Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- HFCL Ltd (BOM:500183, Financial) has developed a diverse range of new cutting-edge products, including 5G fixed wireless access equipment, unlicensed band backhaul radios, and advanced defense products, which are expected to drive sustainable and profitable growth.
- The European Commission's decision not to impose anti-dumping duty on HFCL Ltd (BOM:500183) and its subsidiary HTL places the company in a strong position to tap growth opportunities in the European market.
- HFCL Ltd (BOM:500183) has received significant orders, including an INR623 crore order for 5G fixed wireless access equipment, indicating strong demand for its products.
- The company has made substantial advancements in wireless technology, becoming the largest supplier of unlicensed band radios (UBRs) in India and a prominent global supplier, with over 5 lakh units delivered globally.
- HFCL Ltd (BOM:500183) expects substantial revenue growth from its Telecom Equipment segment, projecting an increase from INR143 crores in FY24 to approximately INR2,000 crores in FY25.
Negative Points
- The global optical fiber cable market is experiencing a temporary slowdown, impacting HFCL Ltd (BOM:500183)'s revenues in this segment.
- The company has decided to discontinue the manufacturing of polymer compounds due to lower production costs from external suppliers, which may affect internal backward integration.
- HFCL Ltd (BOM:500183) faces challenges in the defense sector, with some products still undergoing trials and awaiting orders, which may delay revenue generation from this segment.
- The company's capacity utilization for optical fiber cable manufacturing is currently at 45%, reflecting the impact of the global market slowdown.
- HFCL Ltd (BOM:500183) has not yet achieved its export revenue target of INR1,500 crores for the current fiscal year due to reduced global demand for optical fiber cables.
Q & A Highlights
Q: HFCL has decided to discontinue the manufacturing of polymer compounds. What is the revenue and margin in that business? And what kind of impact can we see from these discontinuations?
A: There was no revenue for polymer compounds as it was used internally for manufacturing optical fiber cables. The decision to discontinue was due to the availability of these compounds at a lower price from major refineries. This move will not result in any loss of revenue.
Q: Which regions are you witnessing order inquiries for electronic fuzes?
A: We have received inquiries and are in advanced discussions mainly from the European region. We expect good results soon.
Q: What is the next step for the army project after clearing the user trial readiness review?
A: The next step is the flotation of the RFP (Request for Proposal), which is expected soon, possibly within one or two months. Only five companies, including HFCL, have been shortlisted.
Q: Can you provide an update on the ammunition fuzes trials with the Indian Army?
A: While we are concentrating on the export market, we expect to start receiving reasonable-sized orders soon. Revenue from these orders may start from the first quarter of the next financial year.
Q: How will the recent budget allocation to BSNL benefit HFCL?
A: We have good expectations from BSNL due to improved financial support and payment situations. The BharatNet Phase III project, funded by the Government of India, also presents a significant opportunity for HFCL.
Q: Are there any plans to install an in-house preform plant to increase operational efficiency?
A: We are actively discussing this due to the large CapEx involved. A decision is expected in the next one or two months after evaluating the economic viability and sustainability of raw material supply.
Q: What is the scope of margin uptake as revenue is anticipated to grow from INR143 crores to INR2,000 crores?
A: The revenue growth is primarily from telecom products, with an expected net margin of around 8% to 10%, plus some benefit from PLI (Production-Linked Incentive).
Q: What is the status of the two orders worth INR623 crores and INR1,100 crores?
A: The FWA (Fixed Wireless Access) order is expected to start supply by August. The production line is set up, and bulk production will commence soon. We aim to complete the supply within this financial year.
Q: How will HFCL capitalize on the exemption from anti-dumping duties by the European Union?
A: This exemption allows us to offer better competitive prices in the European market compared to other Indian and Chinese manufacturers who face anti-dumping duties. This will enhance our competitiveness and profitability.
Q: How much benefit will HFCL get from the PLI scheme, and when will it start?
A: HFCL will receive about INR650 crores from the PLI scheme, starting from the current financial year. Our scheme is a Design-Linked Incentive (DLI), which offers a 1% higher incentive than the standard PLI.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
