HFCL Limited

The global macro environment continues to be challenging and dynamic. However, with the advent of 5G, the opportunity landscape for manufacturers in the telecom and technology industry looks promising, and has grown manifold. It has also given rise to a spike in demand for optical fiber cables and telecom and networking products. The deployment of a robust 5G infrastructure in the next couple of quarters will enable enterprises to embark on the digital transformation journey across sectors.

The development of revolutionary yet indigenous technology and products has positioned HFCL in the forefront of global technology leadership. The company has strong footprint in 30-plus countries, serving 80-plus clients globally in optical fiber cables and telecom products.

For HFCL, Q2 FY23 has been promising. The company was able to continue its sustainable growth path, which was fuelled by some key product launches.

As a technology-driven enterprise, there is a significant thrust on innovating futuristic 5G products. This will create huge opportunities for its new products based on 5G technologies like 5G-8T8R macro radio unit, 5G indoor and outdoor small cell development and 5G mm wave fixed wireless access customer premise equipment products in the domestic and global markets.

The other strategic priority during this quarter was on expansion in key global markets, including the United States and Europe to further support its strategic direction to become a product-led global player in optical fiber cables and telecom products and solutions space. By winning key orders from Reliance Retail, BSNL, and RailTel, HFCL closed Q2 FY23 with an order book of more than ₹5200 crore.

Over the next 3 years, HFCL aims to build upon global customer relations and export footprints expeditiously, and emerge as a large global player in this space. Its export revenue has grown by 88 percent in Q2 FY23 on a year-on-year basis. In H1 FY23, export revenue stood at ₹376 crore, compared to ₹171 crore in H1 FY22, an increase of 120 percent. The manufacturer plans to double the export revenue during the current financial year. This trend is expected to continue in coming years as well.

On August 8, 2022 HFCL also entered into a crucial partnership with Qualcomm for design and development of 5G millimeter wave fixed wireless access customer premise products. In continuation with its 5G product strategy, HFCL is expanding its 5G product portfolio by launching product development of 5G mmWave FWA CPE products for India and global markets.

At the India Mobile Congress 2022, held recently in the Capital, HFCL took the opportunity to launch some significant new offerings, including world’s first open source Wi-Fi 7 access points, designed to deliver extremely high throughput, generating a speed of more than 10 giga bits per second. With a strong background of R&D, its line of Wi-Fi 7 products is bound to enable telecom operators to deliver better user experience than earlier, bringing them a step closer to Metaverse.

At IMC 2022, HFCL also launched the first product from its 5G product family, the 5G 8T8R macro radio unit, which is modular in design, and can be easily customized to support any Sub-6 GHz frequency band to address the global markets. Its next-generation radio unit combines the power of vRAN, based on open standards to accelerate 5G deployment.

HFCL is one of the few companies in the country to have launched 5G lab-as-a-service.

HFCL will provide an automated test environment for the private sector, academia, and government to work together on product innovations from concept to reality, thereby accelerating the rollout of 5G solutions and services, both in India and globally.

Having been successful in Q2 FY23, with healthy growth in revenue and margins over the last quarter, the management believes that revenue and margins will continue to grow with all the initiatives taken in the last few quarters. HFCL has committed a sum of Rs. 425 crore over a period of four years for the design-linked incentive scheme for telecom and networking products.

In FY22, HFCL reported consolidated revenue of ₹4727 crore, an increase of ~7 percent from ₹4423 crore in FY21. EBIDTA for the year was ₹693 crore, up 18 percent from ₹584 crore in the previous year. Profit before tax increased by 31 percent to ₹442 crore from ₹337 crore in FY21, while profit after tax increased by 33 percent to ₹326 crore from ₹246 crore in FY21.

The company has increased its product revenue to 43 percent in FY22, up from 27 percent in the previous fiscal year, which helped it register better margins. In addition, export revenue increased to ₹363 crore in FY22 from ₹201 crore in the previous year. With sustained growth and fiscal consolidation, CARE Ratings upgraded its credit rating to A with stable outlook.

To drive sustainable and profitable growth, HFCL has prioritized four strategic focus areas – continued capacity expansion and setting up new facilities, product innovation, expanded global footprint, and strategic partnerships. These measures are transforming HFCL into a technology-driven global enterprise.

Capacity expansion. HFCL is in the process of increasing its optical fiber manufacturing capacity equivalent to 22 million fiber kilometers and optical fiber cable to 34.75 million fiber kilometers per annum. These expansions are likely to be completed by FY24. This will help bridge the gap between the growing fiber demand and cable capacity. It will also strengthen the supply chain and increase the company’s margins.

Product innovation. The company has made significant investments for new product developments, including Wi-Fi-7 enabled access points, point-to-point and point-to-multi-point backhaul radios and routers. These products will be compatible with 5G networks. It is also working on the development of software-defined radios, 5G radio, and transport products, and the progress made in these areas will help HFCL to enter new global markets. In addition to the prior developments, a fresh initiative has also been taken to develop new types of optical fiber cables for export markets.

Global market expansion. HFCL has formed two new wholly-owned subsidiaries in Texas, USA and Amsterdam, Netherlands to meet the global demand for the company’s products and to expand its business operations and activities overseas. Both wholly-owned subsidiaries propose to trade in optical fiber, optical fiber cables, telecom and networking products, as well as conduct related research and development.

Strategic partnerships. HFCL formed several strategic alliances and associations in FY22, enabling faster development of products. The company joined the O-RAN alliance, a global community of mobile network operators, vendors, and research and academic institutions in the radio access network industry, working together to build much more intelligent, open, virtualized, and fully interoperable mobile networks. HFCL aims to integrate and validate its 5G products and solutions with other members and contributors to the O-RAN alliance. In addition, it has partnered with WIPRO to co-develop various 5G transport products that will enable communication service providers (CSPs) to modernize their backhaul networks and make them ready for 5G services. The vendor has also tied up with other renowned technology players and start-ups, including Capgemini, NXP, IP Infusion, and Metanoia to develop various 5G communication products. The company has engaged CommAgility as a critical technology partner in the development of a comprehensive portfolio of 5G radio access and transport network products.

Outlook. With a major focus on the 5G revolution, HFCL is witnessing a transformation toward emerging as a high-tech global enterprise and integrated next-gen network solution provider. Witnessing a strong demand for its 5G products, optical fiber cables, and integrated network solutions, both in India and globally, the management is committed to continue to leverage its capabilities and continue with its strategy of tapping new customers, new geographies, and new products.