HFCL Limited Q3 FY22 Earnings Conference Call Summary

Key highlights from HFCL Limited (HFCL) Q3 FY22 Earnings Concall

Management Update:

• HFCL said the company secured purchase orders of more than INR530 crores along with its subsidiary HTL Limited for the supply of optical fiber cables during the quarter.

• The company added that its first three quarter’s profit was more than the profit of the entire year of the last year.

Q&A Highlights:

• Saket Kapoor from Kapoor & Co. asked about how the margin trajectory is going to look like. Mahendra Nahata MD said that in terms of revenue mix, for 2020, 26% was coming from products and 75% from projects. But now 42% is coming from products and 58% from projects. So this shift in revenue mix towards products will automatically mean increase in margins.

• Analyst Neerav Dalal asked about the INR600 crores raised through QIP, and where the funds will be used. Mahendra Nahata MD commented that in terms of QIP, the amount is majorly going to be used for CapEx of around INR 200 crores, R&D INR 150 crores, INR150 crores for repayment of loans, and working capital and other purposes INR 100 crore.

• Vipul Tiwari of CRISIL Global enquired about the realization of OFC and OF and regarding any price hikes in the portfolio. Mahendra Nahata MD said the pricing trend of the fiber and fiber optic cable has seen an increasing trend which has resulted in increase of cost, but which is stabilizing now.

• Analyst Naman asked about working capital cycle. Mahendra Nahata answered that net working capital cycle currently is about 95 days, which has increased from 81 days last quarter. He added that this is expected to improve soon with the payments received from the projects being executed.

• Abhijit Mitra of ICICI Securities  asks about the outlook for order book which is currently at INR4,450 crores, and has seen a gradual drop down over the past 3-4 years. Mahendra Nahata answered that higher order book in previous year was because of orders received from defense for one particular project. The company believes it will maintain equivalent to the current order book going forward.

• Abhijit Mitra of ICICI Securities  also asked about the 8% of revenue share being maintained as exports and how it’s projected over the next couple of quarters. Mahendra Nahata answered that it will move up because the company has taken many initiatives to have more exports of fiber optic cable. Internal target it to double up this revenue share in the next financial year to about 15-16%.

• Ankit Pande of Quant queries about the product development announcement related to AI powered algorithms driving wi-fi products and if it’s a new product. Mahendra Nahata MD commented that AI is implemented into the existing products and it’s a new feature in the product.

• Analyst Simranjee questioned about the 5G implementation in India and the demand supply situation of optical fiber cables once it’s implemented. Mahendra Nahata MD said that India is on track on 5G implementation and the government is pushing hard on it. The company added that the demand would increase and which has led the company to decide to increase its capacity of fiber manufacturing  to 12 million and fiber optic cable by another 10 million.

• Ankit Pande of Quant queried about the receivables numbers. Mahendra Nahata MD said that total receivables as on today is INR 2,620 crores for HFCL, INR149 crores for HTL, and total combined is INR2,697 crores.

• Saket Kapoor from Kapoor & Co. asks about the status of subsidies to be received by the company. Mahendra Nahata MD answered that there are two kinds of subsidies the company receives. One is government of India subsidy of about INR48 crore for installation of plant in Hyderabad. And second is state subsidy of INR28 crore or INR 30 crore in state grant. The company is yet to receive those and is expected to receive these subsidies in Q1 of next financial year.

• Investor Tushar asks about the revenue mix between the optical fiber cable and optical fiber compared to other telco products the company supplies. Mahendra Nahata answered that for revenue from products, the percentage has increased significantly. Currently, fiber optic cable is predominant. Out of INR500 crore plus, about INR400 crore is by optical fiber and rest is coming from different kind of telecom products and accessories. However, Mahendra added that going forward revenue from other telecom products will increase significantly as new products are under design.