. The next question is from the line of Dipesh Sancheti from Manya Finance. Please go ahead.
Hello, can you hear me?
Yes sir, we can.
Yeah, yeah. Because Mr. Sancheti, you are very loud and clear. Please go ahead.
Regarding the fundraising which we had on second September, we had mentioned about raising of about INR 650 crores. After that there has been no update.
The audio is breaking from your line.
I'll repeat again. Do I need to repeat?
Yeah, please. Please go ahead.
I said that on second of September, I mentioned to the exchanges that we are going to raise about INR 650 crore. After that there has been no updates. Like we gave warrants to promoters and non-promoters. Approval of INR 650 crore. When is that expected?
Yeah. Mr. Sancheti, you know, warrants have been issued to promoters and key management personnel also subscribed to the warrants, you know, which speaks of confidence the promoters and the key leadership team of the company has in the performance of the company. That has happened. The next question of yours whether the fundraise is going to happen and when. We are all at the planning stage at this point of time. What are the kinds of CapEx required, which are the kind of expansion of equity integration we have to do. Once it is finalized, of course we will come back to you.
Is it expected to happen in this financial year?
It is under consideration, Mr. Sancheti. I will not be able to say more than that. It is under consideration. The final decision has to be taken by board, but it is under consideration at this point of time.
Okay. Thank you. Thank you so much. If there's any other question, I'll get back in line. Thank you.
Sure.
Thank you. The next question is from the line of Swapna Kamath from NSFO. Please go ahead.
Yeah. Good evening, sir. My question is on, so as I understand, we want our company to be more of a product company and less of this turnkey contracts. As we have seen that this part of the revenue has been coming down consistently, and that is what is our objective as per your previous calls. I just wanted to get a sense on where do you see this number stabilizing on the turnkey contracts that, you know, then we will see that this amount of the revenue will continue steady state and because we are doing some product work, so this much of turnkey will be part of this overall business. How should we look at the business as such?
Also on the capital employed that is deployed in the turnkey contracts. That is substantial. Do we see some amount of cash getting released from there, which can be used for CapEx, etc., which might be blocked because of few debtors, that-
Yeah, Swapna.
Yeah.
Very good two questions, and I'll answer each of them. You know, I have been saying from the beginning that, you know, last few calls you would have heard that we want to be more of a product company, less of a project company. That, you know, what we decided to go in a manner, it is really happened in that way. If you look at the numbers in financial year ended on 31 March 2021, our revenue from products was 27% and from the projects was 73%. Now, it became 43% from products and 57% from projects in financial year ended on 31 March 2022. Products became 27%-43%.
Now, if you look at this year, in the year to date, the first six months, if you look at our revenues from the products has been 58% and projects is 42%. Now, just go back and compare. What was 27% in 2021 year ended 31st March is 58% now. The project revenues of 73% is 42% now. It's a remarkable change, and we expect to continue on this trend and further increase our revenue contribution from products in the next financial year. Because of this, different products of 5G, Wi-Fi, VPN, routers, switches coming in production, this trend is going to continue and our revenue from products will further increase. I am not saying that we will not do projects. We will do projects, but which are not highly cash negative.
You know, we won't do such projects which are highly cash negative because doing such projects makes us, you know, heavy burden on the cash flows of the company. That's why we have gone for more revenue from the products which has really justified that approach, and less on the projects. Now, coming to the second question. Yes, we have a very, you know, reasonably good amount of money. I would not say stuck, but getting delayed in projects, particularly the different projects which we are implementing. We still have a receivable of more than INR 1,000 crores. Now, we have started, you know, switching on of various parts of this network, and the money has started flowing in.six This used to be this 1,000+ crores today used to be more than 1,500 crores about a year ago. Now it has come to about INR 1,000 crore or INR 1,100 crore. We expect that by March, end of March, this financial year, full network will be switched on. Two more parts of the network we are switching on within next 15 days. Two have been switched on, two more will be switched on too, maybe within less than a month. By March we expect to complete and then reach major part of this money within next four -six months' time.
With this major release of this money, which is about INR 1,000 crore or so, a lot of money would flow back into the company, which will decrease pressure on working capital and release more money for CapEx also. We are right on track. We have a good question that, yes, there is a delay in payment for this particular project, not because of any fault of the company, but because the customer did not do its own part of work, which is construction of infrastructure on which we were to install equipment. Various other reasons related to the customer, nothing to do with the company, which delayed the payment.
Now we are on track, and I think by March, major portion of this money would be realized, which will increase the cash flow of the company, which will make the money available for more working capital as well as for CapEx.
Sure, sir. Thanks a lot for the detailed answer. I really appreciate that point, and it's pretty commendable that our telecom products revenue run rate is now almost 671 quarterly run rate. That's pretty significant from where we were. Sir, if you can just give me an idea as to this turnkey. You said you will continue doing these contracts, but I mean, where I mean, if you have—if we say that, you know, this is a number, if we are projecting this particular segment, then how do we look at it? Like, I mean, what is the what is it like number we should look at in the overall pie, like a 25% or like 15% of the overall revenues?
Look, you know, when I say we will continue to do which are not cash negative.
Okay.
For example, I will tell you. The private operators network we are implementing, you know. Like for Jio what we are doing. It's not major cash negative. You know, payments are received within 30 days and, you know, there is absolutely no issue of cash flow, you know. There's no reason why we should not continue to do that. Maybe profitability could be low, but since the working capital investment is not there's no reason why we should not do that. Now, we are also looking at some contracts of this nature in export market, in European market. Maybe we will be getting some small contracts very soon in one of the major European countries.
We intend to increase our presence in international market in implementation because that is highly profitable and, they are very quality conscious people, so they don't give projects to small companies and, you know, profitability is much better. We intend to increase our presence in the international market in project implementation. International, when I say, I'm talking of developed countries, like, you know, West European countries or America, you know, such kind of countries. Also government, you know, wherever the projects are, funding is poor, we will not participate into that. Wherever the funding is ensured in a manner that, you know, while implementation is going on, large percentage of CapEx is made available to us within that implementation period, we would look at such projects only.
I would say in terms of percentages, you can say that 25% or so revenue would keep on coming from the project side, which are less involvement of working capital and more profitable.
Understood. Sir, lastly, one last question on the defense side. You mentioned about the opportunity, competition, et cetera. Could you give a ballpark idea as to what kind of margins would they be similar to what we earn in the telecom products, or are they different in the electronic fuse and electro-optics, et cetera?
I think, you know, if you say the margin, you know, whichever place you go, defense or otherwise, the market is always competitive. You know, there is no cakewalk kind of a market. I would say the margins would be similar to what you get in a normal telecom business, maybe couple of percentage or 2-3% extra because not anybody and everybody can enter into this market because of very strict entry conditions and the quality and performance conditions. It could be 2-3% extra, some 20-30% higher than what you get into the normal telecom business. Yes, you know, market is competitive, but yes, a bit of a 20%-30% extra percentage you can get as a profit.
Thank you. Ms. Kamath, may we request that you return to the question queue for follow-up questions?
Yeah, thank you. I'm done.
The next question is from the line of Anant Jain, an Individual Investor. Please go ahead.
Thanks for the opportunity, sir, and congratulations on a very good set of numbers. My questions are also on the defense opportunity that you have listed, because that's a very exciting part. The kind of entry barriers that it has. I'm certain that it must have taken you a very long time. I just want to understand what kind of CapEx have we done in order to be where we are right now? That's my first question. The second question is on the fuses price side. What I have come to understand is that it requires approval by ARDE, which is like a part of DRDO. Do we have the ARDE approval for all the three types of fuses that we are looking to make? That's my first question.
Now I will ask further questions once I get answer to this.
Look, you know, we have spent about INR 50 crores or so in development of these fuses and electro-optic devices. This is R&D expenditure, you can call it CapEx, and we have spent about INR 50 crores on that. Now, coming to this, fuses, you know, of course, it requires the approval of ARDE and also not only that, DGQA also. This is the Director General Quality Assurance in the Indian Army. As I said, the testing has been going on, and there are certain issues which are happening which the whole Indian industry has protested that, you know, that thing has to be redone, and that is under consideration of the government. It has still not been totally, you know, decided, so it is under consideration.
The tender is yet to be opened and, let us see when they decide and when they open.
The question here, because I have been tracking this since a very long time, because ten years back also, these tenders had come and then, you know, you had all these ECIL kind of colluding with MOD, and then there is a South African company which used to come in and supply these fuses to ECIL. Are the issues political in nature or technical in nature? That is my another question. Because last time it was clearly, you know, I don't need to call it on a con call.
I would not use the word colluding or political or all that. You know, that's not in my domain to comment. Yes, there are technical issues. I would definitely say there are technical issues. Earlier, the supply was being made by ECIL, of course, with the participation of a South African company. Then of late, BEL has also come into picture in participation with an Israeli company. Our is a total own development. Yes, the issues that are being faced are technical, not you know. I won't call it political or colluding. These are not the words I would use. Yes, technical issues are there which are being sorted out with the army, whether DGQA or ARDE or anything. There are multiple agencies out there in the army who try, you know. It's not DGQA or ARDE alone.
The user trials are there. Users themselves try. There are multiple levels of testing, which is really taking time and the entry barrier we are experiencing ourselves, you know.
Last one question on the same thing is that, are the issues only limited to our company or like, you know, other competitors that we have, are they having different set of issues? Or are the issues common for all of us? Finally, you know, what I've come to understand from HBL is that there is a tender for grenade fuses in which they say that, you know, they are clear to go. What is our positioning there?
Look, you know, the issues are, technical issues are common to all the companies, all the private sector companies. They're more or less common, you know. If there are 100 different technical parameters, somebody will have two or somebody will have three, but almost common with all, Indian, you know, private sectors. The grenade fuses, we are not part of that. I have not, you know, taken part into any grenade fuse kind of a situation. We are not there at all.
Okay, great, sir, and wish you all the best.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Mahendra Nahata for closing comments.
Thank you very much, gentlemen, for, and the ladies for, attending this, earnings call of HFCL. As I said, company is on the right path of growth, right path of progress. It has become a technology-led telecom equipment, products and fiber optic cable manufacturing company with a lot of backward integration to increase the profitability. Again, with the emphasis to go into export market, we are increasing our revenues from that side of the business, with increase in exports of fiber optic cable and equipment. In the next year, we further expect to increase our market share in export market. We are on the right track to become a product-led company, which I have shown by, the data that how we have increased our revenue of products.
We are on the path of expansion of our product range and also on the size of our fiber optic cable and fiber manufacturing facility. All that would lead to continue to lead the company in the growth phase, which is happening today in the company with the 5G rollout, the FTTH rollout. Not only India, all over the world this kind of thing is happening. Opportunities are exciting. Market is big. Opportunities are exciting. The company has taken all the right steps to take part of this opportunity and grow with the market growth. The company also expects to grow in the coming financial years. Thank you very much, gentlemen. Thank you very much.
Thank you. Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes this conference call. Thank you for joining us. You may now disconnect your lines.
Thank you.