HFCLNSEFinancial Year 2022-23July 28, 2022 HFCL Limited
10,052words
129turns
10analyst exchanges
4executives
Management on call
Mahendra Nahata
PROMOTER & MANAGING
V. R. Jain
CHIEF FINANCIAL OFFICER – HFCL LIMITED
Manoj Baid
COMPANY SECRETARY – HFCL LIMITED
Amit Agarwal
HEAD INVESTOR RELATIONS- HFCL LIMITED
Key numbers — 40 extracted
rs,
t pre-committed prices despite significant increase in price of raw materials such as semiconductors, fibre and HDPE etc. The increased logistics cost also impacted our margins. However, we see that r
6%
easing input cost pressures. We are witnessing upward correction in optical fibre cable prices by 6% to 7%. Similarly, the sales prices of telecom products are also showing upward movement in every
7%
input cost pressures. We are witnessing upward correction in optical fibre cable prices by 6% to 7%. Similarly, the sales prices of telecom products are also showing upward movement in every new
40 million
nvironment continues to be strong with the current market demand of optical fibre cables at 35 to 40 million fibre kilometers per annum is expected to grow significantly in next three years on account of hi
500 million
5G networks and fibre to home networks. The Global market demand of optical fibre cable is about 500 million fibre kilometer per annum and it is estimated to grow to 1000 million fibre kilometer per annum o
1000 million
optical fibre cable is about 500 million fibre kilometer per annum and it is estimated to grow to 1000 million fibre kilometer per annum over the next five years. In India, BharatNet alone will lead to an opp
16 lakh
r annum over the next five years. In India, BharatNet alone will lead to an opportunity of laying 16 lakh kilometers of optical fibre cable translating in almost 50 million fibre kilometers. We also see
50 million
lead to an opportunity of laying 16 lakh kilometers of optical fibre cable translating in almost 50 million fibre kilometers. We also see immense opportunities for telecom and networking products across th
167%
l team with recruitment of sales and marketing talent. During Q1 of FY23 our exports increased by 167% compared to the corresponding quarter of the previous financial year. HFCL Limited July
59%
o know that in the first quarter of the current financial year our revenue from products has been 59% of our revenue which was only 43% in the FY2022. Increase in product revenue will need less worki
43%
f the current financial year our revenue from products has been 59% of our revenue which was only 43% in the FY2022. Increase in product revenue will need less working capital and of course quick rea
100%
expected to be robust. We expect to increase our revenue from our own design telecom products by 100% during the current financial year and this will keep on going upwards in the upcoming financial y
Guidance — 20 items
“With these positive changes coupled with vast opportunity landscape, positioning of the Company, initiatives we have taken to enhance product portfolio, ongoing optical fibre cable and optical fibre capacity expansion and creation of new capacities for telecom and defense products, we expect improved and much robust performance on quarter-to-quarter basis.”
“FY23 will be revolutionary year for the entire telecom industry in India.”
“India’s largest ever 5G spectrum auctions by the end of this month will be a big push for our business.”
“Friends, this year there will be a major increase in our exports with increase by 2.5 times than the last financial year.”
“We aim to build upon our Global customer relations and export footprints expeditiously over the next three years and emerge as a large global player in this space.”
“You will be glad to know that in the first quarter of the current financial year our revenue from products has been 59% of our revenue which was only 43% in the FY2022.”
“We expect to increase our revenue from our own design telecom products by 100% during the current financial year and this will keep on going upwards in the upcoming financial years.”
“You will be glad to know that during the current financial year we have started exporting our own design telecom products also.”
“FY23 will be a year of transformation for HFCL as we will focus on building our capabilities across all businesses and improving our organizational capacity.”
“Our mission is to transform as a technology driven enterprise that innovates and manufactures for both domestic and global markets as we aim to become a multinational player in cable and telecom and networking products.”
Risks & concerns — 9 flagged
Now Rs.40000 Crores it will be paid in 16 years so there would not be stress on the cash flow of the Telcos as much however network expansion is going to happen and they will have to invest on capex and with the investment in capex, I expect the products which we are having and which we are having under design and which are expected to be in the market in the current financial year,, we will see a very good demand opportunity.
— Mahendra Nahata
I would just want to know how the margins behaving for product business, you did talk about some of the cost pressure easing and the prices for the product increasing so can you tell us that how do you see the margins going forward for products?
— Pranav Kshatriya
Now the challenge when we increase our capacity for fibre, fibre optic cable and also we have new products under design which are getting completed which would lead to require new markets major challenges ofcourse to get new customers.
— Mahendra Nahata
Challenge does not mean that it is difficult.
— Mahendra Nahata
Challenge means that we have to work and create new customers in different markets, but I am pretty sure like fibre optic cable we have seen, we almost increased our export by 2.5 times last year and this year again that increased base we are going to increase by another 2.5 times.
— Mahendra Nahata
We have got the highest market share as an Indian Company as a local manufacturer so with this lower cost base we will be able to find and our control over technology we will be able to find good customers abroad also, but it always remains a challenge to find customers, to deliver quality as per their expectation and keep on fighting with the competition in terms of features, that we are able to do with our own R&D because with own R&D we can keep on upgrading our technology.
— Mahendra Nahata
We are already designing Wi-Fi 7 so challenge is mitigated by own R&D, better cost base and good marketing and sales infrastructure.
— Mahendra Nahata
Got it and third question is in terms of margins do you see phase two margins to be lower than phase one or vice versa and the second question is between private and public what would be the margin differential in terms of private and public because where I am going to is that as our exports our increasing as the private share of revenues are increasing we have seen a decline in margins?
— Neerav Dalal
This is one of quarter in which the impact of higher input cost in terms of logistic has played its part in lower margin and also with some disturbance at our client end; some deliverables which was scheduled for this quarter were spilled over to the next quarter?
— Saket Kapoor
Q&A — 10 exchanges
Q
Sir I would like to know how has been the optic fibre prices for the quarter and the delta between the fibre prices and OFC prices the quarter?
Mahendra Nahata
Hardik your voice is not clear. Can you repeat? Sir what are optic fibre prices for the quarter and how has been the delta between optic fibre and optic fibre cable prices for the quarter? Hardik optical fibre prices currently holds around Rs.425 to Rs.450 per fibre kilometers. In fact they have risen sharply from the last financial year, but now seems to be stabilizing. I do not foresee any further increase in the prices. They seem to be stabilizing. Has the optic fibre cable prices also moved up in tandem with them? I am coming to that. Optical fibre cable prices if you look at in our case i
Q
I would just want to know how the margins behaving for product business, you did talk about some of the cost pressure easing and the prices for the product increasing so can you tell us that how do you see the margins going forward for products?
Mahendra Nahata
Pranav you know your line was very, very bad so whatever I can understand and whatever I have understood from you I would try my best to reply. Our EBITDA margin in the current quarter has been 12.37%. Now with increase in the prices of our sales realization and some decrease in the cost, I think our EBITDA margins should go up by about anywhere between 3% and 4% in the coming quarter. 3% to 4% will be going up and this will be happening with increase in the product prices and also decrease in the cost of that so in the product segment our business I expect 3% to 4% increase in our EBITDA marg
Q
Good morning Gentlemen. Thanks for the opportunity. Sir it was very nice to hear your promising words and understanding about the telecom industry so coming back to our fortune of our Company and growth trajectory you have explained about all the upcoming opportunities to us as a Company and to the industry as a whole. We would like to understand what are the challenges, which you foresee ahead are and how our Company is going to outright that challenges and grow further from here?
Mahendra Nahata
Thanks Sanjay. Number one, as I said in my opening remarks, this quarter was an exceptional quarter in terms of increase in cost which was contributed by increase in raw material cost, logistical cost, depreciating value of rupee which included further increase in raw material prices HFCL Limited July 25, 2022 and also at the same point of time non billing of revenue because certain areas the customer wants to create some infrastructure and then the milestone would have got completed could not happen because it was the customer’s fault that he could not create infrastructure which is starting
Q
Thank you for the opportunity. I had a couple of questions. First is, is there a difference between qualification for cables and telecom products so what I was trying to understand is that it is faster to sell telecom products in exports market or is it similar to what the optical fibre cable is done so because what I understand is that the qualification process is slightly longer for the fibre and cables? Is it similar for other telecom products or how should we look at that? HFCL Limited July 25, 2022
Mahendra Nahata
I think you should look at conversely. Cable would be little easier than the equipment because cable is tested for large parameters but equipment because one equipment has hundreds of components so they are to be tested little differently in an environmental test and optical test or the radio related test. I would say equipment side would be little longer than cable, but more or less there is not much of a difference but equipment side it will be longer. Because what I was understanding we are targeting the export markets through distributor also so that is the reason Iwas so is it same we pus
Q
Thanks for taking my question. A very good morning: Sir if you could talk a little bit about the Reliance Jio order book kind of declining or is there not too much to read into it given it has been higher in the past for us?
Mahendra Nahata
Your question was what. Can you repeat the question? The Jio order book Rs.1,000 odd Crores that you indicated is that kind of is it low number? It is not declining. It is almost constant and we expect orders from all operators why only Jio. All operators when the 5G starts we execute orders from all operators and Jio orders are not declining. We are constantly supplying to them. We are constantly supplying fibre optic cables. We are supplying backhaul radio. We are doing installation-commissioning services for them, EPC services for them in the entire North India for fibre optic cable and FTT
Q
Congratulations on a lovely set of numbers. Just one specific clarification you mentioned that our margin can grow up by 3% to 4%. Do you mean by Company as a whole or you are talking export in specific, if you can?
Mahendra Nahata
I spoke that 3% or 4% will go up in the product segment. In the product segment okay got it, and Sir my next question is broadly, I know you eluded very detailed in my previous earnings question but I am just trying to understand Sir, if you look at it our segmental revenue and a breakup our EPC business side capital employed is increasing sequentially over the last four to five quarters but our revenue is more or less flat and actually declining so could you just kindly help us know where are we building the capacity in terms of some future opportunity one part is that? The second is by end o
Q
Good Morning Sir. With reference to our presentation in slide number 4 where we are talking about public telecommunication, we are talking at 79% of revenue, defense communication at 19% and then railway communication is 2% vis-à-vis page number 8 now over there we are talking about current order book as public telecommunication 1,519 Crores, 2,354, and 381 so if try to correlate both of them bit of a confusion?
Mahendra Nahata
The difference is in revenue and this order. Orders keep on coming so ratio between orders and revenue would always remain different. Order is what is happening now. Revenue which has happened in the past so they would always be different. They can never match. Does that mean that defense is now heading ahead of public telecommunication, defense communication and electronics. Does that mean that defense is heading ahead of public telecommunication spends or the order book why is it so? Our order book would be more from the private operators. Moving forward new orders coming would be mostly fro
Q
Sir my question was with respect to near term pricing based on the global demand and supply of fibre capacities because what I hear is like China is not adding capacity and Prysmian and Corning capacity has been fully booked for next two to three years and because your capacity would also take some time so, what is your sense on the pricing in the near term say around 6 to 8 months? HFCL Limited July 25, 2022
Mahendra Nahata
I think prices are going to remain same, not going to increase and people are adding capacity in China also why they are not. They are adding capacity. I think everyone is adding capacity in fibre, not that they are not adding. Everyone is adding, and Corning and Prysmian, I do not know, because Corning actually do not talk about their capacities but China people are adding capacities. We are adding capacities. Other Indian Companies, i do not know Sterlite, BTL they must also be adding capacity because capacity in fibre is being added because of the demand of fibre is expected to increase in
Q
Namaskar Sir, just to sum up of what you have spoken and just to make good sense and correct me. This is one of quarter in which the impact of higher input cost in terms of logistic has played its part in lower margin and also with some disturbance at our client end; some deliverables which was scheduled for this quarter were spilled over to the next quarter?
Mahendra Nahata
You are right, Mr. Kapoor you have summarized what I said in my presentation, question, and answer, you are right. Yes Sir I was just trying to make good sense of that. Sir when you spoke about the turnover for OFC cables looking at around Rs.2,300 crores for this year what has been the OFC contribution for the first quarter? I think it was over 500 Crores if I am not wrong. It is around 500 Crores. 530 Crores to be precise. 530 so it should be in this vicinity of 500 to 600 for the remaining quarter to reach 2300 that should be realistic number. HFCL Limited July 25, 2022 You can say that, ye
Q
Thank you, gentlemen. Thanks a lot for your keen interest in HFCL and making yourself time available for this conference. I express my gratitude and I can assure you, Company is in good trajectory of progress with its increase in capacities, increase in product range and increase in customers, new customers, new products, new geographies, all three are happening at the same point of time and I am sure coming quarters’ performance of the Company would be in the expected trajectory which we had planned for ourselves and the pressures which came in quarter one are no longer visible so there shoul
Opening remarks
Amit Agarwal
Good morning Ladies and Gentlemen. We welcome everyone to the Q1 FY23 earnings call of HFCL Limited. I am handing over the call to Mr. Mahendra Nahata Managing Director.
Mahendra Nahata
Thank you Amit. Ladies and Gentlemen, good morning everyone and warm welcome to HFCL’s earnings call for Q1 FY23. I truly appreciate and express my gratitude for making it to HFCL’s earning’s call today. I am sure that you got a chance to go through our financial results, press release and investor presentation, which are available on the website of the Company and also the stock exchanges. Friends you must have observed that the performance during the quarter under review is somewhat below our expectations. Revenue this quarter got impacted due to supply chain disruptions including shortage of semiconductors and intermittent gap in supply of optical fibre, which is a critical raw material for manufacturing of optical fibre cables. The revenue was also impacted due to spillover of some of the milestones-based service billings on account of non-availability of certain prerequisite infrastructure from the customer end. One of the major reasons for low margins during the quarter was fulfi