HFCL Limited (HFCL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to HFCL Limited Q3 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Neerav Dalal from Maybank Kim Eng Securities. Thank you, and over to you, Mr. Dalal.

Good afternoon, everyone, and a very happy new year. Welcome all for the HFCL Limited Third Quarter FY '21 Results Conference Call. My name is Neerav Dalal from Maybank Kim Eng Securities. At the outset, I would like to thank the management for giving us the opportunity to host this call. Before we begin, I would like to mention a short cautionary statement. Some of the statements made in today's 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 the management. Audiences are cautioned not to place undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and a financial overview of the quarter under review. Now I would like to introduce you to the management participating in today's earnings call. We have with us Mr. Mahendra Nahata, Promoter and Managing Director; Mr. V.R. Jain, Chief Financial Officer; and Mr. Amit Agarwal, Head Investor Relations. I will now hand over the call to Mr. Mahendra Nahata for his opening remarks. Thank you.

Thank you, Neerav, for your kind introduction. Good afternoon, everyone. And a warm welcome to the earnings call of the company for the third quarter and 9 months ended 31st December 2020. Please note that quarter 3 FY '21 quarter results, press release and investor presentation have been made across to you, and these are also available on websites of the company and stock exchanges. I hope you have had the opportunity to glance through the highlights of the performance for third quarter of financial year '21. Our focus has always been on growth revenues and to invest in innovation, thereby creating value for our stakeholders. I would like to start by highlighting a few key milestones achieved by your company in the last quarter. During the quarter, we commenced production of optical fiber cables for fiber-to-home applications from our newly set up FTTH cable manufacturing facility at Hyderabad. I take pride in stating that with commencement of this production facility, your company is now the largest manufacturer of FTTH cables in India with a capacity of 6 lakh cable kilometers per annum. We plan to further expand this capacity in Hyderabad in next few months. We have also achieved the supply of 1 lakh units of Wi-Fi systems during third quarter of financial year '21, within first year of manufacturing at the record space. These systems are fully indigenously designed, developed and manufactured by your company. We continue to witness great order inflow for our products from domestic telecom companies as well as other inquiries from outside India. We are quite optimistic about the opportunities that lie ahead in the wireless technology space, as you believe that India is on the cusp of digital revolution, led by transformational projects like the recently announced PM-WANI in conjunction with BharatNet. I would also like to share with you that we will soon have a host of other Wi-Fi family products that will cater to 5G requirements as well. Another key highlight during the quarter was that we bagged an order worth INR 678 crores from Larsen & Toubro Limited. The order we bagged was for supply of IT equipment, software solutions and cloud management solutions for setting up data centers, security operational centers, network operational centers and various other equipment and systems. This is a testament of our capabilities to provide high-quality products. Our order book has been robust and is maintained at almost 2x previous year sales, even during these difficult times of pandemic. As of 31st December 2020, our consolidated order book stood at INR 7,313 crores. On the back of catering to the growing orders, the capacity utilization in third quarter of the current financial year has been inching higher, which now stands at 95% for our cable manufacturing facilities. Our R&D team in Goa and Chennai have also developed various new types of cables for local applications as well as export requirement. I would like to add here that some of our new telecom and defense products, which were on advanced stage of field trial and are on the verge of being rolled out soon. To add to this, we have already designed Wi-Fi 6 systems and is under testing by a few large telecom operators. I would like to applaud the efforts of our R&D team which has enabled us to launch superior products in a reasonably quick time frame. R&D is one of our key pillars as it not only helps us launch high-quality products but also gives the edge to stay ahead of competition by innovating new products. Our focus on innovation has yielded a growing pipeline of products like electronic fuses, electro-optic devices, software-defined radios, switches, routers, intelligent antenna systems, ground surveillance radars to cater the global market demands. Our R&D team in Goa and Chennai also developed various new types of cables for catering upcoming demand of such cables in India and abroad. Owing to COVID-19, there has been a thrust on digital transformation, all over the world, which will advance the need for high-speed communication networks like 5G. This relates that 5G will lead to a fundamental shift in the way we live and work. It will have a far-reaching impact on industries across verticals, most so when India as a nation is looking to become a $5 trillion economy by 2025, then we will need transformation in India's digital infrastructure on a massive scale. All this put together will give immense thrust to telecom business. Driven by this demand, we aim to project India as a next-generation innovation and manufacturing hub for telecom products ahead of the 5G rollout expected later this year. We, as a company, intend to be an integral part of India's digital transformation and one-stop shop for digital and telecom solution, for which we have laid down a clear path for ourselves. This includes providing world-class next-generation products led by innovation. This will help us improve our margins and also stay ahead of the curve along with fulfilling Prime Minister's vision for Atmanirbhar Bharat. After a challenging first half owing to COVID-19, wherein we still managed to achieve decent growth against all odds, we have now managed to keep our growth momentum. Now I would like to run past the consolidated financial highlights of third quarter of financial year '21 and 9 months ended 31st December 2020. One, revenue for third quarter of financial year '21 stood at INR 1,277 crores as compared to INR 1,054 crores in the quarter 2 of financial '21, thus, recording growth of 21%. EBITDA for the quarter stood at INR 177 crores as compared to INR 130 crores in the second quarter. EBITDA margin increased by 78 basis points and stands at 13.8% for third quarter financial year '21. Third quarter -- for third quarter financial year '21, profit after tax rose to INR 85 crores as compared to INR 53 crores in the second quarter, recording a growth of 59.7%. PAT margins also improved by 160 basis points to 6.64% in third quarter compared to 5.04% in the second quarter. Segment revenue for telecom products during the quarter stood at INR 333 crores as compared to INR 279 crores for the second quarter. We expect revenue from telecom products to keep moving north from here onwards. Turkey contracts and services reported a revenue of INR 944 crores as compared to INR 776 crores in the second quarter. For 9 months ended 31st December 2020, our revenue stood at INR 3,032 crores, and EBITDA stood at INR 398 crores and PAT stood at INR 160 crores. On the financial performance, I would like to add that our focus is to strike our improving shareholders' value by maintaining our strong return ratio and keeping a check on our gearing ratio. Like I mentioned, focus on R&D and innovation, coupled with robust manufacturing and seamless distribution, the dual focus on domestic as well as international business will take your company forward to a sustainable growth path. With this, I close my remarks and leave the floor open for questions. Thank you very much, and wish all of you a very happy new year.

[Operator Instructions] First question is from the line of Hardik Vyas from ET.

I have a few questions. To begin with, the order inflow tender pipeline, how is that looking because we have not been seeing any fresh orders apart from the L&T order that has come in the last quarter. We have not seen any orders come in. So what is the tender pipeline?

Look, our orders are not only from tenders, a lot of orders come from private sector. And they are -- they keep on coming, fiber-optic cable orders, Wi-Fi and these keep on coming. The reason they are not announced because they are not of a big number so that we announce it publicly. So these numbers keep on coming. Don't just go for large orders. Like large orders, of course, last quarter, we have received the INR 600-some crores from L&T. A number of small orders have come, and they will keep on coming. Fiber-optic cable, like, yesterday, we received an order for INR 70 crores from 1 customer. Another customers we are negotiating for another INR 70 crores, INR 80 crores. They keep on coming all the time. And that's why our order book is INR 7,300 crore. And we do expect certain tenders we have participated and we are positioned well. I don't want to make a statement for future, but we expect reasonably good amount of orders to come in the current quarter.

We have been seeing a lot of large orders coming in, in '18-'19, so we thought that the orders have not been coming in and we were wondering that.

No, no, no. Look, that specific year, large orders came from a particular project for network for spectrum project by Defense services. So that always does not happen in that level. So we cannot always compare year-to-year. We really need to look at the overall order book. Overall order book, look, is twice the revenue of the last year, that's reasonable enough. And let me assure you, the way the market is right now, telecom market, in my opinion, is good at this moment of time because of various factors. And the reason they are -- these factors, orders will keep on flowing, one. As you all know, 4G spectrum auction is happening, that would lead to further expansion of networks, number one. Number two, after that 5G would come by the end of the year and that would toppled demand to a different level, which includes fiber-optic cables because the number of cell towers, wherever the 5G is there, would increase by 3x than what we have in 4G. And there have been high throughput, you'll need a lot of fiber-optic cable or high-bandwidth radios to be used for the connectivity. Huge demand for that would come up. Then there will be demand for a number of other products like Wi-Fi 6, which we have already designed and developed, which is 5G compatible. So fiber-optic cable, microwave radios, Wi-Fi systems, there would be a huge demand for those things when it comes to 5G. Third, FTTH, which is already being rolled out by various private operators, as -- and I have told you that we are the largest manufacturers from FTTH cable in India. So further increase in FTTH rollout would proper demands for fiber-optic cables. Fourth, BharatNet, Wi-Fi and FTTH put together as a single unit because BharatNet has been rolled out in next 1,000 days all over the country and with the mandatory requirement of giving FTTH connections and Wi-Fi connection. So which means the demand of infrastructure, fiber-optic cable, Wi-Fi and FTTH cable as well as electronic equipment, which we are also designing. So the whole thing would generate a huge demand opportunity for telecom companies like us. So if you ask me, I look at the demand very optimistically, and order book will continue to grow as much as supply and revenue.

Okay. So sir, have we reached the execution level at pre-COVID times? And in third quarter, have we booked any -- I mean, have we executed any backlog of orders, that is why the service orders are up quite significantly?

It's already almost up to the pre-COVID levels. Yes, it is up, that's why you see this kind of revenue that we have clocked in INR 1,277 crores of revenue. Some places, which is still slow, it's not as much as for COVID. It was there for the second quarter. Third quarter, those areas are -- because the execution could not take place in COVID time, now there are snowbound. You cannot do execution. The Leh, Ladakh, north east Tawang and all those areas as well as the Defense projects are getting executed. They have slowed down because of the weather conditions, not for COVID. But it is the impact of COVID in a sense that it could not be executed when COVID was there in the second quarter.

Okay. Okay. Sir, the next question is for the gram panchayats. What is the size of opportunity that we see over the next 1,000 days split between both the products and services?

I cannot tell you specifically split between products and services. But if you ask me the overall opportunity for -- it's not only gram panchayat, it's all the villages. Prime Minister announced all the villages, not gram panchayats, all 650,000 villages, out of which only 125,000 gram panchayats are connected. So that's 500,000 are to be -- yet to be connected. I would say, if you take fiber-optic cable, Wi-Fi, equipment for optical network, FTTH network and infrastructure, including services, fitting the cable on ground or all those kind of things, it should be somewhere near INR 40,000 crore opportunity in the next 3 to 5 years.

3 to 5 years. Okay. Fine. And that would include the PON products as well?

Yes, absolutely. That's why I said, FTTH is related to equipment. That's what is PON.

Okay. And the execution has already begun, be it in a smaller way, but that -- the execution has begun?

You have to separate it out. One is what PM announced as a PPP project, that is yet to happen because I think government is now planning to issue the PPP EOIs and all that in the next couple of months. But BharatNet as such is getting executed in different states. Right now, execution is going on in various states: Maharashtra, where we are supplying fiber-optic cables; Telangana, where, again, we are supplying fiber-optic cables; Chhattisgarh, where we are supplying; Jharkhand, where we are supplying; then Kerala also some execution is going on by Bharat Electronics. There also we are supplying fiber-optic cable. Recently, there has been a tender in Tamil Nadu that is expected to be awarded some time from now. There also, we are in a good position to get order and supply fiber-optic cable. So execution of BharatNet is going on, not in the shape, which [Technical Difficulty] balance part of BharatNet by Prime Minister, but earlier part of BharatNet execution is already going on.

Okay. Okay. Sir, last 2 questions from me. The first is, can we get a split of the product revenue from Wi-Fi and ex Wi-Fi?

No, no. Look, I can send you the number which I have right now. Product revenue -- I would say, product revenue has been INR 333 crores, turnkey revenue INR 944 crores.

Okay. No, no -- so that we have, I just wanted the product segment revenue split between...

Yes. There are 2 kind of products. One is OFC and another is Wi-Fi and all that, their accessories and all that. So that would be -- out of INR 333 crores in the current quarter, INR 80 crores is in Wi-Fi and accessories and OFC is INR 253 crores.

And second quarter, Wi-Fi was -- would be lower than INR 80 crores, right? How would that be?

Second quarter was -- yes, second quarter was lower. Wi-Fi products was about INR 54 crores.

Okay. So we have seen about 40% growth in Wi-Fi...

Wi-Fi and accessories.

Okay. Wi-Fi and accessories. Okay. And could you say -- could you tell us what was number of Wi-Fi that we sold? We sold, I think, 1 lakh over the second and the third quarter. But could we get a split between second quarter, how much -- and how many and...

That number I don't have right now. But yes, we sold second and third quarter, and it is increasing. Every quarter, it will increase only.

Okay. Sir, last 1 question. Our Defense Minister had some INR 48,000 crore procurement for Made in India Defense products, so -- for drones and all the other products. How are we placed to take advantage of that? I mean we had drones and other Defense equipments lined up for trials. How are they likely to be...

Two kinds of equipment lined up for trial, which is one is electro-optic -- electronic fuses, which is already developed. And we are the only Indian company to have our own design of electronic fuses, only Indian company. All others are doing some kind of [ TOT ] and all that. We are the only Indian company, which has got fuses with our own idea. So they're ready. And whenever Army asks for samples against a tender which we have already participated, we are ready to supply the samples for field testing. So they're already there. Night-vision devices, a couple of types, which are already ready. We have participated in tenders and a couple of TECs, technical evaluation, on paper and field trial all, we have already passed. So now the tenders will be opened, and we would see the orders how they come up and who wins it. But a couple of -- few tenders we have participated. Some trials are already there -- have been happened, and we have passed those trials. Some are yet to happen. So night-vision devices and electronic fuses, these are the 2 products we have started with, and they are ready. Fuses are completely ready. Night-vision device, few models are ready, few are in R&D stage and would be ready in next few months' time. Then we have participated in another program for upgradation of armored fighting vehicles, which are being used by Indian Army. And that UI stage we have participated, now shortlisting is to be done and then we would participate in RFP. Similarly, we have taken other projects for developing R&D -- by R&D, software-defined radios. And there also we participate in UI. I'm happy to report that we have been shortlisted there also, and that development is ongoing in Chennai in a company where we have taken [ 50% stake, ] that company is developing it. For us, an IPR would be owned by HFCL. So these are some of the programs, which we have done for Defense, and we are not deviating from our area of operation, which is communication and electronics. We are very precisely focused on that, the communication and electronics. Even upgradation program for the Armored vehicles, our scope of work for HFCL is going to be, this, electro-optic devices, night-vision devices and telescopic devices and all those kind of things. Rest of the work would be done by our partner, which is a foreign partner. And they would be doing the rest of the work, which is really not electronic or communication.

Okay. So we could see execution -- I mean, order booking and revenue -- translating to revenues after 2 or 3 quarters from these things?

I would say, looks like, yes, 2 quarters, at least looks like.

Okay. And sir, last question, what is the status of BSNL?

Look, BSNL status, though we haven't done much of the business with BSNL, as BSNL. What business we have with BSNL is for NFS, which is really BSNL is only part of agency. And if you ask the status of BSNL, I think we see that it should improve in future.

[Operator Instructions] Next participant is Deepak Poddar from Sapphire Capital.

Sir, we are talking about the telecom sector, the [indiscernible] sector in next 2, 3 years should be quite good with the 4G, 5G and about other offerings as well as the 5G, FTTH and Bharat. So the kind of revenue that we are seeing, so do you see some sustainability in the kind of revenue or margins that we are doing? Or in the margins, there are something that the cost is lower, that will come back in the coming quarters? So any -- if you can throw some light on it would be quite helpful.

Good question, Deepak. Thanks a lot. Look, one thing is clear, that there is demand, and demand is going to increase because of the various projects, which I talked about. Now about sustainability. As I told -- talked about in my opening remarks, our effort is to increase our revenue by our own designed products. And that's why we are investing so much on R&D. In fact, we have R&D center in Delhi, Gurgaon. We are doing partnership R&Ds, contract R&Ds with a number of other companies. We have taken equity in companies which does R&D and getting them design products for us. We are to open a new R&D center in Bangalore, and hopefully, this would be operational from month of April. The whole this thing is designed to have more of our own products, which has a higher profitability. So in fact, as we go in for our own products and selling those products in India and then possibly abroad also, I feel, that is my judgment, that our profit margins are going to increase only. And if you look at the last few quarters, for example, compared to the last quarter to this quarter, our EBITDA margin has grown from 12% to 13.8%, so one point -- almost 1.8% or 1.73% jump. PBT has gone from 8.11% to 8.9%. So -- and this margin's growth is there because of this particular focus that I have talked about. And important point is that the products which we design are absolutely international class. For example, Wi-Fi systems, unlicensed band microwave radios, they are being used by large operators in India and without any glitch, without any problem, as -- quality is as good as any world-class company. Now we have already designed the next version of this equipment, which is Wi-Fi 6, which is 5G compatible. And nobody else has attempted that design in India till now to my knowledge. So with the increase in our own product range, which I talked about, like Wi-Fi, like unlicensed band radios, the routers we are getting designed, we're getting designed the switches, the software-defined radios, high-capacity radio relay, ground penetration radar for border surveillance, so on and so forth. As the revenues increase from these areas, the profitability will certainly be better than what it is today. And that's whole -- that is the whole focus of ours at this point of time to increase our profitability from our own design products, and so the fiber-optic cable. Now fiber optic cable, our -- we have a competitive advantage. I would say, we are amongst the 2 largest cable manufacturers of the country. And maybe the largest also, but I don't know the fact how much other guy produces. So I wouldn't say that. But yes, we are definitely amongst the 2 largest. And that kind of a large volume manufacturing gives us better handle on procuring the raw material, whether it is fiber, partly we produce, large quantity we buy from outside also. And other raw material, it gives us a better competitive edge. And as we go on producing more amount of fiber-optic cable by increasing, enhancing our capacity, we will have even higher handle on the volume of raw material procured, which will give us a price advantage. So all this, our own products, our large volume of fiber-optic cable production, leading economies of scale, new designs of fiber-optic cables which are for export market, so those all would result in better revenues as well as better profitability and sustainability in revenue and profitability both. Yes, Deepak?

Neerav?

Deepak Poddar, can you hear us?

Deepak?

Sir, there's no response. We move onto the next participant. Next question is from the line of Jimeet Shah from ICICI Bank.

Just have a couple of questions. First is on the working capital cycle. If I could get your comment on the debtor days currently? And how have you seen the situation improving in the 9 months?

Yes, I can deal with that. The working capital cycle continues to be same what it was in the second quarter, and I will give you the number, I have it. It's about 114 days. Net working capital cycle 114 days, almost equivalent to what we had last quarter. But if you compare it with the last financial year, it has gone up by 20 days because of the fact that COVID and all that have resulted in a lot of payment delays and those kind of situations, it has gone up. But I think we will be able to correct this situation in the next 3 to 4 months' time, and this will again improve.

And sir, debtor days will -- currently, what are the debtor days, if you could tell?

Debtor days would be roughly about, I would say -- roughly about 4 to 5 months.

All right. All right. Sir, second question is more from a sectoral point of view. So sir, all of us are aware that the government has come up with the production-linked incentive. And they've ear-marked around INR 12,000 crores for telecom products. And considering our product portfolio and what the government is planning to do, do we see any scope in that from an HFCL standpoint? Or...

We should definitely have that scope. I've not seen that scheme in detail, but any manufacturer which produces indigenously like what we do and have a very strong focus on that, I think we should have a reasonably good advantage coming out of that, though I have not seen the scheme in detail right now.

Next question is from the line of [ Karen Dean from UEI Investments. ]

Happy New Year to you and the team of HFCL. My question first would be, can you throw some light on the fiber prices that are prevailing right now?

Fiber prices could be different for different people, not same for everybody. Currently, the fiber prices -- current fiber prices in the market what we buy is around INR 250 per fiber kilometer, around.

How much, sir, I didn't get you, sorry?

INR 250 per kilometer.

That has reduced from the previous quarter?

Yes, previous quarter was a bit high, bit high. It has reduced a bit. But I think now they have stabilized. I don't expect it to go down any further. But now, it may be INR 250 for me, it may be INR 270 for somebody else, and INR 280 or INR 300 for somebody else. It all depends [Technical Difficulty] your -- quantity you buy and the volume discounts you get from the suppliers. So -- but for us, it is around that at this point of time.

Is there any specific reason this quarter the margins have increased? Anything that you can point out?

Margins have increased, one -- as I said, no. One is that higher volume of revenue because that also contributes; then our own products, Wi-Fi and all that accessories that contributes to higher margin. Fiber-optic cable also certain orders are getting executed, which are at a better prices and the decrease in fiber price and all that helped us to increase our margins.

And is this margin sustainable in the...

It is sustainable, and our whole effort is to take it northwards, not only sustainable but our effort is to increase it.

Okay, sir. And promoter pledge issue?

Promoter pledge issue, as I have been saying all the time that this balanced pledge of shares what we have is against the loan taken by company, it's not against any loan taken by promoters, not even a penny. And those conditions for which we had given the pledge long back, those have already been fulfilled. We have already applied to the banks to release that pledge. And as I understand, the lead bank has already cleared that. Now it is going in the communities of other banks to follow what lead bank has already cleared. And I'm -- this is a process. As you know, banks to give away security takes a little time. So it is in process. Lead bank has already cleared it. I hope by the time we meet next time, it should be through.

Sir, and you've decided to expand your FTTH production by 33%, was the response very overwhelming that you had to take this decision? And what sort of revenue do you get from Bharti Airtel regarding FTTH?

Look, I won't go in to a customer that which customer gives how much revenue. But yes, we had overwhelming response, that's why we increased our capacity first by establishing a factory in Hyderabad, 30,000 kilometers and -- per month. And then expanding it another 1/3 by another 10,000 kilometers in the next 2 months' time -- 2, 3 months' time. And we have large queries from export also, for export requirement also. So I'm pretty hopeful that we should be able to export also in a large quantity. So sensing that kind of a demand, we've increased our capacity. Because if you don't increase and order comes and then you tell the customer that I will supply 6 months later, that doesn't work. So it is better to increase the capacity in advance and make sure that these orders when they come, we're able to supply, for which we are in reasonably good stage of negotiation.

Is Bharti Airtel also one of your key clients? Or you mainly do Jio?

Fiber-optic cable with them. Yes, we're supplying.

Next question is from the line of [ Deepak Srinivas from RN Shares and Stock Brokers. ]

Are you able to hear me?

Yes. Yes.

Yes. Okay. Sir, regarding the receivables, has it been reduced or is it maintained in the same level because we had an increase in receivables last time?

It is still maintained at that level. It's -- maybe there could be some increase only because of a lot of supplies has been made in the last 15 days of the last month. It has increased a bit, but reasonable increase, nothing else, but the payments are milestone based. As the milestones get completed, we can keep on receiving our money. So it is a very temporary phenomenon. And I expect by the end of the first quarter of the next year, the receivable would be starting -- showing decrease.

Okay. Sir, is there any bad debt -- new bad debt?

No, no, no. We don't have any bad debts. All receivables. There may be very small amounts, negligible amounts, which do not impact anything. There would be -- I think only there could be -- 1 small bad debt could be possible, but nothing substantial.

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

Sir, firstly, sir, can you give the idea, sir, when you say that margins are -- you are preparing the road map for margins moving northward. So on a blended basis, what is our next stoppage for the margins to stabilize? [Foreign Language] from these levels, where is our first...

Mr. Kapoor, it should not be [Technical Difficulty] forward-looking statement that were the percentage would be. I can only tell you, we are taking steps to definitely increase margins. And I've also outlined that how they would increase on the product revenue, like, for example, innovation, R&D, our own products, our own IPR, which can be sold in India and abroad; fiber-optic cables because of economy of scale; better sourcing of raw material because of economies of scale; and better expense control because of economies of scale. These are the reasons why the margins would certainly increase. But to put a number would not be right thing for me to do right now.

Right. Right, sir. And sir, it will be mainly the product part that is going to contribute to the accelerated margins that we are anticipating...

Products including fiber-optic cables, yes, you're right.

Okay, sir. Sir, if we -- including optic-fiber cables, sir, that means, sir, value-added cables, you are talking to plain because the OFC prices, I think, so are still hovering at the -- in a narrow lower band only, not where we serve?

We are talking of all kind of cables: value-added cables, fiber-to-home cables, normal cables, we are talking of all kind of cables.

Right. Sir, your investor presentation articulated about this O&M of -- operations and maintenance of, I think, INR 1,600 crore or INR 1,580 crore. Sir, how -- what has been the contribution for quarter, is this 9 months? And sir, [Foreign Language]?

Look, current quarter, it was INR 60 crores -- sorry, current 9 months was INR 60 crores, but this would increase in future because the O&M kicks in after some period of execution. And the major projects, which are under execution, O&M would kick in as the projects are finished. So I would say major revenue from O&M would start coming from -- 2 years from now.

2 years from now?

Yes.

So sir, currently, that INR 7,000 crore order book, INR 1,580 crore is inclusive of that or that is a separate...

Yes, yes. You're right, you're right.

Where I'm right, sir? It is inclusive of INR 1,580 crores or exclusive of that?

Yes, yes, inclusive.

It is inclusive of that, sir. Sir, a very small 1 more point, sir. As has been the case that you are speaking to investors and guiding us in the business verticals of the company. Sir, we would -- as a prudent management, we'd also request you, sir, that the Board should also try to come up with dividend distribution policy. That means, how are you going to utilize the cash going forward? If you could give an -- give the investors a ballpark...

It is the Board to decide. I can't say this at the moment...

Yes, sir. But the proposal should move from the promoter, sir. You have showed us -- you have walked the talk, sir...

It can move from a promoter or it can move from any other Board member also, not necessarily from the promoter. Every Board member is free to give his views. So right now, we haven't had any discussion about that. Whenever we have any discussion, I would definitely let all the shareholders know, and that would be mandatory for me to inform stock exchange and all that. So whenever any such thing is happening, everybody will be able to know. Right now, there has not been any discussion, either this side or that side.

[Operator Instructions] Next question is from the line of [ Chetak Arora ] from [indiscernible].

I guess, whether it's rightly or wrongly, there is a wrong perception created about the company because of the last boom of tech boom. So what steps we are taking to change the perception, sir?

Look, I don't know, you are talking to which period, tech boom, which was 20 years back. So -- well, I have -- I cannot say anything what happened 20 years back. But last 20 years, I don't think you have heard the name of the company for any wrong reason or really wrong perception, number one. Number two, I think perception clearing is by the work you do. If I start advertising about myself, I don't think that's the right thing to do. It's the work you do, which clears the perception. And if you look the work of the company, the result is in front of you. The kind of revenues we are making, kind of profitability we are making, kind of order book, kind of reputed customers we have, that speaks for itself. So I don't think it's good for me to start going around and say I'm good, I'm good. The work will tell you that whether I'm good or bad. And work is in front of you. It's for you to judge whether the company is on the right track or not. And that's the way I would put it. Yes, definitely, we have started having regular earning calls. We are releasing information about the company, whatever happened in the company, any investment, any increase in any capacity, order books, larger order books, we are all releasing to the general public, shareholder, stock market, so people should be aware about the company. So we are improving our website. Those kind of things we are doing. But not that we are going to advertise as we are good, and everybody should listen to that we are good. And nobody would agree if I say, people [Technical Difficulty] then believe it. So that's what my effort is to do good work, do better management, better results, better revenue, better profitability. That would tell people that, yes, company is good or bad.

Yes. Sir, just -- it will be a [Foreign Language] but I just have a simple suggestion. I think if you give some 10% to some of the goods strategic investor, that whole thing will change the perception of that. This is suggestion from my side, you can take whatever the way you can take.

I've noted your suggestion, and any good opportunity comes, any good investor proposal comes, we'll definitely work on that.

Next question is from the line of Virendra Verma from IVIE Capital Advisors.

Congratulations on good set of numbers. Hello?

Thank you. Thank you, Mr. Verma.

Sir, just wanted to -- from a preceding question, like last 2 decades, telecom sector has gone through a very -- lot of changes from 2G to 3G to 4G, now you are talking about 5G. Now what kind of assurance you give to shareholders that the company is on the right growth path? Because...

Well, the only way I can answer that question that whenever the technology is changing, we are improving our product range also to keep pace with the technology. 2G, 3G, 4G, 5G, maybe 5 years from now, you'll hear 6G. So companies have to continuously upgrade their product range. Now I'll give few examples. Wi-Fi is the current example. Wi-Fi 5, which is also the current product in the market, which everybody using, you are using, I'm using, that is there. But 5G is coming, and Wi-Fi 6 is going to be compatible to 5G. So we have already finished design of Wi-Fi 6, and it's already under testing with operators. So this is 1 example, how you keep pace with technology. Then fiber-optic cable. You used to have 12-fiber, 24-fiber, 48-fiber cables. Now we are designing fiber-optic cables for more than 2,000 fibers. Again, this is a required for different new upcoming applications. So we are designing those kind of cables. FTTH. Earlier there was no FTTH. As FTTH came, we have a separate production line for FTTH cables. Microwave radios. 5G would require high-bandwidth microwave radios. Well, we have high-bandwidth microwave radios in our product range coming up very soon. So -- military radios. Technology is shifting to software-defined radios for better sustainability, better secrecy, better encryption. We are designing software-defined radios. Routers. For 5G, there would be application of routers and switches. We're designing them. So you have to keep ahead or you have to keep yourself at par with the upcoming technologies, then only you will be having a sustainability and profit and revenues both. And that's what we are doing. So it adds -- in another good advantage that it creates a barrier also for entry. For anybody and everybody coming to this market and make revenue and profitability would not be so easy because you have to a good R&D, you have good -- have to have a good technology capability. And customer connect, where customer believes that you will be able to improve their product range, keeping pace with technology so that he can rely on you as a long-term partner. So these are definite attributes and we are constantly following them. And that's why you see that there is sustainability in our revenue and improvement in profitability.

Sir, one more question. Like we have a stake in a media company, AB Corp, that investment is lying for almost 2 decades. But neither this investment is our strategic fit nor it's adding value to our business, how you are going to -- what are your plans for this investment?

We have already written it down to a very low level. Some INR 30 crores, INR 35 crores is our remaining amount we have kept in the company. So we will wait for disinvestment. Whenever the opportunity arises, we'll try to disinvest it. But we've already written it down.

Next question is from the line of Vivek Gupta from GEPL Capital Partners.

Firstly, congratulations on a very good set of numbers. Just sir, wanted to understand this new plant of FTTH. By when will it reach, say, 95% capacity? And how is the business looking like for this segment for you?

Vivek, thanks a lot for your good question. Look, plant is already working on that kind of a capacity from this month itself. Of course, initial stabilization takes some time. So when you talk to 95% capacity, I would say it would be up to the 95% capacity on the February month itself. February month itself, not too long. February month itself. As your second question was, what do we look at the prospect of fiber-optic cable, FTTH business, isn't it?

Yes.

Yes. Well, this is a very good opportunity. There are 2, 3 reasons. One, telcos are rolling out FTTH network in the larger cities, where there is a good demand. Jio is rolling out. Airtel is supposed to be rolling out. And I'm sure looking at that and if investment permits, Vodafone Idea would also do at some point of time. Now apart from that, as I said in my previous answer to previous question, that BharatNet would also have a large scale FTTH connectivity in all the 650,000 villages. So that would also lead to the good demand of FTTH cables and equipment associated with that. Equipment also will be required, electronic equipment. Third, there is a huge expansion of fiber-to-home network going on all over the world: Europe, U.S., Middle East, Southeast and Africa would, of course, follow. So there would be increased demand for FTTH cables from all over the world. So I see good prospect of FTTH cable market for next some years. And that's why apart from our Chennai facility, which we're falling short of requirement, we added capacity in Hyderabad, and we are increasing it further by about 30% because we see a good demand forthcoming. And this kind of demand forthcoming, we believe that we have to increase the capacity in advance because when the supplier wants it, you have to be ready to supply him. So therefore, we're increasing this capacity. So there is a good demand prospect for this now and few years.

Can I ask 1 more question?

Sure. Go ahead. Go ahead.

You had mentioned areas of Defense like electronic fuses and night-vision devices, okay? Which of these 2 have -- what is the opportunity size like in either of them?

Look, for the night-vision devices, the opportunity is projected. Now how much they would buy, I don't know because budget and those constraints would always be there for the government. It's about INR 40,000 crores in next 7 years, INR 40,000 crores, that's the projection. Now actual buyout would be how much, that would depend upon how much money they are able to spare for Defense and within Defense, emergency procurements, which have happened a couple of times this year because of Chinese issues and so many other issues. So that it's very difficult to comment. But size of demand requirement is about this much. Now this may happen in 5 years, this may happen in 8 years, but total opportunity size is roughly of INR 40,000 crores. Fuses are also requiring huge quantity. And opportunity in that segment would be -- in my opinion, would be roughly about INR 1,000 crores every year, roughly about INR 1,000 crore-plus every year. And this is a continuous opportunity because the border situation as such which is there and a lot of trials and firings take place, these are all the time required. And then we are looking at export market also.

Next participant is [ Srinivas Deepak from RN Shares and Stock Brokers. ]

Sir, we have been seeing that the promoter has been picking up -- some promoter entities have been picking up some share from INR 8, INR 9 to up to INR 18 MN Ventures and insider trading. So...

Insider trading.

Yes, yes, that picking up in the market.

Yes. Picking up in the market. It's not insider...

Yes, that's what. So it comes in the SAST. It comes in the SAST and BSE.

Yes. So it's an open market purchase, with...

Yes, yes. It's open market only, but it comes in the insider SAST, that's how they've put it in the BSE website.

It's not insider trading, not at all.

Yes. Okay. So this promoter thing will be -- will further pickup will take place, sir?

I don't know at this moment of time. I can't comment on that.

Okay. Okay, sir. Because it will inspire confidence in the company. That's the reason, sir, we are asking this question.

Of course, confidence in the company would be there, as you see the results and the performance of the company. And promoter picked up substantial amount of shares last few months, substantial amount of shares have been picked up. And...

Yes. I think more than 2 crore shares have been picked up. That's the reason, sir.

We are already reaching to some level of limit, which is prescribed by SEBI for creeping acquisition.

Okay. Okay, sir. So nice. So sir, then all your pledge shares, all it's released, sir? Can we take that all the pledge shares have been released?

No, no. Look, as I informed last time [Technical Difficulty]

Hello?

Ladies and gentlemen, please stay connected. Line for the management is dropped. Participants, please stay connected while we rejoin the management back to the call. Ladies and gentlemen, thank you for your patience, we have the management's line connected back to the call. Sir, you may go ahead.

Yes. Mr. Srinivas, sorry, we got disconnected in between.

Yes, sir. Please, sir, go ahead.

Yes. So the pledge which was there for certain facilities, which company had taken, which was about 15% of the total equity, 15 -- 18%, which has already been released. 51% of the equity of the promoter, which is pledged with banks for facilities, which company has taken, and this is an additional security which company had given long back, and those conditions have already been fulfilled, and we have already requested banks to release that pledge. Lead bank has already agreed. Now other banks are taking up to their committees for releasing. And as I said earlier, I hope by the time we meet next time, we should have got the release of that pledge.

Okay, sir. So that means that by next time, you should have no pledge for the company, yes?

I hope so.

Okay, sir. Because you've been picking up stakes, so I thought that the pledge would have been released also. That's the reason, sir.

18% is already released. And this, I hope this would also release. But there is no risk of this pledge being invoked because this is an additional security for the loan taken by the company, which has got primary security, additional securities and all that. So there is nothing which should worry any investor that this pledge could be revoked at any point of time. There's no question.

Okay. It'll not flood the market? That's what we wanted to know.

No way. How can it be? It's a loan for the -- loan which company has taken, not promoter has taken any loan. And that too, our gearing is only 0.43%, how can there be any flooding the market by this pledge because this is not against -- this is not a primary security against any loan.

Next participant is from [ Devang Visaria from Arthawa Wealth. ]

Congrats on a good set of numbers. I think just 1 suggestion. One gentleman said, how would you change the perception? So are you looking at having a consolidation from INR 1 to INR 10? So that could like...

We don't have any such proposal on the table right now, Devang.

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

Just coming to the P&L part about our employee cost and the finance cost. Sir, if you could give an idea of how are these going to shape up? There have been the escalation in the employee costs with the improved turnover? And for finance cost also, what is our blended cost of funds, sir?

Look, employee cost has increased with improved revenue and also improved recruitment for the R&D resources. It has increased. And it can increase a little bit more further because we are recruiting more resources for R&D. So there may be some -- a little bit increase further also because of no other activity but R&D. In terms of blended cost of finance, I would -- it's about 9.5%.

The line for the participant dropped. We move on to the next participant. Next question is from the line of [ Kamlesh Kumar Jain, ] an individual investor.

My questions are already answered. Thank you very much.

Thank you, Mr. Jain. That was the shortest question and a shortest answer.

Next participant is Raju, an individual investor.

And firstly, congratulations for great numbers and happy new year to you and the team. I have just 2 questions, sir. First one is, will you be able to advise revenue estimate for next quarter or next couple of quarters?

Mr. Raju, thanks a lot for your question, and good evening, and happy new year. I can't make a forward-looking statement. Only thing I can say is that we would have sustainability in our revenues.

Okay, sir. And my next question is, what is the future expansion plans and impact to revenue?

No, future expansion plans, as I already stated, we're looking at increasing revenue from fiber-optic cables, as we talked about, by increasing our product range; then we are designing more products of ourselves, which will increase sales in India and abroad and profitability both. So we have plans to introduce more products and acquire more customers to increase our revenue and profitability both.

Next question is from Deepak Mehta, an individual investor.

Can you hear me? I hope everyone is doing well in your family and company?

Absolutely. Right now, everybody is well. We had some COVID cases a couple of months back, but it's all under control now. And god willing this pandemic will get away from us in the next couple of months.

Yes. Sure, sir. I wish everyone stay healthy and safe at your end.

Thank you, and we wish you the same to you also.

Sir, you talked about the total market opportunity of INR 40,000 crore. So this is for FTT that one?

No. I talked about INR 40,000 crore for the BharatNet.

Okay. Okay.

That's for the BharatNet, which includes long-distance fiber, it's infrastructure, laying of cables, electronics, Wi-Fi as well as passive optic networks. All put together, for BharatNet alone, I talked about INR 40,000 crore market opportunity.

Okay. Okay. So what can be the market opportunity for 5G plus FTTH? And what kind of market...

This would be -- the market opportunity would depend upon when the spectrum takes place, auction takes place? And how many operators come in? It's very difficult to say how big would it -- this market opportunity for this 5G. But yes, it is going to be substantial in the same order of what I talked about this BharatNet opportunity. It could be much larger, but I'm talking about domestic suppliers, it could be something around INR 30,000 crores, INR 40,000 crores. It's a very rough guess from my side. Final numbers are yet to come in. But yes, it could be as large as that.

Okay. And talking about the -- what -- how competitive is our company in terms of price and quality or in terms of...

In terms of quality, we are as good as anybody else in the world. There's absolutely no issue in quality of our products, our telecom products, fiber-optic cables or anything. In terms of competitiveness, yes, we maintain our competitiveness. Otherwise, we would not, we receiving orders.

[Operator Instructions] Next participant is an [ Utkarsh Somaiya, ] individual investor.

I just wanted to know what are the current prices for fiber and optic-fiber cables per kilometer?

Fiber, I already mentioned, it is around -- for us, it is around INR 250. Now how much are the prices of others, I do not know. But it could be INR 270, INR 280, INR 300, I do not know. Fiber-optic cable depends upon what kind of fiber-optic cable you are talking about. But if your common denominator of per fiber kilometer of cable, it is about INR 900 right now.

INR 900 per?

Per fiber kilometer of cable.

Okay. So I just -- I'm a little confused. If I remember correctly, last quarter, it was around INR 4 to INR 5. So am I getting the metric wrong?

No, no, no. You are mixing the fiber and fiber-optic cable. Fiber-optic cable, I'm saying, when you put all the fibers in a cable, 48 fiber, 96 fiber all, the cable price would not be a common denominator because cable size is different. But if you divide it by fiber count and do an averaging, it comes to about INR 900 right now, which used to be INR 1,000-plus earlier.

Okay. So we have grown our revenue despite fall in realization per unit?

Absolutely because of higher quantity.

Okay. So basically, all growth is volume based?

Yes, yes, yes.

Value based, is that the correct interpretation?

Volume-based, value-based, yes, you're right. It has to be volume-based. The market prices go up and down, but still there is a market price gone down, so we have higher volume, that's why this growth is there. You're right.

Okay. Okay. And just to get 1 more thing clear regarding the promoter pledge. By the end of the quarter, will it come down to 0 from around 38% currently?

Say that again?

Sorry to be repetitive. The promoter pledge currently it is around 39-point -- sorry, it is around 47%. So will that come down to 0 by the end of the quarter? Is that -- did I get that correct?

Yes. Look, banks, whatever pledge we have done, as I have been seeing again and again, is against the loan of the company and the pledge conditions have already been fulfilled. We have already requested banks to release the pledge because the conditions are already fulfilled. Lead bank has already agreed. Other banks have taken the matter to their own committees for internal approvals. And if they all agree, then it would come down to 0. I have no reason to believe it will not. So all the conditions are fulfilled. But I cannot make a promise to you right now that it will definitely come down to 0 by the next quarter or so because the banks have to approve it. But knowing that lead bank has approved it, we are quite positive that it would be approved. Because there is no condition which is unfulfilled and banks should release the pledge now.

[Operator Instructions] Next question is from the line of [ Ketan Shah, ] an individual investor.

Sir, happy new year to you and all the team members, sir. Sir, [Foreign Language]?

[Foreign Language] as against INR 75 crores in the same period, which is 9 months in the last year. Now [Foreign Language] next year onwards. [Foreign Language] like so many countries, we are now working on to export cable and some of the places were direct recruitment of the sales people. So with the whole idea [Foreign Language] fiber-optic cable and other product [Foreign Language]. Our internal plan is to go up by 300%.

Ladies and gentlemen, that will be the last question for today. I will now hand the conference over to Mr. Nahata for closing remarks.

Thanks to all of you. I believe you would have got a good summary of -- and the way we are working, the way we are trying to maintain a sustainability and improvement in revenue and profitability, the focus we have put on research and development, innovation, resulting in more and more products coming from our side, from our company, and -- which would be sold not only in India but other countries also in export market also. So thanks, everybody. Thank you very much. And we'll be in touch. Thank you very much.

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

Thank you.

Thank you.