HFCL Limited (HFCL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the HFCL Limited Q1 FY '21 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, Mr. Sonpal.

Thank you, Janice. Good morning, everyone, and a warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of HFCL Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings conference call for the first quarter of financial year 2021. Before we begin, I would like to mention a short cautionary statement. Some of the statements made in today's earnings conference call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. I would now like to introduce you to the management participating with us in today's earnings conference call. We have with us Mr. Mahendra Nahata, Promoter and Managing Director; Mr. V. R. Jain, Chief Financial Officer. I would now like to request Mr. Nahata to give his opening remarks. Thank you, and over to you, sir.

Thank you, Anuj. Good morning to everyone, and warm welcome to the earnings call of HFCL for the first quarter of financial year 2021. I'm sure that all of you are countering these times with good health and resilience while staying safe with your families and dear ones. Let me first briefly introduce the company, its state of affairs and how it has been navigating through the current COVID-19-induced challenges. HFCL, as you all know, is a leading technology enterprise, which contributes to a securely connected world through a range of integrated communication networks, products, solutions and specialized services and offerings. It manufactures optical fiber, optical fiber cables, cable accessories, high-end transmission and access equipment. Its technologically advanced offerings span the entire value chain from manufacturing high-tech communication network products to providing specialized network implementation services, which get deployed across telecom, defense, railways, utility, security and surveillance networks, both in private as well as government sector. HFCL's center of excellence at Gurgaon and Bengaluru spearhead in-house research and development activities. The 2 centers are supported by a few other invested R&D houses and collaborators from different locations in India and overseas. Collectively, they work on developing a range of innovative technology products and solutions in a cost-competitive manner. HFCL's integrated manufacturing network of 5 world-class facilities produce widest range of new generation communication products in India. The company sells an enviable list of customers globally with exports to over 40 countries. The company continues to enjoy a strong order book of INR 8,135 crores, which is 2.1x of FY '20 revenue. It is aptly supported with a promising pipeline of tenders and RFPs, a healthy order book, which is expected to be executed over the next 6 to 8 quarters and shows revenue and earnings visibility. The order book is fairly representative of all our business verticals and comes from a multitude of prestigious customers. Order book also includes O&M orders worth INR 1,573 crores, ensuring better margins and annuity revenue year-on-year. As a key enabler of next round of growth, we are accelerating innovation in every sphere of our business with a sharper focus on IPR creation. Next-generation technology offerings of our cost-competitive mass deployment would steer our technology-led transformation. With a clear vision of global deployment capabilities, our new product initiatives are backed with requisite global and Indian certification. Indigenously developed products and technologies with IPR ownerships are expected to drive our margins upwards. As you are already aware, our innovation journey has yielded superior Wi-Fi network products, high-capacity radio relay, micro radios and cloud-based management platform. Our innovation pipeline includes switches, routers, intelligent antenna systems, software-defined radios, ground surveillance radars, electro-optic devices, and electronic fuses at various stages of development being carried out through in-house as well as collaborative research and development. Company is in process of further expanding its R&D resources and capabilities to bring in more products in this portfolio. Let me now briefly take you through our resilient response to pandemic-induced challenges. Having successfully embraced various ways of unlock, our operations have steadily been progressing to our pre-lockdown levels. In spite of having continuous threat of COVID-19 even during the first quarter of financial year '21, our order book remained intact with 0 cancellations. We converted the adversity of operational restrictions during lockdown to further digitize the organization and headed to enable work from anywhere framework for our nonproduction, nonproject workforce. Our disruptions due to COVID-19 and lockdown has led to revenue and profit erosion in the first quarter. There is no significant impact on our capital and financial resources. Elongated operating cycles have put some short-term liquidity stress. However, we continue to maintain adequate working capital with a range of measures and leave us available with the company. With debt/equity ratio of 0.43, we remain comfortable to meet our financial obligations. We continue to monitor the unfolding situation and keep adapting to a fairly periodic basis. Before I take up our quarterly performance, I would like to share that, first, the honorable Prime Minister's promise of providing OFC connectivity to the remaining 4.5 lakh villages over the next 1,000 days is the indication of the kind of opportunity waiting for the company. While this ambitious national goal is just one of the growth drivers that the industry has been presented with, the goal of connecting on an average 450 villages every day signifies the priority and urgency that the government is focused for a truly digital India. This opportunity will truly boost up the demand of optical fiber cables in the country. Second, the government of India's Make in India program, particularly for defense equipment and recent announcement made to restrict imports in case of various products open up large opportunities for the company. Besides development of electronic fuses and electro-optic devices, company is now identifying more products to be developed and manufactured indigenously. This is also going to boost up company's revenue in the coming future. Further, as informed and committed during our last earnings call, we have been able to get 20% of our promoters' holding released from the pledge, which had been pledged as a collateral to the loan availed by the company. Now coming to our Q1 performance. This has been highly unusual quarter, marked with production and execution constraints and, therefore, the results are hardly comparable. On a consolidated basis, our income was at INR 704 crores, sequentially a bit better than the previous quarter of INR 668 crores and lower than corresponding quarter, INR 1,349 crores. Revenue from Telecom Products segment and Turnkey Contracts & Services segment were INR 189 crores and INR 510 crores, respectively. Both the segments recorded with sequential growth over the previous quarter, that is, quarter 4 of FY '20. Due to decreased revenue, EBITDA for the quarter was INR 83 crores as against INR 194 crores in the corresponding quarter of the previous year. EBITDA margin stood at 11.84% as against 14.4% during the Q1 of FY '20. PBT stood at INR 29 crores as compared with INR 157 crores in the corresponding quarter of FY '20. PAT at INR 21 crores for the quarter as against INR 117 crores in the corresponding quarter. Friends, I would like to mention that we are moving towards improved performance that was impacted by COVID situation and hope to achieve the normal levels of operation as soon as possible. Amidst the present situation, we stand committed to increase the profitability and return ratios with our own technology products, coupled with high-margin orders. Our efforts to manage the cost efficiently along with effective working capital management shall also continue. Thank you, once again, for your keen participation in our growth journey, and wish you good health. With this, I conclude my opening remarks and open the floor for question-and-answer session. Thank you very much.

[Operator Instructions] The first question is from the line of Sanjay Shah from KSA Securities.

Hope you all are doing well, sir. Sir, first appreciating the performance on these critical circumstances. I would like to ask you, sir, how do you see the benefit of what you mentioned about the government's plan to reduce the import? And where we stand, which are the products we see that we have a road to ramp up our business on that side?

Look, as a policy, government of India is pursuing Make in India program from last few years. One of the major plank has been preferential market access in the government tenders, whereby indigenous manufacturers are given advantage in price quotation to a level of 20%. Of course, we have to supply at relevant prices, but while evaluating the tenders in those areas where the PMI policy is applicable, 20%, price advantage is given for the evaluation and determining element. That is one. Second, now in defense products, as an example, lot of restrictions have been allowed on imports, recently announced. Now number of these products we would be manufacturing, either they are -- some of them are in process of development, almost completed, and some more are underdeveloped. And some more such new products would be taken up for development. Examples of products, which are almost developed in the company and would be ready in the next couple of months, includes electronic fuses, for which we have already participated in a very large RFPs of Indian Army, electro-optic devices, which are common terms you can call night-vision devices, there also we are participating in a couple of tenders and products -- couple of types of those products are already ready. We are going to be developing entire family of electronic fuses and electro-optic devices, which then -- not only we would be fulfilling large indigenous demand, but we would be exporting also. Similarly, products like high-capacity radio relay has been partly indigenously developed, and we have already participated in RFP by Indian Army. Then we are in process of developing software-defined radio, for which there is going to be large demand. Entire radio network of the Defense Forces are going to be shifted to software-defined radio, and we have already started development of that. So that's another product. Likewise, we are now working on -- within our company which are the new areas of such product development is to be taken to fulfill the local demand, which is large demand and then consume and export also. So all this is going to result in, I would say, increased revenue and increased profitability because these are indigenously designed products. And that's a good announcement for Indian industry, and our company will also benefit out of that.

So sir, last time you cited about INR 200 crore revenue can come from that Wi-Fi and microwave. Are that -- and radar. So are that on target? Or is there any...

Okay. Yes. They are on target. Definitely. What I talked till now was import restrictions which have been recently announced, which were defense-related products. Now coming to communication-related products, there are a number of products which we are working on. Wi-Fi, that of course -- development is complete for that particular types of Wi-Fi systems. And now we have also started working, let me explain you, next-generation Wi-Fi, which is called Wi-Fi 6 and Wi-Fi 6E. We have started working on that also, which is next-generation Wi-Fi. And next-generation Wi-Fi products from our company would be ready for mass production in the third quarter of the current year. Third quarter of the current year, they would be ready for mass production, they are next-generation. And nobody else in India has attempted that. Now whole idea is to have a complete range of Wi-Fi products in our production. We should be able to cater to more than 80% of overall Wi-Fi market. So that process has also started. Similarly, UBR, which is kind of microwave radio, that development is also complete, and we are going for development of next-generation of UBR, which is based on 802.11ac standard of IEEE, and that is also being developed right now, and that would also be ready in the third quarter of the current year. And we are, of course, on the target of achieving the INR 200 crore revenue through Wi-Fi and this UBR, microwave radio products. There may be some few percentage here or there because of this COVID situation and implementation difficulties by our customers, but we are more or less on target for that. Now apart from this -- now we are working on identifying few more products which we should take up for indigenous development. Another good thing that has happened that Indian industry, telecom operators in particular now, are very vary of importing equipment from China. That puts up another opportunity for indigenous manufacturers to design more and more products, which result to what are being imported from China. And when it comes to 5G-related products, definitely, but we see the worldwide scenario unfolding, imports from China would be getting quite restricted. And as a result of that, there's a good opportunity for indigenous manufacturers who have designed products locally. So unless you design, nothing much is left for profitability for you. Another -- this brings up another opportunity to design new products and manufacture them indigenously to have higher revenue, high profitability. Third area, optical fiber cable. Though there have not been much import of optical fiber cables in India from China, the Indian industry has been competitive. But even though there was any threat, that is also not going to happen now because hardly any import is being done for optical fiber covers from China. Now as you know, we have started manufacturing optical fiber also. So there were some threats from that side that Chinese imports would be there, and if there is a lack of demand in China, maybe they'll try to sell in India. But duty on imports and, again, lack of desire of Indian industries to import from China would also fuel in good growth in demand of optical fiber in India. So all put together, there is a huge opportunity for the local industry. In defense sector, where your company started working some time ago looking forward into what is happening in the demand scenario, we started working in that. And then new security environment around our country is further going to fuel in more demand for such products. Second, communication products, where new opportunities are opening up, as I said, announcement by Honorable Prime Minister for connecting entire 600,000 villages, that opens up a great opportunity for the business of fiber optic cable, fiber and turnkey implementation services where your company is in the forefront of those areas in the country. These are largest company -- largest implementation services of fiber optic cable, turnkey services, your company has done the highest amount of work. So these areas, new business opportunities have opened up. This will certainly contribute to better growth and broader profitability in future.

That's great, sir. Sir, this government announcement on this new opportunity what you talked about connecting village, will that come in the BharatNet program, which already is on hold, no, right now because of liquidity issue from government?

No, no, no. Let me tell you. It is definitely under BharatNet program, but there's no liquidity issue in BharatNet, because this money comes out of USO fund and there is, I think, if I'm not wrong, there is a balance of some INR 40,000 crores to INR 50,000 crores already existing in that fund as money available. So there is no dearth of money in that fund. And that fund cannot be used for any other purposes than connecting rural India and unconnected villages. So money is absolutely no constraint. The program has not been on hold, yes, but a little bit on hold because government is now going on instead of implemented by itself, they looked at PPP model for implementation. Now that was a story when it was 250,000 villages to be connected. Now Prime Minister has announced 600,000 villages. So government has not yet cleared which methodology they are going to use. It is going to be PPP or some government-led model or state government-led model? We are yet to see that announcement. But whatever way they do it, fiber optic cable is going to be required. Implementation services are going to be required. So your company is definitely going to benefit from them because it has been one of the largest manufacturer of the fiber optic cable, probably among the first 2 -- definitely among the first 2. And also being the largest implementer of fiber optic networks in the country, we are definitely going to have some better prospects for ourselves.

That's great, sir. Great opportunity. So my next question is regarding O&M. We are citing around order of INR 1,573 crore. How much that is to be executed current year and next year?

No, no, no. It is going to be executed over next 5 to 7 years.

5 to 7 years, right?

Yes.

The next question is from the line of Parthiv Jhonsa from NVS Brokerage.

Sir, I've got a couple of questions. The first one is, I'm really sorry if you have already answered, but actually I had actually missed a couple of things. The first question is related to your order book, sir. The O&M order book is about INR 1,500-odd crores and the rest is for the other lines of business, what would be the margins on those order books, sir?

So these are different -- orders have different kind of margins. Generally, you would say it ranges from 8% to 20%. It's a general statement I'm making. So it may be less, may be more, but generally it is like that.

Okay. Okay. So that's like quite a broad range, actually?

Yes, absolutely, absolutely. Some -- and then it becomes orders -- some are strategic orders you take at a competitive price, some are at better profitability. And customer-to-customer, order-to-order, it varies.

Okay. And so now the things have started opening up, things have started getting back to normal basically across India. So you feel that this year you would at least do something which is equivalent to FY '20 in terms of top line? Or it will be a bit less, more? What is your guidance on the same?

Look, I won't give any guidance, but I can tell you one thing. It would be improper for me to give a guidance in this kind of a situation. Yes, we are doing well. And we will be near the pre-lockdown situation very soon because still some of the impediments do exist because of the fact that, number one, this pandemic-related migration of workers has [ been creating ] some problems, and that is still not normal. Number two, there are areas where implementation work is going on and a large numbers are orders from different sources. Now number of cantonments, still they don't allow outsiders to enter, particularly northeast and northern areas where there is -- particularly so in northern areas where there is high amount -- number of forces have been deployed, those cantonments they just don't allow outsiders to enter. And as a result of that, what happens, our implementation work has also suffered. Some places, the factories, there are stray COVID-related cases comes up -- keeps on coming. And with those COVID-related cases coming up, there are intermittent partial closures of the operations as per government guidelines. And also from the safety of our own workers point of view, some disruptions are caused there, like, there is a disruption going on in my Chennai plant right now because of some COVID-related cases have come up, which we try to make sure that our employees take as much care as possible, but you cannot control it 100%.

Absolutely, absolutely. Yes, yes, yes.

Such kind of things do happen, and I think this would be the last quarter when these things will be happening in a significant number, and it would improve. But yes, we would be soon coming to pre-lockdown levels, pre-COVID levels in our operation.

Okay. And sir, as on FY '20, you had reported a total debt of almost close to, what, INR 650-odd crores, INR 670-odd crores, any plans of that going down in this year? And because even you have promoters' holding as pledged. So I appreciate that you have already reduced the pledge this quarter, but any plans on pledge going down and the debt reducing?

Look, first of all, let me come on the pledge and the first question of debt, our...

Yes, the debt, yes, the total debt.

Yes, V. R. Jain will explain. But as far as pledge is concerned, first off, let me tell you, there is no such pledge where any loan has been taken against share. Let me be very clear. 20% was also pledged as a collateral to the loans which company had taken. And since those loans have been paid back, one of the loan which was with Yes Bank, it was against the bank guarantee which has been released. So that 13% shares have been released. Now 7% of that was pledged in Union Bank of India against some technical issues which were related to Hyderabad facility, which we have created, that issue has also been resolved. And that 7% has also been released, so 20%. The rest of the promoters' holding also pledged to the banks as collateral against the loan taken by the company. So there is again no loan against the shares. So we have now written to all the banks to release this pledge also. But how much time they would take I do not know because once banks get some pledge against -- as security against any loan, it becomes very difficult for the banks to give it away, so it may not be in the loan condition. So we are still working on that. And some percentage of that we hope we should be able to get released in a few months from now. Let me again emphasize, no loan against pledge of shares.

Okay. Got it, sir. Got it. Got it. And what about the debt, sir?

As far as debt is concerned, it will be lower by INR 50 crores or so during this current financial year.

5-0, right? INR 50 crores?

INR 50 crores. It will be down by INR 50 crores.

Okay. Perfect. Perfect. And sir, I've got one last question, if I may. With now people started to doing work from home and the entire 5G coming saga coming in with all the buzz of 5G around, how do you feel we'll perform, not for, say, this FY '21, but next 3, 4, 5 years going forward? Because the whole technology area is totally changing every single day. So how do you feel we will perform and where we will stand in terms of competition and everything?

It's really good that these technologies are changing. And when the technology is changed, only those companies which have been able to change themselves with the changing technologies would only perform better, not everybody. So there is a slight rise in the entry barrier or continuation barrier, I would say, because then people who do not invest in R&D, they are not going to be successful in this kind of a very rapidly changing technology environment. So what we feel, as far as we are concerned, we're already preparing for 5G. And I will give you some of the examples, like, I mentioned in my opening remarks, Wi-Fi 6. Wi-Fi 6 is going to be used as a home or common area network access points with 5G because there is a larger throughput, so Wi-Fi has to be able to take larger throughput and give a larger output so that speed which customer gets improves. So we are already working on that. E-band radio, which would be required for backhaul from tower to tower in number of cases for connecting different towers in 5G applications, we are already working on that. Fiber optic cables, we should be requiring huge quantity in case 5G network because the throughput is so high, in most of the cases they would be needing fiber optic cables. So we are in fiber optic cables with sufficient capacity. Fiber, we have already started. And likewise, we are now in the pursuit of identifying couple of more products, which would be required in conjunction with the 5G network. And once those products are also there, we will be taking advantage of 5G incoming in the country or worldwide even. So our strategy now is to not to go for stray products, one here and one there, but identify and design a family of products. Like, Wi-Fi, for example, it will grow into a family of products, maybe unlicensed band radio. It would be a family of products. So electro-optic devices, family of products. Electronic fuses, family of products. And our hope, our goal, where we would reach is too early to say, but our goal is to be amongst the world's top 5 in the areas where we design our own production equipment. So it would not be a large number of different kind of equipments, it would be a finite number of equipment or products, but the entire range, entire family of products, which would mean that we would like -- try to be in the top 5 of the world in those product areas. That's our goal. And that's the way we are preparing ourselves.

Okay. And sir, out of the total order book, how much is for the defense?

Defense order book would be roughly about INR 4,000 crores.

The next question is from the line of Vikrant Kashyap from Kedia Securities.

Sir, my question is related to telecom again since you are saying you are preparing for 5G. We also know that government of India is banning Huawei and ZTE to perform -- participate in 5G trials. Since they have a broad range of 5G, 4G, next-gen products like GPON, NG-PON, WDM and many other products. So how do we stand to benefit from this move? And do we compete with likes of Huawei, Nokia, ZTE, Ciena in the global market?

Look, some of the products which you mentioned, WDM and all that, those are not 4G or extremely 5G products, those are backhaul products from [ fiber optic network ]. PON is, again, not 5G, 4G, that's again an access product on a fiber optic network. So as far as this 4G expansion or 5G is concerned, definitely, as I said in answer to the previous question, definitely we are going to benefit because it is going to throw up demand of new products, new technologies, and some of those areas where we are working and we are designing, our equipment like Wi-Fi, UBR, maybe PON also in the near future and different other products, like fiberoptic cable and E-band radios and these kind of products. So now once we have those products, we would be -- which are indigenously designed and manufactured, we would effectively be able to compete with anybody in the world. Like fiber optic cable or fiber is an example, which are locally manufactured and produced, we are effectively able to compete with anybody in the world is the world market also. In the overseas market also, we are able to compete well. Now our access to the international market is limited right now because we are very new entry in the export market since the last couple of years, but this year we are participating in much higher number of RFPs globally [ if you see ] the amount of orders coming up for fiber optic cable. So similarly, there would not be any problem in competing with these companies, which you have mentioned, in India or the world market. Now if somewhere -- some government is funding those companies to export for some strategic reasons, nobody can compete. If some countries' government is funding some company of their own to get a communication network set up to spy purposes and they fund that company, none of us can do anything about that. But those examples are very -- not going to be very high. So we are effectively able to compete against anybody when the products are designed and manufactured in India.

Got your point. So sir, my next question is related to this again. We are seeing a huge surge in fiber-to-home kind of opportunity that came out due to COVID-19 that has accelerated. So do we stand to benefit from it, in India, at least, if not global?

For FTTH, definitely. We are right now implementing about 300 cities fiber-to-home network of Reliance in North India, about 300 cities. And entire range of this fiber optic cable for FTTH, we are supplying in a large volume to Reliance. Not only that, we are now expanding our capacity for fiber-to-home by putting up new plant and machinery in Hyderabad. And this new production facility is to start production -- we expect to start production by 1st November, maybe few days here or there. But in the month of November, it would be in production. So we are already expanding our capacity for FTTH kind of a cable. Moreover, apart from that, accessories for FTTH cable are also being produced in Chennai, and those are also being supplied in large quantity to Jio. Biggest and largest implementation of FTTH network is happening by Jio.

Right. Sir, my last question in BSNL 4G rollout. Since we are seeing some delay in this program, so do we see more deferment? Or how you see this program to be rolled out? And how we -- you are going to benefit from it?

Now, this is one question which I don't think anybody can answer because right now there is a committee set up, which is [ working on ] methodologies that how the 4G network of the BSNL will be implemented. And the way the things are going on, different discussion, different experimentations are happening, I went and met BSNL Chairman. I said, sir, whatever you do, please don't make BSNL as an experimentation ground. Otherwise, BSNL is never going to succeed. So be very sure what you are buying and whom you are buying. And don't make yourself a ground for experiments. Otherwise, as an operator you will never succeed. So that committee is yet to submit report. And my problem is to -- I told him also, look, if you delay it so much, while you would still be implementing 4G, people would be in 5G. So even 4G will become old. 4G would've been a story, but 3G happened. Now if somebody wants to tell you that you buy a 3G phone, you would never buy it. You will buy either 2G if you want a basic service or you want mostly 4G. So same thing will happen to 4G if 5G comes up. So unless we implement quickly, it's not going to be a winning proposition for BSNL. They have to implement it very quickly and not to let them become a ground for experiments. That's going to be a big problem for them. So as far as we are concerned, we are now still looking at this as an opportunity because, one, we do not know what kind of equipment they want and what kind of implementation they do; number two, payment issue. Unless there is a surety that how payments would be made and there is a commitment from government, not BSNL, that this is how the payment would be made or secured, I don't think a large number of companies will be going to participate in that. Because as I have been telling in all my conference calls, we have about almost INR 200 crores stuck up with BSNL -- INR 150 crores, sorry, not INR 200 crores. Earlier it was INR 250 crores, now it has come down to INR 150 crores. INR 150 crores is stuck up with BSNL more than 1.5 years. So it will take -- and they're not disputing that money. It's not being paid because they're not having money. So if you take 10% interest rate also, every year, you are increasing -- incurring INR 15 crores interest on that. So unless -- not only interest, it's a cash flow issue. So unless you are sure about payment, it will be very difficult for us to take a look at that.

The next question is from the line of Ravi Mehta from Deep Financial.

Good set of numbers in the current tough environment. Sir, a few questions I had. One was the order book what you said, INR 8,100 crores, if I take out O&M, then probably the executable part is close to INR 6,500 crores. So what would be the execution period for that?

Execution period is 6 to 8 quarters -- about 6 to 8 quarters. And -- but more orders will flow during that course of time.

And what could be the bidding pipeline, if you can share any number, just to get a sense of how quickly this order book can again build up...

Pipeline is very large. We must have bid into more than INR 10,000 crores.

And this would be predominantly...

Approximate number I'm giving, but it must be something like that.

And this would be predominantly defense or telecom...

Please repeat it again, Ravi, I missed you?

This would be predominantly defense or it would be even telecom or...

No, it would be a mix of that, defense, telecom, private, government, all. Hello, Ravi, we are not able to hear you.

Am I audible?

Ravi, we are not able to hear you.

Am I audible now?

Yes, a little bit more.

Yes. So also on the Hyderabad FTTH facility you mentioned, so is it the CapEx that we had talked, I think, a few quarters back because of the demand scenario and we are restarting that CapEx?

Yes, it is the same CapEx we talked about a couple of quarters back. And we are doing that CapEx. But it is not going to be very large CapEx because civil work had already been done -- almost done. Now the internal work is going on and machine import is happening. So total expected CapEx still not done should be in the range of something like INR 15 crores or so.

Okay. INR 15 crores spending, that's it, 1-5?

Yes, around.

Mr. Mehta, I'm so sorry to interrupt, but your audio is breaking up, sir. We are unable to hear you well. The next question is from the line of [ Parth Mehta ], individual investor.

I had a couple of questions. First, looking at the segmental breakup of revenues and EBIT, I would like to know why have we made less profits in terms of the product. Because if I see in services, we have made good margins on increased revenues. But in spite of increasing revenues on the product side, the profit has been quite less. So any explanation you can offer on that?

Look, first off, one thing is that when you have less capacity utilization, there's always a decrease in profitability. And Hyderabad plant has come up new. So if you see the profit coming down in that segment, the new plant reaching into optimum operational level also takes some time. So the depreciation incidence is higher in the beginning and that's why the profit in those products has reduced, one is because of less capacity utilization; second, Hyderabad plant had started within the Q1. So there was a ramp-up time and optimal level of utilization took some time.

So do we see that coming back to normal in a quarter's time, maybe in six months?

Yes, yes. Sure, sure. 100%.

Okay. Sir, could I get a breakup of product revenues as in coming from optic fiber cables and Wi-Fi systems, if we have had anything? So breakup of product revenue if I could get.

Yes, yes, yes. Sure, sure, sure. I can give you, just give me a second. Product revenue was -- in terms of fiber optic cable would be about INR 1,062 crores. And Wi-Fi would be -- no, sorry, this is order book. I'm sorry. I'm sorry. Just didn't get the number. Yes. Sorry. Q1, revenue from fiber optic cable and accessories on a consolidated basis is INR 190 crores. Wi-Fi in Q1 would be something like, in my opinion, some INR 30 crores, INR 40 crores or so.

Okay. Okay, so about -- okay, around there. And, sir, that is on line to be INR 200 crores for the year?

During the whole year.

Yes, yes, yes. Okay. And sir, where are our products in terms of development? As you said that quarter 3 would be for Wi-Fi, and it will be ready for mass production. So where do we see the fuses and the electro-optic devices being ready for mass production or the defense production or...

Look, Wi-Fi -- current generation Wi-Fi is already in the production, as I mentioned. Wi-Fi 6, I said that would be available in Q3. This electronic fuses, final -- [ all our ] own trials are completed. Army wants it to be field-tried before opening of the tender. They have given a date of mid-October, maybe extended by a few -- couple of -- 1 month or 2 months. Then the firing trial and all that would take place. You would be ready for production, but the order from Army, once the trial -- Army own trial has gone and -- Army own trial has happened and the order is placed, the production from Indian Army would still take about, in my opinion, minimum 9 months before the order is received and production is started. So one has to wait for Army's own trial and all that to be completed. Electro-optic devices, I think it may be about, again, something like 6 to 9 months.

Okay. So we expect it in '22 second half and then going forward.

Yes, you are right. You're right. Because in Army, this trial process and all that is a little longer than the normal civil products.

Okay. And sir, what the PM has announced that 450,000 villages are to be connected, what would be the size of opportunity in terms of rupees, the entire cake, and our share out of that in terms of products and services?

No, no, I can give you a very rough estimate. It's a very, very rough estimate and don't take it as a projection from me. Roughly, it is about 4 kilometers per village optical fiber cable is required, roughly. So 450,000 villages multiplied by 4, which is about 18 lakh kilometers of fiber optic cable would be required. 18 lakh kilometers multiplied by roughly about INR 40,000. So whatever that number comes. That is cable only. That is cable only. I would rather put it in a different manner. 18 lakh kilometers multiplied by INR 4 lakhs per kilometer. That is overall turnkey services, cable, accessories, all kind of things, INR 4 lakhs per kilometer is a more or less general number which comes for implementing such a network. This is going to be about INR 72,000 crores.

Okay. This will also include the Wi-Fi products that we have been developing?

No, no, no. It does not include. This is only fiber optic network.

Okay, only fiber optic network, products and services put together?

Yes, absolutely. Wi-Fi and all that does not come in that.

Okay. That is additional. Okay. Sir, the last question from me is, when do we see 5G network to be put by either Jio or Bharti or Vodafone if it is present around? How do we see the deployment of fiber happening and services from telcos' orders flowing in? Around time line, what are we expecting?

So 5G, first of all, government has to auction a spectrum. And spectrum auction, in my opinion, is going to be -- 5G would be at least 6 months away, at least, if not couple of months more. So I would say 6 to 9 months. If the auction in 6 to 9 months, deployment of 5G would be 1.5 years from now -- 1 to 1.5 years.

Okay. Okay. Sir, last question, how are the fiber prices behaving? We have been seeing a lot of...

Fiber prices in the last one quarter more or less holding same, around INR 280 per fiber kilometer. That's the prices, I would say, prevailing in India right now. INR 280 per fiber kilometer, and it is more or less steady now.

The next question is from the line of [ Naman Saraogi ] from [ Saraogi & Saraogi. ]

Sir. Hope you're fine and in your company everybody is doing well this time.

Well not everybody, some people. As I said, in the factory...

So let's hope for the best for all of them. Sir, my question would be, sir, have we not received any new orders this quarter?

No, we keep on receiving orders. Fiber optic cable orders keep on coming, INR 30 crores, INR 50 crores, INR 60 crores, INR 40 crores. These kind of orders...

So this quarter, can you quantify how much orders have come?

Quantify, I don't have the number right now. I can send you. Just send me your mail, I can send you the number. Right now I don't have this bifurcation, small, small pieces of orders we received. Wi-Fi, for example, we keep on receiving orders. These are not very large orders in hundreds of crores, but they keep on flowing and eventually they become large. So just send me a mail at [email protected], I will let you know the exact number.

Sure, sir. Sure, sir. And my second question is regarding China, sir. Right now everybody is having a tough time with China, and there's a lot of import and export talk about with China trade, sir. How is HFCL standing with that, sir? What import do we make from China? Or what export do we do? How is our relationship with China in our products?

Look, as far as our company is concerned, there is not much of dependence on China. The things which we import from China, some components for Wi-Fi, some components, which also we are now working on the different sources, from Taiwan and Japan and those kind of places. But dependency is not too much right now on those components. They're just electronic components, number one. Fiber we don't import from China. Preform we don't import from China. This is all non-China sources. Some machinery we are importing from China, which we are going to install in our upcoming FTTH facility in Hyderabad. And the reason is simple. The price difference of those kind of machinery in European countries and China is huge, huge. Huge means, when I talk of INR 15 crores to INR 17 crores of CapEx for that -- remaining CapEx for that facility, if I would do from European machines, they would probably cost me more than INR 30 crores to INR 35 crores. And we have been using those machines without any flaw in our Chennai plant already last 4 to 5 years. So those machines we're importing from China. And they're fine. There's a onetime import. There's no dependence upon spares or anything. Spares are all we have developed locally. So that is the only dependence, nothing more than that.

And sir, any plans to increase promoters' shareholding, sir. You sound very bullish on your company.

Well we increased it a bit earlier. I can't say we definitely plan. We will keep on looking at it.

The next question is from the line of Giriraj Daga from K M Visaria.

My first question is related to, like, the China demand/supply. Sorry, if I missed that number since I missed the 2, 3 minutes of earlier call. So have you given the -- what is the demand/supply scenario we are looking in FY '21 in China? And second, if you can give me the net debt and gross debt numbers.

I couldn't understand, Mr. Giriraj, first part of your question. Demand and supply in China? I don't have that number.

No, earlier we used to share that there was, like, 500 million kilometers of demand and supply used to be about 600 million kilometers.

No, no, no, fiber, fiber, you are talking about fiber.

Yes, yes.

I think Chinese demand would remain under something like 300 million fiber kilometers, something like that. There's no sign of any increase in that size of demand. Out of the total 600 million demand, which people were thinking, China would be going over 350. I think they would remain within 300 million fiber kilometers, not going over that.

Okay. And the capacity as of now would be closer to how much?

Chinese capacity?

Yes.

Chinese capacity would be something like -- in my opinion, something like 400 million fiber kilometers.

400 you said?

Yes, yes, yes. Easily.

Okay. So we can expect the prices of optic fiber will remain broadly similar for the next at least 1 or 2 years?

Say that again?

Can optic fiber prices likely to remain here only for next 1 to 2 years? There's no expected to increase per se?

I would -- no, look, right now, they have gone steady. They are not showing any sign of decrease. Indian demand is going to pick up very soon with the Prime Minister's announcement. If you need 18 lakhs kilometers of fiber and multiply it by 50, more or less, the demand -- Indian demand is going to pick up significantly, 90 million fiber kilometers or something like that, which is going to be -- just one project is going to double of the demand of the -- total demand currently. So I think fiber prices, if not increased, it will not be going to go down. There may be some firm up of the fiber prices in the near future because FTTH deployment is increasing worldwide now. So there may be some firm up of the fiber prices, but I don't think there would be any major movement.

Okay. Okay. On the new capacity, which you've started in fiber kilometers -- optic fiber, is that -- let's say, on the life of that project, have you projected a similar kind of price or our earlier projections were higher for the viability of the project?

No, look, this is optical fiber cable you are talking about, new facility which I talked about just now?

No, no. You set up one optic fiber also, right?

Yes, optic fiber is just started. That's -- already production started in March. So the prices -- again, you must realize that we buy preform and manufacture fiber. So if the fiber prices increase, then preform prices also go up. Fiber price decrease, preform prices also go down. For example, preform prices were $140 per kg have now come down to less than -- about $50 per kg. So our in between margin stays almost constant. That does not change. So if fiber prices have gone down more -- gone down from what we expected when we started a project, the preform price has also gone down significantly. So the margin remains almost this.

Understood. Last one, sir, can you give me the net debt and gross debt number by June end?

Okay. There was one question which was about the orders. So just let me give that number. In the quarter 1, roughly we have received INR 400 crores of order in the Q1, and that was despite of COVID and every lockdown and every situation, still we received INR 400 crores of order in Q1. Yes, gross debt and net debt. Our CFO will give you those numbers just now. So we can go to next question while we give this number, gross and net debt.

The next question is from the line of [ Saket Kapoor ] from [ Kapoor & Company ].

Hello?

Yes, Mr. Kapoor. Just to answer the last question, the debt is roughly around INR 600 crores.

Okay, sir. Sir first question is that, sir, we are also IP-I service provider? We have that license, infrastructure...

I don't know whether we have license, but we are certainly not a service provider.

We are not -- we don't have any IP-I infrastructure? And IP-1 work, are we doing?

No, no. no. We don't intend to do either. Because IP-I is something which operators do. And that's a CapEx-oriented project where you run revenue on the CapEx. That is not something which is our business. Our business is to manufacture, supply, execute projects, not to be an operating company.

Because, sir, currently, as the government is tightening the noose over having the servers also in the country, so more data centers and things of -- those jobs are going to be there in India itself. So that would be providing a big opportunity to these players. So that was my question.

No, no, but we would then supply to data centers. We would supply -- we are trying to develop cables for data centers. We would supply them cables or if any other accessory is required, not to be creating and making data centers and operating them. This is not our business.

And we have taken some moratorium for our loans, as it's being offered by...

Hardly any moratorium, hardly. We have not taken.

We have not taken any moratorium?

No, no, we have not taken any moratorium.

Okay. Because, sir, your rating update on 7th July was speaking that we did take, so that was the reason why I asked. Anyway that I can...

The rating is reaffirmed at A minus.

Yes, sir. That has been confirmed. They mentioned that we took moratorium. So that was the reason why...

No, we have not taken as yet.

Okay. Last 2 points. Sir, firstly, this 5G domain that Reliance spoke in their AGM that they would be doing something or big thing indigenous in the country. And Nahata sir, you being on the Board also for Jio Infocomm, if I'm not mistaken, what is -- sir, what is the opportunity the players like you and others can garner? And what is Reliance trying to explain when they say that they will be doing 5G indigenous. So if you could throw some light.

No, I can't speak on behalf of Reliance. That's not...

No, sir. That is not my point.

As far as our company is concerned, anything happening indigenously opens up business opportunities for all local manufacturers. If Reliance will do indigenously, all accessories, related products, everything will happen indigenously. And moreover, when they do indigenously, I believe that should be better in prices and requirement of India. So it would be good for the overall networks. And every company will benefit, so would be we.

Sir, capacity-wise, how are we ranked in the country and who are our nearest peers, sir?

In terms of fiber optic cable, as much as I know, again, as much as I know because people hardly disclose their capacities, in fiber optic cable, our and Sterlite's capacity would be almost similar, fiber optic cable. And next would be, I think, maybe Vindhya Telelink maybe, and I don't know who would be even after that. But first 2 would be Sterlite and ourselves.

And in the business model part, sir, just I wanted a likewise apple-to-apple comparison between you and the other listed organization. If we compare HFCL with another player in the same segment, having more or less the same business domain, which it will be, sir?

I don't know because Sterlite would be in fiber optic cable, fiber and some of the project execution. Maybe Vindhya Telelink in the fiber optic cable and execution space, but they are not in defense products, which we are in. So every company has got some different product areas. Sterlite may be having some other product areas which we may not be there. So I don't think there's any apple-to-apple comparison.

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Mahendra Nahata of HFCL Limited for closing comments.

Thank you very much, and I appreciate that all of you being in -- present in today's call. As I said that we are overcoming this COVID crisis, and we are soon to return to our normal level of operation. And we should see improved revenues and profitability in the future. And at the same point of time, as I said, our concentration on designing our own products, indigenous products and manufacturing, which would again give us a higher market capability, not only in India, but globally, and with improved performance parameters. The recent announcement by Prime Minister to put entire 600,000 villages in the country in the fiber optic cable network would again see a large demand surge in the fiber optic cable market, its accessories and implementation capabilities requirement, which is going to benefit the company. And moreover announcement by Honorable Defense Minister as a negative list for imports where those items would be procured locally only, that is also going to benefit the company in the midterm and long-term future. So we are there to take advantage of all this capability, all these opportunities which have come and spending more money on R&D, more money on creation of additional capacities for fiber optic cable, particularly for FTTH market, which is also going to improve our revenues in the future. So thank you, gentlemen, and I wish that all of you stay well, stay safe in the current crisis. And god-willing, we all will come unscratched out of this. Thank you very much.

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