HFCL Limited (HFCL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '20 earnings conference call of HFCL Limited hosted by Maybank Kim Eng Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Neerav Dalal from Maybank Kim Eng Securities. Thank you, and over to you, sir.

Thank you, Margaret. Hello, everyone, and thanks for standing by. We at Maybank Kim Eng Securities are pleased to host the management of HFCL today to take us through to the Q3 FY '20 results. And to answer your questions, we have Mr. Mahendra Nahata, Promoter and Managing Director; and Mr. V.R. Jain, CFO, HFCL. For the opening remarks, I hand over the call to Mr. Nahata. Over to you, sir.

Thank you, Neerav, for your kind introduction, and good evening to all of you. I welcome you all to HFCL's earnings conference call for the third quarter ended on 31st December 2019. Friends, let me start with a small brief about company's operations. We are a fully integrated solution provider specializing in telecom infrastructure development, system integration and manufacture of high-end telecom equipment and optical fiber cables. As an integrated infrastructure provider, we deliver innovative, customized and complete -- competitively priced end-to-end solution to these customers. Our technologically advanced solutions cover all aspects of value chain for manufacturing of leading-edge products to providing specialized services to our customers. HFCL provides single-window solution, which includes design of telecom networks, equipment supply, installation and commissioning, system integration, and operation and maintenance. As a solution expert in telecommunication and related infrastructure domain, the company is now leveraging its inherent skills in addressing complex needs of emerging sectors, such as railway communication, railway signaling, defense and smart city projects. HFCL has state-of-the-art manufacturing facilities, which include optical fiber cable manufacturing facility at Verna, Goa, and its subsidiaries, optical fiber cable manufacturing facility at Chennai in Tamil Nadu. We have telecom equipment manufacturing facility at Solan in the state of Himachal Pradesh. Through our subsidiary, HTL, we have FRP Rod manufacturing facility at Hosur in Tamil Nadu. This is a raw material for fiber optic cable. Further, I'm happy to inform you that our greenfield optical fiber manufacturing facility at Hyderabad will also be starting operation within a week's time from now. Now coming to the performance of the company during the third quarter of FY '20. During the quarter 3 of FY '20, if we compare from the corresponding third quarter of FY '19, the revenue stood at INR 862 crores as against INR 1,224 crores. EBITDA stood at INR 104 crores as against INR 131 crores. EBITDA margin, however, grew from 10.7% to 12.1%. Profit before tax stood at INR 70 crores as against INR 95 crores. Profit before tax margin, however, grew from 7.8% to 8.1%. Profit after tax stood at INR 46 crores as against INR 68 crores in the last year in the same quarter. Profit after tax margin, however, was 5.3% as against 5.6%. I would also like to highlight the number of -- the 9 months ended on 31st December 2019 in comparison to the corresponding 9 months of the previous financial year. Revenue stood at INR 3,193 crores as against INR 3,533 crores of the last year, a dip of 10%. EBITDA, however, grew from INR 322 crores to INR 440 crores, a rise of 37%. EBITDA margin grew from 9.1% to 13.8% in the 9 months. Profit before tax grew from INR 240 crores to INR 330 crores with a rise of 38%. Profits before tax margin grew from 6.8% to 10.3%. Profit after tax grew from INR 116 crores to INR 228 crores. Profit after tax margin grew from 4.7% to 7.1%. So as you would see that performance significantly improved in the overall 9 months period if you compare to the last year's 9 months period. I would like to mention, however, that the decline of revenue has been mainly due to industry slowdown in optical fiber cable business and tough weather conditions in Northeast, Jammu and Kashmir, and restrictive movements in Jammu and Kashmir, which impacted our revenue from defense business because, in these areas, we are executing a lot of tentative defense projects. And as a result of these situations, revenue from Defence business in these areas has been low during the quarter in the review. All the -- although the revenue has been low, our continued efforts towards bringing in operational efficiency have reflected into better marginal profits during the current financial year as you would have noted our 9-month number, which I just now mentioned. You must have also observed that our company has already achieved a PAT of INR 228 crores during the 9 month of FY '20, which is almost equal to the PAT of INR 232 crores of the entire FY '19. Our EBITDA margins during the 9 months of current financial year have improved from 9.11% to 13.7%. Quarter 3, however, saw slight reduction in margins as compared to quarter to 2 -- quarter 2, mainly on account of reduced revenue, reasons of which I've already outlined to you. We have a very good outstanding order book of INR 8,621 crores, which translates into 1.8x of our FY 2019 revenue. We continue to maintain comfortable gearing of -- very comfortable gearing of 0.41. I would also like to inform that company has recently signed a subscription agreement for acquiring 15% stake in Nivetti Systems Private Limited with keeping in line with thrust on addition of next-generation products and solutions in our portfolio for telecom network and cybersecurity systems space. The acquisition would result in increasing our offering of best-in-class networking and cybersecurity products resulting in growth in our business. Also regarding our recently launched WiFi products and solutions, which we have designed by ourselves, I'm happy to inform you that our products have started getting orders gradually. The response has been very encouraging from the prospective customers, and we expect decent amount of revenue and margins on this product in FY '21. We are hopeful that uptake of OFC will improve from quarter 4 onwards and company will continue to maintain good profit margins and good revenues. Thank you very much to all of you, and I would like to open up the floor for any questions any of you might have. Thank you very much.

[Operator Instructions] The first question is from the line of [ Saket Kapoor from Kapoor & Company ].

Sir, firstly, sir, if you could give us, sir, in the total revenue, how much is about the O&M contract part. You have mentioned about we are having O&M contracts of INR 1,614 crores. So have they started flowing into the numbers? Or it will happen later?

Well, O&M contracts will start flowing in a larger number from the next year because, though we have about INR 1,600 crores of O&M contracts, right now, those projects are under warranty period. So O&M would start flowing largely from next year. But this quarter, it is only INR 15 crores to INR 16 crores.

For Q3, it is INR 15 crores?

Yes.

And for the next -- what should be -- the likely number for the fourth quarter would be also in this vicinity only, INR 15 crores to INR 16 crores?

Fourth quarter would also be in the same vicinity. They would start increasing from the mid- of next year.

Mid- of next year. And what should be the figure for next year, sir, we should be considering in and as a whole for the next year?

As a whole, some [Technical Difficulty]

Hello?

About INR 80 crores to INR 100 crores.

INR 80 crores to INR 100 crores. And as of -- as on [indiscernible] said the 9 months, how [indiscernible] I was just looking for a comparison.

Nine months, that should have been about INR 50 crores less...

Okay. The INR 50 crores will go up to INR 80 crores, that is what you are saying?

Like, next whole year, I say this will go to about INR 80 crores to INR 100 crores.

INR 80 crores to INR 100 crores. Sir, out -- sir, how will you explain the drop in the margins for telecom products because from both sides, from revenue front also it has gone down, and then they...

Yes. No, no, they both are interrelated. It is simply because the revenue has gone down, the margins have gone down because the fixed costs remain the same. They don't change. And you don't try to remove people and do such kind of things for a shorter period when you experience such kind of a decrease in revenues for certain reasons. So revenue has gone down for last -- optical fiber cable business last 3 and 4 months have been slowed down, but now it is picking up again. So fall in margin has been due to decreased revenue. But now it has started picking up again. We expect in the current quarter, the revenue, which is about INR 120 crores on a consolidated basis for the 3 months in the quarter 3, we expect to -- it to go up from -- about INR 275 crores to INR 300 crores. The margin will come back again.

Okay. INR 120 crores will [ look ] INR 275 crores to INR 300 crores for the next quarter?

Absolutely. That is what we expect out of the current order book we have and the current delivery schedule, which we have received from our customers.

This is about telecom product, and how the turnkey execution will look like, sir?

Our turnkey execution will also be doing better, of course. As I mentioned, last 3 months have been -- weather conditions have impacted us a lot apart from situation in Jammu and Kashmir, which has eased out now, and weather conditions have also improved. So from this month onwards -- end of this month onwards, those areas were -- because of extreme cold, work was not being carried on. That work will start. So turnkey revenue would also have a significant improvement in the current quarter.

[Operator Instructions] The next question is from the line of Hardik Vyas from Economy Times.

Sir, I have a few questions. I'll start off with, you indicated that the product revenues would go up to INR 275 crores to INR 300 crores. That is mainly because of the rise in prices of optic fiber from the bottoms? Or are we likely to get more orders, or the execution period is likely to be those seen that it falls in that 3 months?

Look, it is not the rise of price. The prices are same. They have not increased either for fiber or cable. And when I was answering to [ Kapoor ] one thing I missed out that the reduced turnover, if you compare from the last year to this year, one of the major reason is also reduced prices of cable from the -- compared to last year. They're reduced by almost 30%. So in any case, in the same quantity you manufacture, revenue would be lower by 30%. That is one of the reasons in comparison to the last year. But anyway, coming back to you, this increase in revenue for the -- expected revenue of the Q4 for the optical fiber cable, it is not because of rise of the prices. The prices have not risen at all. It is because of higher order book -- not even higher order book. Order book is already there, but the higher delivery schedules which you have received from the customers in the current quarter. The customers have now started picking up the cables which they have ordered, and that increased delivery and some more new orders, which we have received. All put together, now we believe that current quarter, this INR 120 crores should go up to INR 275 crores to INR 300 crores.

Okay. Sir, that will keep on continuing for FY '21 as well?

I expect it. With the kind of orders we have, we expect it.

Okay. And the service business is also picking up?

Service business has remained good throughout the year. Last quarter was a little bad -- not bad, a little slowed down because of this weather condition. As I said, we are executing a lot of defense projects. A large part of that is in Jammu and Kashmir and also in Northeast. Both areas -- certain areas in Northeast and entire Jammu and Kashmir had a lot of issues in terms of execution because of cold, very cold weather, intense cold wave and also situation in Jammu and Kashmir that resulted in slowdown. Otherwise, as a business -- in our business point of view, there have been no slowdown. There's no decrease in business or anything. So with the weather improving, this will go up again.

Will you be able to quantify how much -- I'm just asking for a ballpark growth number, how much you'll be able to execute from the current order book of INR 8,600 crores?

In terms of in the current year or current quarter?

No, no current year FY '21 that I'm asking.

FY '21, we would be recouping roughly about more than INR 2,000 crores, more than INR 2,000 crores of that order book of turnkey business. I'm not talking about the overall order book. Overall order book includes more than turnkey business also. But the turnkey business, since we are talking about that, of INR 2,000 crores plus we will be executing in the next year. But there are more businesses. Orders can also include optical fiber cables and turnkey business concerning fiber optic cable, those are separate. Defense turnkey, we'll be executing about INR 2,000 crores or a little bit more maybe.

Okay. And sir, defense products also, we have been supplying or we have not started the supplies for defense products as yet?

No that's -- our own manufactured products, we have still not started supplying. These are more of our turnkey business, which we are executing right now.

As well as night vision goggles and other products like...

They are under development. They would be ready -- night vision devices as well as the electronic fuses, which are under development, they would be ready probably by May, June time frame. After that, we will start supplying them.

Okay, then second half of next year, you should be starting supply?

Well, it all depends on when the tenders are finalized. For example, these electronic fuses, tender has come out. It is yet to be finalized. So I cannot predict when they will finalize that. We can start supplying only when they finalize the tender. Electro optics, large number of tenders are expected. We would participate but depends upon they finalize the tender, then we would start supplying.

Okay. Sir, one more question. Sir, what is the status of BSNL? Are we getting our deal back? Or how are we looking at it?

Look, there are 2 kinds of deals in BSNL. One is the defense project, which we are executing when orders have come via BSNL. Second is the BSNL's own requirement. Now as far as the defense are concerned, those are very regular. There's absolutely no problem. We received -- I mean, of course, procedures are there. Government, you have procedures for payment, which takes a little bit of time, but that's not a major issue. Defense supply, turnkey projects for defense, we receive our payment regularly without any issues. There are enough funds available for that particular purpose. Now coming to BSNL, BSNL, which we have been suppling as a CapEx of BSNL for BSNL's network, that has been a problem. We had deals of about INR 300 crores when I spoke to you last quarter. After that, we have received about INR 55 crores and -- INR 60 crores -- no -- yes, about INR 61 crores. INR 61 crores we have received out of that INR 300 crores. But we expect now, from my talks with BSNL officials that they would now be receiving sovereign -- comfort of sovereign guarantee against these banks that would be lending them money, and with that money coming in, part of which came and from which the payments were made earlier. They would be able to clear the payments of all the suppliers for past dues by March, April time frame. So I'm quite hopeful that because BSNL's revival is now taking place, as we all know, and with that revival happening, money coming in from the banks having the sovereign comfort or guarantee, we should be able to -- I've been quite comfortable that, by March, April time frame, the remaining INR 240 crores or so, we should be able to receive.

Okay. Sir, final question. Are we looking at any drying up of orders from either telcos or government or -- so service orders, we have not been receiving orders in the last quarter. After the INR 3,000-odd crores of order that we received on NFS, we have not been seeing any new order booking. So for that...

New orders have come in optical fiber cable business. Large number of new orders have come. There's no -- turnkey business, yes, you are saying. We did not receive much of the new orders, but they've started flowing now because I don't see any slowdown because one, now spectrum is being auctioned. So more spectrum means more network rollout by operators, so that is one part of it. Second is going to be 5G rollout. 5G auction is also taking place. 5G rollout will also happen. And that would see large number of orders coming from telcos. BSNL's revival is taking place. So BSNL will float tenders, and they would give orders. The BharatNet PPP model is being pursued. There, again, large number of orders of fiberoptic cable or turnkey businesses would be available. So maybe next 2, 3 months, this all buildup in going to happen. Auction is going to happen. BharatNet is going to happen. BSNL is going to happen. Two, three months, maybe there is not that large order swing in, but after 2, 3 months, by the start of next financial year or so, in the Q1 of next financial year, I expect good amount of orders to flow.

Okay. So we expect '21, '22 onwards, our hands would be full to execute all the -- all those orders, which will...

Not even '21, '22. Even '20, '21, I am very comfortable in terms of orders.

Okay. So we will not be able to quantify how much growth we'll be looking at or something like that.

It's very difficult to quantify. I don't want to give a forward-looking statement like that, but I expect good amount of orders to be there. And that would result in good revenue, but more important point is not the revenue, but the point is increase in profit margins. We have made sustained efforts to increase profit margins. So that has resulted -- what is important is bottom line, not as much as the top line. Top line is also important because that results in bottom line, but if the increase in bottom line is a reduced top line, it is much more important and much better for the company. So if you look at this year, though the top line in 9 months have reduced by INR 200 crores, but we have already -- almost equaled the bottom line of the last year of the whole year. If we see through the bottom line of the 9-month to 9-month comparison, there's a very good increase. If you see profit after tax, last 9 months, we had made INR 116 crores. This year, we have already INR 228 crores, almost double.

INR 166 crores.

Sorry, INR 166 crores to INR 228 crores. Sorry, I -- not INR 116 crores, INR 166 crores.

Okay. So WiFi systems and [ Reg F ] would take a little time before getting the numbers right.

WiFi system's revenue would start changing from the current year itself. And then next year, it's going to have much increased revenue. For the [indiscernible] from the mid of the next year, revenues will start showing in, from the 7 products like WiFi antennas and few more antennas we have designed, that would also start showing in from the next year.

Okay. Sir, the -- you had told about INR 100 crores, INR 200 crores of business for the entire year from WiFi systems. So that holds, or you're revising it upward?

I'm not revising it upwards. That holds.

Okay. And sir, the pricing of optic fiber, is -- remains the same at about $5?

No. No, no, no, it's not $5. It's $4. I have always been saying $4. It is $4.

Okay. So it holds at $4.

Yes, it holds at $4.

The next question is from the line of [ Nishit Shah ] from Equitas Investments.

Sir, my question is that the government is planning to impose a safeguard duty on import of single-mode optical fiber. So how is -- how will that impact us? And any time line expected when will this come in?

Well, when will this come in, I do not know because I've been hearing that they're going to impose this duty, but it is not going to impact us. It is only going to impact us positively only because we are going to start manufacturing fiber, as you know, as I said in the beginning of the call, in a week's time. So if the import price goes up, then, of course, indigenous production becomes so much the better. So we are going to start using fiber in the near future -- in the next 7 days. So as far as that is concerned, it is better. And major part of our fiber we buy from Corning, which is a local supplier from Pune, so that also is not impacted. So we would not be impacted by increasing the safeguard duty.

Okay. And sir, you said that you are receiving orders in Q3. So are we receiving these orders from private telecom players? Or is it from government? How is it?

Private.

Private players. And sir, what are the optical fiber cable prices going on currently?

Look, we can quantify in terms of fiber kilometer. It would be different in different class, but generally, you can say about INR 800 to INR 900 per fiber kilometer.

Okay. Sir, last -- in the last call, you said around INR 1,000, right?

Yes. So it is about INR 800 to INR 900, and it's in a different class, different cable prices. So generally, you can say, like INR 800, INR 900.

Okay. And sir, what would our optical fiber cable book -- order book look like?

It would be about INR 800 crores. But more orders are flowing in. It is currently about INR 800 crores.

The next question is from the line of [ Naman Duggal ] from BNP Paribas.

Yes, I had picked up 2 statements from your last transcript -- earnings transcript, where you had mentioned that, due to the Kashmir issue, the revenues had gone down in quarter 2. And you had clearly mentioned that quarter 3 was looking better, but sadly, it has not. And the other thing was that you mentioned that, over about INR 100 crores or something you're going to receive from the [indiscernible] in this quarter, you clearly mentioned about 15 to 20 days in your last earning con call, but that also doesn't seem to have come in yet. So I would really like you to clarify on those 2 statements.

Yes. No, INR 60 crores -- INR 61 crores have already come in. Probably it is INR 65 crores, not even INR 61 crores. It is about INR 65 crores, which have already come in. So INR 100 crores did not happen, but INR 65 crores has definitely come in, and we expect by March, April -- this is my expectation, [ Naveen ] because of this funding issues of BSNL, they are saying that they would be receiving bank funding and all that. I expect this balance of the money, which is about INR 225 crores, should be received in next 3, 4 months' time. But this is my best expectation. In terms of Kashmir, what I said was right that the [indiscernible] situation impacted. But intense cold weather, which nobody could have predicted, the kind of cold weather which has happened in Kashmir as well as Northeast, which I could not have predicted. This has also, again, resulted in slowdown of revenue in the current -- the last quarter, the Q3, which is now starting to improve because those kind of severe cold conditions in many of the areas have come down. Only in the extreme snowbound areas of Leh, Ladakh, we are not able to start work. Rest of the places now, we're able to start the work.

So do we expect that HFCL will have a poor quarter 3, quarter 4 every year due to weather conditions in Kashmir because most of the [indiscernible]?

No, no, no, you're wrong. Because this is particular to the defense project, not necessarily that I would be executing the same kind of a defense project next year also. As I mentioned very clearly, this is the defense project, which we have been executing in Northeast as well as Jammu and Kashmir. Now once this defense project finishes and we are executing other projects, Jammu and Kashmir or Ladakh weather or Northeast weather will not [indiscernible] I never said that quarter 4 is also going to be like this. I never said that. Quarter 4 is going to be certainly an improvement over the -- this quarter.

Okay, sir. And regarding promoter pledge holding -- promoter holding pledge, my question was regarding the acquisition that we're going for. We're going for -- we did a couple of acquisitions in these 2 quarters, but the promoter pledge is not coming down. A lot of money is going to go into new acquisitions...

Yes. Promoter pledge and acquisitions are completely 2 different -- completely different issues. One was our...

Yes, but lot of money is going there.

[indiscernible] now is the 15% of this Nivetti Systems. So this is a completely separate issue. Now what we expect in terms of promoters pledging to go down, as I mentioned last time also, pledge is absolutely not for any personal loan promoters have taken. All the pledges are because of the loans, which company has taken and promoters have given their own shares as [ collaterals ], which is commitment of promoters towards the company. There is no personal loan of promoters [indiscernible], that is very important point to note. Number 2, we expect that, by March or so, some 20% or so, this pledge will come down. Reason being, one, that some of the holding of ours have been pledged against the loan -- this term loan, which you have taken for starting this fiberoptic cable -- fiber factory in Hyderabad. Once this fiber factory goes in operation, there is a condition that 7% of the promoters' pledge would be returned back to us. And again, 13% of the promoters' share have been placed. There is specific PBG which we have taken for a particular project, performance bank guarantee. This will also be over in the March 2020. So about 20% of the pledge of the promoters' shares will come down by March or so.

The next question is from the line of Sanjay Shah from Alphaline Wealth Advisors.

Yes. Sir, it is appreciable that, in spite of this scenario, challenging scenario, we have been doing good on our margin count. Now sir, how do you see -- can you elaborate your view on your -- on this fiber cable demand and pricing going ahead along with the optic fiber prices? And how are we going to maintain or improve our margin as you said in your last comment?

Look, fiberoptic cable demand, as I said, has been low in last 4-or-so months, but it has started improving because of -- mainly due to the start of BharatNet projects in a number of areas, where contracts had been awarded earlier, but projects were not being rolled out for one or other reason. I will give you some examples. Andhra Pradesh, which had stopped in between, now it has started rolling out. Telangana [indiscernible] has received orders very recently of about INR 240 crores or so from Larsen & Toubro. We have already received LOI, and they already started giving us delivery schedules, so this rollout would again happen in the current quarter. Likewise, number of such projects have started being rolled out. And with this, I believe that good demand of fiberoptic cable, coupled with more rollout of BharatNet projects under the PPP model, as we already discussed, will start flowing in from the current year. Then you have a rollout happening against 5G, which the spectrum is getting allotted in the current financial year beginning -- in the next financial year's beginning because that has already been announced by government. With the 5G rollout, what would happen is that, more number of base stations will be constructed. As a result of that, more number -- amount of fiberoptic cable have to be rolled out because 5G is something which has -- requires a lot of fiberoptic cable. BharatNet, 5G, increased rollout on FTTH, all this would result in increased demand of fiberoptic cable. From a mid-term and long-term basis, I foresee fiberoptic cable demand will remain very good.

But, sir, price point of view, world over, there is a huge excess demand that is what we have heard. So how do you see that panning out for the next 1, 2, 3 years? And how we are going to face that. Because pricing, order side we appreciate, but pricing plays a role where margins are constrained. Correct me if I'm wrong.

Would you repeat your question?

World over, there is an excess supply of optic fiber cable. That is what we have heard, and prices are falling, or it is remaining subdued, even of optic fiber. So how -- demand side, we have got good demand in India, as you rightly pointed out, so how do you see the pricing? And how that margin be able to withhold the margin on that optic fiber cable?

Look, we have to look at India first. World over, you're right, you have some places, particularly in China, demand has gone down -- not gone down, but it has not really gone up. And people have increased capacity because of expectation of demand going up. That has not happened. Other parts of the world, demand has not gone down. It has remained static. So that overflow of capacity from China has resulted in this situation, what you see worldwide in terms of excess capacity. But I expect, and in fact [indiscernible] major Chinese players very recently. They also expect that Chinese demand will start increasing from the next financial year. So in that situation, China may become a little bit better than what it is today. But again, coming to Indian point of view, there is import duty of 10% on fiberoptic cable, so that as much as we are insulated, right? At the same point of time, you must also appreciate our cost of fiberoptic cable is not higher than any of the Chinese manufacturers. We are able to compete very effectively. So on overall basis, there's increase in demand. And fiberoptic cable, which is being sourced locally by the private operators and BharatNet has to be totally private. There's no import allowed in any situation. So in those kind of a situation with price competitiveness of ours because of good volume. Number two, BharatNet cable has to be locally sourced. I don't find that there is any reason to believe that this price pressure of -- because of lack of China demand don't impact us at all. In fact, we're receiving the reasonable traction in export. If you remember, in the last earnings call, I said that we are putting more and more emphasis on exports of our fiberoptic cable, which has gotten good results. We have had a few successes in the export market, which will result in a reasonably good size of orders, which would give us a better direction from the export market in the next financial year.

Right. Sir, it will be prudent for us to understand that we, as HFCL, will do an EBITDA margin of about of what we are doing right now current year for next -- again for next few years, blended margin, I'm talking.

Blended margin, I expect, at least, we would not be falling below the current margin which we have. And EBITDA margin, in my opinion, should be around 12% to 14% in the next financial year also.

[Operator Instructions] The next question is from the line of Kavita Thomas from First Global.

Sir, this is -- my question is pertaining to the performance of HTL. So sir, I actually see -- subtract the consolidated numbers from the stand-alone numbers, we arrive at how HTL has performed in this particular quarter. So if we actually look at the numbers, sir, the revenue of HTL in this quarter was around INR 41 crores. Is that right?

Yes, you're absolutely right, Kavita, and that has been because HTL has only fiberoptic cable business. And because of that, as I said, the demand of fiberoptic cable has been low. Some of the customers, particularly those people who are buying from the South Indian states, some of our customers, and we have already operations, and their demand was more in North India. So South India HTL has had a lower revenue and which resulted in HTL having a lower revenue. So -- but again, as I said, this quarter, it has improved quite a lot. And we expect that HTL would also improve performance of our fiberoptic cable business, which is a solid business in the current quarter.

Okay. And sir, one more thing is what I observed is or even on the EBITDA margin front, what has -- we are seeing is, over the last 2 quarters, even though the revenues have been a little lower, the margins were maintained at around 20%. So -- but in this particular quarter, the EBITDA margins has fallen...

From where did you get this 20% number?

Sir, if I again do the same math of subtracting the consolidated from the stand-alone, the EBITDA margin is around 20% last year, third quarter last year.

You're talking about HTL alone?

Yes, HTL alone.

Okay, okay, okay. Okay.

Yes. So as against that, in this quarter, it is around 12%, 11.5%, 12%.

Because as the turnover is going down so much, EBITDA margins also have to come down because the [ fixed cost hasn't decreased ].

Is there any other reason other than that, sir?

No, no, not at all. It is basically the less turnover has resulted in this.

The next question is from the line of Payal Lad from Progressive Shares.

Hello?

Yes.

Sorry, Payal, we can't hear you well. Can you please speak a little louder or come closer to the phone?

Hello. Good evening, sir. Hello?

Madam, your voice is very unclear. Can you be near the phone or say, it's echoing, I can't understand.

Can you hear me well now?

No, Payal, it's not clear. Can you please speak on the handset mode, I'm not sure if you're on speaker.

Got it.

Are you on speaker phone, Payal?

No, I'm using the handset mode. Hello?

Yes. Go ahead, Payal, I'll try to understand.

Yes. Sir, I wanted to ask you a couple of questions. Like, if you just compare your interest cost in your December -- in the current quarter as compared to your last year [ payment ], so there has been a decrease. So is it like fair enough to assume has there been any repayments in terms of borrowings or so?

You're talking the interest cost has decreased?

The finance cost, yes.

No, it has decreased.

Current quarter, it has decreased.

You're talking about, Payal, current quarter?

Yes, sir.

Yes, our CFO will answer this question.

You see, last quarter, there were some announcement of working capital limits and all that, so bank charges, onetime processing fee and all that. So quarter-on-quarter, there might be certain up and down in interest cost. And there may be a situation where we give lot of bank guarantees or we open LCs, so some additional bank charges, et cetera, are levied. So that is how it has decreased. And top of it, this September, we also repaid some amount of this term loan, which was a bullet payment of around INR 33 crores, so that has also impacted our -- this interest cost being low relatively.

Okay. And sir, if you could just give us the cash and the debt levels currently?

Again, Payal, I could not follow you.

Sir, if you can please help us with the numbers for the cash and the debt levels currently?

Cash and debt levels?

Yes.

Debt is around INR 400 crores of working capital loans, including the private borrowings and all that. And term loan is around INR 120 crores plus -- INR 170 crores.

Sorry?

INR 170 crores.

INR 170 crores in term loans. Predominantly, it is because of the fiberoptic -- fiber plant which we are putting up in Hyderabad. Out of INR 170 crores, INR 130 crores or so might be recoveries because of that. And the working capital loan is about INR 470 crores.

INR 400 crores.

INR 400 crores. Sorry, INR 400 crores.

And the cash balance?

Cash balance, there is no such, I mean, cash balance. We have a lot of bank...

[indiscernible] We have working capital loans. How can we have cash balance.

Cash balance is not there. We have -- I mean, fixed deposit margin in the form of margins, which is around INR 200 crores or so.

So if we account fixed deposit in cash balance, then, Payal, it would be about INR 200 crores.

Okay. And sir, one last question, if you can please help us with the order breakup of INR 8,600-odd crores in terms of your different line of service?

Order breakup I will give you. This would have a -- where is that? Order book INR 8,600 crores -- just give me a second. Let me figure out the paper. In terms of percentage, about 15% would be from Defence business. Optical fiber manufacturing and turnkey all included, optical fiber would be about 10% or so, then turnkey businesses would be about 30% or so and rest would be miscellaneous.

The next question is from the line of [ S. Kapoor ], a shareholder.

Sir, I was looking at the employee cost. That has gone up for the 9 months from around INR 126 crores to INR 144 crores. So as a percentage of sales, what [ should be the breaking of ] the employee cost curve, sir? Hello?

Because every year, some increments also take place, and also, because of the fiberoptic cable fiber plant we are putting up, new people coming, ESOPs have been given. That has also resulted in this increase in the employee cost. So all put together marginal increase in employee cost is there.

Okay. And sir, what is the update on the warrant conversion, sir? How much has been received by the company, and how much is due, and what is the time line?

All converted. All fully converted.

And now there are only in the lock both for the promoter and the nonpromoter?

Yes. It is in the lock.

Yes. It is in the lock, of course.

It is in the lock-in period, but we have received the full money?

Yes, yes, yes. Of course.

From both the category? Sir, as of today, you and other -- your peer comparison, we have Sterlite Technologies, and sir, due to the market forces, both are trading at the same fee ratios, but the contracting part, which we investors find is that no mutual fund has invested even a single share in HFCL, whereas, your peers -- in your peers, there's a large chunk being held by the mutual funds, so where is it lacking that mutual funds are not buying the -- this story of the same business -- having -- both the companies doing the same business. So where are we lacking that mutual funds are not participating in the growth stories? And what efforts are you taking? You're definitely doing a lot of work for us by holding the conference call and participating also, but where is this gap, sir, and what should be done that mutual funds would also participate in the [indiscernible]

We should say why they are buying or not buying? Because our job is to tell what we are doing. And we absolutely are able to say that we are doing what we tell that we would do. And we're absolutely stuck by our forecast and all that I've given. Now, why they are not buying? Well, this is -- for me it is difficult to say. I can only...

One point is, they said, we don't have a dividend distribution policy, sir. Sir, now you have spoken high about we posting the PBT of large scale even in 9 months. But can the company come up with qualified dividend distribution policy in the coming quarters so that we can get an idea of what would be the payout in terms of the dividend distribution?

Look, during the last 2 years, we have been paying dividends. In fact, we have increased from year-to-year. Now what it would be the next year, it's the Board to decide. Right now, it will not be possible for me to comment on that.

And sir, coming into the current capacity in the OFC business, sir, what is our current expanded capacity and the utilization levels?

Look, current year, we have been able to have utilization of about 60% -- 50% to 60% -- 50% or so of their capacity. But capacity throughout the year has not remained same. There have been 2 increments in the capacity. Currently, now [indiscernible] today, the capacity for HFCL and HTL put together is 18.5 million fiber kilometer.

Okay. And our utilization level's at currently?

So as I said, the current year has been about 60% or -- 50% to 60% depending upon fund. But the next year onwards, I believe there would be -- it would significantly improve because of the improved order situation and demand from the customers.

Okay. And sir, last point about the commission part, sir, what percentage of profit are paid to the KMPs as commission, sir, that is I think, sir, qualified?

Which KMP?

Yes, including you, Mr. Jain and other KMPs, the percentage of net profit being paid as -- in the remuneration part. What percentage do you receive?

See, Mr. [ Kapoor ], no commission has been paid to the CFO as the company secretary...

No, no, not company secretary. I'm talking about the MD, Mr. Nahata.

MD, we have paid INR 2 crores of remuneration as a performance...

Bonus.

Performance bonus type of thing, which is only...

That's ad hoc? That is ad hoc or any percentages here, sir?

It is based on the FY '19 performance.

That is what I'm asking, sir. Is it ad hoc one or any percentage is given, 0.25, 0.3, something like that? How do we arrive to the figure of INR 2 crores?

See, it is on ad hoc basis.

And this will continue on an ad hoc basis only?

Just one second.

Hello?

Just one second, Mr. Kapoor, just one second. So the Board has decided, Mr. Saket (sic) [ Mr. Kapoor ] to give INR 2 crores consequently for [indiscernible] last FY '18, '19.

The next question is from the line of [ Saket Kapoor from Kapoor & Company. ] The next question is from the line of [ Naman Duggal ] from BNP Paribas.

Sorry, I've just missed the question. After my first question, I went and Googled the weather conditions in Kashmir and the northern part of India. And it seems to come across that, January, the first 20 days, was as bad or even worse than the December period. So has the work been affected really bad this January as well?

Yes. As I said a little while ago that now the weather has started improving and work would start in a much better speed, except in the snowbound areas, which I don't expect to start before May. There are lower reasons for Jammu and Kashmir and the Northeast also, work would now start happening in the current -- by the end of the current month.

So one month of the quarter, 1/3 of the time will be affected, so that may result in dismal revenues this quarter as well?

I don't think you're right in saying that. Out of 3 months, if some 20 days has gone bad, doesn't mean that this quarter's revenue would be bad.

[Operator Instructions] The next question is a follow-up from the line of Saket Kapoor from [ Kapoor & Company ].

Yes, sir. Sir, on the promoter holding also, what should be the ballpark that we are looking for, say for 5 years from now? We are -- our promoter holding is at around, I think so, 38%, 39% today.

I can't answer, [ Mr. Kapoor ], that how much would they increase in promoters holding. Right now, it is 38%. Let's see what...

You are comfortable with 38%, sir. You are comfortable with 38%, that is what my understanding was.

I am comfortable.

Absolutely.

You're comfortable with the 38% promoter holding?

Yes, yes.

Okay, sir. I think that is the answer. And we are hoping for a better quarter 4, both on the top line and bottom line.

As there are no further questions from the participants, I would like to hand the conference over to Mr. Mahendra Nahata for closing comments.

Thank you, gentlemen, to all of you for paying attention and being in this conference call. And we certainly -- as I said, last -- first 9 months of this year have been better than the last year's 9 months, and we expect to keep on delivering the same performance for the whole year. Quarter 3 was a little below the mark because of various reasons I explained to you. Quarter 4, we expect it's going to be coming to the normalcy because things have been started turning on a positive [indiscernible] conditions, whether you talk of situation in Jammu and Kashmir, whether you talk of orders in terms of deliverable orders in the current quarter. So we expect to be in a -- out from this little bit subdued performance in quarter 3 and quarter 4. And order book remains good. R&D efforts are on, which would give a better improved margin to the company in near future. The R&D products, the designed WiFi is an example, show good traction from customers. UBR radio, which has been our own design, is showing good traction from customers. So we hope for a good quarter 4. And thank you very much once again for being -- for participating in this call. Thank you very much.

Thank you. On behalf of Maybank Kim Eng Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.