Ladies and gentlemen, good evening, and welcome to the HFCL Limited Q2 FY 2021 Earnings Conference Call. 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and a warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the investor relations of HFCL Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings conference call for the Q2 of financial year 2021. Before we begin, I would like to mention a short cautionary statement as always. Some of the statements made in today's earnings conference call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ from those anticipated. Such statements are based on management's belief and as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions.
The purpose of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. I would now like to introduce you to the management participating with us in today's earnings conference call and give it over to them for opening remarks. We have with us Mr. Mahendra Nahata, Promoter and Managing Director, Mr. V.R. Jain, Chief Financial Officer, and Mr. Manoj Baid, Company Secretary. I now request Mr. Mahendra Nahata to give his opening remarks. Thank you, and over to you, sir.
Thank you, Anuj. Good evening, everyone, and a very warm welcome to this earnings call of HFCL for the Q2 and H1 of financial year 2021. It is good to connect with you once again at a time when COVID-19 appears to be making way for normalcy, both in the space of our life as well as our work. I'm sure that you got a chance to go through our Q2 results announced earlier on October 10, 2020. Please allow me to briefly introduce the company, its state of affairs, and how it has been progressing on the path of normalcy in this pandemic situation during the last quarter. As a leading telecom technology enterprise, HFCL makes immense contributions to a securely connected and communicating world. It does so through a range of solutions and products deployed in integrated communication networks.
It operates four dedicated business verticals, namely telecom, defense, railways, and security and surveillance. HFCL manufactures a range of high-end transmission and access equipment, optical fiber, optical fiber cable, and cable accessories. Spanning across the value chain, its technologically superior offerings include product manufacturing as well as specialized services. These get deployed in both the private and government sectors towards varied applications in telecom, defense, railways, utilities, and security and surveillance networks. Our two centers of excellence at Gurgaon and Bangalore spearhead our in-house research and development activities. Our innovation efforts are also supported by a few other invested R&D houses and collaborators from India and abroad. Collectively, our R&D teams are developing a range of breakthrough technology products and solutions, which can be offered for mass deployment thanks to their cost competitiveness. Our five world-class manufacturing facilities produce a wide range of new generation communication products.
The company serves an enviable list of customers globally with export destination to over 40 countries. The company closed the Q2 with an order book of INR 7,447 crore, which is approximately 2x of our FY 2020 revenue. Our order book is backed by a promising pipeline of bids and RFPs. To be executed over the next six- eight quarters, our order book is fairly representative of all our businesses, verticals, and comes from a multitude of prestigious customers. Adding significantly to revenue visibility, our order book has an O&M component worth INR 1,555 crore. Our innovation journey has yielded superior Wi-Fi network products, high-capacity radio relay, microwave radios, and cloud-based management platform. Going forward, our effort for innovation and IPR creation is going to accelerate.
Driven by next-generation technology offerings, thus focusing on own developed familiar products which are capable to cater the global market demands, we are undergoing a complete technology-led transformation. Our innovation pipeline has switches, routers, intelligent internal systems, electronic fuses, electro-optic devices, ground surveillance radars, software-defined radios, et cetera, at various stages of development. Our new product initiatives are backed with requisite global and Indian certifications. These efforts are aimed at driving our margin upwards. We have been receiving good orders from our recently launched Wi-Fi and UBR products. These orders are from multiple customers, including Tier 1 telecom operators. Exploring various overseas opportunities also for these products, we are setting up domestic and international distribution network. Fully designed and developed and manufactured in India, these high technology products epitomize Atmanirbhar Bharat. Getting extensively deployed for rural broadband connectivity, they are furthering the Digital India vision of our honorable Prime Minister.
We started supplying Wi-Fi and UBR products in the Q1 of current financial year. While we are still in early stages of their immense potential, we have already received orders for more than 1 lakh units of these products. The same are planned to be supplied by December in the current year, more such orders will flow during the coming quarters. Capacity utilizations at our OFC manufacturing units has progressively improved in spite of restrictions witnessed at the Chennai unit on account of COVID. Collectively, the utilization reached above 70%-80% at the close of Q2 from just above 30%-35% during Q1 . The recovery was led by our Goa plant, which operated at 93% capacity at the end of Q2 . Some of our new generation products have entered pilot production with advanced field trials going on with customers.
We are gearing up for commercial launch of our next generation Wi-Fi systems compatible with 5G networks, intelligent antenna systems, and level 2 and level 3 switch products in Q3 . I'm glad to inform you that our upcoming optical fiber cable facility, newly created facility at Hyderabad, is progressing well, and we expect it to commence production by November 2020, that is about a month from now. Looking back at our performance, the recovery continues to accelerate. There is more action across new inquiries, production, shipment, project execution, et cetera. Due to impact of COVID during H1 of the current financial year, from an analytical standpoint and for the purpose of comparison, financial numbers won't be comparable on year-to-year basis. Sequential comparison over the previous quarter, that is Q2 versus Q1 of FY 2021, gives a correct picture of coming closer to normalcy.
Let me share these comparisons on a sequential basis. Quarterly revenues rose to INR 1,054 crore in Q2, recording a jump of 50% over INR 700 crore in Q1. EBITDA recorded a 65% sequential growth to reach INR 138 crore in Q2 from INR 83 crore in Q1 of FY 2021. EBITDA margin improved by 118 basis points sequentially to reach 13% for Q2. Profit after tax rose to INR 54 crore in Q2, rising 149% over INR 21 crore recorded in Q1 of current financial year. PAT margin improved by 200 basis points to 5.04% from 3.04% recorded in Q1 of FY 2021. Compared with the corresponding quarter of FY 2020, our Q2 FY 2021 revenue is higher by 8%, while EBITDA is lower by 1.4%. Suffice to indicate that we are almost back to pre-COVID levels now.
Capacity utilization, new product shipments, project execution speed are all poised to head northwards from here on. We hope that we may have much brighter numbers and more positive updates and share and discuss when we meet again post the Q3 result announcement. With this, I will close my remarks. Thank you once again for your participation in HFCL's earnings call. Now I open the floor for question- and- answer session. Thank you very much to all of you.
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. Participants to ask a question you may press star and one. The first question is from the line of Sajal Kapoor from Unseen Value Limited. Please go ahead.
Good evening, Mr. Nahata. Thank you for this conference call. My question to you would be, that new orders this quarter, how much you've received?
This quarter, we received orders worth about INR 350 crores, which are majorly for fiber optic cables or Wi-Fi or these kind of own produced products. Of course, we have participated in number of other tenders, RFPs, inquiries.
Sir, I have muted the line of Mr. Hemant. Please go ahead.
Yeah. INR 350 crores in the last quarter, and with the kind of RFPs and tender inquiries and pricing informations we have participated, we expect good quantity of orders to come in the current quarter also.
Sir, I want to talk about You talk about your strengths and your opportunities. I want to know a little bit about your weaknesses and about your balance sheet. Your trade receivables is very high and cash flow from operations is also not good. Would you like to throw some light on that?
I would have my CFO answer this question.
Sajal, the receivable level in absolute terms has definitely increased as compared to last financial year. The main reason is due to this COVID impact, some of the project execution has got delayed where the release of payment is milestone-based. That has impacted realization against our outstanding dues. Secondly, the last two months alone, our gross sales amounted to INR 750 crore, which is part of the receivable. Overall operating cycle has improved from Q1. Overall operating cycle is 122 days as on September 30th, as compared to 132 days as on June 30th. We have to go a long way to bring it to the normal level as of March 2020. Hopefully next two quarters, we can see the lot of improvements in the operating cycle and receivable levels.
Sir, my last question would be, the promoter group has been increasing stake in the company. Is the seller a known seller or?
Look, this is first of all, it's a company call. I would still answer your question from a promoter's perspective, I being a promoter. There is no known seller. I don't know anybody who might have sold to the promoters or not. They have just bought from stock market, open market. Of course, the promoters have increased their holding to consolidate that at this point of time.
Thank you so much, sir.
Thank you. The next question is from the line of Abhishek Shah from Valcore Capital . Please go ahead.
Hi, sir. Thank you for the opportunity. I just had a few broad-based questions. First, I am trying to understand the size of opportunity for us in our business. Second would be that of the market size, what could be the difference between what could be the opportunity for fiber and the other products? I will ask the next question once you answer this.
Look, size of opportunity in telecom field is very large. 4G still is in expansion mode. 5G is to come maybe another six to nine months' time. New auction for 4G spectrum is happening. That would further lead to expansion of 4G networks. A couple of service providers who have not enhanced their network to 4G level, to the level others have done, or who have not started their 4G are going to start 4G now. That will increase the demand. 5G will increase demand of everything immensely. Moreover, FTTH is being put by one operator. Now Airtel has also announced a similar level of FTTH deployment, which will increase the demand. Market size and opportunity is immense, INR 16,000 crores. The BharatNet is going to come up, which itself, one project is itself worth INR 30,000 crores.
If you look at three years timeframe, I would say this opportunity could be a five-year timeframe, let me put it. Five-year timeframe, this opportunity could be on something like INR 300 crore.
Okay. Sir, say Bharti or Jio announces, let's say a INR 3 billion CapEx, what would be our sort of target market in that INR 3 billion? Would it be 30%?
Look, I can't put a number like percentage on their announcement, but we are definitely looking at increased revenue year-over-year growth from our side and increase our market share from these operators, not only these operators, from export market also. Mind you, we are also present in defense business. Which is completely separate line in defense communication as well as defense electronics. We are going to increase our revenue from those areas also. It's not only from operator, it is going to be from cross section and also from BharatNet kind of an opportunity where there will be large demand of fiber optic cable as well as equipment, which we are designing indigenously, going to produce indigenously and being own designed equipment, we are going to be very competitive, designed and manufactured as per the rural requirement.
Understood. Sir, one last thing. Sir, over the last three, four years, we've also tried to focus a lot more on new products and sort of reduce our risk purely towards fibre. If you can just tell us more on how has that progressed and what sort of orders are we getting on that side? That is one and second part of this question is that how much time does it generally take since we are new to this sort of these products as such, if I may call it. What is the comfort level for the customer to give you a sizable order for that?
Look, number one, we have really started focusing from last one and a half year or maybe about two years. On the development of new products. All these products, being public communication products or even defense products, take time to develop. It's not that you start making effort today for development and it becomes available in a few months. It takes about a year or one and a half years timeframe. A lot of such initiatives were taken, and it started giving results. For example, Wi-Fi product has come into market. As I mentioned in my opening remarks, we have received orders for Wi-Fi and UBR, unlicensed band radio, which have been developed by us and already in the market, for 100,000 units, one lakh units. This confidence customer got, at least they did the testing for, I would say, three to six months time.
Lab testing, three months lab testing and three months plus field testing. It took almost six months because the customer has to put it in the public network. They cannot put it unless they are satisfied with the robustness and the quality of the equipment. Three to six months is the timeframe customer normally takes in the beginning to allow any product to be inducted in his network on a very large scale. It took three- six months. Many a times, customers want some kind of customization to be done for them, which being developed locally by us, we can do such customization. Many such customization we have done. This took about six months time from this Wi-Fi and UBR. Now it's a one lakh order book we have, and which would be shipped by December.
Similarly, other products which we have started as a collaborative R&D, for switches. Switches would be available in next, probably two months' time. This effort was started about years back. Routers started about few months back, would be available in six- eight months' timeframe as per the specifications which are required. Electronic fuses, as an example for defense. Electronic fuses, we started about more than a year back. I'm happy to say that those fuses are now ready. We have conducted trial in a different country, where this contract development was undertaken by our R&D partner, and now they are ready for trial in India. We have to ship it to the Army for trial. We are waiting for the date. Whenever they are ready, we will ship it to them.
I must also say that now we are ready to market that fuse internationally also because it's ready. About one year it took from the time we started, now the product is ready. To induct it in any army, it will take six-nine months of trial phase. For defense, it takes that much time. Sometimes three-six months, sometimes six-nine months. Development cycle is at least a year. Some cases it may be little bit more. For example, Software-Defined Radio, which is very complicated product, and the demand is about INR 25,000 crore in India alone. Development cycle is itself 18 months, and the test and trial period would be about six months. The overall cycle period could be 24 months.
All are progressing very satisfactorily, and products are coming in stream one by one. From this quarter itself, they would start coming into stream, and we would start selling and marketing them. This process will continue for next two years' timeframe, with number of more products coming in the stream one- by- one. In fact, as I said in my opening remarks, we are completely renovating the company, I must say, by including more and more products which are our own design products with a large R&D budget, so that we become more profitable and our market sphere also increases. These are the products made in India, but made for the world. It's the entire family of products, which is quality-wise and technology-wise, at edge of technology. There's no way you can differentiate between a multinational Wi-Fi product with our product.
Like now, new standard Wi-Fi 6 has come, which is 5G compatible. We are ready with that, and we have already offered for testing to the operators. I'm sure in three- four months' time, we'll start issuing orders for them also.
Is the technology in-house or are we collaborating with someone for this?
Both. No, its technology is in-house. Collaborating means R&D collaboration is there, but IPR is ours. Somebody else is doing a development for us. Our own IPR. It's a joint development. It's our technology. There's no collaboration in these cases. When I talk the router, whether it is the switch, Wi-Fi 5, Wi-Fi 6, cloud-based management system, electro-optic systems, electronic fuses, these are all our technologies.
Okay. All right, sir. Thank you so much, sir.
Own IPR. Very important.
Lovely. Really nice to hear this, sir. If I have more questions, I'll come back in the queue. Thank you.
Okay, sure.
Thank you. The next question is from the line of Sanjay Shah from KSA Shares and Securities. Please go ahead.
Good evening, sir. Thanks.
Good evening, Sanjay.
Yeah. Sir, I appreciate the performance of this quarter sincerely in this current perspective. Now, coming back to your all exciting comments, it is really exciting journey ahead, as you rightly pointed out, reinventing HFCL or renovating. Sir, can you tell us that what is opportunity on these defense products and other products? What export opportunity we have? In India, we are not so confident about our government purchasing capacity or intention. Better we risk divide ourselves by taking some export orders and all. In that, where we have reached and what potential we see in the export for this product?
Mr. Shah, thanks a lot for your question. Let me answer it in this way. There are two kinds of products we have. One is communication, second is defense electronics. What we have done for communication products, we have started appointing either advisors, consultants, or even our own employees in some of the countries. We have got now our people in Middle East, we have people in Europe, in France, we have people in England. We are appointing people in Southeast Asia. What we are going to do with these people who are either on board or a couple of them are going to be on board, we are going to use them for building relationships for each of our products.
So that, they are the relationship people who build relationships for each of our products, and the product specialists then go from India and start talking to the customers. Right now, this is being done for fiber optic cable, which we are already exporting to more than 30, 40 countries, as I already explained to you. Now, you rightly say that we are not sure about how much government would purchase. That's true for communication sector, because BSNL is the only operator from government. That's partially true, partially there's a good sign also, BharatNet. From the government perspective, I am talking about. Because that money is there, given by the operators. It's not government money. There is probably INR 40,000 crore-INR 50,000 crore lying there, which is now going to be used for BharatNet phase II. That money cannot be used for any other purpose by law.
There is a huge requirement for BharatNet, and the demand is there that was suddenly going to come in a different mode. It is going to come in a PPP mode. Where the viability gap funding will be done by Government of India from this USOF. That demand is there. In terms of other communication products, it's not really government we are selling. It's to private operators like Jio, like Airtel, like Vodafone, or any such operator, or many of the ISPs. Their purchase capacity is there, nothing to do with government. However, products like defense products, for example, like I mentioned, electronic fuse, which is ready. I'm expecting that we will have a marketing kind of effort started for that internationally in next two-three months timeframe. Three months, maybe three months timeframe.
Of course, getting orders is six months to one year because this kind of military product undergoes trial and testing in every army. Only you get orders. Electro-optics. Again, we would be from, I would say, end of Q1 or beginning of Q2 of the next financial year. We would start marketing electro-optics, which is night vision devices in the world market. In India, we have already started. We have already participated in tenders for electro-optics in India. Some of these are going to be opened very soon, in my opinion. We are going to participate in another very large tender next week itself for electro-optics. That effort has already started. In terms of defense sector, I would say India still has reason to spend more. As you all know, the kind of situation which exists on northern western border.
India is spending more. There is a large-scale purchase going on for this kind of equipment, which there are deficiencies. We are going to participate in another major overall program of certain kind of equipment, which I can't go in detail, because restricted RFPs have been given, but with a very large global company. That's also a very large tender. Opportunities are there in defense sector in India, but since these are our own design products, own IPR, we are going to sell it globally, absolutely. That's the reason why we have gone for our own design and huge R&D investment, so that we can create products and sell it globally.
What is your internal guidelines about the export? How much we can do for next one year, two year, three year?
Look, the current financial year, optical fiber cable is the only one which we are exporting.
Thanks.
Maybe we will do some of Wi-Fi also. Then from the services, turnkey contracts. We are doing railway contracts in Dhaka and Mauritius. Those are coming up. Current year, all put together, optical fiber cable and that contracts. Our export could be about INR 150 crore+ . My wish is to reach to at least, in three years timeframe, north of INR 500-INR 600 crore. With so many products coming up, it could be even higher. I'm not projecting those numbers, but that is minimum internal target that we should cross those kind of numbers in three years timeframe. It can be much more because defense products and all that would come into picture. It can be much more, but I'm not making any such projections right now.
That's great. My second question is, how do you see the optic fiber and fiber cable market right now across the globe?
Look, market is improving, from what I probably would have talked in the last earning call to now.
Market is improving globally because, one, there was a huge impact of COVID, and because of COVID impact, market was subdued. China was also buying less. Chinese demand has improved a bit with China Telecom, China Mobile coming out with the tenders for fiber. Internationally, there is going to be deployment of FTTH in large scale, including Europe. Cable demand is going to be there. In India and worldwide, these 5G networks are going to come up, and with the 5G, again, fiber demand is going to increase because networks have to be made ready for 5G by linking all these towers by fiber. The throughput of every tower is so high, it cannot be carried forward in a large scale on microwave radios. There is going to be large scale deployment of fiber all over the world. Fiber optic cable business will see improvement.
I don't say that prices will increase dramatically because there is enough capacity existing, but demand will increase. In India, FTTH by all the major operators, then 5G deployment, then BharatNet. All these three things put together, demand is again going to go up. I would not be saying that there is going to be any dramatic increase in the fiber prices, because there is enough capacity existing in the world. Those people in India who have large scale capacity and maybe backward integration like us, they would see that their factories get enough orders to fill their capacity. Like for example, today, our both factories, Goa and Chennai, are operating at 100% capacity. Last quarter, there was problems because of COVID, not because of orders. Now, we are putting up a third factory for cable, which I mentioned in my opening remarks.
Third factory for cable, which is being under construction or under installation rather, construction is done. Under installation of machines and all that from next week. Machines are going to arrive probably in next five-seven days. It's a third factory for cable. You can imagine the kind of demand we have in the existing factories that we had to put up a third factory for manufacturing cable. That may not be the case for every manufacturer, particularly smaller ones. The large ones are definitely going to be looking at operating at reasonably very good capacity.
Sir, BharatNet program of government was stopped, I think it was more than one and a half years. Correct me if I'm wrong?
Yeah.
How confident you are they are starting it again with that PPP model? Do you think that will work out properly for the business?
It will. I tell you. Even the Prime Minister has announced that 4.5 lakh villages are going to be connected in 1,000 days by fiber. It's a Prime Minister announcement from the Red Fort. Government has to act upon it. Money is available. That's the major point. Other places you find budget constraints. Because of budget constraints, many things do not happen. In this case, money is available. Even if Government were to implement it all by own, without PPP, enough money is available. There's about INR 40,000 crore plus money is available in USOF. It will increase every year. They will spend that money. Instead of doing it by Government, they decided that it should be done by PPP model for better quality and better utilization.
In phase I, whatever they did, 1.25 lakh panchayats or 1.5 lakh maybe, the proper utilization is not there. The government is not a sales or marketing organization, they can sell it properly. Quality of network was also not that too great, it was poor. They decided that it should be done by private on a PPP model, so that private people will do a better quality. Sales and marketing responsibility will also be theirs because it's a PPP model, which would be 25-30 years operating contract. After that 30 years or maybe something like that extendable to another 10 years, they have to hand over the network to government. It's a perpetual kind of a thing. With that model, I'm sure things will definitely pick up and it will be successful.
If PPP does not succeed, for whatever reason, I'm just hypothetical thing I'm saying.
Yeah
Government will do it its own, because it's a committed announcement by Prime Minister, they cannot go back, and money is there. This BharatNet is going to be beneficial to our company from different angles. One, if it is a good PPP contractor who has got money and capacity to build, we will get turnkey work from them. Two, fiber optic cable supply, which is going to be huge demand for fiber optic cable. Connecting 4.5 lakh villages is by no means a joke. I don't have the numbers, how much they have calculated, and it's all going to be over the ring network. It may need 8-10 lakh km of fiber optic cable, which is huge quantity. Equipment. Connectivity does not mean connectivity alone.
They are going to put conditions that so many houses are to be connected over fiber optic cable, FTTH. That's why this OFC network is there. That would bring us lot of demand for FTTH kind of cable, and also equipment which also we are undertaking for design, equipment which are required for FTTH network. As I said, it is going to be a ring configuration of network, which would require routers, which would require switches, and all are there in our product line now, which are going to be available in next two- three months gradually. Those will also be required. With the PMA condition, where you need a higher amount of indigenous content, which can only happen if it's a product designed and manufactured locally, we are going to get advantage out there also.
I am looking at BharatNet with a lot of excitement.
Yes, it sounds really exciting, sir. Thank you very much for updating in detail, sir.
Thank you.
Thank you. Participants to ask a question, you may press star and one. The next question is from the line of Parth Mehta, Individual Investor. Please go ahead.
Good evening, sir. A lot of my questions have already been answered. Just one question that you had already said about SDR is the opportunities about INR 25,000 crore in India alone, and it might take about two years time for it to be available in the market. Where actually are we in that two-year timeframe? Have you just started or we are halfway or almost through? Could you please throw some light on that?
Look, SDR, we have just started, and Army has also come out with a EOI now where they have to do the shortlisting. It's still not done. It's on an nascent stage from the customer requirement point of view also. We are not late at all. We are absolutely on dot as to the customer requirement. They are going to give 18 months time for development, and then they are going to start the trial. I think it is going to be little more than 18 months, I think 18+ 3 or something like that. We have already started. We are on exactly as to customer requirement. Our product would be ready, maybe, I would say 15 months or so timeframe from now.
There's a complete range of products, but the first product is going to be available in 12 months timeframe because it has got various configuration. It has got handheld, it has got manpack, it has got vehicle mounted. The first version, I think, in my opinion, should be available in about 12 months timeframe.
Okay. Everything we can expect it in 2022, 2023, that we can see it in revenues, not before that, right?
Yeah, you're right. Absolutely.
Okay.
Not before that. That too end of 2022, 2023.
Okay. Sir, I had another question on GPON. As the BharatNet starts simplifying, how soon do we see that in execution?
BharatNet execution, first of all, the PPP, EOI, tender, all that has to come.
Yeah
slated to happen in a few months. A tender finalization and all that. I think I would suspect that this execution would be about a year. Next financial year.
Next financial year. Okay. Sir, apart from that, we have not been seeing any service orders coming in the last three- four quarters. Are they majorly from BharatNet or the government, or they are from the private parties as well?
No, orders have been coming. If you look at, you would not have seen a very major order coming in after our Gov NMS on IP MPLS order, which came a few months ago. Some more large orders are expected, not that they are not, maybe very soon. What I'm trying to say is, orders do come, but they come in smaller numbers. One single big order is not there, but fiber optic cable, for example, INR 20 crore, INR 30 crore, INR 40 crore. Last quarter we have received orders of INR 350 crore, which is smaller orders.
Okay
larger RFPs also we have participated. Some larger order also might come soon. Sometimes the larger comes, sometimes the smaller orders come. Now this quarter, my hope is much higher from order booking point. It's much higher.
Okay. Sir, my last question is, we are going to start shipping our Wi-Fi in the month of December.
No, we have already started shipping. I'm saying Wi-Fi, we would have supplied 1 lakh units by December.
Okay.
INR 1 lakh.
Okay. That will be Wi-Fi, and Wi-Fi 6 will be probably a little down the line.
Wi-Fi 6 we have already developed. It has already been given for testing to the operators, and the testing should take about three months timeframe because then there may be requirement of some customization and all that. I would say Wi-Fi 6 shipment in all probability should start towards end of this current financial year.
Okay. whatever we are doing in Wi-Fi currently, that will be substituted by six or that will be an additional thing?
I think some people would still continue with Wi-Fi 5, some people will go to Wi-Fi 6. Particularly the 5G operators would definitely like to go for Wi-Fi 6 because their throughput is going to be higher. They would like a equipment which can take that throughput and give it to the customers.
Okay. Sir, what would be the difference in pricing per unit of Wi-Fi 5 and 6? I don't know.
Too early to say right now. It's too early to say, but difference may not be much.
Sir, Wi-Fi 5 goes for, I'm just trying to calculate what can we clock in this year from Wi-Fi.
Pardon me?
What can we generate in revenues from this year in Wi-Fi? Sorry.
We are looking at generation of about INR 125 crores-INR 150 crores from this, our own design products from the current financial year.
Okay, sir. From 100,000 units, we will be generating that amount. That is what you are indicating.
100,000 units of that, and then there are antennas, accessories, UBRs, all those put together.
Okay. Thank you so much, sir. You've been very informative and I look forward to the Q3 as well. Thank you.
Thank you very much.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the question queue. The next question is from the line of Giriraj Daga from KM Visaria Family Trust. Please go ahead.
Yeah. Hello, sir. My question is related to, what is the order of pipeline you are seeing which can be awarded over the next six months till, let's say, March 2021 end? You said it's good, any number to that?
Look, Mr. Daga, it would be not good for me to put any number because these are forward-looking projections I am not supposed to give in a conference.
No, I'm saying how much industry ordering will be done. Whether you will get or not is the next question.
Oh, you are talking of industry orders.
Yeah. I'm saying how much total bidding will happen or the total project will be awarded over the next six months?
It could be several thousand crores. If I put PPP or BharatNet and all put together, it will be several thousand crores. Defense products, these communication products, I think this could be, and 5G coming in. I don't know if 5G would happen in this current financial year or not. Even then, in the civil communication itself, I think it could be something like INR 6,000 crores, INR 7,000 crores, INR 10,000 crores maybe.
Okay. My second question, I missed the number. What is the capacity of the third factory which you are putting for cable? How much CapEx you are doing?
It is going to be cable kilometer perspective. Again, let me caution you. This all depends on what kind of cable you manufacture. This particular factory is being put for FTTH cables, Fiber To Home. It's a low fiber count cable, and capacity is going to be 30,000 cable kilometers per month.
Okay.
For FTTH only. It's not going to be high count fiber. It's only FTTH right now. We would expand more in future, but right now it is for FTTH and 30,000 cable km per month.
What is the CapEx you are incurring there?
CapEx would be in the order of roughly about INR 25 crores or so. INR 25 crores plus civil already undertaken, which has been done INR 10 crores. Total would be up to INR 35 crores.
Just assuming let's say we reach a 90% realization, I'm not putting a time there. How much revenue we can generate from this, or let's say how much EBITDA we can generate from this?
Revenue, I would say revenue should be around about INR 200 crores.
profit margin of 12, 13%?
Well, I can't say that at this point of time. I would say lower number. Profit margin, I would say little below 10% or 10% maybe.
Okay. My next question is bit more on a technology side. There are some reports which are mentioning that the 5G CapEx may not entail a large number of towers what many people are expecting. Do you also?
Sorry, say that again.
I am reading some reports which mention that what the technology Jio is going to adopt on 5G, that may not result in a more number of the densification of more towers. Are you seeing something on that line? Are you in industry interaction?
I can't comment about any particular operator, Jio or anybody else. Generally, 5G would need densification because with the kind of throughput 5G has and kind of spectrum it has, it has to be densified. This is a law of physics. Higher you go in spectrum, smaller is the coverage. Higher you go in the data speed, smaller is the coverage. Densification has to happen. There is no way out of that. It has to happen. For every 4G tower, you will need, depending on area, two to three 5G towers, maybe three.
Okay. What I was reading is that the people will be using 3,500 MHz for the download and about 1,800 megahertz for the uplinking, and that's why it might not require the number of towers people are expecting. It might be higher.
At least two times, if not three times. At least. If not three.
Okay.
Existing towers will have to be upgraded with the more power supplies, higher power supplies, and fiber optic cable
Okay. Understood. Thanks a lot, sir.
Thank you.
Thank you. The next question is from the line of Abhishek Jain from VC Corporate Advisors Private Limited. Please go ahead.
Good evening, sir. Actually, I have got two questions.
Mr. Jain, may we request that you please use the handset mode. We are not able to hear you.
Hello, can you hear me?
Yes, we can.
Yes, better.
Yeah. Okay. I have got two questions. One is, sir, if you can provide me with the bifurcation of the revenue in terms of fiber, cables, equipment, defense, and turnkey projects wise, if possible. Another thing is, sir, a little about the opportunity in the next five years. If we see, the company revenue has increased during 2016 to FY 2020 to INR 3,800 during the 4G investment, both by Jio and Airtel. Sir, looking at the opportunity in the next five years in terms of lack of INR 4,000 opportunity, sir, where do you see company standing in terms of revenue? How much the company will be able to capitalize on this opportunity? Because in the last five years, it has not grown much.
Look, not that last five years we have not grown.
INR 2,500 grows- INR 3,800.
This is still a growth by 30%. This is not a growth. Number one. Number two, in terms of revenue mix in the current quarter, out of INR 1,050 crore revenue, we have the telecom products, which includes fiber optic cable and Wi-Fi and all that, INR 279 crores, and INR 775 crores out of our projects, which includes products as well as services, like army's communication network and all that. Total revenue was INR 1,054 crores. Time to come, we see revenue from products growing and project revenue going down, which is a conscious decision we have taken in the company. To when I say conscious, this is a complete reinvention of the company taking place now. Year- after- year, it will happen. Quarter- after- quarter, it will happen. More revenues will come from products, which are our own design products, our developed products, higher profitability margin.
And less from-
Yes
projects. Consciously, we have taken a decision that let us design products ourselves, because there is a huge effort by Government of India also to get the products manufactured locally for local market, and for there is a Preferential Market Access and those kind of policies have been created. Once you fulfill a local demand in such a huge market, you become competitive to export it also internationally. You would find product revenue would grow. Project revenue may remain static, but in terms of percentage, it will come down. Product revenue will grow. I'm not saying that actual numbers will come down, but the percentage might come down. That's the strategy we have adopted, but that is certainly going to give better profitability to the company.
In terms of what kind of revenue I see in three to five years, this is a very forward-looking statement, Mr. Jain. I would not like to talk of a forward-looking number.
Okay, fine, sir.
There is going to be growth. That much I can tell you.
Okay, what I wanted to understand was that the greenfield project of Jio and Airtel in our country on the 4G network, the revenue has grown not so much actually. In the last six years, it has grown from INR 2,500 crore- INR 3,800 crore. That's about 8% CAGR growth. Means I wanted to understand that the opportunity is so huge, but what is it about the company?
Sir, you have to look at it from the products you have. As we are increasing our product range, revenue will also grow. Again, in three years, INR 2,500-INR 3,800 is not a bad growth, Mr. Jain. It's not that bad. INR 2,500-INR 3,800 in three years is quite reasonable.
Thank you. Mr. Jain, may we request that you return to the question queue for follow-up questions, as there are many participants waiting for their turn. Thank you. The next question is from the line of Mangesh Kulkarni from Almondz Global Securities. Please go ahead.
Yeah, thank you for giving me an opportunity. I just wanted to understand the opportunity which we are going to get from the recent Jio's announcement that they are ready with the 5G solutions, which they are ready to offer to the world. What kind of participation do we see for HFCL in this opportunity?
Sir, we have not discussed any such thing with Jio, and I cannot talk about any particular operator or any customer, but we have not discussed any such thing with Jio.
Are we supplying some of the products to them for the 5G implementation or whatever R&D they are doing?
They have not started 5G implementation. Whenever they start, we would definitely discuss with them. We continuously supply them fiber optic cables, so we will hopefully keep on supplying fiber optic cables to them. If any other opportunity comes, we will definitely look at that. Wi-Fi, for example, Wi-Fi we are supplying to Jio also to a large extent. When we do Wi-Fi 6, which would be very compatible with 5G, we would certainly approach them for supplying Wi-Fi 6 also. Wi-Fi 5 we are supplying them in large number. UBR we are supplying to them in a large number. Whenever they start 5G, and they need equipment for 5G, whether it is routers, switches, all the new products we're trying to bring in, or the Wi-Fi, fiber optic cable, we'll certainly discuss with them.
Now it is up to them to give the order or not. It will depend on our competitiveness and all that. We are hopeful that we will definitely try to get more and more orders by supplying competitive and quality products.
Okay. Sir, I just wanted to know about our EPC business. Now, how is the situation after this unlock process starting? The EPC contracts, are they coming back to the schedule or still delays are there?
Well, it is improving. If you look at EPC execution in the last two quarters, Q1 was about INR 510 crore, and Q2 is INR 775 crore. It has shown improvement, still it needs to improve more. I think Q3 would show further improvement because COVID situation is easing down, and it's a new normal now. I don't know whether easing or not, it's a new normal. People have understood they have to live with it, to work in this situation. I am expecting it to improve further. Only impediment which is right now is there for the army projects which are in the northern border of India. In Northeast or maybe mostly in the northern areas where we have large number of projects, and out of the total projects, concentration is in North India.
There, because the border situation as we know already, we all read in newspapers and media, there access is restricted. They don't allow people to go in and out as easily as it used to happen earlier because of the current situation. There, the restrictions are there. I suppose they would remain there for some more time till the time border situation eases. There, the situation is little bit more difficult than other areas. Other than those army projects in northern areas, the situation has improved. As it can be seen that, revenue from projects have gone up by 50%.
Okay. Thank you. Thank you very much.
Thank you. The next question is from the line of Sonali from Wood Group. Please go ahead.
Hello.
Yeah.
Yeah. Good evening, Mr. Nahata. I have got a couple of questions. First is regarding the release of shares which are pledged. Earlier I have seen a video where they have mentioned that some percentage of shared shares have been released and the management is in talk with the banks, but the banks have their own procedures. Can you just please update on that? My second-
No, 20% of shares have been released. One was placed as a collateral to one of the banks for our guarantee requirements. That has been released. The second was placed because of this fiber plant which you put. There's some issue was there with the land being registered and the condition was there that can be pledged only after you start commercial production. That has also happened, that 13% has been released. 7+ 13, 20 has been released. Balance shares we have already applied to the banks that the conditions under which they have been placed, they have all been fulfilled. They should better release it. I'm hopeful that banks should see it with a positive sense because the conditions no longer exist under which we had pledged them. As I said all the time, no loan has been taken against shares.
No loan. It is all collateral for the business of the company. There's no promoter borrowing, no loan against shares either to the company or to the promoters, and it's all collateral to the banks for the loan which they have extended to the company as collateral. I am hopeful that some more release should take place. We have already sent application to the banks.
Okay. Thank you. My second question is regarding the debt reduction plan.
Debt reduction. It keeps increasing. No, we don't have much of debt. It's 0.43 only. The gearing is only 0.43. We don't have much of debt in the company.
Yeah. Okay. Fine. Thank you.
Thank you. The next question is from the line of Saket Kapoor from Kapoor & Company. Please go ahead.
Good evening, sir, and thank you for the opportunity. Sir, correct me, sir. You told that going forward, the mix between the telecom products and the turnkey part will be skewed more towards the telecom products. Meaning the growth which will happen going forward would be higher on the telecom product side. Correct, sir?
Yeah, I said product side. Telecom and defense all put together.
Put together.
The cable all put together on the product side.
When we are putting the revenues of telecom products, both defense and telecom are clubbed under one head only? That is-
No, product.
Sir, if we see the margins there, sir, last year, we did revenue of INR 127 crore last September. This year it is around INR 209 crore. The PBT numbers have fallen from there. At a turnover of INR 127 crore, we posted PBT of INR 23 crore. Here, out of INR 209 crore, the profitability is only INR 12 crore. When we take the consolidated part, sir, we find that with an improvement of, if I'm not wrong, with an improvement of INR 70 crore in the revenue, the profitability goes up by INR 20 crore. I just wanted to understand, telecom product consolidated profitability improved only, and on a standalone it is lower?
Saket, the variation in margin is not because of this product mix or anything else. It is because that you know that we have commenced the fiber production from this Q1, the Q4 of the last previous financial year. Initially it is getting stabilized and the capacity utilization is comparatively low. It has been low, one, because of the COVID situation and secondly, the initial stages, the plant is getting ramped up. The interest and depreciation is being charged to those facilities once it has started the commercial production. That is how it looks on the lower side. The situation is going to correct from Q3 onwards, with increased production of fiber.
No, it is because of the interest and depreciation on the new plant, which is what you see is like this. It's not really the margin on the product. It is interest and depreciation, which as my CFO said, it's going to improve from the Q3 because now this plant is running on 100% capacity now.
Okay, sir, since we are developing the product, this fiber and fiber cables goes into the product development. I think the fiber cable is mainly catering towards the EPC part. Just wanted to understand, we have built up the capacity to cater to the increase.
No. Fiber optic cable is more than 90% is being sold independently.
In the?
Independently.
It will club in the product category only, sir?
Yeah. Sure.
Oh, okay, sir. Sir, one more point about this. Sir, we have seen in our shareholding pattern Reliance Strategic Business Ventures Limited being a shareholder. Sir, are these any strategic investor or what category?
No. They are not a strategic investor. They're just a normal investor.
Okay. It is a treasury operations only because this company belongs to Reliance.
No idea what is their operation. They would know that. I know that they are a shareholder
Right, sir. One more point was that we have organized one conference call that didn't happen with Julius Baer in the month of July. Have you taken any more step to reschedule them for any further con call? I think that was scheduled in the month of July.
No, I couldn't follow your question.
Sir, in the month of July, there was one conference call that was scheduled for one of the biggest wealth advisors, Julius Baer Wealth Advisors. That was scheduled, but it could not happen. I just wanted to understand whether any further call-
No, as and when any call happens, we would keep on informing the stock exchanges and the department of it.
Yes, sir. The timeline, it was July 2nd, and now it is October 14th. The investor did not take interest going forward, that was my point.
I don't know about investor interest, but if any call happens, we will immediately let know.
Absolutely, sir. Last point was about, sir, you spoke that the synergies, the cost saving which we are going to have because of this backward integration, if you could explain how are these going to benefit and improve the bottom line? What should be the, sir, our endeavor for the sustainable EBITDA margins, sir, going forward. There is a fluctuation, although there is consolidation we are seeing overall from the last two, three quarters. If you could throw some light about the synergies and the sustainable EBITDA number going forward.
You do backward integration, there are two reasons. One, you have stabilized supply chain and take advantage of backward integration in the cost. Both are going to be there in this case, there's no doubt about that. To maintain our profitability and all that, as I said, to enhance it, we are doing more and more new products. Even in cable business also, we are designing new products which are not used in India, but they are used in different other countries. Those products will increase our market share and enhance our profitability, and stabilize that also. Mr. Saket, I have a couple of more question I can take, then I have to leave for some other appointment.
Definitely, sir.
If there's any other question from other investors, other participants.
I will come in the queue, sir. BSNL receivable, if you could give, sir. How much is due from BSNL?
BSNL dues. There's no dues much from BSNL as such. There is about INR 130 crore, INR 140 crore. Rest of the dues is for army projects, which is via BSNL, but which keep on coming on regular intervals. There is no overdose for that.
Correct. Thank you, sir, for all the answers.
Thank you. Ladies and gentlemen, due to time constraint, we'll take that as the last question. I would now like to hand the conference over to Mr. Mahendra Nahata of HFCL Limited for closing comments.
Well, thank you, gentlemen. As I said that quarter two has been an improved quarter- over- quarter one. Quarter three, we believe that it would improve quarter- on- quarter three also. Q3 should be an improved quarter because the impacts of COVID and these kind of impediments have gone down considerably. We are sure that we will do much better in the current quarter. Our emphasis on our own product development and marketing them worldwide is going to sort of reinvent the company in next couple of years. We'll position the company as a leading technology enterprise in the world market in communication as well as defense-related products. I'm happy to share that we are very enthused about that. We are very optimistic about these products, which we are developing with international class and which will certainly increase our revenue from products.
Product revenue will go down in percentage, but in terms of overall number, it may not even go down. In terms of percentage, product revenue will go up. I am sure that in future with the COVID situation becoming more normal, economy as a whole will progress. We will come down to the normals, the country and the economy as such, and HFCL being a part of that, will also show improved performance. Thank you very much, gentlemen. Thanks a lot for your time and attending this earnings call. See you again in the next earnings call. Thank you very much.
Thank you. Ladies and gentlemen, on behalf of HFCL Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.
Thank you.