HFCL Limited (HFCL) Earnings Call Transcript & Summary

Ladies and gentlemen, good evening, and welcome to the HFCL Limited Q2 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, sir.

Thank you. Good afternoon, 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 second quarter of financial year 2021. Before we begin, I would like to mention a short cautionary statement, as always. 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 belief and 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 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 with us in today's earnings conference call and give it over to them for opening remarks. We have with us Mr. Mahendra Nahata, Promoter and Managing Director; Mr. V.R. Jain, Chief Financial Officer; and Mr. Manoj Baid, Company Secretary. I'd now request Mr. Mahendra Nahata to give his opening remarks. Thank you, and over to you, sir.

Thank you, Anuj. Good evening, everyone, and a very warm welcome to this earning call of HFCL for the second quarter and first half of financial year 2021. It's good to connect with you once again at a time when COVID-19 appears to be making way for normalcy, both in the series of our life as well as our work. I'm sure that you've got a chance to go through our Q2 results announced earlier on October 10, 2020. Please allow me to briefly introduce the company, its state of affairs and how it has been progressing on the path of normalcy in this pandemic situation during the last quarter. As a leading telecom technology enterprise, HFCL makes immense contributions to a securely connected and communicating world. It does so through a range of solutions and products deployed in integrated communication networks. It operates 4 dedicated business verticals, namely telecom, defense, railways, and security and surveillance. HFCL manufactures a range of high-end transmission and access equipment, optical fiber, optical fiber cable and cable accessories. Spanning across the value chain its technologically superior offerings include product manufacturing as well as specialized services. These get deployed in both the private and government sectors towards varied applications in telecom, defense, railways, utilities and security and surveillance network. Our 2 centers of excellence at Gurgaon and Bangalore spearheading our in-house research and development activities. Our innovation efforts are also supported by few other invested R&D houses and collaborators from India and abroad. Collectively, our R&D teams are developing a range of breakthrough technology products and solutions, which can be offered for mass deployment, thanks to their cost competitiveness. Our 5 world-class manufacturing facilities produce a wide range of new generation communication products. The company serves an enviable list of customers globally with exports destination to over 40 countries. The company closed the second quarter with an order book of INR 7,447 crores, which is approximately 2x of our FY '20 revenue. Order book is backed by a promising pipeline of bids and RFPs. To be executed over next 6 to 8 quarters, our order book is fairly representative of all our businesses, verticals and come from multitude of prestigious customers, adding significantly to revenue visibility. Our order book has an O&M component worth INR 1,555 crores. Our innovation journey has yielded superior Wi-Fi network products, high capacity radio relay, microwave radios and cloud-based management platform. Going forward, our effort for innovation and IPR creation is going to accelerate, driven by next-generation technology offerings by focusing on own developed family of products which are capable to cater the global market demands. We are undergoing a complete technology-led transformation. Our innovation pipeline has switches, routers, intelligent antenna systems, electronic fuses, electro optic devices, ground surveillance radars, software-defined radios, et cetera, at various stage of development. Our new product initiatives are backed with requisite global and Indian certifications. These efforts are aimed at driving our margin upwards. We have been receiving good orders from our recently launched Wi-Fi and UBR products. These orders are from multiple customers, including Tier 1 telecom operators. Exploring various overseas opportunities, also for these products, we are setting up domestic and international distribution network. Fully designed, developed and manufactured in India, these high-technology products epitomize Aatmnirbhar Bharat. Getting extensively deployed for rural broadband connectivity, they are furthering the Digital India vision of our Honorable Prime Minister. We started supplying Wi-Fi and UBR products in the first quarter of current financial year. While we are still in early stages of the immense potential, we've already received orders for more than 1 lakh units of these products. Same are planned to be supplied by December in the current year, and more such orders will flow during the coming quarters. Capacity utilizations at our OFC manufacturing units has progressively improved in spite of restrictions witnessed at the Chennai unit on account of COVID. Collectively, the utilization reached about 70% to 80% at the close of quarter 2 from just about 30% to 35% during quarter 1. The recovery was led by our Goa plant, which operated at 93% capacity at the end of quarter 2. Some of our new generation products have entered pilot production with advanced field trials going on with customers. We are gearing up for commercial launch of our next-generation Wi-Fi systems compatible with 5G networks, intelligent antenna systems and Level 2 and Level 3 switch products in quarter 3. I'm glad to inform you that our upcoming optical fiber cable facility, newly created facility at Hyderabad, is progressing well, and we expect it to commence production by November 2020, that is about a month from now. Looking back at our performance, recovery continues to accelerate. There is more action across new inquiries, production, shipment, project execution, et cetera. Due to impact of COVID during first half of the current financial year, from an analytical standpoint and for the purpose of comparison, financial numbers won't be comparable on a year-to-year basis. Sequential comparison over the previous quarter, that is Q2 versus Q1 of FY '21, is the correct picture of coming closer to normalcy. Let me share these comparisons on a sequential basis. Quarterly revenues rose to INR 1,054 crores in Q2 recording a jump of 50% over INR 700 crore in quarter 1. EBITDA recorded a 65% sequential growth to reach to INR 138 crore in Q2 from INR 83 crores in Q1 of FY '21. EBITDA margin improved by 118 basis points sequentially to reach 13% for Q2. Profit after tax rose to INR 54 crore in Q2 rising 149% over INR 21 crores recorded in quarter 1 of current financial year. PAT margin improved by 200 basis points to rupees -- 5.04% from 3.04% recorded in quarter 1 of FY '21. Compared with the corresponding quarter of FY '20, our Q2 FY '21 revenue is higher by 8%, while EBITDA is lower by 1.4%. Suffice to indicate that we are almost back to pre COVID levels now. Capacity utilization, new product shipments, project execution, speed are all poised to head northwards from here on. We hope that we may have much brighter numbers and more positive updates and share and discuss when we meet again post the Q3 results announcement. With this, I'll close my remarks. Thank you once again for your participation in HFCL's earnings call. Now I'll open the floor for question-and-answer session. Thank you very much to all of you.

[Operator Instructions] The first question is from the line of Sajal Kapoor from Unseen Value Limited.

My question to you would be that new orders this quarter, how much you've received?

This quarter, we received orders worth about INR 350 crores, which are majorly for fiber optic cables or Wi-Fi or these kind of own produced products. And of course, we have participated in a number of other tenders, RFPs, inquiries. So we expect a much higher number of orders. [Technical Difficulty] Hello?

Sir, I have muted line of Mr. [ Hemanth ]. Please go ahead.

Yes. So INR 350 crores in the last quarter. And with the kind of RFPs and tender inquiries and pricing informations we have participated, we expect a good quantity of orders to come in the current quarter also.

And sir, I want to talk about some of your -- you talk about your strengths and your opportunities. I want to know a little bit about your weakness, about your balance sheet. So your trade receivables is very high, and cash flow from operations is also not good. Would you like to throw some light on that?

I would have my CFO answer this question.

Sajal, the receivable level in absolute terms has definitely increased as compared to last financial year. The main reason has been due to this COVID impact some of the project execution has got delayed, where the release of payment is milestone-based. So that has impacted realization from our -- against our outstanding dues. And then, secondly, the last 2 months alone, our gross sales amounted to INR 750 crores, which is part of the receivable. Overall operating cycle has improved from Q1. Overall operating cycle is 122 days as on 30 September as compared to 132 days as on 30 June. Still we have to go a long way to bring it to the normal level as of March '20. So hopefully, next 2 quarters, we can see lot of improvements in the operating cycle and receivable levels.

And sir, my last question would be the promoter group has been increasing stake in the company. So is the seller a known seller or?

Look, this is -- first of all, it's a company call, but I would still answer your question from a promoter perspective, I being a promoter. There is no known seller. I don't know anybody who might have sold to the promoters or not. They have just bought from stock market, open market. And of course, promoters have increased their holding to consolidate that at this point of time.

The next question is from the line of Abhishek Shah from Valcore Capital Advisors.

I just had a few broad-based questions. First, I'm trying to understand the size of opportunity for us in our business. Second would be that of the market size, what should be the difference between -- what could be the opportunity for fiber and the other products? I'll ask the next question once you answer this.

So size of opportunity in telecom field is very, very large. 4G still is in expansion mode. 5G is to come maybe another 6 to 9 months' time. New auction for 4G spectrum is happening. That will further lead to expansion of 4G networks. A couple of service providers who have not enhanced their network to 4G level, to the level others have done, or who have not started their 4G, are going to start 4G now. That will increase the demand. 5G will increase demand of everything immensely. Moreover, FTTH is being put by one operator. Now Airtel has also announced a similar level of FTTH deployment, which will increase the demand. So market size and opportunity is immense. It's in thousands of crores. And then the BharatNet is going to come up, which itself -- 1 project is itself worth INR 30,000 crores. So if you look at 3 years' time frame, I would say this opportunity could be -- or 5-year time frame, let me put it, 5-year time frame this opportunity could be on something like INR 3 lakh crores.

Okay. Okay. Sir, say, a Bharti or a Jio announces, let's say, a $3 billion CapEx. What would be our sort of target market in that $3 billion? Would it be 30%?

Look, I can't put a number like percentage on their announcement, but we are definitely looking at increased revenue year-on-year growth from our side and increase our market share from these operators, not only these operators, from export market also. And mind you, we are also present in defense business, so which is completely separate line, in defense communication as well as defense electronics. So we are going to increase our revenue from those areas also. So it's not only from operators. It is going to be from cross section. And also from BharatNet kind of an opportunity where there's really a large amount of fiber optic cable as well as equipment, which we are designing indigenously, going to produce indigenously. And being own designed equipment, they are going to be very competitive, designed and manufactured as well the requirement of these dual requirement.

Understood. Sir, one last thing. Sir, over the last 3, 4 years, we've also tried to focus a lot more on new product and sort of reduce our risk purely towards fiber. If you can just tell us more on how has that progressed? And what sort of orders are we getting on that side? That is one. And second part of this question is that how much time does it generally take this? We are new to this sort of these products, as such, if I may call it. That -- so what's the comfort level for the customer to give you a sizable order for that?

Look, number one, we have really focused -- started focusing from last 1.5 year or more, maybe about 2 years, on the development of new products. Now all these products being public communication products or even defense products take time to develop. And it's not that you start making effort today for development and it becomes available in few months. It takes about a year or 1.5 years' time frame. So this -- but a lot of such initiatives we have taken and we've started giving results. For example, Wi-Fi product has come into market. And as I mentioned in my opening remarks, we have received order for Wi-Fi and UBR, Unlicensed Band Radio, which have been developed by us and already in the market for 100,000 units, 1 lakh units. Now this confidence customer got, at least, they did the testing for, I would say, 3 to 6 months' time, lab testing and then the seamless lab testing and 3 months plus field testing. It took about 6 months because customer has to put it in the public network. So they cannot put it unless they are satisfied with the robustness and the quality of the equipment. So 3 to 6 months is the time frame customer normally takes in the beginning to allow any product to be inducted in his network on a very large -- on a large scale. So it took 3 to 6 months. And many times, customers want some kind of customization to be done for them, which being developed locally by us we'll do such customization. Many such customization we have done. So this took about 3 to 6 -- about 6 months' time from this Wi-Fi and UBR. But now it's a 1 lakh order book we have and which would be shipped by December. Similarly, other products, which we have started as a collaborative R&D for like switches. Switches would be available in next probably 2 months' time. This effort was started about years back. Routers started about a few months back, would be available in 6 to 8 months time frame as per the specifications, which are required. Electronic fuses, as an example, for defense. Electronic fuses, we started about more than a year back. I'm happy to say that those fuses are now ready. We have conducted trial in a different country where this contract development was undertaken by our R&D partner. And now they are ready for trial in India. We have to ship it to the Army for trial. We are waiting for the date. Whenever they are ready, we will ship it to them. And I must also say that now we are ready to market that fuse internationally also, because it's ready. So 1.5 years it took to start -- about 1 year it took from the time we started. Now the product is ready. Now to induct it in the -- any Army, it will take 6 to 9 months of trial phase. For defense, it takes that much time. So it depends which kind of products you are talking. Sometimes 3 to 6 months, sometimes 6 to 9 months. And development cycle is at least a year. Some cases, it may be a little bit more. For example, software-defined radio, is a very, very complicated product. And the demand is about INR 25,000 crores in India alone. Development cycle is itself 18 months, and the test and trial period would be about 6 months. So overall cycle period could be 24 months, but all are progressing very satisfactorily. And products are coming in stream one by one. From this quarter itself, they would start coming into stream, and we would start selling and marketing them. And this process will continue for next 2 years' time frame with a number of more products coming into stream one by one. In fact, as I said in my opening remarks, we are completely renovating the company, I must say, by including more and more products, which are our own designed products with a large R&D budget, so that we become more profitable and our market share also increases because these are the products made in India but made for the world. It's the entire family of products, which is quality-wise and technology-wise at edge of technology. There is no way you can differentiate between a multinational Wi-Fi product with our product. Like now new standard, Wi-Fi 6, has come, which is 5G compatible. We are ready with that, and we have already offered for testing to the operators. And I'm sure in 3 to 4 months' time, we'll start receiving orders for them also.

So is the technology in-house? Or are we collaborating with someone's service?

Both, both. Technology is in-house. Collaborating means R&D collaboration is there, but IPR is ours. Somebody else is doing development for us. Our own IPR. It's a joint development. So it's our technology. There's no collaboration in these cases. When I talked of router, whether it is switch, Wi-Fi 5, Wi-Fi 6, cloud-based management system, electro optic systems, electronic fuses, all our technology. Own IPR, very, very important.

Next question is from the line of Sanjay Shah from KSA Shares & Securities.

Yes. Sir, I appreciate the performance of this quarter sincerely in this current perspective. Now coming back to your all exciting comment, it is really exciting journey ahead, as you rightly pointed out, reinventing HFCL or reinnovating. So sir, can you tell us that what is opportunity on these defense products and other products? How much -- what export opportunity we have? Because in India, we are not so confident about our government purchasing capacity or intention. So better we diversify -- or we risk divide ourselves by taking some export orders and all. In that, what is our -- where we exist? And what potential we see in the export for this product?

Mr. Shah, thanks a lot for your question. Let me answer it in this way. There are 2 kind of products we have. One is communication. Second is defense -- defense electronics. What we have done for communication products, we have started appointing either advisers, consultants or even our own employees in some of the countries. We have got now our people in Middle East. We have people in Europe, in France. We have people in England. We are appointing people in Southeast Asia. So what we are going to do with these people who are either onboard or a couple of them are going to be onboard, we're going to use them for building relationship for each of our product. So that they are relationship people who build relationship for each of our product and the product specialists then go from India and start talking to the customers. So -- and right now, this is being done for fiber optic cable, which we are already exporting to more than 30, 40 countries, as I already explained to you. Now you rightly say that we are not sure about how much government would purchase. That's true for communication sector because BSNL is the only operator from government. It's partially true. But partially, there is a good sign also, BharatNet, from the government perspective I'm talking about. Because that money is there given by the operators. It's not government money. And there is probably INR 40,000 crores, INR 50,000 crores lying there, which is now going to be used for BharatNet Phase 2. That money cannot be used for any other purpose by law. So there is a huge requirement for BharatNet, and the demand is there. That was suddenly going to come in a different mode. It is going to come in a PPP mode and -- where the viability gap funding will be done by government of India from this USO fund. So that demand is there. In terms of other communication products, it's not really government we are selling. It's 2 private operators like Jio, like Airtel, like Vodafone or any such operator or many of the ISPs we sell. So their purchase capacity is there, nothing to do with government. However, our products like defense products, for example, like I mentioned, electronic fuse, which is ready. I'm expecting that we will have a marketing kind of effort started for that internationally in next 2 to 3 months' time frame, 3 months, maybe 3 months' time frame. Of course, getting orders is 6 months to a year because these kind of military products undergo client testing in every Army. Then only you get orders. Electro optics. Again, we would be from, I would say, end of Q1 or beginning of Q2 of the next financial year. We would start marketing electro optics, which is night vision devices in the world market. In India, we have already started. We have already participated in tenders for electro optics in India. Some of these are going to be opened very, very soon in my opinion. We are going to participate in another very large tender next week itself for electro optics. So that effort has already started. So in terms of defense sector, I would say India still has reason to spend more, as you all know, the kind of situation which exists on Northern, Western border. India is spending more. And there is a large-scale purchase going on for this kind of equipment, which there are deficiencies. We are going to participate in another major overhaul program -- overhauling program of certain kind of equipment, which I can't go in detail because restricted RFPs have been given, with a very large company -- global company. And that's also a very, very large tender. So opportunities are there in defense sector in India. But since these are our own designed products, own IPR, we would sell it globally, absolutely. Because that's the reason why we have gone for our own design and huge R&D investment, so that we can create products and sell it globally.

So what is your internal guidelines about the export? How much we can do for next 1 year, 2 year, 3 year?

Look, the current financial year, optical fiber cable is the only one which we are exporting. Maybe we will do some of Wi-Fi also. And in terms of services, turnkey contracts, we are doing railway contracts in Dhaka and Mauritius. Those are coming up. So current year, all put together, optical fiber cable and that context, our export could be about INR 150 crore plus, INR 150 crore plus. My wish is to reach to at least, in 3 years' time frame, north of INR 500 crores to INR 600 crores. With so many products coming up, it could be even higher. I'm not projecting those numbers, but that is minimum internal target that we should cross those kind of numbers in 3 years' time frame. It can be much more because defense products and all that would come into picture. It can be much more, but I'm not making any such projections right now.

That's great. So my second question is, how do you see the optic fiber and fiber cable market right now across the globe?

Look, market is improving. From what I probably would have talked in the last earning call to now, market is improving globally because, one, there was a huge impact of COVID. And because of COVID impact, market was subdued. Now China was also buying less. Chinese demand has improved a bit with China Telecom, China Mobile coming with the tenders for fiber. Internationally, there is going to be deployment of FTTH in large scale, including Europe. So cable demand is going to be there. India and worldwide, these 5G networks are going to come. And with the 5G, again, fiber demand is going to increase because networks have to be made ready for 5G by linking all these towers by fiber. The throughput of every tower is so high, it cannot be carry forward in a large scale on microwave radio. So there is going to large-scale deployment of fiber all over the world. So fiber optic cable business will see improvement. I don't say that prices will increase dramatically because there is enough capacity existing, but demand will increase. In India, FTTH by all the major operators then 5G deployment, then BharatNet. All these 3 things put together, demand is again going to go up. But I would be -- I would not be saying that there is going to be any dramatic increase in the fiber prices because there's enough capacity existing in the world. But those people in India who have large-scale capacity and maybe backward integration like us, they would see that their factories get enough orders to fill their capacity. Like, for example, today, our both factories, Goa and Chennai, are operating at 100% capacity. Last quarter, there was problems because of COVID, not because of orders. Now we are putting up a third factory for cable, which I mentioned in my opening remarks, third factory for cable, which is being under construction or under installation rather, construction is done, under installation of machines and all that. From next week, machines are going to arrive probably next 5 to 7 days. And this is a third factory for cable. So you can imagine the kind of demand we have in the existing factories that we had to put up a third factory for manufacturing cable. But that may not be the case for every manufacturer, particularly smaller ones, but the large ones are definitely going to be looking at operating at reasonably very good capacity.

Sir, BharatNet program of government was stopped more than 1.5 years, correct me if I'm wrong. So how confident you are there starting it again with the PPP model? And do you think that will work out properly for the business?

It will. I tell you. Even the Prime Minister has announced that 4 lakh villages or 4.5 lakh rather are going to be connected in 1,000 days by fiber, by fiber. It's the Prime Minister announcement from the Red Fort. So government has to act upon it. Now money is available. That's the major point. Other places, you find budget constraints and because of budget constraints many things do not happen. In this case, money is available. Even if government were to implement it all by own, without PPP, enough money is available. There is about INR 40,000 crore plus money is available in USO fund. And it can -- it will increase every year. So they have to spend that money. Now instead of doing it by government, they decided they would issue it in PPP model for better quality and better utilization. In Phase 1, whatever they did, 1.5 lakh -- 1.25 lakh franchise or 1.5 lakh maybe, the proper utilization is not there. The government is not a sales or marketing organization they can sell it properly. And quality of network was also not that too great. It was poor. So they decided that it should be done by private on a PPP model, so the private people will do a better quality. And sales and marketing responsibilities will also be there because it's a PPP model, which would be 25 to 30 years kind of a operating contract. After that 30 years or maybe something like that, extendable to another 10 years. They have to hand over then that to government. So it's a perpetual kind of a thing. So with that model, things will definitely pick up and it would be successful. If PPP does not succeed, for whatever reason, I'm just -- hypothetical thing I'm saying, government will do at its own because it's a committed announcement by Prime Minister. They cannot go back. And money is there. And this BharatNet is going to be beneficial to our company from different angles. One, if it is a good PPP contractor, who has got money and capacity to build, we will get turnkey work from them. Two, fiber optic cable supply, which is going to be a huge demand for fiber optic cable. Connecting 4.5 lakh villages is no mean a joke. It needs -- I don't have the numbers, how much they have calculated, and it's all going to be over the ring network. It may need 8 to 10 lakhs kilometers of fiber optic cable, which is huge quantity. Then equipment. Connectivity does not mean connectivity alone. They are going to put conditions that so many houses are to be connected over fiber optic cable, FTTH. That's why this OFC network is there. So that would bring a lot of demand for FTTH kind of cable and also equipment, which also we are undertaking for design, FTTH kind of an equipment, which are required for FTTH network. As I said, it is going to be a ring configuration of network, which should require routers, which should require switches, and all are there in our product line now, which are going to be available in next 2 to 3 months gradually. And those will also be required then with the PMI condition, where you need a higher amount of indigenous content, which can only happen if it's the product designed and manufactured locally. We are going to get advantage out there also. So I'm looking at BharatNet with a lot of excitement.

[Operator Instructions] The next question is from the line of [ Parth Mehta ], individual investor.

A lot of my questions have already been answered. But just one question that you had already said about SDR is the opportunity is about INR 25,000 crores in India alone. And it might take about 2 years' time for it to be available in the market. So where actually are we in that 2-year time frame? Have we just started or we are halfway or almost through? So could you please throw some light on that?

Look, SDR we have just started. And Army has also come out with a EOI now where they have to do the shortlisting which is still not done. So it's on a nascent stage from the customer requirement point of view also. We are not late at all. So we are absolutely on dot as to the customer requirement. They are going to give 18 months' time for development. And then they are going to start the trial. I think they are going to give a little more than 18 months, I think, 18-plus or something like that. And we have already started. So we are on exactly as to customer requirements. So it will be -- our product would be ready maybe, I would say, 15 months or so time frame from now. Now that complete range of products, but the first product is going to be available in 12 months' time frame because it has got various consideration. It has got handheld. It has got manpack. It has got vehicle-mounted. The first version, I think, in my opinion, should be available in about 12 months' time frame.

Okay. So everything we can expected in '22, '23 that we can see it in revenue and not before that, right?

Yes, you're right. Absolutely. Not before that. And that to end of '22, '23.

Okay. Okay. And sir, I had another question on GPON. So as the BharatNet starts fructifying, how do we see that -- how soon do we see that in execution?

BharatNet execution, first of all, the PPP EOI, tender, all that has to come, which is slated to happen in a few months. Then a tender finalization and all that, I think I would suspect that this execution would be about a year, next financial year.

Next financial year. Okay. Sir, apart from that, we have not been seeing any service revenues -- service orders coming in, in the last 3 to 4 quarters. So are they majorly from BharatNet or the government or they are from the private parties as well?

No, the orders have been coming. If you look at -- you would not have seen a very major order coming in. After our GOFNMS, an IP/MPLS order, which came a few months ago, some more large orders are expected, not that they are not, maybe very soon. But what I'm trying to say is orders do come, but they come in smaller numbers. One thing, big order is not there, but fiber optic cable, for example, INR 20 crores, INR 30 crores, INR 40 crores. Like last quarter, we have received orders worth INR 350 crores, which is small, small orders. Now larger RFPs also we have participated. Some larger order also might come soon. So sometimes there are larger, and sometimes there are smaller orders coming. Now this quarter, my hope is much higher from order booking point of view, much, much higher.

Okay. Sir, my last question is, we are going to start shipping our Wi-Fi in the month of December. So we...

No, no, we have already started shipping. I'm saying Wi-Fi, we would have supplied 1 lakh units by December, 1 lakh.

Okay. Okay. Okay. Sir, that will be WiFi. And WiFi 6 generation will be probably a little down the line, maybe next financial...

Wi-Fi 6, we have already developed. It has already been given for testing to the operators. And the testing should take about 3 months time frame because then there may be a requirement of some customization and all that. I would say Wi-Fi 6 shipment in all probability should start towards end of this financial year, current financial year.

Okay. So whatever we are doing in Wi-Fi currently, that will be substituted by fixed or that would be an additional thing?

I think some people would still continue with Wi-Fi 5. Some people will go to Wi-Fi 6. Particularly the 5G operators would definitely like to go for Wi-Fi 6 because throughput is going to be higher. So they would like equipment which can take that throughput and give it to the customers.

Okay. Sir, what would be the difference in pricing per unit of Wi-Fi 5 and 6? I don't know what is...

It's too early to say right now. It's too early to say, but difference may not be much, may not be much.

And sir, Wi-Fi 5 goes for what -- I'm just trying to calculate what can be clocked in this year from Wi-Fi?

Pardon me?

What can be generating revenues from this year in Wi-Fi? So it's...

We are looking at generation of about INR 125 crores to INR 150 crores from this -- our own design products on the current financial year.

Okay, sir. So on 100,000 units we will be generating that amount, that's what you are indicating?

100,000 units of that and then there are antennas, accessories, UBRs, all those put together.

[Operator Instructions] The next question is from the line of Giriraj Daga from KM Visaria Family Trust.

My question is related to like what is the order pipeline you are seeing, which can be ordered over the next 6 months still, let's say, by March '21 end? It would be fair to get good, but any number to that.

Look, Mr. Daga, it would be not good for me to put any number because this – forward-looking projections, I'm not supposed to give in...

No, no, I'm saying how much industry will -- ordering will be done. Whether you will get it or not is the next question. But...

In terms of industry orders?

Yes, yes. I'm saying how much total fiscal bidding will happen or the total project will be awarded over the next 6 months.

It could be several thousand crores. It would -- and if I put PPP or BharatNet and all put together, it will be several thousand crores. Defense products, these communication products, I think this could be and 5G coming in -- I don't know, 5G would happen in this current financial or not. But even then, in the communications -- civil communications in itself I think it could be something like INR 6,000 crores, INR 7,000 crores. INR 10,000 crores, maybe.

Okay. Okay. My second question, I missed the number. What is the capacity of the third factory which you are putting for cable? And how much CapEx we are doing?

It is going to be cable kilometer perspective. And again, let me question you. This all depends on what kind of capability you manufacture. This particular factory is being put for FTTH cables, fiber-to-home, is a lower fiber count cable, and capacity is going to be 30,000 cable kilometers per month, for FTTH only. It's not going to be high count fiber. It's only FTTH. Right now -- we would expand more in future. But right now, it is for FTTH and 30,000 cable kilometers per month.

And what is the CapEx you're incurring there?

CapEx would be in the order of roughly about INR 25 crores or so. INR 25 crores plus civil already undertaken, which has been done, INR 10 crores. So total would be to the tune of INR 35 crores.

And just assuming, let's say, we reach 90% ratio, I'm not putting a time there, how much revenue we can generate from this or let's say how much EBITDA we can generate from this much of CapEx?

Revenue should be around about INR 200 crores.

And profit margin of 12%, 13%?

Well, I can't say that at this point of time. I would say lower number. Profit margin, I would say, a little below 10% or 10% maybe.

Okay. Okay. My next question is a bit more on the technology side. There are some reports which are mentioning that the 5G CapEx may not entail a large number of tower, what mining people are expecting? Do you...

Can you say that again?

I am reading some reports, which mention that what the technology viewers are going to adopt on 5G that may not result in a more number of densification of more towers. So are you seeing something on that line for your industry interaction that the 5G may not...

I can't comment about any particular operator, Jio, or anybody else. But generally, 5G would need densification because with the kind of throughput 5G has and kind of spectrum it has, it has to be densified. This is the law of physics. Higher you go in spectrum, smaller is the coverage. Higher you go in the data speed, smaller is the coverage. So it has -- densification has to happen. There is no way out of that. It has to happen. For every 4G tower, you will need, depending on area, 2 to 3 5G towers, maybe 3.

Okay. Because what I was reading is that the people will be using 3,500 megahertz for the download and about 1,800 megahertz for the uplinking. And that's why it might not require -- the number of service people are expecting. It might be higher, but not...

At least 2x, if not 3x, at least, if not 3. And existing towers will have to upgrade it with the more power supplies, higher power supplies and fiber optic cable.

The next question is from the line of Abhishek Jain from VC Corporate Advisors Private Limited.

Actually, I have got 2 questions. One is that if you can...

Mr. Jain, may we request that you please use the handset mode. We are not able to hear you.

Hello. Can you hear me?

Yes, we can.

Yes, better.

Okay. I have got 2 questions. One is, sir, if you can provide me with the bifurcation of the revenue in terms of fiber cables, equipment, defense and turnkey projects wise, if possible. And another thing is a little about the opportunities in the next 5 years. If we see, the company revenue has increased during 2016 to FY '20 to INR 3,800 crores during the 4G investment, both by Jio and Airtel. So sir, looking at the opportunity in the next 5 years and in terms of lakhs of crore rupees opportunity, sir where do you see your company standing in terms of revenue? How much the company will be able to capitalize on this opportunity? Because in the last 5 years, it has not grown much.

Look, not at last 5 years, we have not grown. It's last particularly...

INR 2,800 crores to INR 3,800 crores from FY '16 to FY '20.

Which is not a growth, number one. Number two, in terms of revenue mix in the current quarter, out of INR 1,050 crore revenue, we have the telecom products, which include fiber optic cable and Wi-Fi and all that, INR 279 crores and INR 775 crores out of was our projects, which includes products as well as services, like Armies, communication network and all that. So total revenue were INR 1,054 crores. Time to come, we see revenue from products growing and the project revenue going down and which is a conscious decision we have taken in the company. To when I say, conscious, this means a complete reinvention of the company taking place now. Year after year, it will happen. Quarter-after-quarter, it will happen that more revenues will come from products, which are our own designed products, our developed products, higher profitability margin and less from projects. Because consciously, we have taken a decision that let us design products ourselves. But there's a huge effort by government of India also to get the products manufactured locally for local market and for there is a preferential market access and those kind of policies have been created. And once you fulfill a local demand in such a huge market, you become competitive to export it also internationally. So you would find product revenue would grow. Project revenue may remain static, but in terms of percentage it will come down. Product revenue will grow. I'm not saying that actual numbers will come down, but the percentage might come down. So that's the strategy we have adopted, but that is certainly going to give better profitability to the company. In terms of what kind of revenue, I think 3 to 5 years, it is a very forward-looking statement, Mr. Jain. I would not like to talk on a forward-looking number.

Okay. Fine, sir.

But there is going to be growth. That much I can tell you.

Okay. Because in term -- because what I wanted to understand was that the greenfield project of Jio and Airtel in our country are out on the 4G network. The revenue has gone not so much actually. In the last 6 years, it has grown like from INR 2,500 crores to INR 3,800 crores. That's like about 8% CAGR growth. I wanted to understand that the opportunity is so huge, but what is it about the company? In terms of opportunity...

You have to look at it from the products you have. And as we are increasing our product range, revenue will also grow. But again, in 3 years, INR 2,500 crores to INR 3,800 crores is not a bad growth, Mr. Jain. It's not that bad. INR 2,500 crores to INR 3,800 crores in 3 years is quite reasonable.

Mr. Jain, may we request that you return to the question queue for follow-up questions as there are many participants waiting for their turn. The next question is from the line of Mangesh Kulkarni from Almondz Global Securities.

I just wanted to understand the opportunity, which we are going to get from the Jio's announcement that they are ready with the 5G solutions, which they are ready to offer to the world. So what kind of participation do we see for HFCL in this opportunity?

We have not discussed any such thing with Jio. And I cannot talk about any particular operator, any customer, but we have not discussed any such thing with Jio.

But are we supplying some of the products to them for the 5G implementing or whatever R&D they are doing?

They have not started 5G implementation. But whenever they start, we would definitely discuss with them. We continuously supply them fiber optic cables. So we will hopefully keep on supplying fiber optic cables to them. And if any other opportunity comes, we will definitely look at that. And -- but Wi-Fi, for example, Wi-Fi, we are supplying to Jio also to a large extent. When we do Wi-Fi 6, which would be very compatible with 5G, we would certainly approach them for supplying Wi-Fi 6 also. Wi-Fi 5 we're supplying them a large number. UBR, we are supplying to them in a large number. Whenever they start 5G and they need equipment for 5G, whether it is routers, switches, all the new products trying to bring in or the Wi-Fi fiber optic cable, we'll certainly discuss with them. Now it is up to them to give the order or not. It will depend our competitiveness and all that. But we are hopeful that we will definitely try to get more and more orders by supplying competitive and quality products.

Okay. And sir, I just wanted to know about our EPC business. Now how is the situation after this unlock process starting? The EPC contracts -- are they coming back to the schedule or still delays are there?

Well, it is improving. If you look at EPC execution in the last 2 quarters, Q1 was about INR 510 crores and Q2 is INR 725 crores. So it has shown improvement, but still it needs to grow more. And I think Q3 would show further improvement because COVID situation is easing down, and it's a new normal now. I don't know whether easing or not, but it's a new normal. People have to -- people have understood they have to live with it, work in this situation. So I am expecting to improve further. Only impediment, which is right now, is there for the Army projects, which are in the northern border of India, Northeast or maybe mostly in the northern areas, where we have a large number of projects. And out of the total projects, concentration is in North India. So there because the border situation, as we know already, we all read in newspapers and media, there, access is restricted. They don't allow people to go and -- go in and out as easily as it used to happen earlier because of the current situation. So there, the restrictions are there. But I suppose they would remain there for some more time till the time border situation eases. So there, the situation is a little bit more difficult in other areas. But else than that -- else than those Army projects in Northern areas, the situation has improved, as it can be seen that turnover from revenue from projects have gone up by 50%.

The next question is from the line of [ Sonali from Wood Group ].

Hello?

Yes.

I have got a couple of questions. First is regarding the release of shares which are pledged. And earlier I have seen a video where you have mentioned that many -- I mean some percentage of the pledged shares have been released and the management is in talks with the banks, but the banks have their own procedures. So can you just please update on that? And my second question is regarding the...

No, no, 20% of shares have been released. One was pledged for the -- as a collateral to one of the bank for urgent guarantee requirements. That has been released. And the second was pledged because of this fiber plant, which we have put. There -- some issue was there with the land released, land being registered and the condition when you -- yes, condition was there that, that can be pledged only after we start commercial production. That has also happened. That 13% has been released. So 7% plus 13%, 20% has been released. And balance shares, we have already applied to the banks. That the conditions under which they have been pledged, they have all been fulfilled. So they should better release it. So I'm hopeful that banks should see it with a positive sense because the conditions no longer exist under which we had put them and pledged them. But as I said all the time, no loan has been taken against shares, no loan. It is all collateral for the business of the company. There's no promoter borrowing, no loan against shares either to the company or to the promoters, and it's all collateral to the banks, for the loan, which they have tendered to the company as collateral. So I am hopeful that some more release should take place. We have already sent application to the banks.

Okay. And my second question is regarding the debt reduction plan.

Debt reduction is -- we don't have much of debt. It's 0.43 only. Gearing is only 0.43. Not much of debt in the company.

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

Sir, correct me, sir, you told that going forward, the mix between the telecom products and the turnkey part will be skewed more towards the telecom products. [Foreign Language] the growth which will happen going forward would be higher on the telecom product side? Correct, sir?

Yes. I said product side, telecom and defense all put together. Telecom, defense, optic cable, all put together on the products side.

When we are putting the revenues of telecom products, both defense and telecom are clubbed in -- under one head only? That's this INR 209 crore for -- sir, if we see the margins there, sir, last year, we did revenue of INR 127 crore -- last September. And this year, it is around INR 209 crore. But the PBT numbers have fallen from -- there at a turnover of INR 127 crores, we posted PBT of INR 23 crores. And here, out of INR 209 crore, the profitability is only INR 12 crores. And when we take the consol part, sir, we find that with an improvement of, if I'm not wrong, with an improvement of INR 70 crore in the revenue, the profitability goes up by INR 20 crores. So I just wanted to understand [Foreign Language] telecom products [Foreign Language] consolidation [Foreign Language] profitability improve [Foreign Language] and on a stand-alone it is lower.

[ Saket ], the variation in margin is not because of this product mix or anything else. It is because that you know that we have this -- commenced the fiber production from this Q1 -- Q4 of the last previous financial year. So initially, it is getting stabilized. And the capacity utilization is comparatively low. It has been low, one, because of the COVID situation. And secondly, the initial stages, the plant is getting ramped up. So to the interest and depreciation is being charged to those facilities once it has started the commercial production. So that is how it looks on the lower side. The situation is going to correct now Q3 onwards with increased production of fiber.

It is because of the interest and depreciation on the new plant, which is what you see is like this is not really the margin on the product. It is interest and depreciation which, as my CFO said, it's going to improve from the Q3 because now this plant is 100% -- running on 100% capacity now.

Okay. Sir, but since we are developing the product, this fiber and fiber cables goes into the product development. I think the fiber cable is mainly carrying towards the EPC part. So just wanted to understand, we have built up the capacity to cater to the...

No, no, no. Fiber optic cable is -- most of the -- more than 90% is being sold independently.

In the?

Independently.

But it will club in the product category only, sir?

Yes, yes, sure.

Okay, sir. Sir, one more point about this. Sir, we have seen in a shareholding pattern Reliance Strategic Business Ventures Limited being a shareholder. So sir, are these any strategic investor or what categories...

They're not a strategic investor. They're just a normal investor.

Okay. And it is a treasury operations only because this company belongs to Reliance Industries...

No idea what is their operation, so they would know that. I know that they are a shareholder.

All right, sir. And one more point was, sir, we have organized one conference call that was not -- didn't happen with cable in the month of July. So have we taken any more step to reschedule them for any further con call? I think it was scheduled in the month of July?

I couldn't follow your question.

Sir, in the month of July, there was one conference call that was scheduled for one of the biggest wealth advisers, Julius Baer Wealth Advisors. That was scheduled, but it could not happen. So I just wanted to understand whether any further call...

No, as and when the call happens, we would keep on informing the stock exchange as early as...

Because -- yes, sir, because the time line -- it was 2nd July and now it is 14th October, so the investor did not took interest going forward. That's what...

I don't know about the investor interest, but if any call happens, we will immediately let know.

Absolutely, sir. And last point was about, sir, you spoke that the synergies, which we are going to -- the cost savings, which we are going to have because of this backward integration, if you could explain how are these going to benefit and improve the bottom line? And what should be the, sir, our endeavor for the sustainable EBITDA margins going forward because there is a fluctuation, although there's consolidation we are seeing overall from the last 2, 3 quarters? So if you could throw some light about the synergies and the sustainable EBITDA number going forward.

Synergies are always there in backward integration. When you do backward integration, there are 2 reasons. One, we have stabilized supply chain and take advantage of backward integration is the cost. So both are going to be there, in this case, there's no doubt about that. And to maintain our profitability and all that, as I said, to enhance it, we are doing more and more new products. Even in cable business, also, we are designing new products, which are not used in India, but they are used in different other countries. So those products will increase our market share and enhance our profitability and stabilize that also. Mr. [ Saket ], I have a couple of more questions I can take. Then I have to leave for some other appointment. So if you have any other question -- other investors -- other participants...

I will leave. I will come in the queue, sir. BSNL receivable, if you could give, sir? How much is due from BSNL?

BSNL dues, there is no dues much from BSNL as such. There is about INR 130 crores, INR 140 crores. But rest of the dues is for Army projects, which is via BSNL, but which keep on coming on regular intervals. There is no overdue for that.

Thank you. Ladies and gentlemen, due to time constraint, we'll take that as a last question. I would now like to hand the conference over to Mr. Mahendra Nahata of HFCL Limited for closing comments.

Thank you, gentlemen. As I said, that quarter 2 has been an improved quarter over quarter 1. And quarter 3 we believe that it would improve quarter on quarter 3 also -- quarter 2 also, quarter 3 should be an improved quarter because the impacts of COVID and these kind of impediments have gone down considerably, and we are sure that we will do much better in the current quarter. Our emphasis on our own product development and marketing them worldwide is going to sort of reinvent the company in next couple of years and will position the company as a leading technology enterprise in the world market, in communication as well as defense-related products. And I'm happy to share that we are very enthused about that. We are very optimistic about these products, which we are developing with international class and which will certainly increase our revenue from products. And projects revenue will go down in percentage, but in terms of overall number it may not even go down. But in terms of percentage, product revenue will go up. And I'm sure that in future with the COVID situation becoming more normal, economy as a whole will progress. We will come down to the normal country and the economy as such, and HFCL being a part of that will also show improved performance. Thank you very much, gentlemen. Thanks a lot for your time and attending this earning call. See you again in the next earning call. Thank you very much.

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

Thank you.