HFCL Limited (HFCL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the HFCL Q1 FY '27 Conference Call hosted by Nuvama Institutional Equities. Before we begin, I would like to read a disclaimer statement. Statements made during this call may be forward-looking in nature based on the management's current beliefs and expectations. This must be viewed in relation to the risks of the HFCL business basis that could cause its future results, performance or achievements to differ significantly from what is expressed or implied by such forward-looking statements. Investors are therefore requested to check the information independently before making any investment decision. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Achal Lohade from Nuvama Institutional Equities for the opening remarks. Thank you, and over to you, sir.

Yes. Thank you. Good afternoon, everyone. On behalf of Nuvama Institutional Equities, we are glad to host the senior management of HFCL Limited. To discuss the Q1 FY '27 earnings, we have with us Mr. Mahendra Nahata, Promoter and Managing Director; Mr. V.R. Jain, CFO; Mr. Manoj Baid, Company Secretary; and Mr. Amit Agarwal, Head of Investor Relations. We'll start the call with the opening remarks from the management and then move to Q&A. Thank you, and over to Mr. Nahata.

Thank you and good evening, everyone, ladies and gentlemen. I extend a warm welcome to all of you on HFCL's earning conference call for the first quarter of financial year '26-'27. I trust you have had the opportunity to review financial results, press release and investor presentation, which have been uploaded on the company's website as well as on the website of the stock exchanges. Thank you for joining us today and for your continued interest in HFCL. With the strategy initiated is undertaken by the company, HFCL [indiscernible] strong growth part. I'm pleased to inform that your company has delivered remarkable performance during the first quarter of financial year '27, its highest ever quarterly revenue, profitability and the order book. We have emerged as a global player in optical fiber, optical fiber cables, and optical connectivity positions, defense, aerospace, telecom products and digital infrastructure wins. Each of these businesses address large and rapidly expanding markets and together, they provide HFCL with multiple avenues for sustainable and profitable growth. We are also encouraged by the increasing confidence shown by our customers, business partners and the investment community. Over the last few quarters, several reputed domestic and global institutional investors have become shareholders of HFCL. We sincerely welcome their confidence in the company. We began financial year '27 with clear priorities to accelerate growth, improve profitability, strengthen our technology leadership and execute our long-term strategy with discipline. I'm pleased to say that the first quarter has been an encouraging start in that direction. The quarter witnessed strong order inflows and execution across our core segments, continued improvement in profitability and sustained progress on several strategic initiatives that we believe will shape HFCL's growth over the coming years. In our previous earnings call, we had outlined our aspiration for delivering around 20% revenue growth during FY '27, supported by continued improvement in quality and mix of revenues. There is [indiscernible] progress achieved in the first quarter, healthy order inflows, favorable industry dynamics, expanding global opportunities and improving execution capabilities [indiscernible] to the best of our estimate, can trade our expiration for the FY '27 to a revenue growth of 40% now. This confidence is not based on any single order or short-term opportunity. It is supported by multiple growth platforms that are gaining momentum simultaneously and providing greater visibility to our business. Another very important milestone during the quarter has been significant improvement in our profitability. During our previous earnings call, we had indicated our expiration of achieving EBITDA margins of over 20% during FY '27. I'm pleased to share that the company achieved EBITDA margin of more than 23.25% in the very first quarter itself. More importantly, this reflects a structural enhancement in the quality of our business led by various initiatives taken by the company over the last few years. A higher contribution from technology-led products, increasing exports, improved product mix, operating leverage and our continued focus on innovation are collectively driving stronger profitability. Our objective is not merely to grow revenues in order to build a business that consistently deliver sustainable and profitable growth. Our confidence is further strengthened by the quality of the orders secured during the quarter. We secured several strategically important orders across our core businesses, reinforcing essential position as a trusted technology partner in optical connectivity and digital infrastructure. Consequently, our order book is strengthened to approximately 26,665 crores, which is not only all-time high, but is 5x of FY '26 revenue, providing healthy revenue visibility and supporting our confidence in the growth outlook for the company. I'm pleased to inform that global optical connectivity industry has entered a new phase of growth, submergence of artificial intelligence, hyperscale data centers, cloud computing and high-performance computing is creating an entirely new source of demand for advanced optical fiber infrastructure. These technologies require massive data movement at extremely high speed making optical fiber an [indiscernible] part of the ecosystem. But telecom network expansion also remains as an important driver. Based on orders received and regular interactions with our customers, we can perfectly foresee demand pipeline, continuing and market growing for at least next 5 years. In [indiscernible] across the world are investing heavily in secure communication networks, strategic infrastructure and offering capabilities creating additional demand from the defense and public infrastructure sectors. As a result, the industry today is supported by multiple demand drivers making the long-term outlook significantly stronger and more resilient than in earlier investment cycles. In anticipation of the significant opportunities emerging globally, we continue to strengthen our manufacturing capabilities, expansion of our optical fiber manufacturing capacity from 28 million fiber kilometers to 34 million fiber kilometers is progressing well, and will be completed by December 2026. Similarly, expansion of our optical fiber cable manufacturing capacity, some 34 million fiber kilometers to 43 million fiber kilometers, an expansion of infrastructure or data center connectivity solutions are also progressing as planned and are expected to be commissioned within targeted time lines. As you know, the Board has already approved for setting up our greenfield [indiscernible] manufacturing facility of 300 metric tonnes per annum with a capital [indiscernible] backward integration or further expansion of supply chain with incremental fiber manufacturing capacity. These capacity expansions have been aligned to the orders in hand and increasing global demand and will further strengthen our ability to serve customers across domestic and international markets. As data center [indiscernible] business has created several large opportunity for our optical connectivity segment. With the construction of hyperscale data centers, demand for connectivity solution is ever increasing. With this increase in demand, we are continuously expanding our capacities for the manufacture of interconnect products for the data centers. The [indiscernible] capacities including company's subsidiary HFCL Limited is being expanded by 5x, giving the first year of production, which is the current year, we expect the revenue of more than INR 700 crores with a clear visibility to increase it further multiple [indiscernible] in subsequent year. I'm pleased to inform that based on global opportunities and inquiries for data center connectivity products, the Board of Directors of your company in today's meeting has approved for an investment of INR 215 crores for the expansion of manufacturing base for advanced data center connectivity products including nature multi-fiber and super high density, multi-fiber transition assemblies. Let me now turn to another exciting opportunities for us, defense and [indiscernible]. Over the last several years, while strengthening our leadership in optical connectivity, we are simultaneously invested in building a differentiated defence business. These investments have been guided by long-term reasons because indigenous development of different technologies require sustained research and development, product qualification, customer validation and advanced manufacturing before meaningful commercialization begins. So constantly focus on building indigenous technologies, strengthening engineering capabilities and creating specialized manufacturing infrastructure to position HFCL for long-term participation in this strategically important sectors. Today, we are [indiscernible] to see the benefits of these investments. The business has developed a healthy product pipeline. Customer engagements have expanded considerably, and we are witnessing increased interest across both domestic and international markets. The proposed acquisition of Aerostructure business [indiscernible] actual participation in global aerospace valuation, opening doors for many more such opportunities in that segment. We expect this business will generate meaningful order in source, creating another important avenue of growth for the company. The aggressive opportunity before us continues to grow. India is witnessing one of the largest different modernization programs in existing, supported by increasing capital expenditures, accelerated indigenization, import substitution and the government's continued emphasis on Aatmanirbhar Bharat. At the same time, increasing geopolitical uncertainties have led many countries to strengthen different preparedness and diversified sourcing strategies. This is creating attractive opportunities for companies with indigenous capabilities and with globally competitive technologies. Today, HFCL's defense portfolio expense, surveillance [indiscernible] therman imaging solutions, ammunition, technical cables, aerostructures with proposed and with proposed acquisition and several next-generation technologies currently under development. Collectively, these businesses provides us to a strong foundation for sustainable long-term growth. At the beginning of the financial year, we have shared our aspiration of achieving approximately INR 500 crores of revenue in different sectors during FY '27. Based on the current execution pipeline, customer engagement and order visibility, we remain firmly on track to achieve this objective. One of the important milestones during the quarter was the groundbreaking ceremony of our upcoming ammunition manufacturing complex in Andhra Pradesh held on 15th May 2026. We were honored that this landmark event was graced by Honorable Raksha Mantri of India and Honorable Chief Minister of Andhra Pradesh, reflecting the strategic importance of the project and its alignment with the government's vision of strengthening India's indigenous different manufacturing ecosystem. The complex is being developed to manufacture advanced ammunition systems, including electronic fuses, multi-mode hand grenades, other specialized products designed to the evolving requirements for Indian Armed forces and global customers. We believe this investment will create significant opportunities for exceptional -- for years to come. Products such as these demonstrate the growing maturity of research and development capabilities. This reflects our ability to develop different technologies as a complex operational challenges by reducing dependence on imported systems. We believe these products will continue to strengthen our competitive position in both domestic and international markets. Our long-term aspiration is to build a difference in a aerospace business, which over the coming year has the potential to become really comparable in scale of HFCL's current overall business. Given the opportunities before us, the capabilities we have developed and the policy support for indigenous manufacturing, we remain confident that this business still emerges one of the most important pillars of HFCL's future growth. As HFCL's continuously evolve in a diversified technology enterprise, we are equally focused on ensuring that our organized structure and capital allocation sales remain aligned to the scale and complexity of our businesses. As communicated earlier, our Board had contributed restructuring committee to evaluate strategic alteratives aimed at simplifying the group's structure, enhancing operational efficiency and unlocking long-term shareholder value. We are actively evaluating various alternatives and to support this process, we have appointed Ernst & Young as our strategic advisor. [indiscernible] is clear to ensure that our organization structure evolves in line with the transformation of our business portfolio by enabling these business to realize its full growth position. While it would not be appropriate to comment on specific outcomes at this stage, I would like to assure our shareholders that every decision will be guided by 3 fundamental principles, which is creating long-term shareholder value, strengthening operational effectiveness and preserving financial discipline. We'll continue to keep all the stakeholders appropriately informed as this process progresses. Thanks. Let me now quickly take you through the consolidated financial performance of quarter 1 year of financial 2027. Revenue for Q1 FY '27, stood at INR 1,914.98 crores as compared to INR 871.02 crores in Q1 FY '26, and INR 1,824.12 crores in Q4 of FY '26. EBITDA for Q1 FY '27 stood at INR 445.27 crores, as compared to INR 42.93 crores in Q1 of FY '26. That's a more than tenfold jump and INR 336.93 crores in Q4 FY '26. EBITDA margin in Q1 FY '27 stood at 23.25% as compared to 4.93% in Q1 of FY '26 and 18.47% for Q4 FY '26. Profit after tax for Q1 FY '27 stood at INR 245.64 crores as compared to loss of [ INR 29.30 crores ] in Q1 of FY '26 and INR 184.45 crores profit in Q4 '26. The margin in Q1 FY '27 stood at INR 12.83 crores (sic) [ 12.83% ] as compared to negative 3.36% in Q1 of FY '26 and 10.11% in Q4 of FY '26. Segment revenue from telecom products stood at 85% of total revenue in Q1 '27 as compared to 62% in Q1 of FY '26 and 85% in Q4 FY '26. Export revenue stood at INR 1,063 crores in Q1 of FY '27 as compared to only INR 210 crores in Q1 of FY '26 and INR 1,222 crores in Q4 FY '26. During the quarter, the company delivered healthy growth in revenue while continuing to improve profitability. I'm particularly encouraged by the improvement in the quality of our earnings. The increasing contribution from technology-led products, exports and value-added positions, together with disciplined execution of favorable industry dynamics is enabling us to build a stronger and more resilient business. Going forward, our priorities remain clear. We'll continue to strengthen our global leadership in optical connectivity. We'll continue to scale our defense and aerospace business intermedia growth platform. We'll continue to invest in innovation and advanced technologies and differentiated products. We'll continue to deepen our relationship with customers across India and global markets. Above all, we will remain committed to disciplined execution, prudent capital allocation and sustained value creation. And on behalf of the Board and the entire management team, I would like to sincerely thank our customers, employees, business partners and shareholders for their continued trust and confidence. Your support inspires us continuously, raise our own benchmark, and let's try for excellence in everything we do. Thank you once again for joining us today. Till now be happy to take your questions.

[Operator Instructions] The first question comes from the line of Aman Sethi with Stallion Asset.

Congrats on a great set of numbers. Sir, I just wanted to understand, we have recently announced investment of INR 215 crores, and they are already doing a preform CapEx as well. What would be our total CapEx for this year and next year?

OUr total CapEx of this year and next year, I can tell you, this year, total CapEx is INR 640 crores, which includes part of the preform, then the tower -- 3 towers which we are ready as increasing the manufacturing capacity of fiber from 24 million to 30 million fiber kilometers -- sorry 28 to 34 million fiber kilometers. And IBR wines, which have been already been ordered and under delivery INR 60 crores. And in our subsidiary, the data connectivity business was INR 65 crores; in different sector, INR 100 crores, and today what I announced INR 215 crores, out of which INR 100 crores will be spent in this year. So total would be INR 640 crores. Next year -- about INR 615 crores, out of which INR 325 crores will go to preform and INR 175 crores to defence and INR 115 crores balance up to [indiscernible] would be in data center connectivity solution. That would be INR 615 crores.

Got it. Got it, sir. That's great. And sir, my second question would be, as you mentioned that this year, you are targeting around INR 500 crores of defense execution. And when I see our telecom products business, our revenues on a sequential basis are holding up really nice. And if I just annualized that numbers, our annualized revenue comes to around INR 9,300 crores. That's a significant revenue growth versus what you're guiding is 40%. I'm just trying to understand when you're having such a large tailwind why are we being so conservative?

Look, I've not going into this calculation of INR 9,000 crores or so. But I can tell you one thing. We had talked of 20% growth in revenue in the last call. And looking at the business potential and all that, now I see will grow at 40%. But it is always good to be conservative. If I promise you 1 and give you 2, you would be happy; if I promise you 2 and give you 1 then you are unhappy.

The next question comes from the line of Balasubramanian with Arihant Capital.

Congratulations for good set of numbers. I think we have really did well. And sir, first question, [indiscernible] global scenario on the pricing side, especially in data center and telecom side. I think we have varieties of products like premium side, more than 1,700 fiber counts and we have 3,000 -- we have 6,900. So I'm trying to understand what is the pricing level for higher fiber count cable and specialized cables compared to standard [indiscernible] fiber cables for telecom product size. And I think international markets, we have seen a higher realization compared to domestic market. I think recently, we have got 1 of that because the export order for data center for hyperscalers. So could talk about overall scenarios. And earlier the pricing range INR 1,000 [indiscernible] current trend on the pricing side? And if you're talking about 40% growth, whether if you could quantify how much you can expect on the real estate side and how much we can expect to volume growth side?

Balasubramanian, you have asked so many questions in 1 question, that is difficult to remember also what you've asked. The fiber realization price depends on various things. They are not standard. For telco, the fiber is a different kind [indiscernible] with 200 microns or even less. So price differs significantly. So our range I can give you, it really could be starting from $18 fiber kilometers to $28 fiber kilometers. It all depends upon what fiber counts, what kind of fiber size, what kind of fiber. All depends upon so many things. [indiscernible] range. There's no particular number I can tell you because this is the number, range you can say from $18 to $28.

What is international market size sir?

International market side, that's whay I am saying. It depends who is buying, what kind of fiber he is buying, how many count of fiber he is buying. So this is all very dynamic. And again, whether they are long-term orders, short-term orders. So there's no particular fixed price, I can tell you. But yes, international market, you can take little data centers [indiscernible] you can take somewhere between $22 to $26 to $28 depending again upon what kind of numbers and what kind of quantities and all that. Telco could be a little lower because there are different kind of a fiber. So there is no fixed thing as such. This all varies with type of fiber quantity, longevity and the long-term contract, all those kind of different things. But certainly, prices have gone up quite a bit significantly in the last 6 months.

Sir, the second question on the project side, like [indiscernible] on the project side earlier call, which mentioned about the [indiscernible] project, the things will realize from [indiscernible]. I think we can expect INR 170 crores like AMC revenue on that brand. We are under track, sir?

Yes, we are on track. From Q2, it should be possible. It is in the final, final stage. I think another month, it should happen.

Okay. So we can expect the large production from Q2 protection onwards?

Yes. I would say Q2, mid of Q2, yes, something like that or we are the government things [indiscernible] can always change [indiscernible] but yes, sometime mid of Q2, you can say.

Okay. Sir, my last question is on the margin side. I think the last 3 quarters, we are meeting nearly 30% kind of margins for telecom products side. Right now, we are in that 80%, 85% kind of mix, but sir, we should assume same kind of mix the entire year? And what is the sustainability of these margins over the next 2 to 3 years?

Yes. No. I think [indiscernible] sustainable because we know our raw material prices, we know our sales prices because there are long-term contracts. So I think the margins are sustainable.

[Operator Instructions] The next question comes from the line of Kush Tondon with Ananda Capital.

Congratulations on significantly better-than-expected results. And sir, a couple of questions that I had. The first one was, sir, in this quarter, was there any higher margin orders, you are seeing margins are sustainable at these levels? But the quarter's performance, is it sustainable going ahead, sir, was there any onetime large execution of an order, which is not sustainable in the next quarters? Anything like that?

Mr. Kush, you -- first, let me ask you a question. You said that these are better than expected. What do you expect?

Sir, it won't be fair on my part to answer that question, but it's significantly better than, I think my expectations.

I was joking. As far as the margins, Kush these are sustainable. There is nothing called a particular high value, high-margin order which you executed. These are the average order -- or average prices on all the orders, which should continue possibly throughout the year. So, there is no kink up or down in any of these margins. So it's a totally sustainable.

Okay, sir. And let's say, if we take a 3-year view on the business, with super [indiscernible] the optical fiber for data center business. So how are you seeing a 3-year outlook, if I may just ask on -- of the pricing environment, the supply/demand environment?

Look, I will give you a 5-year out. Why 3 years? 3 years [indiscernible]. Even 5 years [indiscernible]. Contracts are now getting held for 10 years. You would have heard that Molex had a contract with [indiscernible] for 10 years. So 5-year outlook as far as I can understand, there is absolutely no -- we're not going to be any net demand. Demand is going to increase. I'll give you the reason for that. Right now, if you see most of the expansion is taking place in North America [indiscernible] India is an example. India total capacity is, I think, 1.5 gigawatts in 3 years, we're expecting it to become 3 gigawatt. U.S.'s current capacity is about 150 gigawatt, and [indiscernible]. So Europe, the situation is similar to India, very low growth, Southeast Asia, Middle East, very low growth. Now growth is starting to pick up. Middle East, at the moment it is in a different kind of environment, I would not venture into that. But minus that, they are picking up the data centers construction. India is picking up good data center construction. Europe has to pick up, they cannot be far behind the U.S. They can be behind U.S. So what is our market of data center creation is going to go up and up. And the kind of data flow, which is quite massive amount of data flow is required, fiber optic is the only solution. There is no other solution in the world available today. So demand of fiber optic cable is going to increase only. U.S. will have a huge amount of demand and the places where data center construction has now started for them to reach to the level of buying fiber, they will take 1 year, 2 year kind of a time frame. So the demand will continue for at least 5 years, and maybe more than that, maybe more than that. In 5 years, I can see a clear view that demand is not going to go down.

And sir, if you can give a view on supply also especially Chinese supply, which may not be going to U.S. immediately, but in a 5-year horizon, whenever there is a large supply-demand gap, probably then supply is also catch-up sir. So any view on the supplies?

Look, you asked the question in China. Right now, as you know, U.S. is the largest market. But in the U.S., China, one, they don't prefer China as a -- I don't think there's an administrative order not to buy from China, but there is a administrative advice that administration is not in favor of buying from China. [indiscernible] is one of the customers whom I will not name in U.S. 2 weeks ago, and when we talked about the Chinese, they said look our administration is not in favor buying Chinese fiber [indiscernible]. Now question is what would happen to China increases capacity. One is unwillingness to buy from China and higher duty on China. Today, there is a 35% duty on Chinese fiber, anything import in China in U.S. So in any case, the competitiveness of Chinese fiber goes down when you compare with us because of the higher amount of duty [indiscernible]. So supply, yes would increase, but demand would also increase as you can see it. But the another sector of demand which has come for different industry, that is fiber optic drones. Today, there is a demand of almost 70 million to 100 million fiber kilometers of fiber for A2 type of fiber. So fiber optic drones and since demand is going to increase because till now, only those countries are buying fiber for the fiber optic drones, which are in war. But now slowly every country is revising that, no radio control [indiscernible]. They can be controlled by jamming their frequency or such different methodologies. So people are using optical drones and drones are the new fighting machines, as you know. No longer guns and all that artillery and all that. So drones have become increasingly popular. So every country is now preparing for fiber optic drones. There is a huge, huge demand opportunity that has come up there. So supplies would increase. China, I would not very much as far as U.S. market is concerned, which is a major market at this point of time. Southeast Asia, yes, China will dominate. But the Middle East, Europe, we have always been competing with China in telecom market, and we'll continue to do so for the data center market also. Our capacities are also now big enough, world-class capacities. It's not where we don't have economies of scale [indiscernible] will be able to complete.

Okay. So sir, is the past production in India and cost of production in China with a duty, is it significantly cheaper than to procure from India?

I don't procure anything from China...

Not you, sir, your customers.

So today, U.S. for example, many of them don't even consider procuring from China, forget about prices.

Okay. Okay.

But today, China is not cheaper that much I can say. Even if somebody wants, it's not cheaper. [indiscernible].

The next question comes from the line of [ Rickin ] with Capri Global.

Congrats on great set of results. Sir, I have 2 questions. Firstly, if you could help understand both on the -- the contracts that you have won on the optical network side, are these price -- fixed price in nature or what kind of mechanism because your orders are like 3 years, 4 years out kind of orders. So what kind of pricing mechanisms do they have. And in one of your comments, you did touch upon the fact that on the raw material side, also, we have kind of a fixed contract. Sir, if you could elaborate a little bit in terms of the kind of inflation that you are seeing on the raw materials and whether that would have any impact on our margin performance?

Most of the long-term contract with raw material or the sales have a variation [indiscernible] on a yearly -- yearly basis. Yearly basis, prices are rediscussed. But, in between if there are large variations, then that will also be discussed. If they are large variation, which I don't anticipate. But in the yearly reset of the prices is always there, depending on the market [indiscernible] are resets. But that opportunity is still not come because these contracts are not even year old. So I cannot say, but that the sales contract, there would be the reset or not. But yes, [indiscernible] 50% duty at some part of time, there were reset. Customers paid large part of their duty. And good thing is that the duty has been refunded and they [indiscernible] them back.

Right. Right. Got it. Got it. So in terms of both on the fixed -- on the supply side, I mean, the raw material side or on the demand side, it would not lead to any major impact on our margins is the reading that I'm taking from here, because there have been some form of passthrough?

Because I tell you, it's a both sides. Sales price will increase in the raw material price increased significantly, significantly. You'll pay a 5% increase, the customer is not going to increase 5%. It's not a moving thing. If there is significant increases then we go to the customers. If there is a significant decrease, customer comes back to us. The 50% example I gave you. When there was a 50% duty imposition, now I could not take a 50% duty. Customers help me, and they are very helpful. But when the duty has been refunded, we have paid them back.

Got it. Got it. Sir, that is very clear, sir. The second question which I have is on the new pillars of growth, which you alluded to, which is the difference in aerospace business. If you could give us some kind of visibility in terms of any product approvals that have been achieved in the defense business. And second, in the aerospace business by, let's say, FY '28 or '29, and defence business, what kind of execution or top line do you think that we would be able to achieve in these 2 business -- in each of these businesses?

In '28, '29, I think this is '26, '27, '28 [indiscernible] aerospace business, we should be crossing INR 3,000 crores at least in the year next to that, our target is INR 5,000 crores. So '28-'29, we should be INR 3,000 crores plus because we are right now having -- including one of the acquisitions which we have signed and which is in process of getting completed, acquisition process in last stage, including that, we would definitely cross INR 3,000 crores, because in that, we are in negotiation for larger contracts for export also. Currently, the order book for export is roughly about INR 2,200 crores. We have been shortlisted for a major contract for modernization of BMP 2, and we have submitted the modernized sample also. And I would like to say that, but it's a fact that in the internal [indiscernible], our equipment has been found to be the best, but we have modernized. But again, there is internal trial, not [indiscernible] has started from 28th. So that should be completed in 1.5 months, then the winter trial and then the order strict, but I'm quite hopeful on that. So aerospace orders, [indiscernible] orders, I believe that -- we should 3 year time, I have given to myself for INR 5,000 crores.

Got it. So this year, at least we should see order inflow starting to come through in a meaningful way for both these segments?

Yes, I agree with you, meaningful ways. For our indigenously designed products, we have now [indiscernible] different kind of radars and sensors. We have integrated by C2 system, command and control system, and we are going to give demonstration to Army, the Northern Command sometime in the month of September as an integrated system. And moreover, you must have heard of Home Ministry's thing for securing the borders, bordering Pakistan and Bangladesh. So border protection system, there also the products which design are going to quite significant use. So there are also -- they are talking about [indiscernible]. There also we'll be working with them to work on a proof of concept, which BSF is organizing. So all these places, we expect reasonable amount of orders to come to us.

Got it, sir. Sir, just one last question...

The next question comes from the line of Sanjay Shah with KSA Securities Private Limited.

Nahata Ji, first of all, highly, highly congratulations and your tone of confidence in opening remarks was excellent and the way you're putting so many efforts in last so many years are now coming to show, and we are very well placed. Sir, my question was more regarding the optic fiber cable market, which is projected to reach around INR 21 billion by 2023 because of this growing driven by hyperscale data center and searching bandwidth demands of artificial intelligence. But what we see that there are many international players from Italy and Japan and all who are increasing capacity like [indiscernible]. So how we look at HFCL on that side after this capacity which may come up because President is spending around $1.5 billion to double their capacity. So how -- what is your thought process on that, which can help us a lot to understand the growth part?

Sanjay Ji, first of all, thank you very much for your compliments. Look, we are also increasing our capacity. We are also world class players. We started with 8 million kilometers of fiber capacity. Now today, we are going to be 34 million very soon. Cable, we started something like 10 million, 12 million. I'm talking this recent year, not old days [indiscernible] are much less. So today, we have 45 million. So -- and last 2 years or 3 years, every month, we are increasing capacity. And I don't think that this 34 million-kilometer fiber or 45 million-kilometer of cable is end of it. So we are constantly reviewing that. As we receive more orders, as we receive more odd demand, basically receive more inquiries from customers, we are constantly reviewing that. And we will have to further increase capacity. I'm not denying that. I'm not saying that we will, but this is a constant review and it's necessary, we will also increase the capacity. And no doubt that we are receiving a large number of inquiries at this point of time. As I talk, we really do not know whom to say yes or whom to say no. [indiscernible]. If I say yes to 1, I would have to say no to other ones. So that has become the situation. So we are really keeping a very close watch and maybe in near future, we may have to decide to increase our capacities further, which I'm not saying we have decided what we may have to.

That's great, sir. But how about the pricing? Because all this capacity come up when there could be a flood of supply. Is that true, what I understand?

Look, [indiscernible] there are 2 major issues out here. One, technology. The data center operators are not buying normal fiber optic cables. For example, there are buying 7,000 fiber cables. So how much of fiber optic cable suppliers have that kind of number of fiber cable, only very few, handful. So in India, we have 20 suppliers for fiber optic cable. But there are only 2 who can [indiscernible] this kind of cable. My other friend may say that I do not have, but I have. So there are only 2. So 18 do not have -- so if you look at that kind of a number, there will be only very few people who have that kind of a capability to develop and supply those kind of products. Then you have further changes in technology also coming up. It's not going to be -- technology is not going to remain constant. For multi-core, example fiber, [indiscernible] core fiber, all these are coming up. We are developing a local fiber. Now there are how many people in the world who are developing all of core fiber. So this is also a question of technology, number one. Number two, reputation in the market. Look, I'm not -- a number of the other people also are connected with the hyperscalers who are already supplying to them. And we will have a long-term relationship with those kinds. We have signed a 5-year contract. So when world demand comes up, actually, we are -- they are not going to be changing their suppliers unnecessarily just because the demand has gone down, maybe they buy less from us at that point of time. But as I said, I don't expect demand to go down for the next 5 years, at least. Capacities are not going to be matching the increase in demand. Demand is still going to outstrip the capacity for 5 years at least, I can see.

Sir, on technology side, can we take HFCL with the global players?

Yes, absolutely. 7,000 fiber cases we have already developed. We are now developing 14,000 fiber cable. Maybe there is a difference of 2, 3 months here that can always happen, but not more than that. All of our fiber has already the higher amount of work [indiscernible] than other. But we are also saying by the time [indiscernible] becomes somewhat commercial. It is right now thousands of dollars per kilometer. It's not even worth considering. But by the time it becomes somewhat commercial in any quantity, we would also be coming over to [indiscernible] fiber. We are already in development phase with IIT Delhi. So [indiscernible] and one of the government organization in Kolkata, which already had a tower for manufacturing [indiscernible] of a fiber. So already working on that. We are staying in technology. Another point, unless we were in the forefront of technology, we'll not be receiving a $1 billion contract kind of thing either for the cable or for connectivity solutions. We recently received a contract [indiscernible]. Now another thing I must tell you, connectivity solution has also emerged as a very large market, very large market. It's not small, it is going to be another we are about as big as the higher cable market. You need as much connectivity solutions also there is more value-added products because you buy connectors, you cut into PCs, you [indiscernible] all the manual process. So there is higher value addition. So it is also a very high potential market. And what your company is doing. I'm increasing my capacity for connectivity product [indiscernible] years time or let's say, a year's time, progressively my capacity 5x more than what it is today because that is a major market, which is emerging now. It is the size is going to be very, very big, billion of dollars worth of market, because if you need that and you need data center, you need connectivity solution. And then what also we have done not only cable or cable looks and all that, we are also developing, rather developed passive all kind of a proactive connectivity [indiscernible] joining boxes and all that. So we can be a one-stop shop for all connectivity solutions for data center, cable line all other products, the plastic and [indiscernible] and all that, which are required inside that data center, we will be one-stop shop. So it's going to be an entire set of connectivity solution that is another lead we have taken in this business.

The next question comes from the line of Manik Mahajan with Balyasny Asset Management.

Congrats on the good set of numbers. The first thing I wanted to understand was with respect to your comment on the margin and the margin guidance of 20%. You mentioned that for the...

Your voice [indiscernible] near the microphone and say that again?

Sure, sure. Can you hear me now better?

Yes.

Okay. So I was saying that with respect to your comment around the margins, you mentioned that the margin on the telecom business would be sustainable at 30%. So when I think about the overall [indiscernible] total account because this quarter is already won about 23% of EBITDA margin?

Your voice is a bit echoing [indiscernible].

So I'm saying that with respect to the margin that you can share or whether we should expect some seasonality on a [indiscernible] perspective because we are [indiscernible] purpose guidance of early percentage [indiscernible]?

So you are saying that is there any seasonality in telecom margin or is it sustainable? Is that the question?

Yes, because your full guidance to 20% and this quarter, you are already done 23%.

Yes, yes.

So I was just trying to understand why is the full guidance lower than the quaterly guidance?

I understand. Look, there's no seasonality. The reason being, as I say, 1 of the previous questions entered that this 23% margin is out of the normal average contract which we are executing, which we will be executing throughout the year. These are the average content, which more or less we remain sales throughout the year. So there is no seasonality at all. Seasonality is not there. So this 23% margin is something minimum, we would be able to perfect to the best of my information at this point of time out of the orders I have, committed [indiscernible]. But there is some geopolitical situation happens and something changes, which is not in my control or your control, some people [indiscernible] deliveries become delayed and any such thing happens, which I cannot control, I cannot say. But whatever [indiscernible] control of our business is, this will be having no problem.

Got it. That's helpful. And just one more follow-up from with respect to the [indiscernible] project. How does it alter the company's overall return profile and -- or the margin profile?

[indiscernible] mean -- I think you asked about the [indiscernible].

Right. That's right.

Prepone project is designed for the 2 perspectives: one, bringing more sustainability in the raw material supply chain because we would need a lot of reform. And a lot of people, some parts should be able to manufacture. So that is one part of it, that it would bring in more sustainability in the supply chain. Number two, the make versus buy analysis when you make, make is at least, I would say, 30% cheaper, at least 30% cheaper at this point today. Situation in 5 years down the road, I don't know. But as of today, make is 30% cheaper than buying. So raw material costs would go down for [indiscernible] to that percentage. In a fiber, 70% cost is preform, so 65% to 70%. So fiber costs would go down by 80% to 20%. When you go to cable, then cable fiber [indiscernible]. So total -- on the total cost revenue about 45% is you would say, is preform. So total, there would be 10% saving raw material costs, something like 10%, 12%.

The next question comes from the line of Nikhil Purohit with Fident Asset Management.

Congrats on another great set of numbers. So firstly, we had some unbilled revenues at the end of quarter 4 FY '26 and I expected this to be built in quarter 1. What is the update on this?

So it has been built. [indiscernible] the major amount of INR 300 crores, which has been built.

Okay. Great. We had also said that the 1.1 million order that we got from a hyperscaler would only start execution from the end of quarter 1 FY '27. My question is, do we expect to sustain this kind of revenue of INR 1,900 crores that we've seen in this quarter in the coming quarters because H2 is generally a stronger half or is it possible to see a quarter-on-quarter decline?

No, we're not going to quarter-on-quarter decline 5% or 10% here there, it's very difficult to predict. But generally, we should be able to maintain roughly about this kind of revenue. And profitability, I would say, also not declined. Profitability would also be remaining to the best of my estimate around -- we will not be inferior [indiscernible] better how much I cannot say. We will not be inferior to this in my opinion.

The next question comes from the line of Khushi Sony with Nuvama Institution Equities.

Congratulations on a great set of numbers. My question was regarding the order book that we currently have. Could you throw some light on how much of this pertains to the defense part and how much would be from the optical fiber period?

Look, optical, however, cable is roughly about INR 16,000 crores. Different parts, including the acquisition which we have proposed, if I take that into account, then it would be roughly about [indiscernible] is not included in this [indiscernible] let me tell you -- just -- sorry, it's not included in this INR 26,000 crores, but I would take it as my order because that acquisition is already final stage of completion. If I take that into account and the order book would be sustain like INR 2,300 crores or so. Without that, it would be about something like INR 300 crores or so. But one should take that into account because that acquisition is almost done.

All right. So out of this INR 2,600 crores, if I understand currently, currently, only INR 300 crores of defense order is included, additional acquisition is over and above that?

INR 1,000 crores.

INR 1,000 crores. All right. And if you could help me with what kind of revenue breakup in the telecom segment, we see with OFC and the data center solutions that we have been provided?

[indiscernible] data center solution business, Khushi, we have started this year only. This is the first year of data center business. And first year, I think Q1 would have been about INR 100 crores or so, I think, something like INR 100 crores, maybe a little bit here and there. But the current full year, we are looking at INR 800 crores somewhere, roughly about INR 800 crores number. This is a first year of data center connected with the business. But as I said a little while ago, I'm increasing this capacity by 5x -- 5 times. And so I do want to multiply this 800 number by 5x. So that -- but there is going to be significant increase in data center revenue in time to come. This is the first year of data center connectivity business, you must understand that. So -- but still, we are going to do that about INR 800 crores of revenue from that business. We already have almost INR 850 crores plus orders in our hands as we are receiving more orders for that. So capacity is being expanded by 5x.

So just one last clarification...

The next question comes from the line of Jigar Jani with Nuvama PCG Research.

Coagulations, sir, on great set of numbers. I have 2 questions. First was on your segmental assets. I could see about INR 1,000 crore increase on the telecom side of [indiscernible] on the asset side. So what is this capitalization related to compared to Q4 FY '26?

Just a second.

So it is aligned with whatever I mean, CapEx we are doing or the incremental revenue we are having. So that [indiscernible].