Ladies and gentlemen, good day, and welcome to the HFCL Limited Q1 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. I would now like to hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, Mr. Sonpal.
Thank you. Good morning, 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 first quarter of financial year 2021. Before we begin, I would like to mention a short cautionary statement. 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 beliefs as well as assumptions made by and information currently available to management. Audience is 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. We have with us Mr. Mahendra Nahata, Promoter and Managing Director. Mr. V.R. Jain, Chief Financial Officer. I would now like to request Mr. Nahata to give his opening remarks. Thank you, and over to you, sir.
Thank you, Anuj. Good morning to everyone, and warm welcome to the earnings call of HFCL for the first quarter of financial year 2021. I'm sure that all of you are conquering these times with good health and resilience while staying safe with your families and dear ones. Let me first briefly introduce the company, its state of affairs, and how it has been navigating through the current COVID-19-induced challenges. HFCL, as you all know, is a leading technology enterprise, which contributes to a securely connected world through a range of integrated communication networks, products, solutions, and specialized services and offerings. It manufactures optical fiber, optical fiber cable accessories, high-end transmission, and access equipment.
Its technologically advanced offerings span the entire value chain from manufacturing high-tech communication network products to providing specialized network implementation services, which get deployed across telecom, defense, railway, utility, security, and surveillance networks, both in private and as well in government sector. HFCL's Center of Excellence at Gurgaon and Bengaluru spearhead its in-house research and development activity. The two centers are supported by a few other invested R&D houses and collaborators from different locations in India and overseas. Collectively, they work on developing a range of innovative technology products and solutions in a cost-competitive manner. HFCL's integrated manufacturing network of five world-class facilities produce widest range of new-generation communication products in India. The company serves an enviable list of customers globally with exports to over 40 countries. The company continues to enjoy a strong order book of INR 8,135 crores, which is 2.1 times of FY 2020 revenue.
It is aptly supported with a promising pipeline of tenders and RFPs. A healthy order book, which is expected to be executed over the next six to eight quarters, ensures revenue and earning visibility. The order book is fairly representative of all our business verticals and comes from a multitude of prestigious customers. The order book also includes O&M orders worth INR 1,573 crores, ensuring better margins and annuity revenue year-on-year. As a key enabler of next round of growth, we are accelerating innovation in every sphere of our business with a sharper focus on IPR creation. Next-generation technology offerings of our cost-competitive mass deployment would steer our technology-led transformation. With a clear vision of global deployment capability, our new product initiatives are backed with reputed global and Indian certification. Indigenously developed products and technologies with IPR ownerships are expected to drive our margins upwards.
As you are already aware, our innovation journey has yielded superior Wi-Fi network products, high-capacity radio elements, micro radios, and cloud-based management platforms. Our innovation pipeline includes switches, routers, intelligent antenna systems, software-defined radios, ground surveillance radars, electro-optic devices, and electronic fuses at various stages of development being carried out through in-house as well as collaborative research and development. Company is in process of further expanding its R&D resources and capabilities to bring in more products in its portfolio. Let me now briefly take you through our resilient response to pandemic-induced challenges. Having successfully embraced various phases of unlock, our operations have steadily been progress since our pre-lockdown levels.
In spite of having continued threat of COVID-19 even during the first quarter of financial year 2021, our order book remains intact with zero cancellation. We converted the adversity of operational restrictions during lockdown to further digitize the organization and headed to enable a work from anywhere framework for our non-production, non-project workforce. While disruptions due to COVID-19 and lockdown has led to revenue and profit erosion in the first quarter, there's no significant impact on our capital and financial resources. Elongated operating cycles have put some short-term liquidity strain. However, we continue to maintain adequate working capital with a range of measures leave us available with the company. With debt-equity ratio of 0.43, we remain comfortable to meet our financial obligations. We continue to monitor the unfolding situation and keep adapting to a fairly periodic basis.
Before I take up our quarterly performance, I would like to share that, first, the honorable Prime Minister's promise of providing universal connectivity to the remaining 4.5 lakh villages over the next 1,000 days is the indication of the kind of opportunity waiting for the company. While this ambitious national goal is just one of the growth drivers that industry is being presented with, the goal of connecting on an average 450 villages every day signifies the priority and urgency that the government is focused for a truly digital India. This opportunity will truly boost up the demand of optical fiber cables in the country. Second, the Government of India's Make in India program, particularly for defense equipment, and recent announcement made to restrict imports in case of various products, open up large opportunities for the company.
Besides development of electronic fuses and electro-optic devices, company is now identifying more products to be developed and manufactured indigenously. This is also going to boost up company's revenue in coming future. As informed and committed during our last earning call, we have been able to get 20% of our promoters' holding released from the pledge, which had been pledged as a collateral to the loan availed by the company. Coming to our Q1 performance. This has been highly unusual quarter, marked with production and execution constraints, and therefore, the results are hardly comparable. On consolidated basis, our income was at INR 704 crore, sequentially a bit better than the previous quarter, so would be INR 668 crore, and lower than corresponding quarters, INR 1,349 crore. Revenue from telecom product segment and turnkey contracts and services segment were INR 189 crore and INR 510 crore respectively.
Both the segments recorded with sequential growth over the previous quarter, that is, quarter 4 of FY 2020. Due to decreased revenue, EBITDA for the quarter was INR 83 crores as against INR 194 crores in the corresponding quarter of the previous year. EBITDA margins stood at 11.84% as against 14.4% during the Q1 of FY20. PBT stood at INR 29 crores as compared with INR 157 crores in the corresponding quarter of FY 2020. PAT at INR 21 crores for the quarter as against INR 117 crores in the corresponding quarter. Friends, I would like to mention that we are moving towards improved performance that was impacted by COVID-19 situation and hope to achieve the normal levels of operation as soon as possible. Amidst the present situation, we stand committed to increase the profitability and return ratios with our own technology products, coupled with high margin orders.
Our efforts to manage the costs efficiently along with effective working capital management shall also continue. Thank you once again for your keen participation in our growth journey, and wish you a good health. With this, I conclude my opening remarks and open the floor for question and answer session. Thank you very much.
Thank you. Ladies and gentlemen, 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 handset while asking your question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sanjay Shah from KSA Securities. Please go ahead.
Yeah. Good morning, gentlemen. Hope you all are doing well, sir. First, appreciating the performance on these critical circumstances. I would like to ask you, sir, how do you see the benefit of what you mentioned about the government's plan to reduce the import and where we stand, which are the products we see that we have a road to ramp up our business on that side?
Look, as a policy, Government of India is pursuing Make in India program from last few years. One of the major plank has been preferential market access in the government tenders, whereby indigenous manufacturers are given advantage in price quotation to a level of 20%. Of course, you have to supply at relevant prices, but while evaluating the tenders in those areas where the PMA policy is applicable, 20% price advantage is given for the purpose evaluation and determining L1. That is one. Second, now in a defense product, as an example, lot of restrictions have been allowed on imports. It can be announced. Now, number of these products, we would be manufacturing, either some of them are in process of development, almost completed, and some more are under development, and some more such new products will be taken up for development.
Examples of products which are almost developed in the company and will be ready in next couple of months includes electronic fuses, for which we have already participated in a very large RFPs of Indian Army. Electro-optic devices, which are common terms you can call night vision devices. There also, we are participating in couple of tenders and products. Couple of types of those products are already ready. We are going to be developing entire family of electronic fuses and electro-optic devices, which then, not only we would be fulfilling large indigenous demand, but we would be exporting also. Similarly, products like high capacity radio relay has been partly indigenously developed, and we have already participated in a RFP by Indian Army. We are in process of developing software-defined radio, for which there is going to be large demand.
Entire radio network of the defense forces are going to be shifted to software-defined radio, and we have already started development of that. That's another product. Likewise, we are now working on, within our company, which are the new areas of such product development is to be taken to fulfill the local demand, which is large demand, and then consequently export also. All this is going to result in, I would say, increased revenue and increased profitability, because we are indigenously designed products. That's a good announcement for Indian industry, and our company will also benefit out of that.
Sir, last time you cited about INR 200 crore revenue can come from that Wi-Fi and microwave. Are they under radar? Are they on target or is there any-
Yes. We are on target. Definitely. What I talked to you now was the import restrictions which have been recently announced, which were defense-related products.
Correct.
Now, coming to communication related products, there are a number of products which we are working on. Wi-Fi, that of course, development is complete for that particular types of Wi-Fi systems. Now, we are also started working, let me explain you, next generation Wi-Fi, which is called Wi-Fi 6 and Wi-Fi 6E. We have started working on that also, which is next generation Wi-Fi. Next generation Wi-Fi products from our company would be ready for mass production in the third quarter of the current year. Third quarter of the current year, they will be ready for mass production, the next generation. Nobody else in India has attempted that. Now, whole idea is to have a complete range of Wi-Fi products in our production, which should be able to cater to more than 80% of overall Wi-Fi market. That process has also started.
Similarly, UBR, which is kind of microwave radio, that development is also complete, and we are going for development of next generation of UBR, which is based on 802.11ax standards of IEEE, and that is also being developed right now, and that would also be ready in the third quarter of current year. We are, of course, on the target of achieving that INR 200 crore revenues through Wi-Fi and, this UBR microwave radio products. There may be some few percentage here or there because of this COVID situation and implementation difficulties by our customers, but we are more or less on target for that. Apart from this, now we are working on identifying few more products which we should take up for indigenous development. Another good thing that happened, that Indian industry, telecom operators in particular now, are very wary of importing equipment from China.
That puts up another opportunity for indigenous manufacturers to design more and more products, which hitherto were all being imported from China. When it comes to 5G related products, definitely what we see the worldwide scenario unfolding, import from China would be getting quite restricted. As a result of that, there's a good opportunity for indigenous manufacturers who have designed products locally. Unless you design, nothing much is left for profitability for you. Another disappointment of another opportunity to design new products and manufacture them indigenously, to have higher revenue, higher profitability. Third area, optical fiber cable. Though there have not been much import of optical fiber cables in India from China, the Indian industry has been competitive. Even though there was any threat, that is also not going to happen now, because hardly any import is being done from optical fiber cables from China.
As you know, we have started manufacturing optical fiber also. There were some threats from that side that Chinese import would be there and, if there is a lack of demand in China, maybe they'll try to sell in India. Duty on imports, and again, lack of desire of Indian industry to import from China, is also fueling good growth in demand of optical fiber in India. All put together, there is a huge opportunity for the local industry. In defense sector, where your company started working some time ago, looking forward into what is happening in the demand scenario, we started working in that. New security environment around our country is further going to fuel in more demand for such products.
Second, communication products, where new opportunities are opening up, as I said, announcement by Honorable Prime Minister for connecting entire 600,000 villages. That opens up a great opportunity for the business of fiber optic cable, fiber, and turnkey implementing services, where your company is in the forefront of those areas in the country. These are largest implementation services of fiber optic cable, turnkey services. Your company has done the highest amount of work. These areas, new business opportunities have opened up. This will certainly contribute to better growth and broader profitability in future.
That's great, sir. Sir, this Government announcement on this new opportunity, what you talked about connecting village, will that come in the BharatNet program, which already is on hold right now because of liquidity issue.
Let me tell you. It is definitely on the BharatNet program. There's no liquidity issue in BharatNet because this money comes from a USOF fund, and there is, I think, if I'm not wrong, there is a balance of some INR 40,000-50,000 crores already existing in that fund as money available. There's no dearth of money in that fund. That fund cannot be used for any other purposes than connecting rural India and unconnected villages. Money is absolutely no constraint. The program has not been on hold. Yes, little bit on hold because government is now going on, instead of implementing by itself, they have looked at PPP model for implementation. That was the story when it was 250,000 villages to be connected. Prime Minister has announced 600,000 villages.
Government has not yet cleared which methodology they are going to use. It is going to PPP or some government-led model or state government-led model. We are yet to see that announcement. But whatever way they do it, fiber optic cable is going to be required. Implementation services are going to be required. Your company is definitely going to benefit from them, because it has been one of the largest manufacturer of the fiber optic cable, probably among the first two, definitely among the first two, and also being the largest implementer of fiber optic networks in the country. We are definitely going to have some better prospects for ourselves.
That's great. It's a great opportunity. My next question is regarding O&M. We are sitting around the order of INR 1,573 crore. How much that is to be executed current year and next year?
No. It is going to be executed over next five to seven years.
Five to seven years. All right.
Yeah.
Fine. I'll come back in queue for few more questions. Thank you.
Thank you.
Thank you. The next question is from the line of Parth Joshna from NVS Brokerage. Please go ahead.
Hi. Good morning, sir.
Yeah, good morning.
Yeah. Sir, I've got a couple of questions. The first one is, I'm really sorry if you have already answered, but I had actually missed a couple of things. The first question is related to your order book, sir. The O&M order book is about INR 1,600 odd crores, and the rest is for the other lines of business. What would be the margins on those order books, sir?
Different orders have different kind of margins. Generally, we would say it ranges from 8% to 20%. It's a general statement I'm making. Some may be less, some may be more, but generally it is like that.
Okay. That's quite a broad range, actually.
Yeah, absolutely. It becomes order to order. Some are strategic order, you take at a competitive price. Some are a better profitability. Customer to customer, order to order, it varies.
Okay. Now, the things have started opening up, things have started getting back to normal basically, across India. You feel that this year you would at least do something which is equivalent to FY20 in terms of top line, or it'll be a bit less, more? What is your guidance on the same?
Look, I won't give any guidance, but I can tell you one thing. It would be improper for me to give a guidance in this kind of a situation.
Yeah.
Things are doing well, and we will be near the pre-lockdown situation.
Okay
very soon. Because still some of the impediments do exist.
Okay.
Because of the fact that, number one, this pandemic-related migration of workers has been some problems, and that is still not normal.
Okay.
Number two, there are areas where implementation work is going on.
Okay.
A large number of our orders from different sources. Number of cantonments, still they don't allow outsiders to enter, particularly Northeast and Northern areas.
Yeah
particularly some northern areas where the high amount number of forces have been deployed. Those cantonments, they just don't allow outsiders to enter.
Okay.
Because of that, what happens, our implementation work has also suffered.
Okay.
Some places, the factories, there are stray COVID-related cases keeps on coming.
Okay.
With those COVID-related cases coming up, there are intermittent partial closures of the operation as per government guidelines, and also from the safety of our own workers' point of view. Some disruptions are caused there, like there's a disruption going on in my Chennai plant right now.
Okay
because of some COVID-related cases have come up, which we try to make sure that our employees take as much care as possible, but you cannot control it 100%.
Absolutely. Yeah.
These things do happen, and I think this will be the last quarter when these things will be happening in a significant number, and it would improve. Yes, we would be soon coming to pre-lockdown levels, pre-COVID levels in our operations.
Okay. Sir. As on FY 2020, you had reported total debt of almost close to what? INR 650 or INR 670 crore. Any plans of that going down in this year? Because even you have promoters holding as pledged. I appreciate that you have already reduced the pledge this quarter, but any plans on pledge going down and the debt reducing?
Look, first of all, let me come on the pledge and the first question of debt.
Yeah, the debt. The total debt.
Yeah. We are going to explain. As far as pledge is concerned, first of all, let me tell you, there is no such pledge where any loan has been taken against shares. Let me make it clear.
Okay.
20% was also pledged as a collateral to the loans which company had taken.
Okay.
Since those loans have been paid back, one of the loan, which was with the Yes Bank, it was against the bank guarantee which has been released so that 13% shares have been released. 7% of that was pledged in Union Bank of India against some technical issue which was related to Hyderabad facility which we have created. That issue has also been resolved, and that 7% has also been released. It's 20%. The rest of the promoter's holding also pledged to the bank as collateral against the loan taken by the company. There is, again, no loan against the share. What we have now written to all the banks to release this pledge also.
Okay.
How much time they will take, I do not know, because once banks get some pledge against, as security against any loan, it becomes very difficult for the banks to give it away, though it may not be in the loan condition. We are still working on that, and some percentage of that, we hope we should be able to get released in few months from now.
Okay.
Let me again emphasize, no loan against pledge of shares.
Okay. Got it, sir. What about the debt though?
As far as debt is concerned, it will be lower by INR 50 crore or so during this current financial year.
50, right? INR 50 crores.
INR 50 crore. It will be down by INR 50 crore.
Okay, perfect. Sir, I've got one last question, if I may. With now people starting to doing work from home and the entire 5G saga coming in with all the buzz of 5G around, how do you feel we'll perform not for, say, just F 20Y21, but next three, four, five years going forward? Because the whole technology area is totally changing every single day. How do you feel we will perform and where we will stand in terms of competition and everything?
It's really good that these technologies are changing. When the technology change, only those companies which have been able to change themselves with the changing technologies would only perform better, not everybody. There is a slight rise in the entry barrier or continuation barrier, I would say.
Okay.
People who do not invest in R&D, they are not going to be successful in this kind of a very rapidly changing technology environment. What we feel as far as we are concerned, we are already preparing for 5G, and I'll give you some of the examples. Like I mentioned in my opening remarks, Wi-Fi 6. Wi-Fi 6 is going to be used as a home or common area network access points with 5G because there is a larger throughput. Wi-Fi has to be able to take larger throughput and give a larger output so that speed which customer gets improves. We are already working on that. E-band radio, which will be required for backhaul from tower to tower in number of cases for connecting different towers in 5G applications, we are already working on that.
Okay.
Fiber optic cables, which will be required in huge quantity in case of 5G networks because the throughput is so high, in most of the cases, they will be needing fiber optic cables. We are in fiber optic cables with sufficient capacity. Fiber, we have already started. Likewise, we are now in process of identifying couple of more products which would be required in conjunction with the 5G network. Once those products are also there, we will be taking advantage of 5G incoming in the country or worldwide even. Our strategy now is not to go for stray products, one here and one there. Identify and design a family of products, like Wi-Fi, for example. It will grow into a family of products.
Okay.
Unlicensed Band Radio, it will be a family of products. Electro-optic devices, family of products. Electronic devices, family of products. Our hope, our goal, where we would reach is to everything, but our goal is to be among the world's top five in the areas where we design our own products and equipment. It would not be large number of different kind of equipment. It would be a finite number of equipment or products, but the entire range, entire family of products. Which would mean that we would like try to be in the top five of the world in those product area. That's our goal, and that's the way we are preparing ourselves.
Okay. Sir, out of the total order book, how much is for the defense?
Defense order would be roughly about INR 4,000 crores.
Okay. Perfect. Thank you so much, sir. Thank you, and best of luck, sir. Thank you.
Thank you. The next question is from the line of Vikrant Kashyap from Kedia Securities. Please go ahead.
Sir, good morning. Sir, my question is related to telecom. You are saying you are preparing for 5G, we also know that Government of India is banning Huawei and ZTE to participate in 5G trials. They have a broad range of 5G, 4G, 13 products like GPON and GPON, DWDM, and many other products. How do we stand to benefit from this move? Do we compete with lights of Huawei, Nokia, ZTE, Ciena in the global market?
Some of the products which you mentioned, WDM and all that, those are not 4G or still 5G products. Those are backhaul products from fiber optics. PON is again not 5G, 4G, that's again an access product on a fiber optic network. As far as this 4G expansion or 5G is concerned, definitely, as I said in answer to the previous question, that definitely we are going to benefit because it is going to throw demand of new products, new technology, and some of those areas where we are working and we are designing our equipment like Wi-Fi, UBR, maybe PON also in near future, and different other products like fiber optic cable and E-band radio, like these kind of products. Now once we have those products, and which are indigenous design and manufacture, we would effectively be able to compete with anybody in the world.
The fiber optic cable or fiber is an example, which are locally manufactured and produced. We are effectively able to compete with anybody in the world market also. In the overseas market also, we are able to compete well. Now, our access to the international market is limited right now because we are very new entry in export markets in past couple of years. This year, we are participating much higher number of RFPs globally.
The amount of orders coming up for fiber optic cable. Similarly, there will not be any problem in competing with these companies which you have mentioned, in India or the world market. If somewhere some government is funding those companies to explore for some strategic reasons, nobody can compete. If some country government is funding some company of their own to get a communication network set up to spy purposes, and they fund that company, none of us can do anything about that. Those examples are not going to be very high. We are effectively able to compete against anybody when the products are designed and manufactured in India.
Got the point. My next question is related to this again. We are seeing a huge surge in fiber to home kind of opportunity that came out due to COVID-19, that has accelerated. Do we stand to benefit from it, in India at least, if not global?
Yeah, for FTTH, definitely. We are right now implementing about 300 cities fiber to home network for Reliance. If not near, about 300 cities.
Okay.
Entire range of this fiber optic cable for FTTH.
We are supplying in a large volume to Reliance. Not only that, we are now expanding our capacity for Fiber to Home by putting up new plant and machinery in Hyderabad. This new production facility is to start production. Expect to start production by 1st November. By 1st November, maybe few days here or there.
In the month of November, it will be in production. We are already expanding our capacity for FTTH fiber, kind of a cable. Moreover, apart from that, accessories for FTTH cable are also being produced in Chennai, and those are also being supplied in large quantities to Jio. Since the biggest, largest implementation of FTTH network is happening by Jio.
Right. My last question in BSNL 4G rollout. Since we are seeing some delay in this program, do we see more deferment or how you see this program to be rolled out? How we are going to benefit from it?
Now, this is one question which I don't think anybody can answer.
Okay.
Right now there is a committee set up.
Yeah.
On methodology that how the 4G network of the BSNL will be implemented.
The way the things are going on, different discussions, different experimentations are happening. I went and met BSNL chairman. I said, "Sir, whatever you do, please don't make BSNL as an experimentation ground. Otherwise, BSNL is never going to succeed.
Yeah.
Be very sure what you are buying and whom you are buying and don't make yourself the ground for experiments. Otherwise, as an operator, you will never succeed. That committee is yet to submit report and my problem, I told him also, that look, it has delayed so much. Why you would still be implementing 4G, people would be in 5G. Soon your 4G will become old. 4G would be in a story what 3G happened.
Yeah
if somebody wants to tell you that you buy a 3G phone, you will never buy. You will buy either 2G if you want a basic service or you want a mostly 4G.
Same thing will happen to 4G if 5G comes up. Unless they implement quickly, it's not going to be a that winning a proposition for BSNL. They have to implement it very quickly and not to let them become a ground for experiments. That's going to be a big problem for them. As far as we are concerned, we are now still looking this as an opportunity because one, we do not know what kind of equipment they want and what kind of implementation they'll do. Number two, payment issue.
Unless there is a surety that how payments would be made and there is a commitment from Government, not BSNL, that this is how the payment would be made or secured, I don't think a large number of companies would be going to participate in that because I have been telling in all my conference calls, we have about almost INR 200 crores stuck up with BSNL. INR 200 may have come out.
Yeah.
INR 150 crore, not INR 200 crore. Earlier it was INR 250 crore, now it has come down to INR 150 crore. INR 150 crore stuck up with BSNL more than one and a half year. They're not disputing that money. It's not being paid because of they're not having money. If you take 10% interest rate also, every year you are incurring INR 15 crore interest on that.
Not only interest, it's a cash flow issue. Unless you are sure about payment, it will be very difficult for us to take a look at that.
Understand, sir. Thank you very much, sir, and wish you best of luck.
Thank you.
Thank you. The next question is from the line of Ravi Mehta from Deep Financial. Please go ahead.
Yeah, hi. Good morning.
Good morning.
Good set of numbers in the current tough environment. A few questions I had. One was the order book, what you said, INR 8,100 crore. If I take out O&M, then probably the executable part is close to INR 6,500 crore. What would be the execution period for that?
Execution period is six to eight quarters, about six to eight quarters. More orders will flow in during that course of time.
What could be the bidding pipeline, if you can share any number, just to get a sense of how quickly this order book can again build up?
It's very large. We must have bidding to more than INR 10,000 crores.
And this should be predominantly-
Approximate number I'm giving, but it is something like that.
This should be predominantly defense or telecom if you can share.
It will be again, Ravi, like we do.
This would be predominantly defense or it would be even telecom or.
It could be a mix of that. Defense, telecom, private, government, all. Hello, Ravi, we are not able to hear you.
Yes, Ravi.
Am I audible?
Ravi, we are not able to hear you.
Am I audible now?
Yeah, a little bit more.
Yeah. Also on the Hyderabad FTTH facility you mentioned.
Yeah.
Is it the CapEx that we had stopped, I think, few quarters back because of the demand scenario, and we are restarting that CapEx?
Yes, it is the same CapEx we talked about a couple of quarters back, and we are doing that CapEx. It is not going to be very large CapEx because the civil work had already been almost done. Now the internal work is going on, and machine import is happening. Total expected CapEx still not done should be in the range of something like INR 15 crores or so.
Okay. INR 15 crore spending, that's it. Fine.
Yeah, around.
Okay.
Mr. Mehta, I'm so sorry to interrupt, but your audio is breaking up, sir. We are unable to hear you well.
Thank you very much.
Thank you. The next question is from the line of Parth Mehta, individual investor. Please go ahead.
Good morning, sir. I had a couple of questions. First, looking at the segmental breakup of revenues and EBIT, I would like to know why have we made less profits in terms of the product? If I see in services, we have made good margins on increased revenues. In spite of increase in revenue on the product side, the profit has been quite less. Any explanation you can offer on that?
First of one thing is that, when you have a less capacity utilization, there's always a decrease in profitability.
Okay.
Hyderabad plant has come up new. If you see the profit coming down in that segment, the new plant reaching into optimum operational level also takes some time. The depreciation and interest incidence is higher in the beginning, and that's why the profit in those products has reduced. One is because of less capacity utilization. Second Hyderabad plant has started during the Q1, so there was a ramp-up time and optimal level of utilization took some time.
Do we see that coming back to normal in a quarter's time, maybe?
Oh, yeah. Sure. 100%.
Okay. Sir, could I get a breakup of product revenue coming from optic fiber cables and Wi-Fi systems, if we have had anything? Breakup of product revenue, if I could get.
Yeah. Sure. I can give you. Just give me a second. Product revenue in terms of fiber optic cable would be about INR 1,062 crore, and Wi-Fi would be No, sorry. This is order book. Sorry, I'm sorry. Just let me get the number. Yeah. Sorry. Q1, revenue from fiber optic cable and accessories on a consolidated basis is INR 190 crore.
Okay.
Wi-Fi in the Q1 would be something like, in my opinion, some INR 30, 40 crores or so.
Okay. Sir, around there.
Yeah.
That is on line to be INR 200 crore for the year.
Sir, during the whole year.
Yeah. Okay. Sir, where are our products in terms of development, as you said that quarter three would be for Wi-Fi and it will be ready for mass production? Where do we see the fuses and the electro-optic devices being ready for mass production or the defense production?
Look, current generation Wi-Fi is already under production, as I mentioned.
Yeah.
Wi-Fi 6, I said that would be available in Q3. Electronic fuses. All our own trials are completed. Indian Army wants it to be field tried before opening of the tender. They have given a date of mid-October, may be extended by a couple of one month or two months. The firing trial and all that will take place. We would be ready for production. The order from Indian Army, once the Indian Army own trial has gone and Indian Army own trial has happened, and the order is placed, the production from Indian Army would still take about, in my opinion, minimum nine months before the order is received and production is started. One has wait for Indian Army's own trial and all that to be completed. Electro-optic devices, I think it may be about, again, something like six to nine months.
Okay, sir. We expect it in 2022, second half, and then going forward.
Yeah, you are right. In Army, the trial process and all that is little longer than the normal civil products.
Okay. Sir, what the PM has announced that 450,000 villages are to be connected. What would be the size of opportunity in terms of INR, the entire cake and our share out of that, in terms of products and services?
I can give a very rough estimate. It's a very rough estimate. Don't take it as a projection from me. Roughly, it is about 4 km per village, optical fiber cable is required, roughly.
Okay.
450,000 villages multiplied by four, which is about 18 lakh kilometers of fiber optic cable would be required. 18 lakh kilometers multiplied by roughly about INR 40,000.
Okay.
Whatever the number comes.
Adding.
That is cable only. I would rather put it in a different manner. 18 lakh kilometer multiplied by INR 4 lakh per kilometer That is overall, turnkey services, cable, accessories, ducts, all kind of things. INR 4 lakh per kilometer is a more or less general number which comes for implementing such a network. I think it's going to be about INR 72,000 crores.
Okay. This will also include the Wi-Fi products that we have been developing?
No, does not include. This is only fiber optic network.
Okay, only fiber optic network, product, and services put together.
Yeah, absolutely. Wi-Fi and all that does not come in that.
Okay, that is additional. Okay. Sir, the last question from me is, when do we see 5G network to be put by either Jio or Bharti or Vodafone if is present around, how do we see the deployment of fiber happening and services from telcos orders flowing in, around timeline, what are we expecting?
Sir, 5G, first of all, Government has to auction a spectrum. Spectrum auction, in my opinion, 5G would be at least six months away, if not a couple of months more. I would say six to nine months. If the auction in six to nine months, deployment of 5G would see one and a half years from now, one to one and a half years.
Okay. Sir, last question. How are the fiber prices behaving?
Fiber prices in the last one quarter, more or less holding same, around INR 280 per fiber kilometer. That's the prices, I would say, prevailing in India right now. INR 280 per fiber kilometer, it is more or less steady now.
Okay, sir. That is all from my side. You have been very informative, sir. Thank you so much.
Thank you.
Thank you. The next question is from the line of Naman Saraogi from Saraogi and Saraogi. Please go ahead.
Hello.
Yeah, good morning.
Good morning, sir. Hope you're fine, and your company, everybody is doing well this time.
Well, not everybody. Some people, as I said, in the factory-
Sir, let's hope for the best for all of them.
Yeah.
My question will be, sir, have you not received any new orders this quarter?
No. We keep on receiving orders. Fiber optic cable orders keep on coming, INR 30 crores, INR 50 crores, INR 60 crores, INR 40 crores.
This quarter, can you quantify how much orders you've got?
Quantify, I don't have the number right now. Just send me a mail, I can send you the number. Right now, I don't have this. By rotation, small orders, small pieces of orders we receive.
Okay.
Wi-Fi, for example, we keep on receiving orders. These are not very large orders in hundreds of crores, they keep on flowing and eventually they become large. Just send me a mail at narayan@hfcl.com. I will let you know the exact number.
Sure, sir. My second question is, sir, regarding China, sir. Right now, everybody is having a tough time with China, and there's a lot of import and export talk about with China trade, sir. How is HFCL standing with that, sir? What import do we make from China? What export do we do? How is our relation with China in our products?
Look, as far as our company is concerned, there's not much of dependence on China. The things which we import from China, some components for Wi-Fi, some components which also we are now working on the different sources from Taiwan and Japan and those kind of places, but dependency is not too much right now on those components. It's just electronic components, number one. Fiber we don't import from China, preform we don't import from China. This is all non-China sources. Some machinery we are importing from China, which we are going to install in our upcoming FTTH facility in Hyderabad. The reason is simple. The price difference of those kind of machinery in European countries and China is huge.
Huge means when I talk of INR 15 to INR 17 crore of remaining CapEx for that facility. If I would do from European machines, they would probably cost me more than INR 30 to INR 35 crore. We have been using those machines without any flaw in our Chennai plant already, last four to five years. Those machines we are importing from China, and that's fine. That's a one-time import. There's no dependence upon spares or anything. Spares are all we have developed locally. That is the only dependence, nothing more than that.
Sir, any plans to increase promoter shareholding, sir? You sound very bullish on your company.
We increased it a bit earlier.
technically.
We will keep on looking at it.
Okay, sir. Thank you so much.
Thank you. The next question is from the line of Giriraj Daga from K M Visaria. Please go ahead.
Yeah. Hello, team. My first question is related to the China demand supply. Sorry if I missed that number since I missed the two, three minutes of earlier call. Have you given what is the demand supply scenario you're looking in FY 2021 in China? Secondly, if you can give me the net debt and gross debt numbers.
I couldn't understand, Mr. Giriraj, first part of your question. Demand and supply in China. We don't have that number.
No, earlier we used to share that there was like 500 million kilometer of demand and supply used to be at a 600 million fiber.
No, fiber. We are talking fiber.
Fiber. Yeah.
I think Chinese demand would remain under something like 300 million fiber kilometers, something like that. There's no sign of any increase in that size of demand. Out of the total 600 million demand, which people were thinking China would be going above 350, I think they would remain within 300 million fiber kilometers, not going over that.
Okay. Since the capacity as of now would be closer to how many?
Chinese capacity?
Yeah.
Chinese capacity will be something like, in my opinion, something like 400 million fiber kilometers.
400, you said?
Yeah.
Okay. We can expect that the prices of optical fiber will remain broadly similar for the next at least one or two years.
Say that again.
Can optical fiber prices likely to remain here only for next one to two years? There's no expected to increase price.
No, look, right now they have gone steady. They are not showing any sign of decrease. Indian demand is going to pick up very soon with the Prime Minister's announcement. If you need 18 lakh kilometers of fiber and multiply it by 50, more or less, the demand, Indian demand, is going to pick up significantly. 90 million fiber kilometers, something like that. This one project is going to be double of the demand of the total demand currently. I think fiber prices, if not increase, it is not going to go down. There may be some firm up of the fiber prices in near future because FTTH deployment is increasing worldwide now. There may be some firm up of the fiber prices, but I don't think there will be any major movement.
Okay. On the new capacity, which you have started in 500 optic fiber, let's say on the life of that project, are you expecting a projected similar kind of price or whatever earlier projections were higher for the viability of the project?
This is optical fiber cable you are talking about, new facility we talked about just now.
No, we talked about the one optic fiber also, right?
Yeah, optical fiber is actually started. That's already in production.
Started in-
March. The prices, again, you must realize that we buy preform and manufacture fiber. If the fiber prices increase, then preform prices also go up. Fiber price decrease, preform prices also go down. For example, preform prices were $140 per kg, have now come down to less than about $60 per kg. Our in-between margin stays almost constant. That does not change. If fiber prices have gone down from what we expected when we started the project, the preform prices also gone down significantly. The margin remains almost there.
Understood. Last question, give me the net debt and gross debt number by June end.
There was one question, which was about the orders. Just let me give that number. In the quarter one, roughly we have received INR 400 crore of order in the Q1. That was despite of COVID-19 and every lockdown and every situation, still we received INR 400 crore of order in Q1. Gross debt and net debt. Our CFO will give you those numbers just now, we can go to the next question and while we give this number, gross and net debt.
Okay. Thank you.
Thank you. The next question is from the line of Saket Kapoor from Kapoor & Company. Please go ahead.
Hello?
Yeah, Mr. Kapoor.
Good morning, sir. Thank you for the opportunity.
Just to answer the last question, the debt is roughly about INR 600 crores.
Okay, sir.
Yeah.
Sir, we are also IP-1 service provider. We have that license infrastructure.
I don't know whether we have license, but we are certainly not a service provider.
We don't have any IP-1 infrastructure.
No, sir, I'm talking.
Okay.
We don't intend to do either because IP-1 is something which operators do. That's a CapEx-oriented project where you earn revenue on the CapEx. That is not something which is our business. Our business is to even manufacture, supply, execute projects, not to be an operating company.
Currently, as the Government is tightening the noose over having the servers also in the country, more data centers and those jobs are going to be there in India itself. That would be providing a big opportunity to these players.
We would then supply to data centers. We are trying to develop cables for data centers. We would supply them cables or if any other accessories required, not to be creating and making data centers and operating them. That's not our business.
Okay. Sir, we have taken the moratorium for our loans as being offered by our-
Hardly any moratorium. Hardly. We have not taken.
We have not taken any moratorium?
No, we have not taken any moratorium.
Okay. Your ratings update on seventh July was stating that we did took, so that was the reason why I asked. That I can get-
[crosstalk] The ratings, we have confirmed that a minor.
Yes, sir. That is confirmed. They mentioned that they took moratorium, that was my reason why.
We have not taken as yet.
Okay, sir. Sir, last two points. Sir, firstly, this 5G domain that Reliance spoke in their AGM, that they would be doing something or a big thing indigenous in the country. Nahata sir, you being on the board also for Jio Infocomm, if I'm not mistaken. Sir, what is the opportunity the players like you and others can garner, and what is Reliance trying to explain when they say that they will be doing 5G indigenous?
No, I can't speak on behalf of Reliance. That's not-
No, sir. That is not my point.
As far as our company is concerned, anything happening indigenously opens up business opportunities for all local manufacturers. If Reliance will do indigenously, all accessories, related products, everything will happen indigenously. Moreover, when they do indigenously, I believe that should be bettering prices and requirement of India. It would be good for the overall network, and every company will benefit, so would we.
Sir, capacity-wise, how are we ranked in the country and who are our nearest peers, sir?
In terms of fiber optic cable, as much as I know, because people hardly disclose their capacities. In fiber optic cable, our and Sterlite's capacity would be almost similar, fiber optic cable. Next would be, I think maybe Vindhya Telelinks maybe. I don't know who is it even after that. First two would be Sterlite and ourselves.
In the business model part, sir, just I wanted a likewise apple-to-apple comparison between you and the other listed organizations. If we compare HFCL with another player in the same segment having more or less the same business domain, which it will be, sir?
I don't know because Sterlite would be in fiber optic cable, fiber and some of the project execution. Maybe Vindhya Telelinks in the fiber optic cable and execution space, but they are not in defense products which we are in. Every company has got some different product areas. Sterlite may be having some other product areas which we may not be there. I don't think there's any apple-to-apple comparison.
Thank you. Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Mahendra Nahata of HFCL Limited for closing comments.
Thank you very much, and I appreciate that all of you being present in today's call. As I said that we are overcoming the COVID crisis, and we are soon to return to a normal level of operation, and which would see improved revenues and profitability in future. At the same point of time, as I said, our concentration on designing our own products, indigenous products and manufacturing, which would again give us a higher market capability, not only in India but globally, and with improved performance parameters. The recent announcement by Prime Minister to put entire 600,000 villages of the country, the fiber optic cable network, would again see a large demand surge in the fiber optic cable market, its accessories and implementation capabilities requirement, which is going to benefit the company.
Moreover, announcement by Honorable Defense Minister as a negative list for imports, where those items will be procured locally only. That is also going to benefit the company in mid-term and long-term future. We are there to take advantage of all this capability, all these opportunities which have come, and spending more money on R&D, more money on creation of additional capacities for fiber optic cable, particularly for FTTH market, which is also going to improve our revenues in future. Thank you, gentlemen, and I wish that all of you stay well, stay safe in the current crisis. God willing, we all will come and stretch out of this. Thank you very much.
Thank you. On behalf of HFCL Limited, this concludes this conference. Thank you all for joining us. You may now disconnect your lines.