HFCL Limited (HFCL) Earnings Call Transcript & Summary

Okay. 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 fourth quarter ended financial year 2020. 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. All listeners are precautioned not to place undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings conference call is clearly 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 in today's earnings conference call with us. We have with us Mr. Mahendra Nahata, Promoter and Managing Director. We also have with us Mr. Vijay Jain, Chief Financial Officer. Without much delay, I request Mr. Nahata to give his opening remarks. Thank you, and over to you, sir.

Very good morning to all of you, and thank you, Anuj, for the introduction. I hope all of you are keeping safe and healthy along with your family during this pandemic time. We welcome and thank you all for joining us today for this earnings conference call for the fourth quarter and financial year ended 31 March 2020. I believe all of you have gone through the financial results, which we announced on 5 June 2020. First, let me first give you a brief background of HFCL. HFCL is a leading telecom technology enterprise, connecting the world with fully integrated communication network, products, solutions and specialized services. It manufactures optical fiber, optical fiber cables, cable accessories, high-end telecom transmission and access equipment with technologically advanced solutions to cover all aspects of value chain from manufacturing of leading-edge communication network products to providing specialized services for telecom, defense railway, utilities and security and surveillance network projects, both in private and government sectors. HFCL's in-house Center for Excellence in R&D at Gurgaon and Bangalore, along with invested R&D houses and other collaborators at different locations in India and abroad, continuously work on developing cost competitive and innovative range of technology products and solutions. HFCL Group has fully integrated, world-class manufacturing facilities at 5 locations to produce a wide range of new-generation products. HFCL has worldwide customers with exports to more than 40 countries. The company has a strong order book of INR 8,409 crores which is 2.2x of FY '20 revenue. These orders are largely to be executed over the next 1 or 2 years. Expected revenue and earnings are aptly supported with existing orders and future opportunities. It comprises of prestigious orders spread across all business verticals and customers, including telecom, defense, railways, border surveillance, et cetera. Our order book also includes O&M orders worth INR 1,614 crores, ensuring better margin revenue year-on-year basis. Our growth strategy is to produce technology products and solutions with competitive capabilities for diverse and expanded customer base, which is guided towards creating shareholders value through strong fundamentals for sustained growth. Our product development capabilities are continuously taking us forward as a technology enterprise where we develop products with latest technologies with futuristic approach, which are cost-effective and have our own IPRs. Our products have worldwide deployment capabilities with major global and Indian certifications. Our own product and technologies are expected to make our margins even better. Our Center for Excellence and Research, along with invested R&D houses and collaborators at different locations in India and abroad are working on development of new-age technologies. We are consistently empowering innovation, introducing new technologies by promoting research and development. Our vision is to develop cost-effective, next-generation products with our own IPR, which can be sold globally and can be benchmarked with other leading global manufacturers. I'm glad to share with you that we have already developed WiFi network products, high-capacity radio relay, microwave radios and cloud-based management platform. We are in process of developing switches and routers, intelligent internal systems, software-defined radios, ground surveillance radar, electro optic devices, electronic fuses, et cetera, either by ourselves or collaborative research and development. During Q4, we have commenced production of optical fiber at our new facility in Hyderabad. This will streamline our supply chain and also ensure better competitiveness. I would now like to explain the impact of corona pandemic on our business. The lockdown brought the operations at halt when group's manufacturing facilities, and all locations remained shut from 25th March to end April. Project implementations at various locations for different services and private telcos as well also came to halt. This has affected production at our manufacturing facilities and execution of projects at various locations. The company has, however, resumed its manufacturing operations at all its facilities in gradual manner after taking all the necessary precautions for ensuring safety of our staff as per the government directives from time to time. We are at present, operating at lower utilization levels due to persisting disruptions in supply chain and also inability of customers to resume supply because of stoppage of their own operations and fleet. We hope to increase the utilization as more relaxations are allowed by the government, and customers are able to start full-scale operation. The company has resumed work at these offices gradually as allowed by the State Governments of the respective states where the company operates. We have also commenced our turnkey operations, except at the project sites that falls in the containment zone or are still not permitted for work by outsiders such as some of the army cantonments. COVID-19 has impacted the business in Q4 and still continues to some extent, but at the same time, this has opened new gates for accelerated data consumption patterns to the complete digital form of working everywhere. We expect that our factory operations and project execution to reach at a higher level with lock down restrictions being further relaxed by government from today. I would like to mention that there has been no impact on the assets of the company. None of the assets have been impaired. Also, there has been no cancellation of any of our orders, and therefore, the impact can be construed just as deferment of supplies of goods and execution of projects resulting into deferment of revenue and the realization. This should continue in Q1 of current fiscal year also, to some extent, but we expect that there will be improved performance going forward as the deferred orders get into execution. In order to rationalize the operating costs, the company has taken several initiatives, including: reduction in employee costs; restructuring of emoluments with increased performance linked component in employee compensation; reduction in administrative costs; and resource optimization. While we are reducing our cost of operations, we are putting equal emphasis on improving the efficiency. On liquidity front, I would say that disruption in supply chain and deferred, delayed execution of field projects have created impact on working capital cycle on short-term basis. However, we are making all efforts to maintain sufficient working capital for the business. Company has always been servicing its debt on time without any default and has met this obligation as per schedule. We have a very comfortable debt-equity ratio of 0.43. We are continuously monitoring the situation and any further material impact on the operations of the company due to COVID-19 pandemic, if any, will be communicated as and when circumstances so warrant. Overall, I would say that, yes, the business has been impacted during Q4 of FY '20, which it still continues to some extent, but we will see improved performance going forward as more relaxations are given by government in the current lockdown situation, which has been severely -- relaxed from today. Let me assure you, all my fellow shareholders, that the company has enough resilience to withstand this very, very crisis situation effectively. The strong order book, equally strong funnel for new sales opportunities, continued customer confidence, excellent production capability, coupled with good field execution will ensure that the temporary setback we experienced on account of the current pandemic will be nullified soon. Out thrust on improving margins has given good results, and it is expected that as we come out with more and more of our own products and technology, margins will improve further. Now coming to the performance of Q4 FY '20 and full FY '20. I would say that amidst our challenges faced during Q4 of FY '20, company has been able to significantly improve the profitability and margins coupled with effective capital management and accelerated thrust on R&D initiatives for the development of new-generation cost competitive products. Now I would like to brief you about the consolidated financial highlights of the fourth quarter and FY '20 in comparison to the corresponding quarter of FY '19 and full FY '20. Our income for the quarter stood at INR 668 crores as compared to INR 1,247 crores during the corresponding quarter of FY '19. EBITDA for the quarter is INR 76 crores as against the INR 135 crores in Q4 of last year. However, EBITDA margin increased from 10.38% to 11.38% even at a lower revenue. PBT for the quarter was INR 28 crores as compared to INR 99 crores during Q4 last year. EBITDA margin has increased from 4.19% to 7.95%. Apart from operations being impacted from the beginning of the March itself, because of supply chain disruption on account of corona pandemic, other major reasons for reduced performance in Q4 have been: one, deferment of revenue during the last week of Q4 amounting to approximately more than INR 100 crores, which otherwise would have resulted in additional operating profit; provision of ForEx and ForEx variations amounting to INR 13 crores; increased depreciation for our new Hyderabad plant, which started operations during Q4, only amounting to INR 5 crores; PAT was also adversely impacted due to additional provision of INR 5 crores on account of deferred tax liability as depreciation is claimed at a higher rate as per the provision of income tax act. MAT credit amounting to INR 5 crores approximately has also been expensed off in the current quarter as the company is moving into new tax regime, wherein tax liability will reduce to 25% from the current rate of tax of 35%. With regards to our annual consolidated performance during FY '20, our income stood at INR 3,861 crores as compared to INR 4,780 crores in FY '19. Absolute EBITDA grew by 12% at INR 516 crores in FY '20 compared to INR 459 crores last year. Even at lower revenue, our EBITDA increased. EBITDA margins for the year improved to 13.36% from 9.6%. Profit before tax was INR 358 crores against INR 340 crores FY '19, and PBT margin stood at 9.27% against 7.11% FY '19. Debt and equity stands in comfortable level of 0.43, the debt of INR 712 crores. Thanks. I would like to say that the disruptions due to COVID are temporary, and we shall get back to the improved position as soon as operations at normal level start, which is expected to happen soon. We shall continue to focus on the goal of increasing returns and create shareholder's value by: one, increase profits in absolute value through our own technology products, delivering good returns, choosing high-margin orders, continued cost-efficiency measures and backward integration to optical fiber which will also bring in efficiency; number two, continue with low gearing and effective working capital management; three, improve returns and ratios, accelerate free cash flow, enhance ROC and grow return ratios. With that, I would like to open the floor for any questions. Thank you. Thank you very much. Any questions are fully welcome.

[Operator Instructions] First question comes from the line of Paras Bothra from Ashika Broking.

The thing is -- first question is with regard to your telecom. When you say that 5G is going to come up with bigger opportunity, what is the kind of opportunity one can see in it? And the second thing is when do you see that 5G rolls out here in India? And second question is with regard to your presentation where you have highlighted telecom, railway, defense and security and surveillance. If you can throw some light on your revenue profile, maybe 2 years or 3 years down the line, how do you see the composition of revenues in each of these verticals which you have highlighted?

Thank you, Mr. Paras. First of all, coming to 5G. I expect that 5G auction should be held sometime 6 months to 9 months from now. And rollout of 5G should start 1 year or so -- 15 months from now. So worldwide 5G rollout has started in a number of countries, and our country cannot lag behind. Currently, the 5G auctions have now been coupled with the 4G auctions, which are slated to happen soon, as announced by government, because of -- maybe government thinks that it will be too much for telcos to focus so much money at single point of time. So they are segregating 4G and 5G auctions. So 5G will definitely open up major opportunity for companies like us who are manufacturing telecom equipment and also providing network solution services. And that's why. 5G would require a number of new products. And also, the demand for existing products will grow. For example, fiber optic cables. I look at 5G would have at least 3x the number of base stations like the towers you see, than what we have in 4G. And as 4G has 3x, 4x more that 3G, 2G, 5G would have 3x more than 4G. And all these towers or the base stations would have very high data rate, which would really require communication largely through fiber optic cable or high-bandwidth radios, which are not used at this point of time. And I'm happy to say that your company is, of course, a major manufacturer of fiber optic cable and fiber in India. And also, we have now got technologies for high bandwidth radio also, to be used in 5G application. Both coupled together definitely increase demand of these 2 products, which company already has with it. Number two, there will be increased demand of new-generation products. For example, routers which are required in such base station. And your company is also, at this moment, designing and getting a design through collaborative R&D, a cell site router for 5G applications. So would be the switches. Switches for 5G applications are also being designed by the company, and in fact, they were required for 4G networks also and these features will be available in a couple of months' time from now. So switches, routers, then increased demand of fiber optic cable, radios these all would see the demand of complete products increase, quite effectively, and therefore, company will also expect to get a reasonable market share out of it. Simultaneously, we are now going to design next-generation WiFi, WiFi 6, what we call it, and wave 6. Because with the 5G coming up, a requirement for downstream equipment to have a better capability of data transmission will be required. And WiFi 6 would be 4 to 5x more effective than the current generation WiFi 5. That is also under design, and that would also be available in October-November time frame. So we are proceeding quite effectively. Simultaneous to the 5G deployment in India, some of the products will be ready sooner, some would be by the time the 5G arrives in India. Some of the products are ready. So we will be getting good traction in our sales funnel whenever the 5G is implemented in India. That is number one. Number two, other major opportunities, which I would like to mention, is FTTH, fiber-to-home. That is also being rolled out in a very, very major way by telcos, led particularly by Jio. As I said earlier, HFCL is rolling out FTTH for the entire North India. Now we have taken up with Jio, and they happily allowed us to implement the FTTH network in a number of other states, which include Madhya Pradesh, Jharkhand, Tamil Nadu. So such -- and some more places are going to be added where we will be implementing part of the FTTH network as well as part of their wireless network. So that could also lead to increased revenue to the company. So with FTTH deployment, has seen increased demand of fiber optic cable requirements of certain types, which are required in FTTH implementation. And that has resulted in increased demand of that kind of cable, has resulted in increased order book. And possibly, there will be sales level also increased for this kind of cables in future. So FTTH is also an important area where company expects to see larger orders for the product, which is cable; number two, the accessories; number three, implementation in the more number of states. So that is the answer to your first question. Number two, the verticals, as you mentioned, telecom, defense, railways, surveillance. If you look in terms of percentages of revenue, 3 years down the line, as I said, 3 years down the line. And then fifth one, I would say is the turnkey EPC kind of a revenue. Telecom should comprise, in my opinion, something like 30% to 40% of revenue. Defense should comprise around 20% of the revenue. Railways is 10% to 15%. Security surveillance, another 5% to 10% and EPC would be around 15% to 20%. That would be the rough breakup of the revenues as I see 3 years down the line. Telecom revenues would have increased significantly because we have put a lot of emphasis in development of new telecom products in-house. And that will result -- our in-house development of products will result much better competitiveness, ability to sell those products at a better margin with increased revenue and increased profitability. Good example of that is WiFi, for example, which we have started deploying into telco networks with their orders. Now we will be doing an export market for that, enterprise market for that. Those markets are there, those are in planning. So those equipment which are designed by us have a better profitability than you do implementation and those kind of businesses. So we are designing new products, as I said. WiFi is complete, switches, routers, new generation of WiFi, WiFi 6, new generation of cell site routers, high-capacity radio relay for Army application, military application already ready. We've already participated in tender for that. We are -- in terms of defense products, we are designing electro optics. The product will be out in, in my opinion, July-August time frame, the product will be out in the market. And major tenders have already come out from Army. We will be participating in those tenders, so those are there. Electronic fuses, which are again designed by us, first company to design in India, and very few in the world -- amongst very few in the world. So we would not only be selling it in India, we would be working for export of these products also subject to export permission available from government of India, which it should be. Permission is required because it's a defense related equipment. So would be the issue for electro optic devices. Our own product and technologies, not only we will sell in India, but we be able to sell it worldwide. And these products have a huge market opportunity in India and abroad. Similarly, radio communication, when I say 10% to 15%, we have got a very good name in implementation of the railway communication network. Your company is implementing railway communication network in various parts of India, as subcontracted to major turnkey contractors of railways, like Larsen & Toubro, China Rail, Alstom. We are also implementing telecom network of Mauritius metro, Dhaka metro, a couple of other places we will be bidding soon. So this, we believe, that telecom networks of railways, which is a little different than the civil communication network, if it's coupled with a signaling network, we will be having a prime spot in that area also. EPC, as we supply fiber optic cable, as we supply different -- our equipments, we get EPC contracts also for installation, commissioning and operating of those systems. So that would still keep on constituting an important part of our business. So that is, I would say, the revenue in the different sectors and why it would be so, as I have tried to explain to you. Thank you, Paras.

Next question comes from the line of [ Vikas Mukherjee ] from [ India ABC Capital ].

And my question was regarding the investor presentation that you -- that your company rolled out.

Please speak loudly, [ Vikas ].

Hello? Sir, can you hear me now?

No, now it's okay.

Yes, sir. My question was regarding the investor presentation that your company rolled out. And in one of the presentations a few months back, I read that there is -- you're going to reduce your promoter pledge by March by about 20% or something that you had committed, but there is no news regarding that front. And my question as a shareholder also is -- there are a couple of concerns going on, is that your pledge is not coming down, but you're still going on for new acquisitions. You're not paying back your debt to take out your pledge. And because your earnings are not supporting now, and you've been giving interviews on TV shows, and you sound very bullish on your company, but the performance is very -- this time was very poor. And there is also a need to correct some rumor that's going on with Reliance Jio, that your company is going to merge with Reliance Jio and going to take place at a very low rate, and there are absurd rumors going on in the market. And your stock price is down from INR 36 crores to INR 8 crores and, whatever, 80% or whatever. Can you like clarify if there's any pledge that's being sold in open market or any such activity?

Vikas, I think some of the questions, you have answered yourself, and some of the questions are out of your ignorance, let me be frank enough. First of all, Jio rumors has no basis. There is no discussion, no question, ever had any discussion of any buyout or merger or anything. So they are baseless rumors, and I'm -- I've said it again and again, and I'm saying it again, they are baseless rumors. Number two, pledge, it is out of the ignorance that you are talking of selling. I think you have not heard my presentation and my talk on different earning calls. These pledges are not for any loan taken. These were given on a collateral basis to the banks against the loan taken by company. And there has been no default in any loan, number one. Number two, about 11% of the pledge, which were given to YES BANK for urgent bank guarantee was required by the company, would be released probably within this week itself, within this week itself. It got delayed because of issues involving with YES BANK, as you all know. But this week itself, we have given ultimate guarantee with our customer, we have got original guarantees back, those guarantees have been submitted back to YES BANK, and YES BANK is just doing its own process. And it would be released in -- 11% or 12% of that will be released within this week, maybe another couple of days, I don't know. But in the next few days, it is going to be released. That's number one. Number two, 6% of the shares are pledged to Union Bank of India, the release of which has also been approved, which has also been approved. And you should know why this pledge was given because the Hyderabad facility, which was funded by Union Bank of India, there could not have been a pledge of the land because of certain issues or stipulation in the lease data of the land by state government that you cannot pledge -- not lead [indiscernible]. So you cannot pledge the land before you start a commercial production. You need loan before start of commercial production. So that is why this as an alternative display of 6% shares are given. Now that commercial production started, Union Bank has already approved release of about 6% also, and that would also be released very soon. So this is what I had committed in my different conference calls that -- and presentation or I have not given many TVs interviews. I don't know which TV interview you are referring, but I have not given. So but this [indiscernible] part, it's in the last 3 months, I don't remember, or 4 months, I don't remember interviews. But anyway, having said so, as I had promised, Vikas, this 11 or 6 or 12 plus 6, 17% or 18% of shares, this is what I had talked about being released on pledge, which will be released. So there's no question of even a single share, even a single share being sold, which were pledged and has come to market. That is number one. 51% of the share [indiscernible] is pledged to the bank institution as they would pick that pledge against the loan given to the company. And company is completely paying its loans and everything in time, and there is no default. And in any case, there's no question of selling those shares because these are not primary securities against any loan taken by the company. So not even one share has been sold, and as I have promised, 18% of the pledge is -- 17% or 18% is going to be released very, very soon, for which all approvals have already been received. That is the answer to your second question about the pledge. Number three, the poor performance. Yes, Q4 has been a poor performance as has been many companies worldwide, HFCL is no exception. And as I said in my presentation a little while ago, the reasons, I have also have explained are not only pandemic and the resultant supply chain issues from the beginning of March itself because a lot of components and material come from China, which got disrupted. And it was not allowed to be included because of fear of spreading of virus in the material which comes. And then, of course, deferment of revenue in the last few days, about INR 100 crores plus, which I've also mentioned, which would have resulted in additional operating profit, which is about 20% of the 30%, which would have resulted in INR 20 crores, INR 25 crores or INR 30 crores maybe, additional operating profit. That could not happen, INR 13 crores of foreign exchange provisioning, which was not incurred but has to be provided for because of negative sell-down in the current situation, and about INR 5 crores of additional depreciation because of Q4, we only restarted fiber optic plant, and additional depreciation had to be provided. And deferred tax, because we claim the 25% of depreciation against -- as per the income tax for this deferred payment liability, deferred taxes liability had to be provided at INR 5 crores. And additional INR 5 crores of net expense write-off because next year onwards, we are moving to lower tax regime of 25% from 35%. If you all add up all that, you will find about INR 50 crores or so, which has been onetime kind of a situation, which has happened. That reduced the margins, profitability and also the lower turnover because of the current situation, which had happened. But as I said, things have started picking up again. And as we move on now, things will become better and better, which have already started becoming better, in fact. So this is the reason why the revenue has fallen down in the current quarter, and also the profitability has fallen down.

Sir, my last thought is that there is past 3 quarters, sometimes the weather, sometimes Kashmir and now this pandemic. We all hope for the bright performance in HFCL in the future.

Thank you.

[Operator Instructions]

Just one second, one more second. I would like to answer one more of Vikas' question. One more of his observation, rather. Can I go ahead?

Yes, sir.

Basically, Vikas, as you would like to see, revenue has fallen down because of many issues, many [indiscernible] but profit has increased. Don't forget that. It's not the top line which always matters. It's the bottom line which matters. Profit has increased. Even the falling revenue, profit has gone high. That, you should not forget, and you should have noticed that.

Next question comes from the line of Hardik Vyas from Economic Times.

Sir, I had a couple of questions. Starting with the first one being how is the...

Hardik, please speak a little loudly.

Yes, sir. For the global canvas of optic fiber looking now with China tenders likely to slow down, can you -- are they likely to slow down anytime soon? And the prices of optic fiber had corrected to maybe $4, $4.5 or maybe below $4. But do we see any improvement on those fronts going forward because of the demand coming back?

Hardik, China may have floated some tenders but enough capacity exists because one had gone up to 600 million of per year demand of fiber and that capacity still exists. So even if China's tender has come up, I don't think there is any shortage of capacity. Capacity has only been added, not reduced. And the prices, so I don't foresee any reason for any major shift in the prices. Currently, the demand -- prices have come down significantly, and they are about $3.5, not $4. And $3.5, you can buy, as much as $5, if you wish, from the good-quality producer. $3.5 is good-quality producer. You can buy as much cable fiber as much you require. I don't see any further downward trend. But I don't see any increase in fiber prices also in near future.

Okay. So the Telangana factory that we have begun working, the utilization would not be at desired levels at this point because you've just started in the last quarter. But the cost at which we produce is equivalent to what we can buy from outside?

Look, the factory has started production. It is now being reached to optimal production with [ UCP ] clearance, which is mandatory for selling to many of the operators, has slated to happen very, very soon now in another 2 days. And with that, we would come up in the full production by ourselves. And cost of production at this point of time would almost match or maybe a little higher than also the products fiber you can buy in some market because the cheaper prices are still to come to a level to match the reduction of the fiber prices. But it is -- we are in negotiation for suppliers for long-term contracts. And we have no doubt that they would come to a level where it becomes cheaper to produce fiber than procuring. And there's a whole reason we actually have this setup. And yes, since we go into the full production, the prices of the preform would also come down to that particular level.

Okay. Okay. So -- and whatever we produce at the Telangana factory would be gradually consumed by our Chennai, HTL and Goa plant, right?

Well, of course, of course.

And we will, of course, need more fiber as well to produce more OFCs.

Absolutely. Fiber capacity is only 6.4 million kilometers, and the cable capacity for -- and the required fiber which is about 18 million fiber kilometers. So there is a huge gap. And this 12 million, we'll be sourcing from outside, from our major suppliers like Corning and all that.

Okay. Sir, as regards to WiFi systems that we are likely to produce, and so I had one question that...

I believe we are already producing.

Yes. Yes. So that we are producing. So contracts for them, have we received anything? Could you quantify that in terms of revenue that -- how much can we look at it or in terms of volume and if there is any...

In terms of revenue, I can say volume, different kind of products, and it's very difficult to say volume. For the current year, we are looking at that roughly about INR 200 crores on the 2 products, which have already been put into the market, WiFi and UBR, which is a kind of a similar range of products. These are unlicensed band micro radio. So we look around at least INR 200 crores, give or take from year on year on these range of products in the current year.

Are we looking at any export potential or domestic consumption only would suffice that production?

Definitely, we are looking for export potential. I had a talk with my people this morning only. This is domestic. This -- I'm talking of operators where we are already -- got orders from Jio, from Airtel. Both places, we have got orders. And now once the product has now been stabilized in the domestic operations because before exporting, you would like to stabilize the product in terms of operational performance locally. So if there are any bugs, you can definitely off, so that has completely stabilized. So we will now be going for export, one, and enterprise market because large enterprises themselves buy a lot of WiFi system, and it has a better profitability. So enterprise markets, we have not gone. We have still gone to the operators market only. Now we'll go to the enterprise market, gradually to the consumer market and also, the export market at the same point of time. And we have already got channels in export in terms of our export of fiber optic cables and all that. So you would use the same channels for doing exports, not only WiFi but several other products, which I mentioned in my presentation, which...

Yes, which is slated to get released in the next quarter or so.

Yes. So gradually. Some of them, this quarter; some of them, a quarter next to that; some of them, 12 months; some of them, 18 months. So we have a whole planning, a whole plan, like software design Radio would come in something like 15 months. Switches will come in other 2 to 3 months or maybe sooner. Cell site routers will come in, let us say, 8 to 9 months. So this is a gradual plan from now to 18 months. We have a full road map of the products, which are to be coming in our own product as our own products. And definitely, whichever we have our own product and technology, would like not only to export also because it's our own product.

Okay. Okay. Sir, one more question on the services orders front. We have not been seeing any inflow of orders for the last maybe 9 to 12 months, any meaningful inflows. So is this likely to change going forward maybe 3, 4 months later when we emerge out of this pandemic?

Definitely. Look, fiber optic cable orders are coming all the time. Gradually, they are coming. We recently announced an order of INR 175 crores. So orders always keep on coming. But they don't come in a big batches that I announce them all the time. They come in INR 30 crores, INR 40 crores, INR 50 crores, and recently we won an export order where the contract is in process of getting signed, which is almost near INR 200 crores. So these -- all the fiber optic cable orders keep on coming all the time. Before that, we got another order INR 125 crores. So these orders have flown all the time in -- throughout the year. That is 1/3 of it. When you talk of major orders, if you're talking INR 1,000 crores or plus, those kind of orders, yes, there have not been such large orders because they don't come all the time. And company already has an order book of INR 8,000 crores. I give miss to some of the orders intentionally. This would have been orders about INR 500 crores to INR 1,000 crores in the EPC sector because I did not see enough profitability, and whatever profitability was there, that was getting countered by negative cash flow. So I didn't take those orders intentionally because they were negative cash flow. And there were -- profit margin was less. So there was no point in going through those kind of orders. And we did not jell properly with our overall strategy of increasing profitability, rather than us blindly going after revenue and which result in negative cash flow and putting stress on your cash flow. And I think that decision in hindsight proved to be right. Of course, there are no pandemic situation predicted at that point of time. But if I had gone for too many negative cash flow orders, this could have played a real havoc at this point of time. So I think that proved to be right. Going forward also, I'm not running blindly behind orders. I'm running behind others which are profitable, which are giving high profitability. And you would see in the last year's result. Therefore, EBITDA margins have shown considerable increase on account of this strategy. And I wish to continue this strategy and continue to keep on increasing our profit margin. Revenue may increase, may have a small increase, but profit will go up because of this strategy. I'm certain of that.

Okay. So we are looking at increase in revenues as well, but the profitability should be increasing better than the revenue growth.

So how much revenue will increase or not because I don't want to give any forward-looking statement. The strategy of the company is to increase profitability, rather than just blindly going after revenue and particularly those revenues, which has got higher negative cash flow. I don't want to have such revenues due to a high negative cash flow.

Sir, telco BharatNet Phase 2 and NFS, they are likely to receive some service contracts, service orders? Or they'll take some time?

No. NFS, we already have service orders. O&M contracts are there for next 7 years. So they are already there. And there are a couple of other military opportunities coming up. We are working on them. BharatNet Phase 2 is under discussion in government right now. And they are going for PPP model, public, private partnership. That model is not for us, Hardik. That is for the larger companies, telcos or much larger companies who would take those contracts and implement on PPP model. Our role in that would be supply of fiber optic cable to such operators, PPP operators, and executing our part there. So it's a large opportunity for us. Whoever gets into the PPP mode, whenever it is done, and I expect some 3 to 6 months from now, some auctions of that sort will be announced because commission -- Telecom Commission has already announced that they will be going for PPP model. So whenever it comes, I expect a huge demand of fiber optic cable, a few lakh kilometers. And of course, we'll be one of the major manufacturers of cable and more cost competitive than many other. We should be able to get a reasonable market share out of sale of cable as well as opportunities for providing transit services.

Okay. So the demand is going to be there. So whoever demands the cable and the services, we would be there to supply.

Absolutely. Absolutely. There will be some PPP operator. I don't know who. But they will need services, and we will be there to offer it to them.

Okay. And sir, last question, any dues remaining from BSNL?

Yes. There are about -- these are 2 things. One, it is for NFS where they come on regularly because money is funded by DoT. It's not BSNL money. That -- so that dues, I would not count as overdues. Overdues are on account of BSNL about INR 150 crores. And if you see there INR 250 crores, it has come down by about INR 100 crores. It is still INR 150 crores, which is overdue for more than a year or 1.5 years. And we expect now some -- we are hearing about some sovereign guarantee being given by government for some bonds and all that. On that guarantee, BSNL will be raising some INR 200 crores where they would like to pay to their existing vendors. But BSNL is also worried that if they don't pay, then the people participating in the new requirements would be very few. And so the fiber optic cable tender has come out, but there are -- people have written that they will not be able to participate unless an [ LC ] is opened because people are not able to rely. Then situation comes in 4G that unless -- when there's a confidence for payment, large telecom companies like Nokia, Samsung and all that, Ericsson, will not -- I don't think they will be taking up this opportunity unless their previous dues are paid. So BSNL has to correct this situation. Otherwise, how would they be able to survive? I am not raising any expectation on BSNL survival or nonsurvival. I pray that they become a healthy company, but they have to do something quickly to come out of this situation. Otherwise, then if they don't move to 4G now, people would move to 5G by the time they move to 4G. They are already a step behind. So it's the time for them to really work and see that how the situation could be made better, and I know that their management are doing full efforts working with the government to improve the situation. I'm confident, I think, next 3 months or so, BSNL situation will get corrected. And that would open up new demand for products and services for telecom internet suppliers. Then another thing, which has happened, governments push for local products, make in India products, as you have seen last -- so we've repeatedly -- Prime Minister, Finance Minister, all have stressed new products to -- sorry, our telecom products to be bought locally and also the defense product, which madam Finance Minister explained very eloquently in a speech when she announced the relief. There again, you see companies like us have a good advantage because of our ability to create products locally. In the sense, particularly, you would note that what we have done, high-capacity radio relay, that's a local product. Electro optics for which there is a projected demand of some INR 40,000 crores in the next 7 years, that is designed locally by us. Locally, which is our IPR design with a foreign partner, but with our own IPR. It's an electronic thing which has huge demand, again, designed by our -- for us by a foreign R&D partner, but our own IPR. So all would be -- this is a major advantage that -- it's a local demand. Local procurement is going to be enhanced, which would support local R&D-oriented companies like us. So that's another new thing, which is happening. And I read in the newspaper today, I don't know the exact notification, but this is new PMI policy, which is procurement for make in India products, has been announced where some gradation has been given. The more local company you have, you are given some preference in procurement from government tenders. So it's all helping. The local thing, local procurement policies already will help companies like us.

Next question comes from the line of [ Sanjay Shah ] from [ KHA Securities ].

First of all, sort of thanks for running us through a wonderful understanding about the sector, telecom and our space and HFCL in-depth. You being a prominent face of telecom, we really respect your views, sir.

Thank you. Thank you, [ Sanjay ].

Yes. Sir, in this order book of INR 8,400 crores, how much are government orders? And how much are private company orders? And how does order book comprises of? And does it contain any of the new-generation product?

It is a mix. I would explain you. In terms of order book, about -- I would say, if you see private and government, it would be roughly about 70:30 ratio, roughly about 70:30 ratio. Government is about 70%. Private is about 30%. But you should understand. I mean private orders keep on coming, and they keep on getting executed. Government orders come in a bunch. Private orders keep on coming and getting executed. I say for example, one operator gave us order of 35,000 systems. Then he gave another order for 25,000 systems. Then radio is another 10,000 systems. Whereas government would have given all this together. So there is the difference there.

In that can we differentiate between defense and nondefense in government?

Yes, we can differentiate, surely. Defense and nondefense, I think I have some -- out of the current order book of INR 8,400 crores, certainly, about -- something here about INR 4,000 crores will be from defense. But going forward, this ratio would reduce. Going forward, this ratio will reduce.

Right. So where we see the space coming from? If these reduce, do we see a potential from private or even government...

Well, it would come up from fiber optic cable increased demand. What we project this year, the fiber optic cable in the current year will be 50% higher than the last year. Telecom equipment will be considerably higher, much, much higher than the last year. So telecom, fiber optic cable. Defense equipment, that would also start increasing not on project but equipment. So each of these sectors would contribute towards reducing this order book from defense but increasing orders from telecom, fiber optic cable, EPC, those kind of things should increase.

So sir, this INR 8,400 crore, does that contain any new-generation products, which you named like WiFi and radio -- high-frequency radio or not?

Yes, it contains WiFi. It contains fiber optic cables. It contains microwave radios. Yes, it contains -- actually, it's not a big amount at the moment because these products have come into play in Q4 of the last year only as a natural product. As we go by, it will increase. It will keep on increasing.

So that is opportunity lying on us.

Yes, absolutely. Absolutely.

And sir, in export, we don't have much export in our percentage to revenue. How do you see it in future? What should be the percentage?

First, the reason it is not there, first of all, we have been exporting fiber optic cable only. We had a slight increase between FY '19 and '20, INR 195 crores, INR 123 crores. This year, we expect to take it to at least 100% higher than what it had been in the last year. It should be north of about INR 200 crores, I would say, in the current year for the fiber optic cable. But at the same point of time, as I said, this year, we would also start exporting this WiFi and other products, which we start manufacturing. Our own products need to start manufacturing, need to start exporting. I can't put a number on them right now, but some number would be there. So there will definitely be increase in exports. So this INR 123 crores of cable should increase to INR 200 crores with some more exports who are coming from telecom products. But a year from now, there would be a significant increase because by that time, we would have penetrated export markets with a number of more products, and these products would have stabilized by that time.

Next question comes from the line of Jagannath Sahu from IDBI.

I have just questions regarding the order book. You said INR 8,400 crores. How much is going to be excluded in a year's time? If you can give something like that. Then...

I think out of INR 8,400 crores, I think 50% should get executed in the current year. Now of course, this is all related kind of a situation, if this pandemic situation worsens, things might change. I hope it does not worsen, good for everybody it should not. But generally speaking, as for the orders and all that, 50% of this should get executed in the current year.

Okay. And out of this, how much is from Jio or Reliance Jio order is there?

Jio order from INR 8,400 crores should be roughly about INR 1,500 crores.

Okay. And presently, turnover make up, how much is Jio contributing, sir?

Jio would contribute, just give me second, about 30%.

About 30%. Okay. Then second question is regarding the margin, what you said that right now, year-on-year comparison, definitely, your margins are improving. But you will see the last 2 quarters -- of course, this quarter is an exception. But in the last 2 quarters are the downside in the margin space also.

Q2 was not down. I think if you look at the data of Q2, I can look back. It was not downside. Q4, yes, not Q2.

Q3 versus Q2, if you say, there may be some downside, I believe.

Well, let me check. Q3. We had a margin of 12.06% EBITDA margin, and EBIT margin was 8.12% as against Q3 of the -- no, I don't have those numbers with me.

Okay. My question is when we will see it gets stabilized? When your profitability is broadly -- that is what we can look at going forward?

There are a lot of noise. I could not understand. Can you please repeat what you're saying?

My question is, where do you see it gets stabilized? It means if you see the current year's full year profitability, whether that is a level you are expecting to continue or are expecting to improve further...

Well, not making any forward statement, but I think it would improve because, as I said, one, this Q4 kind of a situation I don't expect to reoccur. Number two, again, as I said, our reliance more on own products and technologies, that should also add into our profit margins. So I think percentage of margins should improve.

Okay. And what is the present capacity utilization you're running, sir, for full year April?

So capacity utilization of fiber optic cable factories, right now, we have about, I would say, 50%, 60%. But right now, it is a different situation. The customers are also not able to lift the products because they have not been able to execute their projects in field. So unless they can execute, I think they will not take the deliveries. Orders are not canceled, but they're delaying deliveries. Their capacity ratio is low, but I think on July onwards, it will start getting normal to 90%-plus.

Next question comes from the line of [ Saket Kapoor ] from Kapoor & Co.

Sir, firstly said, with the pace that you have been very sharp in all the -- in answering all the questions and very candid also, thank you for that same, sir. Investor gets a sense of confidence when the promoter speaks in this tone. So this was my observation. So I thought of sharing with you. Sir, firstly, sir, if you could give us what has been the price trend for the year basis and also for the quarter in the preform fiber and fiber cable, the entire value chain, sir?

Look, this moves concurrently. If the cable prices come down, everything has to come down. If the fiber price has come down, everything else comes down. Fiber price is the main defining factor. So fiber price has gone down almost to half. Similarly, preform prices have gone down almost to half. Fiber price, for example, what used to be $7 or $8 has come down to $3.5 to $4, depending upon who buys and who sells. And preform have gone on 140 to 70 or even less. So they are not in parity. Cable prices would have gone down what used to be, as a particular kind of cable, INR 54,000. That has come down to something like INR 35,000, INR 36,000 because it will not go down the same proportion because there are other kind of raw materials also involved there, like plastics and like jellies and all kind of different materials are there. So their prices have not come down so significantly. And some of them are imported also, and being imported, the foreign exchange, Indian rupee has gone down. So they started costing more than what people used to cost earlier. So what was something like INR 52,000, INR 54,000, that has come down INR 35,000, INR 36,000. There has been a one-third reduction in that.

And how are we insulated or hedged against these fluctuations, sir?

We are completely hedged. If the fiber price comes down, cable price also comes down. If it goes up, cable price also goes up. Only in the stock, you lose your own money, which is marginal. So we are -- in between, we are completely hedged out of this.

No. I'm talking about...

It's not that if fiber price goes down, so we start making more money, so the cable price will also come down. The customers are all educated customers. They know more than us. So they would reduce their cable prices for the contracts to be done in future. Existing contracts nobody would reduce. Similarly, if the fiber price increases, we go back to them and increase our prices for the orders to be taken in the future. And as I said, these orders are not yearly orders and all that. Maybe quantity binding it for a year, but the prices that keep on fixed up in every 2 to 3 months basis. So there is no unnatural income or unnatural loss. You operate on a normal level of 8% to 10% of our profit margin.

Sir, that means there are no fixed-price contract. That is what my...

Pardon me?

There are no fixed-price contracts then. They are all variable.

No, no, no. The fixed-price contracts are not there. People would promise to you that you buy on a long-term basis. But prices...

There is a promise for offtake, but there is no...

Prices keep getting fixed every 2 to 3 months.

Yes. Okay. And then now, sir, if we take the benchmark of the industry, sir, we have invested, where should we look at the peers for market capitalization for our company? Because there has been erosion in market cap for 4, 5 fiber companies in the likes of [ Sterlite and Vindhya Tele ] also, and [ Birla ] Cables, I think so they are falling in the same category. But what should be the benchmark we, investors, should use as a percentage of how to determine what is the fair market capitalization for companies like us?

Well, it's very difficult for me to answer, Mr. [ Kapoor ], what should be the clear market capitalization. This is something I cannot answer. The only thing I would say that please don't judge our company as a fiber optic cable company alone because our revenue share of fiber optic cable is at 15% to 20%. 80% revenue comes out of different telcos, telecom products, EPC and all that. So let us not get HFCL as a fiber optic cable company. It is much more than fiber optic cable. Fiber optic cable is just less than 20% of our business, maybe 25% in the current year, not more than that. So please don't judge our company as a fiber optic cable company. And which company to invest and which not is not that -- I cannot say. And what is the [indiscernible], I cannot say.

Yes. Sir, you are also an equity investor, and kudos for you for taking the salary cut also. But the short point I was trying to make is that then we should try to rename and rebrand the company also. HFCL is the old legacy that is continuing for I think over 2 decades. So if we could try to just rebrand the same, and if a thought process can be...

We are working on that, Mr. [ Kapoor ]. If you look at, one, well, we are working on increasing our profitability. We are increasing our efficiency levels, professionalism in the company. We are making it more and more professional, people-oriented company, which the operations are done by professional people, not by promoter or anybody. We are working with a technology company, not a product, a single-product company, but a technology company. We're trying to slowly rebrand, and I think this will all take time. But you will see a lot of things have changed in the last year. A lot of things are going to change in the coming years. This year also.

Yes. Even name change should happen. For the dividend part, sir, what was the call by the Board this time for...

Dividend, we have not taken any call. We have not recommended any dividend because this is the time to convert the cash flows because the current pandemic situation, you don't know how it would become and what kind of things will happen in future. So it's a time because of cash flows. However, as the situation improves next 0.5 year or so, we would have to relook at it.

You can look at it. And now only 2 small observations...

[indiscernible]

Yes. Just an observation, sir, and I don't have any queries. Firstly, on the presentation part, sir, we, as an investor and analyst, request for the presentation to be uploaded at the earliest and not with a lag of a day or 2. That makes our job a bit different. And there should be videos of -- we should look for putting up the videos of a new facility right now due to the pandemic...

No...

Yes. We won't be able to know whether...

Soon I will post videos in maybe another month or so. We'll upload them.

For each and every facility with the description, with a PPT presentation so that the investor will get a fair idea of exactly [indiscernible].

You are most welcome. Any of you want to visit, please visit also.

Sir, [indiscernible] problem for [indiscernible]...

[indiscernible].

We will take the last question for the day, and the question comes from the line of [ Abhishek Shah ]. He's an individual investor.

So first, can you hear me, sir?

Yes, yes, very well, very well, [ Abhishek ]. No issue.

Yes. So first, obviously, sir, it's really impressive to see our focus on constant innovation. And the promoters buying from the open market also adds a lot of confidence to us as investors. So my first question is I'm just trying to dissect between, say, the global demand and the domestic demand. You mentioned from China, China being well-fiberized, you don't expect significant demand coming from there. So on the export front, sir, which geography are you seeing demand coming from? That is the first part. Second...

No. I think you are talking about fiber optic cables. I didn't say that significant demand will not come out of China. What I said that whatever demand was there, it will not go beyond that. It is a little bit down, but it is not -- will not go beyond that. There would be some demand in China. And because fiber is still happening, 5G is still happening, so that should see increased demand. Not that it will -- the increase earlier, people are projecting that it will increase further, which is not going to happen. It will increase -- it will not increase, but it may go down a bit, but demand is going to be there, number one. Number two, the countries where the demand is going to increase, you'll be surprised, even Europe, Europe is going large scale into fiber-to-home. So we are seeing an increased demand coming from Europe, from Middle East, from -- even South America, even North America. Every place where 5G and FTTH is getting implemented, fiber optic cable is seeing a large demand. Similarly, 5G implementation would see large demand for other kind of telecom equipment also, which I described to you a little while ago. So fiber cable demand is coming all around the world. India, Middle East, Europe, Americas, everywhere, the increased demand is there. No doubt about that.

Right. Right. So with the excess capacity that across the globe companies have built, do you expect these optical fiber prices to come back to normalcy levels with -- I understand it doesn't affect us. But just on a -- just to understand it, do you expect it to come back to normalcy levels, which have been prevailing at around $6.5 to $7 any time soon?

[ Abhishek ], I think it would evolve around $3.5 to $4.

Okay. Okay. Fair enough. Sir, second on the domestic demand. I understand you've been very bullish about this coming year. And I think I heard fiber demand could go up by as high as 50%. Just correct me on that. I wanted to check...

I did not say demand could go up. Our revenue from fiber would grow by around 50%. That's what we expect. I said that.

Okay, okay. Sorry. Sir, what I wanted to understand was, so last 5 years, Jio and Bharti Airtel both have gone through massive CapEx trend. And both of them have actually said that their spends will sort of normalize and rationalize in the coming year. Do you expect -- I mean, how do you see that affecting us? Or do you not see it as a big issue coming ahead?

As for example, Jio, 4G expansion has stabilized. There would be only expansion in certain areas, but FTTH has started. While FTTH starts stabilizing or increasing, rather, going forward, 5G will start. So CapEx from one type of technology may go down, but another kind of technology will go up. So 4G has gone down. FTTH has gone up. FTTH would be at some level, 5G would start. So CapEx in the telcos would never stop, I can tell you. You see Bharti's balance sheet for 20 years. Every year, there has been some CapEx, and there will continue to be there.

Okay. Okay. So you don't see a major rationalization in their CapEx in the coming years also. And for us, it shouldn't be a big issue in terms of getting that.

Not a big issue because one technology demand will go down and another will go up.

Okay. Fair enough. Fair enough. Sir, again, one last thing. On the domestic front, again, is there any anti-dumping duty maybe to protect domestic players like us?

We are hearing they are talking on the fiber. We are hearing the particular kind of fiber they are talking about. And there have been some public hearings also, but nothing final has come out until now.

I now hand the conference over to Mr. Mahendra Nahata of HFCL Limited for closing comments. Over to you, sir.

Thank you, gentlemen, all of you, for paying attention and being a part of this earning call. And as I said, though, there have been issues with every company in the world, almost every company in the world, and we are no exception to that due to this current pandemic situation. But as I said, things have started improving. Things have started moving forward as more and more relaxations happen. Your operations will come -- go ahead with full steam, and the situation will only improve now. Barring any unforeseen things happening in the current pandemic, things will improve only. And the company, as I said, we have resilience to withstand the current prices. And we have been able to contain any damage, which might have caused. We have not allowed that. Company has been able to withstand perfectly. And it is on the path of growth. In terms of its operation and with a good order book, we expect the future of the company is, of course, assured with the current order book and the current sales funnel we have. And if there is any more development, I would definitely come across to you again. Thank you very much.

Thank you. On behalf of HFCL Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you, all.

Thank you.