HFCL Limited (NSE: HFCL) Q3 FY23 Earnings Concall dated Jan. 24, 2023
Corporate Participants:
Mahendra Nahata — Managing Director
Analysts:
Aman Vij — Astute Investment Management — Analyst
Balasubramanian — Arihant Capital Markets — Analyst
Abhishek — Arihant Capital — Analyst
Sanjay Shah — KSA Securities Private Limited — Analyst
Hardik Vyas — Economic Times — Analyst
Hitesh K. Patel — KK Patel and Company — Analyst
Dipesh — Manya Finance — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the HFCL Q3 FY ’23 Earnings Conference Call, hosted by ICICI Securities. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mahendra Nahata, MD, HFCL. Thank you and over to you sir.
Mahendra Nahata — Managing Director
Thanks a lot and good afternoon, ladies and gentlemen, and greetings, for the New Year 2023. A warm welcome to HFCL’s Earning Call for quarter three of financial year 2023. I truly appreciate and express my gratitude for making it to HFCL’s earning call for the Third [Technical Issues].
Operator
Excuse me, this is the operator is anyone connected to this call. Hello. Hello. Is there any one connected. Please note, we request you to please re register to the conference and join back.
Mahendra Nahata — Managing Director
[Technical Issues] of the Company and also on the website of stock exchanges. Friends, our country has recovered to a large extent from the aftermath of macroeconomic challenges posed due to pandemic and geopolitical situation. We all applaud our government, the Reserve Bank of India and our policymakers for handling the situation so well and setting India on a part of economic growth. As a result, World Bank has upgraded India’s economic forecast for financial year 2023 stating the country is showing higher resiliency to global shock and robust domestic demand.
The telecommunication sector has been at the forefront of India’s technological growth, ushering into new advancements and enabling innovation. The impact of supply chain disruptions due to ongoing Russia, Ukraine conflict also seems to have eased a bit further during this quarter.
For us, quarter three of financial year ’23 was earmarked with some significant developments including the launch of our 5G products and services during India Mobile Congress of 2022, coupled with the prestigious partnership with Qualcomm for the development of innovative and futuristic 5G products. Further, we received approval to avail incentive up to INR652.79 crores under the PLI scheme from Government of India, which will give us a boost to the production of indigenous telecom equipment from India. With the favorable industry tailwinds, we have bagged key orders from prominent domestic and global players.
The demand for our new range of optical fiber cables in key markets remained high, leading to stellar performance on exports front, which grew by 140.38% on year-to-year basis. We have been able to close quarter three with an outstanding order book of more than INR7,000 crores.
As India undertakes one of the fastest and largest 5G infrastructure rollouts, there has been significant progress on home grown 4G and 5G stacks. The next couple of years will be exciting for the telecom instrument industry as the leading telcos are planning massive orders for 5G rollout.
During the fiscal period of 2023 to 2028, the addressable market size of various 5G products and services globally, which includes of course 5G transfer product, 5G ramp products and system integration services, is estimated around $400 billion. To meet this impending demand emerging from the 5G network rollout in India and also the global markets, we launched some key innovative products at the India Mobile Congress 2022, which is Asia’s largest Telecom Media and Technology forum held during October 2022.
We launched world’s first open-source WiFi-7 Access Points, 5G-8T8R Macro Radio Unit, which combines the power of vRAN and open-standards to accelerate 5G deployment. We also launched 5G enabled facility to accelerate rollout of 5G solution services. To sustain innovation and technological breakthroughs, we collaborated with industry leaders like Qualcomm Technologies for designing and developing various 5G products.
The telecom industry has continued to witness a strong investor momentum. On the backdrop advent of 5G, deepening of FTTH penetration in the country, ongoing BharatNet project, proposal for modernization of railways and defense telecom network and energize telecom initiative launched by the government of India. Also, with hyperscaling of data centers and 5G networks, we are seeing a many fold rise in the demand of fiberization and telecom networking products in India.
In order to create a strong 5G network infrastructure in India, the telecom industry will witness an investment of at least INR3.5 lakh crores to INR4 lakh crore in the next five years to facilitate 5G rollout in India.
The domestic optical fiber cable market environment continues to be strong with the current market demand for optical fiber cable products at 25 to 30 million fiber kilometer per annum, is expected to grow significantly over the next few years on account of creation of 5G network across the country, extension of existing 4G networks, deployment of fiber-to-home network, implementation of BharatNet project and creation of multiple data centers across the length and breadth of the country.
In India, BharatNet alone will lead to an opportunity of laying 16 lakh kilometers of optical fiber cable, translating into almost 50 million fiber kilometers of fiber. Until June 2022, the level of fiberization in India was at 35% against the ideal requirement of 75% for the launch of 5G services. Indian telcos are estimated to expand $1.5 billion to $2.5 billion on optical fiber cable in the next three to four years. The current global demand for optical fiber cable is around 650 million fiber kilometers equivalent cable, which is expected to grow significantly on account of 5G rollouts, FTTH expansions and creation of multiple hyperscale data centers.
As the largest suppliers optical fiber cables in India, HFCL has been focused on developing the new age, low diameter cables like microduct cables, FTTH cable range, micromodule cables, aerial cables and underground cables for meeting the growing global demand. As already informed, significant development during this quarter was our export growth of 140.38% on a year-to-year basis, and we are optimistic to continue with the same trend in coming quarters by accessing more geographies.
Our powerful and robust innovations has helped us in establishing of global footprint of 30 plus countries and serving up to 80 plus clients on the global front. With our own employees, in places like Dubai, France, Germany, England, Switzerland, Kenya and the U.S., we are further deepening our customer relations and widening our global projects. Leading global economies including the U.S., U.K. and Europe are some of our key focus markets.
During the quarter, one of the key milestones was to receive approval under the production linked incentive scheme from Government of India to avail incentive up to the INR652.79 crores over a period of five years during the financial year ’22, ’23 to financial year ’26, ’27.
As part of the development of earmark and investment of INR425 crores over a period of next four years, starting from the financial year ’22, ’23 for manufacturing of various telecom products including 5G equipments.
In order to avail the benefit under the PLI scheme, board in its meeting on January 23, 2023, has given us the approval for setting up a manufacturing facility for telecom and networking products in Gurugram in the State of Haryana. A participation in the PLI scheme will enable us to support our government’s initiative of Make in India, and make us more competitive in global markets.
The Board in the state meeting also decided to further the existing optical fiber manufacturing facility by 15 million fiber kilometer per annum in Hyderabad, where company’s optical fiber manufacturing facility is already operational. Instead of our earlier plans setting up through wholly-owned subsidiary, HFCL Technologies Private Limited. Estimated capex for this proposed capacity expansion would be INR357 crores and the total consolidated capacity of optical fiber manufacturing post expansion will lead to reach to 25 million fiber kilometer per annum from the existing capacity of 10 million fiber kilometer per annum.
Further, HTL Limited, our material subsidiary, was recognized as emerging Company of the Year during the eighth international aerospace and defense awards conducted in the recent Defense Expo 2022 in Gandhinagar, Gujarat, making it stepping stone to expanding our presence in the defense arena.
During the quarter under review, company has bagged a prestigious orders from various Indian and global customers amounting to approximately INR3,000 crores. We have a stable order book of more than INR7,000 crores as of December 31, 2022.
Let me, friends, now brief you on key performance metrics of quarter three of financial year ’23. Revenue for quarter three stood at INR1,086 crores as compared to INR1,173 crores in quarter two of FY ’23 and INR1,215 crores in the quarter three of FY ’22. However, EBITDA for the quarter stood at INR193 crores as compared to a INR175 crores in quarter two of FY ’23 and INR174 crores in quarter three of FY ’22.
EBITDA stood at 17.8% for quarter three of FY ’23, as compared to 14.88% in quarter two of FY ’23 and 14.66% in quarter three of FY ’22. For quarter three of FY ’23, profit after tax stood at INR102 crores as compared to INR84 crores of quarter two of FY ’23 and INR81 crores of quarter three of FY ’22. Now, PAT margin stood at 9.36% in quarter under consideration as compared to 7.18% in Q2 of FY ’23 and 6.67% in quarter three of FY ’22.
Segment revenue for telecom products during the quarter stood at INR693 crores as compared to INR671 crores in quarter two of FY ’23. From our financial metrics, you would kindly appreciate that on the backdrop in supply chain disruptions and reduced pressures on input costs, we have been able to demonstrate healthy growth in our order book, profitability and margins over last quarter. We are optimistic about tapping into future opportunities, and believe that our order book, revenue and margins will continue to grow with the initiatives taken in the last few quarters.
With 5G driving telecom operators and their innovation to a new high, HFCL is also witnessing a transformation towards emerging as a high tech global enterprise and integrated next-gen network solutions wide, having established a strong footing in industry as a leader in optical fiber cable manufacturing in the country, we’ll continue to offer more robust and high-tech solutions with open-source technology.
In financial year ’23, ’24, we will further continue to invest in R&D and focus on our strategy of tapping new customers, new geographies with new products. We aim to grow with strong contribution coming from exports, product segments and private customers. We are also looking at strengthening our order book further, which is over INR7,000 crores in the quarter three of financial year ’23.
To conclude. I would like to say that given the opportunity landscape in India owing to the 5G rollout, deepening of FTTH penetration, ongoing BharatNet, railway, defense and NHI telecom projects and hyperscaling of data centers, we will continue to leverage our capabilities and make the best out of available opportunities to innovate further.
Thank you once again for your keen participation. With this, I conclude my opening remarks and open the floor for question-and-answer session. Thank you very much.
Questions and Answers:
Operator
Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Aman Vij from Astute Investment Management. Please go ahead.
Aman Vij — Astute Investment Management — Analyst
Good afternoon, sir. First of all, congratulations on a good performance on the optical fiber segment. Sir, I wanted an update on the other segment as well which is the Defence segment, if you can talk about what is the update on the electronic fuse tender, as well as electro-optic tenders.
Mahendra Nahata — Managing Director
Aman, the performance has overall been robust, not only on optical fiber cable business, but other areas also including the project and the services. As far as project for fuse is concerned, that is yet to be decided. There are lot of issues going on and which are under discussion. Since it is a defense related project, I would not like to go in more details at this point of time, but it is yet not decided. And I believe that, you know, the tender is under consideration, and let us see what decision finally the military authorities take, keeping best interest of the country in view in next few weeks’ time, but no decision has yet been made.
In electro-optics, a tender we have participated, which is under evaluation. Technical testing is going on. We have submitted samples for totally indigenously designed electro-optic products. Not only indigenously designed product, but the core, which is the heart of the system has also been designed by us. I think we are one of the — probably the only Indian company which has designed a 12-micron core by ourselves. Only the sensor has been purchased from outside, the rest of the design is done by ourselves. We are probably the only Indian company which has designed the 12-micron core by itself, which increases our competitiveness and quality performance also. So, it is under evaluation — technical evaluation at this point of time.
But either couple of areas also we are making good progress in defense, though, as you know, defense revenue takes time, and I’ve been speaking repeatedly on every call and we don’t expect any revenue in the current financial year from defense, because all the evaluation and its performance checks and all these are going on, but it should start picking on from the next financial year and then increase further in the coming financial year. We are already working on a couple of more projects for Defence including, as I had informed earlier also, modernization of BMP armored personnel carrier that is going on, bench test has already happened. We are now keeping the BMP with our optoelectronics products and control systems, that evaluation will take place in the month of March. And similarly, they are working on software defined radios, high capacity radio relays. These are the four, five different projects we are working, but revenue would start coming from that next financial year, but the major growth would be from year next to that.
Aman Vij — Astute Investment Management — Analyst
Sure, sir. Just a clarification on this, and then I’ll move to my next question. So, on the fuse side, you had explained that the tenders last time they were some issues and the government had given — sorry the Army has given the tender to the public sector companies than the private and —
Mahendra Nahata — Managing Director
There is no tender has been awarded to anybody, no such tender award has happened.
Aman Vij — Astute Investment Management — Analyst
Okay, okay. So, they were supposed to come with new tenders.
Mahendra Nahata — Managing Director
Public sector companies were allowed to participate. Award has not happened.
Aman Vij — Astute Investment Management — Analyst
Okay, okay, but what I understood from the last call, you had mentioned that I think only the public sector companies’ product was allowed to go to the second level of trials, and private companies products are not allowed to go, and that is why private sector had complained to the Ministry of Defence, so I just wanted an…
Mahendra Nahata — Managing Director
That still remains the same. So, after all this recommendation by all private sector companies, no decision has yet been made to award tender to anybody, and let us see what decision government finally takes in terms of giving chance to private sector companies again to try the products, because private sector companies to my knowledge — best of my knowledge out of the three, you know, have indigenous technology with own IPR, at least HFCL has got own technology with own IPR, and which serves the real purpose of self-reliance, Atmanirbhar, particularly defense sector and which is under consideration of defence authorities, that is much I can say.
Aman Vij — Astute Investment Management — Analyst
So sir, the trials have stopped for everybody or only the private players now.
Mahendra Nahata — Managing Director
Pardon me.
Aman Vij — Astute Investment Management — Analyst
The trial which were going on, has it stopped for everybody or only the private players and public sector trials are still going on.
Mahendra Nahata — Managing Director
It’s not stopped, in a sense that decision is yet to be taken that whether — as the second chance had been allowed to public sector companies, our representation is that once you have given a second chance to those companies, you have to give the same benefit to the private companies also.
Aman Vij — Astute Investment Management — Analyst
Sure sir, that helps. On the electro-optic side, you said — sorry, what is the tender that we have already bid for?
Mahendra Nahata — Managing Director
This is a tender for, I think, light machine gun or FL rifle one of them, because the equipment is same, about 5,000 sites for this night vision devices and that is under evaluation.
Aman Vij — Astute Investment Management — Analyst
I’m sorry, what is the rough order size of [Speech Overlap]
Mahendra Nahata — Managing Director
I cannot — the price has not been opened up, Aman, so I cannot say the price or the size, but it’s 5,000 units and more such tenders are coming.
Aman Vij — Astute Investment Management — Analyst
Sure sir, when you said we are among the only player who have indigenised products in this.
Mahendra Nahata — Managing Director
No, I said, indigenize core product, other people have also indigenized, but within the whole product, the major cost in the core. The core, we have indigenized. So, it’s not only the indigenous product, the core and also been indigenized, it’s something like equipment where chipset, for example, you indigenised. So here, the core is the basic heart of the system, heart and mind of the system, we have indigenize that.
Aman Vij — Astute Investment Management — Analyst
And how many players were there in private sector who have bid for this?
Mahendra Nahata — Managing Director
I think there were six, seven players. I don’t remember exactly, but there must be six, seven players.
Aman Vij — Astute Investment Management — Analyst
Sure sir, last question on the defense side, you had mentioned that FY ’23 there won’t be any revenue, FY ’24 may be some and FY ’25 the scaling will happen. So according to your rough estimate, what can be the numbers in FY ’24 and ’25 in defense for us, and from which — we have four, five products — which will commercialize first.
Mahendra Nahata — Managing Director
Right now, I can’t project a number because it’s too early to say that, but yes, next year I expect some couple of hundred crores of revenue come from this, but to project the year next to that, that would be too much of a forward-looking statement I would not like to make at this point of time, but yes, there will be significant revenue, that much I can say.
Aman Vij — Astute Investment Management — Analyst
And out of this four, five categories in defense, which do you think will be able to commercialize first?
Mahendra Nahata — Managing Director
I think electro-optics will be the first one to be commercialized.
Aman Vij — Astute Investment Management — Analyst
Okay and followed by sir?
Mahendra Nahata — Managing Director
Followed by, it maybe the upgradation of BMP, It may be the fuses also, yes.
Aman Vij — Astute Investment Management — Analyst
Sure sir, and this time, you have updated the presentation, and we have talked a lot about the addressable market, and in that sense itself you have talked about [Speech Overlap]
Mahendra Nahata — Managing Director
Aman, can you come back with the questions, because there are too many questions and other people are also there.
Aman Vij — Astute Investment Management — Analyst
Sure, sure, sir. I’ll come back in the queue. Thank you.
Operator
Thank you very much. Ladies and gentlemen, we would request you to please limit your questions to two to three per participant. Time permitting, we request you to come back in the queue for a follow-up question. We’ll take the next question from the line of Balasubramanian A from Arihant Capital. Please go ahead.
Balasubramanian — Arihant Capital Markets — Analyst
Good evening, sir. Congratulations for good set of numbers. Recently, we have secured one of the EPC contracts in UP, like which is laying fiber-optic cables to implement rural water supply network, and we don’t have expertise in rural water supply network, like how we are going to manage this project, like what kind of profitability we can expect in this project, what kind of margins we can expect because right now we are facing pressure on EPC contracts and margin levels. And what are the minimum criteria we are looking to select the projects.
Mahendra Nahata — Managing Director
Good question, Mr. Balasubramanian. First of all, let me tell you –you know, the way — I’m first coming to expertise and then I will come to the rationale. As far expertise of laying water pipeline is concerned, it is the same HDPE duct which we lay for telecom network. There is absolutely no difference except the diameter. Only difference is that you have to keep the gradient in view which you don’t keep in view while laying telecom cable, because water has to flow. In telecom, no liquid has to flow, so gradient you don’t keep in view. Here, only the gradient you keep in view, otherwise the methodology of laying duct. Material duct used of the material which is HDPE ducting. In telecom, the same HDPE duct is used here, so absolutely there is no difference in laying. It is a combination like what we do in a backhaul network for fiber-optic cable and fiber to home network, there is absolutely no difference in that. So, the technology is same, where you do it is same. Only the gradient is the thing which you have to keep in mind, which is not a difficult thing to do at all, number one.
Now our rationale of taking. Worldwide, many places I’ve seen that when you — and one in India, Telangana, it has been done by the government, the Bhagirathi project, that if you lay down fiber-optic cable while laying down water pipelines, because the cost of laying fiber-optic cable, if you look at, more cost is in digging than the fiber itself. Here, you are digging anyway for laying the water pipeline, so you might as well put the fiber also. So, what I said let HFCL do this experimentation in Uttar Pradesh and many other parts of the country, if this is successful, that we lay fiber-optic cable together with it, because here this project is making pipeline reach to every home. So we will make fiber optic cable reach to every home, which is anyway the objective of Government of India under BharatNet program, and also at the same point of time, operators are also looking at taking fiber to home at a lower cost, because ARPUs in the villages may be lower.
Lower cash cost can only happen if the capex is low, so here since that cost of digging is not there, cost of ROW is not there, the cost is expected to be much lower than what you would have incurred if you had laid down fiber optic cable alone for the telecom use. So, it seems the cost would be lower, expectation of ARPU will also be lower from the rural subscribers. So, it is expected to be beneficial to operator also, to government also, and we get additional revenue. So, this is a new experiment we are doing in the country. So as that if this is successful, we would like to do this in more number of areas. So this is the first such project, where anyway only water pipeline have decent profit, but we are doing survey for the telecom purpose also, and we are going to lay fiber-optic cable also in selected areas. Coming to profit, we are targeting at least about 10% profit before tax margin, 10% PBT in the project, which we have no reason to believe that why it would not be there. Certainly, it would be there, 10% PBT is expected out of this.
Balasubramanian — Arihant Capital Markets — Analyst
Okay, sir. Got it. Sir, my second question, our telecom product share increased to 64% versus 42% and like margins are also substantially improved, EBIT margin improved to 90%, like if the telecom product shares crosses above 70%, what kind of EBIT margins we may expect and what kind of working capital cycle improvement we may expect, sir, in [Indecipherable].
Mahendra Nahata — Managing Director
Look, this is one of the strong performance maybe of the company, which you have really pointed out very well, Mr. Balasubramanian. If you look at in the current quarter, our product revenue is 64% as against 57% in the last quarter and 42% in the same quarter of the financial year 2021, so 42% in one year has been 64%. If you really take it nine months off the year, then this year we have, you know, reaching to this 64% in the current quarter, but 60% in the nine months. And compared to the same nine months in the last year, it was 41%. If you compare one year back, go back by one year, financial year ’21, it was only 27%, financial year ’22, it became 43%. This year this quarter it is 64%, so we have been rapidly growing our revenue from products which has been my key initiative as I have been talking every earnings call that you have been rapidly growing our revenue from products rather than projects. Project which was 73% in March ’21, it has gone down to 36% in the current quarter under review.
So, we expect to continue this. Our strategy is to not to stop taking projects. We will keep on taking projects, but which are not draining our cash-flow, number one, and at the same point of time, which are profitable. So, if you look at, we have not taken any major telecom turnkey projects in the current quarter. We have taken this water supply, together with telecom where the payment conditions are good and profitability is there, but we have not undertaken any large telecom turnkey project. They were mainly under offer, we could have taken a couple of INR1,000 crores, I can tell you, a couple of INR1,000 crores, but we did not take it because payment conditions were not good.
So, we just left that as that. So, strategy is to take more revenue from products, but not to forget the projects, if it is cash-flow negativeness is not there and profitability is there. For example, we are doing this Reliance’s telecom turnkey projects, we are implementing their fiber-optic cable networks in North India and FTTH network in North India, but payment condition is good. So, we have no problem keeping on implementing their project, because there is no negative cash flow, there is no cash-flow problem in that project. So, we’ll continue to do that, but yes, we will not take highly negative cash-flow projects which creates the cash flow problems for us.
Balasubramanian — Arihant Capital Markets — Analyst
Sir, what is the average working capital cycle for telecom products and EPC contracts, if you could share some [Speech Overlap].
Mahendra Nahata — Managing Director
On overall basis, I would tell you, it is about 125 days working capital cycle for products and this mix. Mixed up If you do on an average, but if you do only products, products will be less than 90 days and that could be roughly 150 days or so, 170 days or so.
Balasubramanian — Arihant Capital Markets — Analyst
Okay sir, on that optical fiber capex around INR357 crore, what is the capex for optical fiber cables?
Mahendra Nahata — Managing Director
No, this INR356 crores is only for optical fiber, optical fiber capacity enhancement of 15 million fiber kilometer.
Operator
Mr. Balasubramanian, may we request you to please return to the queue. There are several participants waiting for their turn.
Balasubramanian — Arihant Capital Markets — Analyst
Yeah, thank you so much, sir. I’ll come back in queue.
Operator
Thank you. We’ll take our next question from the line of Abhishek from Arihant Capital. Please go-ahead.
Abhishek — Arihant Capital — Analyst
Sir, thank you for taking question, and congratulations on good set of margins. Sir, on the [Indecipherable]
Operator
Sorry to interrupt, Abhishek. I think you are on a handsfree mode, can you switch to a handset mode and speak? We can’t hear you clearly.
Abhishek — Arihant Capital — Analyst
Now it’s audible, sir, audible Ma’am? Okay. Sir, congratulation on good set of numbers. Sir I want to understand on the railway communication side, we have an order book of INR309 crore. Now, railway is talking about the incremental capex, the highest budgetary allocation by at least by25% going forward. Sir, what kind of work we are doing, and can you throw some light on how you see the railway business going forward.
Mahendra Nahata — Managing Director
Abhishek, again a very good question. I must appreciate. We have done a — developed a good expertise in railway telecommunication. If you had seen yesterday’s Times of India, there was a full-page ad by Larson and Toubro that they have switched on the metro rail network of Mauritius. There was a full-page advertisement, you must have seen that. Point I’m trying to make here is the telecom network of that was done by HFCL. Mauritius Metro, which was started — overall construction work by L&T and which was flagged off two days back, and there was a full page ad by L&T yesterday on that. Telecom network of that project was by HFCL. Few days back, I think couple of weeks back, if you would have seen another news item where Dhaka Metro Phase-1 like also switched on, flagged off by Sheikh Hasina, the Prime minster of Bangladesh. There also the telecom network was done by HFCL. Similarly, number of projects in dedicated freight corridor here has been done by HFCL for telecom. Kanpur and Agra Metro are also being — telecom network is being done by HFCL. We have participated in couple of more projects at Ahmedabad, Surat, the tenders are yet to be opened. There also, we expect the regional size of order to come to us. So, point I’m trying to say, not only in India but abroad also, we are doing a lot of telecom projects like Mauritius, Dhaka, I’ve just mentioned.
In India also, some of the projects are subcontracted to us by large contractors, turnkey contractors, like Kanpur, Agra, we are doing directly.
We have participated directly in Surat and Ahmedabad. So, we have developed good amount of expertise. Now, there are more than 50 new metro cities are being planned on the metro network. So, we will be participating in all these projects also. So, I see reasonable growth in revenue coming up on these areas, but yes, between order and execution order, it takes a lot of time, because order comes when they start building the infrastructure, the pillar, the lines and all that, it is the completion of that takes long time, but I think our revenue from railways next year onwards, something like INR500 crores per annum, should be able to reach growing steadily by some percentage every year.
Abhishek — Arihant Capital — Analyst
Sir, what will be the margin on those projects, and just a follow up —
Mahendra Nahata — Managing Director
Margin, Abhishek, depends different in different projects. But generally, you can see something like 10%, 12% margin generally. But you know, around 10% you can say, but it differs for different project to project.
Abhishek — Arihant Capital — Analyst
My second question will be what is the follow-up — so how the PLI benefit will be coming into picture right now. So how — what level will be getting the PLI benefit, is there any timeline or anything is there right now.
Mahendra Nahata — Managing Director
No, PLI benefit is only in the next five financial years, and starting from the current financial year, so what we produce after a new investment, which will be done by us, INR425 crores in next four years, and there is a percentage there provided. This year how much percent, next year how much percent. And since we have got approval within the PLI scheme [Indecipherable] R&D expenditure is also taken as a part of capex for the purpose of calculation of this total investment of INR425 crores.
So, total investment of INR425 crores and the PLI incentive given to us is INR653 crores. This would be available to us in the next five financial years, including the current year. Current year is not expected to be much because we are yet to start making investments, which would be start doing now, except R&D, infrastructure investments we have still not done, we are going to start it now in Gurugram, near Delhi, but from next year onwards, when we start producing this equipment, four year’s timeframe we expect to receive over INR600 plus crores as incentive out of the production of telecom equipment we do in India.
Abhishek — Arihant Capital — Analyst
Thank you, sir. I have few more questions but I’ll come back in the queue. Thank you.
Operator
Thank you. We’ll take our next question from the line of Sanjay Shah from KSA Securities Private Limited. Please go ahead.
Sanjay Shah — KSA Securities Private Limited — Analyst
Yeah, good evening gentlemen. Sir, commendable and congrats on the front of shifting of private customer business, which is a very huge achievement company has done, and also on product side, shift is really a remarkable achievement company has done. Sir, my question was regarding, on slide 18, I suppose, in slide 18, you mentioned about key partnerships. There are 12 partners with us. And so, will it be possible to highlight briefly on the opportunities with these partners, and what business they throw to us as an asset to our company.
Mahendra Nahata — Managing Director
Yes, yes, yes. I will definitely do that, but before I do that, one of the point I would like to highlight. You rightly said that there is a good performance in the area of products and all sectors. There has been three key areas I would like to highlight where the company has done a robust growth in terms of robust strategic decisions we took where we have been very successful in implementing good decision, and there has been a long term benefit to the company. There would be long-term benefit to the company, one. If you look at, you know, our revenue from products and projects which I mentioned little while back, it has grown to 64% in this quarter while it was 27% in the financial year ’21, 20% to 64%. And naturally, this turnkey has gone down from 73% to 36%. Last few earnings calls, I have been repeating this that this is our policy. This is our strategy to reduce our revenue from projects and increase from products, and gentlemen, this has been pretty successful. 27% of product revenue going to 64% is a good performance. Number one, so one first strategic decision and the performance is the revenue mix.
Second, increase in exports. There is another area I have been talking that we want to increase our exports, not marginally but geometrically we want increase our exports. Now if you look at in the current financial year, till now our export have already crossed more than INR600 crores up to December. Now, my target for export in the current financial year was INR750 crores, which is more than double of INR360 crores of last year, and it was INR180 crore year before that. So INR180 crores becomes INR360 crores, then the target of the current year was INR750 crores. But let me tell you, this year we’ll be crossing INR850 crores, so INR180 crores becomes INR360 crores and INR360 crores would be becoming INR850 crores in the current financial year. And I can tell you, we will maintain the same kind of growth trajectory. As a company, we have taken the target of reaching our export revenue of INR1,500 crores in the next financial year. So INR180 crores, INR360 crores, INR850 crores and the target of INR1,500 crores. This is the kind of another success has been in the company increase in export revenue, which is the strategy we have taken up as a second cornerstone, apart from revenue increase of products and which automatically it is to revenue increase from exports.
Now, what is the second thing which is happening in export. This is also very critical. Though we have taken only pilot project at this point of time, but the kind of inquiries we are receiving, we are not sure that whether we can take that quantum of orders, which is implementation of projects in Europe. European projects payment are very good, you get paid every 15 days, every 15 days on the basis of work completed. We are getting enquiries, not only enquiries, firm enquiries where they are saying, come and do after looking at the work we have done in Germany, the kind of a pilot work we have done. We are getting inquiries for 100s of crores for implementation of projects in Europe. Only point is that I’m not able to ramp up my implementation team to such a quick extent to get to undertake those number of projects. So, we are really looking at how much order we should be taking wherein we don’t dissatisfy the customer, we do less work, but we keep customers satisfied.
So, in export front when I say INR1,500 crore, that does not include revenue we would be getting from project side, whenever we start taking this project, which we believe that we should start taking in the next one or two months’ timeframe after ramping-up our team, which you have decided to recruit some people and do that, but that would be an addition.
So, second initiative of growth of export has also been very successful. Third initiative we have taken, increase of revenue from private sector, decreased revenue from government. When I say this, our policy is to take only those government projects which are not negative in cash-flow, cash-flow is better, payments are better, only those government projects we’ll take or even the private. But, the policy of decreasing revenue from government has also been very successful. In the quarter under review, government revenue has only been 20% and private has been 80%. Now if you go back, financial year March ’21, government revenue was 49% and private was 51%, it was more like 50:50. 50:50 has now become 20:80 in terms of private sector.
So, these three key initiatives, Mr. Sanjay Shah, one, increase in product revenue, increase in exports and then increase in revenue from non-government. This — you have been in the calls earlier also, I remember, and last four, five, six calls, I’ve been repeating this. And now we have demonstrated that how successful we have been implementing each of these strategy. Now, let me again come back, that we will continue on these strategies. We will keep on increasing our exports. Our strategy of new products by our R&D efforts is on, new customers, new geographies is on, and we will constantly improve our exports and revenue on the basis of strong demand not only in India but abroad also.
Let me put it like this. If the world market is 100, Indian market is 6% to 7%. 90% to 93% market sits outside India. Now check out Chinese where we can’t go. Let us take out Chinese which might be 25% to 30%, but still 65% of the market is beyond India, which is acceptable to us. So, while we completed on our 6% or 7% of the market, we you should go out and grab some share of the 65% market also which we have successfully demonstrated in optical fiber cable. We are now getting good success in implementing of projects also, but we will get good success in the Product segment also, which I’ve been saying, we will start working on this from the next financial year.
Working has already started, but we will start getting a revenue from the next financial year on the product side also. So that is as far as the — you talked about projects and turnkey, and so I thought not only that, but there are three very strong strategic points which company has undertaken have been very successful. I thought I should maintain to the benefit of all participants on the call.
Now coming to the key partnerships which we have said, one we discussed about Qualcomm. You know, Qualcomm is a world-leader in wireless technologies. So, we had a partnership with Qualcomm for development of WiFi, Backhaul radios, and now 5G product. 5G product is very critical, very critical, I myself visited the top leadership of Qualcomm a month back, and It’s a very successful partnership going on in terms of they are helping us in development products, technical know-how systems and all that, and we believe that we will start coming out for the 5G products with Qualcomm technology, starting from the field trial I would say, from the first quarter of the next financial year.
The non-5G product, which is WiFi and backhaul radio are already there, they are all in production. New versions of that, including WiFi-7, first WiFi-7 based on open line [Phonetic] standard, we have already demonstrated. So, there are already into production WiFi5, 6 have already under production. They are being sold. So, it’s a very profitable partnership. WiFi and radio are already there, but this 5G radio networking products which includes macro cells, small cells, indoor, outdoor and fixed wireless as well which is going to be a very, very successful product, are going to come up gradually starting in field trials from the first quarter of the next financial year.
Now, so this is one partnership. Now coming to two particular partnerships here, BigCat and Nivetti systems. Here, we have invested money there. BigCat, we have invested about 50% of the equity. And as against that investment, they are designing software defined radio for us for Army application, and that radio is expected to have huge market opportunity, some INR40,000 crores, INR50,000 crores in next six-seven years.
Nivetti systems, again, we have invested in their company 15%. Their design of switches is being taken by us. Switch again has a huge market, they tend to sell billion dollars worldwide, L2. L3 switches, and these switches are being manufactured and sold by us as has been designed by Nivetti systems.
Now, other opportunity like Wipro, CommAgility, VVDN, these are the companies where we have done partnership for designing of products for us. Because when we design so many products, you can’t ramp-up your own R&D by yourself into such a manner. So, we have given them contract for designing products for us, contracts. They are doing work for us for designing our products, the IPR belongs to us. For example, Wipro is designing a router for us where design parameters, testing, architecture is being done by us, development has been done by Wipro. So, Wipro is doing three kinds of routers 120 GBPS, 300 GBPS, and 700 GBPS, after that we will go above 1 terabyte also. So, Wipro is designing router for us.
This VVDN is also helping us in designing of some of the wireless products. Similarly, CommAgility is also helping us in designing of the 2/2 small cells for indoor application, so when we have more than about 250 engineers within our company, but we need many more. So, these are the R&D contracts or the partnerships that we have invested money, they are helping us in designing this different technology equipment where IPR belongs to us, so I would say not less than 400 to 500 people put together must be working in this companies for designing products for us. So that’s an R&D spend which belongs to us because they are working on contract for us. So, other companies like Metanoia or IP infusion, they are software stack partnerships. You need software stacks for different products, which they are supplying software stacks to us. So, there are different kind of partnerships starting from contracts R&D through technology partnerships like Qualcomm or partnerships –like partnership we have with Nivetti systems or BigCat. All leads to new products for us, all lead to new product for us, where IPR belongs to us, that is the advantage we have got.
So, all these partnerships are strengthening our R&D by getting more and more manpower, better manpower designed project for us, and once this products come in the company, they will be manufactured and sold, which will increase our revenue and profitability and both.
Sanjay Shah — KSA Securities Private Limited — Analyst
I think it is a ready stage for us for growth for HFCL for next three years. Thank you, sir. Thank you very much for the details.
Operator
Thank you. We’ll take our next question from the line of Hardik Vyas from Economic Times. Please go ahead.
Hardik Vyas — Economic Times — Analyst
Sir, I just had one question, you have enlightened us enough on all my questions. Just one question that we have been taking all these initiatives, but where do we see our next phase of growth for the next four quarters coming in from, as in I am not asking you the numbers, but the way you have said that you probably would exceed INR1,500 crores on the product export revenue side, so will that be the same contribution as in roughly 15% to 20% of the overall revenue, or could you please guide us on that.
Mahendra Nahata — Managing Director
Hardik, you know, growth would continue. Growth would continue on the back of strong demand, India and globally, because now, we are not only talking about Indian market or global markets. So that’s one area where we are now concentrating, and the performance has shown that. Till now we have been working on exporting fiber-optic cable. Now, as I said, we started working on export of projects also. Third, we would now be working very significantly on export of products also. So overall growth is coming on indigenous demand, local demand on the back of 5G, NHAI, defense, railways and all that and BharatNet and all that, and a strong global market.
Now, growth will come from which areas, and let me tell you that. One, fiber-optic cable. Fiber-optic cable revenue has been increasing consistently. This year it would be around INR2,300 crores to INR2,400 crores in the current year which you are talking about. Last year it was about INR1,700 crores. Year before that it was INR1,200 crores, year before that it was INR700 crores. INR700 crores, INR1200 crores, INR1700 crores, INR2300 crores to INR2400 crores, this has been the kind of growth. So, we will maintain this kind of a growth trajectory in the next financial year also. This growth trajectory will be maintained and major growth would be coming from export market. As I mentioned, INR750 crores to INR850 crores this year, but we expect to reach INR1,500 crores. This is in fiber-optic cable alone. But there would be projects from the top of that, there would be products from the top of that. This INR1,500 crores again ideally is only for fiber-optic cable. For projects and products, it will be on the top of that. So, how much that would be is too early for me to start talking about, because we have to still jump into the water and swim there, that is one.
Second, growth opportunity or rather the growth would happen in the product business. As I say, products are going to be launched. All 5G related routers and all that are going to be launched starting from the first quarter of the next year. Then it’s R&D. R&D gets [Indecipherable] many a times, it always happens. So, first quarter, we are starting field trials of the equipment and it will continue field trials and launching of products throughout the year. The second growth is going to come from this product revenue wherein we believe that next year, reasonably good number of products will be launched and revenue would come from nationally and internationally both. Third growth would come from those projects which are financially profitable and also cash flow positive, that is another area where we look forward, the growth would come, not that we are stubborn in project business, no, where the profitability is there and cash-flow is not so much negative, we will keep on getting projects. So that is another area of growth which is going to come.
So, all this put together, growth would be there locally, internationally, cable, projects and products, all three areas.
Operator
Mr. Vyas, thank you. We will be moving to our next question now. Ladies and gentlemen, before we take our next question, we request participants to please ask only one question at a time, time permitting we will take you in the queue. Our next question is from the line of Abhishek from Arihant Capital. Please go ahead.
Abhishek — Arihant Capital — Analyst
My question is largely on the export side, you have given the numbers right now, so what will be the mix of the export side if you can throw some light, which are the segment defense, and how you see defense as an opportunity for any exports.
Mahendra Nahata — Managing Director
Look, we have not at all looked at defense as an opportunity for export till now. Because once we start supplying in India, then only we will be starting looking at opportunity of exports in defense, you know. Fuse, for example, they are registered in NATO as a possible supplier. NATO’s CAGE number is allotted to us, but we are not working on any of such opportunity at this point of time, because let us first establish ourselves in a good way in India, then we look forward for export in defense equipment. So that revenue is not in my projection at this point, not that we would not do that, but I don’t visualize doing that in next one or two years. That is number-one.
Now coming to exports right now, entire exports, mostly has been fiber-optic cable till now, as I’ve been saying that till now we have been consulting export of fiber-optic cable. Projects very small, but we are started as a pilot, but next year we will be doing more of that. Product, yes, that’s one area that there would be another growth opportunity apart from fiber-optic cable. When I said INR1,500 crore related that is fiber-optic cable. Product and Project would be added on the top of that. So, these are the export opportunities we are working on.
Abhishek — Arihant Capital — Analyst
Thank you, sir. Thank you so much.
Operator
Thank you. Our next question is from the line of Hitesh K. Patel from KK Patel and Company. Please go-ahead.
Hitesh K. Patel — KK Patel and Company — Analyst
Hello.
Mahendra Nahata — Managing Director
Yeah, Hitesh.
Hitesh K. Patel — KK Patel and Company — Analyst
Yeah, sir, good evening, sir and congratulations for the good quarterly numbers. I would like to clarify one thing. So, in the month of October around ’21 [Phonetic], INR600 crore expansion plan of optical fiber cable was announced. So, right now, sir, what is the onstream of that expansion? Are we 100% expanding on the capacity announced in the October.
Mahendra Nahata — Managing Director
No, Mr. Hitesh, fiber-optic, as I mentioned, INR356 crores explanation has already started, construction has already started in Hyderabad. That work is going on. Fiber optic cable, we are yet to start construction but machinery orders and all are almost placed. Construction activity is yet to start because of land acquisition work, and that is going on, which is expected to be completed in next one month’s timeframe, then immediately that work also would start. Lot of that has been acquired, payment has been made. But construction is yet to start. Once the land acquisition is completed, we will start construction of that, but fiber work has already started.
Hitesh K. Patel — KK Patel and Company — Analyst
And one more question, sir, how would you see the future margins of the company on the product side, because around six months back because of the COVID, the margins were shrunk by huge margin, and this quarter we have seen some spike in the operating margin. How would you see that?
Mahendra Nahata — Managing Director
Look, as you would have seen, the profit margins have grown in the current quarter. There has been a reasonably good growth in the profit margins. And I believe that you know going forward, margins will keep on becoming bit better, reason being as you bring in more telecom products in our product portfolio, I believe that your margins would keep on going further, because once your products with our own IPR, our own control on the technology, the margins are expected to grow. So, the margins have grown in the current financial year, current quarter, and we expect that the margins will grow further, but to put up a number would be very difficult right now that how much growth would be there, but yes, I expect the margins to grow.
Operator
Thank you. We’ll take our next question from the line of Dipesh from Manya Finance, please go-ahead.
Dipesh — Manya Finance — Analyst
Hello, am I audible?
Mahendra Nahata — Managing Director
Yes, yes.
Dipesh — Manya Finance — Analyst
Sir, you mentioned about setting up the new manufacturing project for [Technical Issues] from the PLI scheme. Now the project cost, you said that it will be funded by a fresh fund raise. Will the fresh fund raise will come through as a preferential allotment as you had planned before? And will it come in this quarter or maybe in the next quarter.
Mahendra Nahata — Managing Director
I didn’t say that it will be very fresh fund, I never said that. I said that…
Dipesh — Manya Finance — Analyst
In the press release, sir. In the press release, it has been mentioned as the project cost will be funded by term loans, internal accruals, preferential issue of warrants, which has already been given and the fresh fund raise.
Mahendra Nahata — Managing Director
Yes, so that’s what you are referring. I thought you were referring to what I said just now. So fresh fund raise, though there has been a resolution passed by — enabling resolution has been passed by shareholders and the Board also, but and the warrant have been already issued, as you know, but we are not really decided when are we going to do the fundraising and all that. We are waiting, because this investment is to be made in the next few years, not immediately. So, we are waiting for the right moment and when the funds to be raised. So, no such decision has yet been taken to raise the funds at this point of time. Whenever we think, we will definitely come back, it is only an enabling resolution which have been passed.
Dipesh — Manya Finance — Analyst
Okay, and just one more question, sir. I mean, whatever is the reason of the sales declining. And going ahead, do we see, I mean, how strong do we see 20%, 25% growth in our volumes.
Mahendra Nahata — Managing Director
Look, I would like to say one thing here. Decline in sale is not important. Improvement in profitability and overall profit is more important, which is that the same profit or more profit on less sales I think is a good performance parameter for any company. In the current quarter, we have seen the sale has a small decline, and I explained the reason also, but profitability has increased. So that is a key parameter one should look at, and that’s what we are looking at the company that profitability should increase, revenues should also increase, no doubt, it has to increase, but more efforts should be done in increase of profitability.
Now, small decline in the sales in the current quarter has been because that some incomplete work in the project could not be built because the customer testing has not happened, particularly in the Army related projects. The customer testing could not happen because of various issues related to the customers. That is why this billing of that particular work could not be made, otherwise we would have surpassed what the last quarter’s revenue was. The reason was that we could not build that, so it could not be part of our revenue.
Operator
Thank you. Ladies and gentlemen, we take that as the last question. I would now like to hand the floor back to Mr. Nahata for closing comments. Over to you, sir.
Mahendra Nahata — Managing Director
Thank you. Thank you all of you gentlemen for being part of this call. I’m sure you would have got a good view of what kind of a strong performance company has given, what kind of strong strategical part we have created for our company for future growth and our strategy of new products, new customers, new geographies on track by increasing our product range by innovation, which is improving our profitability, increase our exports, we have increased our revenue from private sector, we have increased our revenue from products, and we are sure to continue on that course, and continue to improve the revenue and profitability of the company. Thank you very much, gentlemen. And again, wish you a very, very happy and prosperous New Year. Thank you very much.
Operator
Thank you very much, sir. [Operator Closing Remarks]