HFCL Ltd. Earnings Call for Q1FY27

[00:00:00]HFCL Q1 FY27 conference call hosted by Noama Institutional Equities.

[00:00:08]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 defer significantly from what is expressed or implied by such forward-looking statements.

[00:00:39]Investors are therefore requested to check the information independently before making any investment decision.

[00:00:47]As a reminder, all participant lines will be in the listenonly mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Achel No Lady from Noama Institutional Equities for the opening remarks. Thank you and over to you sir.

[00:01:19]>> Yes, thank you. Uh good afternoon everyone. On behalf of uh Noama Institutional Equities, we are glad to host the senior management of HFP Limited to discuss the Q1 FI27 earnings.

[00:01:29]We have with us Mr. Mahindra Nhata promoter and managing director, Mr. VR Jen CFO, Mr. Manoj company secretary and Mr. Amitab head investor relations.

[00:01:40]We'll start with the uh we'll start the call with the opening remarks from the management and then move to Q&A. Thank you and over to Mr. Nata and good evening everyone ladies gentlemen I extend a warm welcome to all of you on HF sales earning conference call for the first quarter of financial year 2627.

[00:02:01]I trust you have added the opportunity to review our financial rules, 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 strategic initiatives undertaken by the company. HFCL today on strong growth path. I'm pleased to inform that your company has delivered remarkable performance during the first quarter of financial year 27 with highest ever quarterly revenue profitability and the order book. We have emerged as a global pair in optical fiber, optical fiber cables and optical optical connectivity solutions, defense, aerospace, telecom products and digital infrastructure field.

[00:02:52]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 at 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 state that the first quarter has been an encouraging start in that direction. The quarter witnessed strong order in flows and execution across our core segments, continued improvement in profitability and sustained progress on several strategic initiatives that we believe will shape HFCL growth over the coming years.

[00:03:58]In our previous earning call, we had outlined our aspiration for delivering around 20% revenue growth during FI27 supported by continued improvement in quality and mix of revenues based on the progress achieved in the first quarter.

[00:04:16]Healthy order inflows, favorable industry dynamics, expanding global opportunities and improving execution capabilities.

[00:04:26]We to the best of our estimate can raise our aspiration for the FI27 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.

[00:04:57]During our previous earning calls, we had indicated our expectation of achieving AITA margins of over 20% during FI27.

[00:05:07]I'm pleased to share that the company achieved aida margin of more than 23.25% in the very first quarter itself.

[00:05:16]More importantly, this reflects a structural enhancement in the quality of our business led by various initiatives taken by the company over 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 but to build a business that consistently delivers sustainable and profitable growth.

[00:05:52]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 position as a trusted technology partners in optical connectivity and digital infrastructure.

[00:06:12]Consequently, our order book is strengthened to approximately 26,665 cr which is not only all-time high but is five times of FI26 revenue providing healthy revenue visibility and supporting our confidence in the growth outlook for the company.

[00:06:34]I'm pleased to inform that global optical connectivity industry has entered a new phase of growth. Emergence of artificial intelligence, hypers scale data centers, cloud computing and high performance computing is creating an entirely new source of demand for advanced optical fiber infrastructure.

[00:06:55]These technologies require massive data movement at extremely high speeds making optical fiber an indispensable part of the ecosystem. The telecom network expansions also remain as an important driver. Based on order received and regular interactions with our customers, we can definitely foresee demand pipeline continuing and market growing for at least next 5 years. In parallel, governments across the world are investing heavily in secure communication networks, strategic infrastructure and offensive capabilities, creating additional demand from the defense and public infrastructure sectors.

[00:07:42]As a result, 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. The 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.

[00:08:17]Similarly, expansion of our optical fiber cable manufacturing capacity from 34 million fiber kilometers to 43 million fiber kilmters and expansion of infrastructure for data center connectivity solutions are also progressing as planned and are expected to be commissioned within targeted timelines.

[00:08:37]As you know the board has already approved for setting up of green field preform manufacturing facility of 300 metric tons perom with a capital outlay of 580 crores as high level backward integration for further strengthening a supply chain with incremental fiber manufacturing capacities. These capacity expansions have been aligned with the orders in hand and increasing global demand and will further strengthen our ability to serve customers across domestic and international markets.

[00:09:13]Friends, the data center interconnectivity business has created another large opportunity for our optical connectivities segment. With the construction of hypers scale data centers, demand for connectivity solutions is ever increasing. With this increasing demand, we're continuously expanding our capacities for the manufacturer of interconnect products for the data centers. The manufacturing capacities including companies subsidiary STL limited is being expanded by five times.

[00:09:47]Even in the first year of production which is the current year we expect the revenue more than 700 crores with a clear visibility to increase it further multiple fold in subsequent years.

[00:10:02]I'm pleased to inform that based on global opportunities and inquiries for data center connectivity products the board of directors of the company in today's meeting has approved for an investment of rupees 215 crores for the expansion of manufacturing base for advanced data center connectivity products including miniature multi- fiber and super high density multiiber termination assemblies.

[00:10:30]Let me turn now turn to another exciting opportunity before us defense and aerospace. Over the last several years while strengthening our leadership in op optical connectivity we have simultaneously invested in building a differentiated defense business. These investments have been guided by a long-term vision because indigenous development of defense technologies require sustained research and development, product qualification, customer validation and advanced manufacturing before meaningful commercialization begins. We consciously focus on building indigenous technologies, strengthening engineering capabilities and creating specialized manufacturing infrastructure to position HFCL for long-term participation in this strategically important sector. Today we are beginning to see the benefits of these investments. The business has developed a healthy product pipeline.

[00:11:31]Customer engagements have expanded considerably and we are witnessing increased interest across both domestic and international markets.

[00:11:40]The proposed administration of aeros business will expand HFCL's participation in global aerospace value chain opening doors for many more such opportunities in the segment.

[00:11:52]We expect this business to generate meaningful order inflows creating another important revenue of growth for the company.

[00:12:00]The addressable opportunity before us continues to grow. India is witnessing one of the largest defense modernization programs in its history supported by increasing capital expenditure accelerated indigenization import substitution and the government's continued emphasis on atman.

[00:12:20]At the same time, increasing geopolitical uncertaintities have led many countries to strengthen defense preparedness and diversify sourcing strategies. This is creating attractive opportunities for companies with indigenous capabilities and glo with globally competitive technologies.

[00:12:39]Today HFC's defense portfolio stands surveillance radars of different variants electronic fuses thermal imaging solutions ammunition tactical cables aeros structures with proposed and with proposed acquisition and several next generation technologies currently under development.

[00:13:01]Collectively these businesses provides us with a strong foundation for sustainable long-term growth. At the beginning of the financial visit, we had shared our aspiration of achieving approximately 500 crores of revenue in defense sector during FI27.

[00:13:20]Based on the current execution pipeline, customer engagements and order visibility, we remain firmly on track to achieve this objective.

[00:13:28]One of the important milestone during the quarter was the groundbreaking ceremony of our upcoming ammunition manufacturing complex in Andhra Pradesh held on 15th May 2026.

[00:13:40]We were honored that this landmark event was graced by the honorable Raksham Mantri of India and the 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 defense manufacturing ecosystem.

[00:13:58]The complex is being developed to manufacture advanced ammunition systems including electronic fuses, multiboard hand grenades and other specialized products designed to meet the evolving requirements of Indian armed forces and global customers. We believe this investment will create significant opportunities for HFCL for years to come.

[00:14:21]Products such as these demonstrate the growing maturity of HFCL's research and development capabilities. These reflect our ability to develop differentiated technologies that solve complex complex operational challenges while reducing dependence on imported systems. We believe these products will continue to strengthen our competitive positioning in both domestic and international markets. Our long-term aspiration is to build a defense and aerospace business which over the coming years has the potential to become nearly comparable in the scale of SFC's current overall business. Given the opportunities before us, the capabilities we have developed and the policy support for indigenous defense manufacturing, we remain confident that this business will emerge as one of the most important pillars of HFCL's future growth.

[00:15:13]As SFCL continues to involve in a diversified technology enterprise, we are equally focused on ensuring that our organization structure and capital allocation framework remain aligned with the scale and complexity of our businesses. As communicated earlier, our board had constituted a restructuring committee to evaluate strategic alternatives aimed at simplifying the group structure, enhancing operational efficiency and unlocking long-term shareholder value. We are actively evaluating various alternatives and to support this process we have appointed understand young as our strategic adviser. The objective of this exercise is clear to ensure that our organization structure evolves in line with the infor transformation of our business portfolio by enabling each business to realize its full growth potential.

[00:16:08]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 three fundamental principles.

[00:16:20]create virtues 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.

[00:16:35]Friends, let me now quickly take you through the consolidated financial performance of quarter one year of financial year 2027.

[00:16:46]Revenue for Q1 FI27 stood at 1914.98 crores as compared to 871.02 crores in Q1 of FI26 and 1824.12 crores in Q4 of FI26.

[00:17:05]AITA for Q1 FI27 stood at rupes 445.27 27 cr as compared to 42.93 crores in Q1 or FI26 is a more than 10fold jump and rupees 336.93 crores in Q4 FI26 abita margin in Q1 FI27 stood at 23.25% as compared to 4.93% in Q1 FI26 and 18.47% 47% for Q4 FI26 profit after tax for Q1 FI27 stood at 245.64 crores as compared to loss of 29.30 crores in Q1 of FI26 and rupes 184.45 cr profit in Q4 of FI26 margin in Q1 FI27 stood at 12.83 83 crores 83% as compared to negative 3.36% in Q1 of FI26 and 10.11% in Q4 of FI 26.

[00:18:23]segment revenue from telecom products to 85% of total revenue in Q127 as compared to 62% in Q1 of FI26 and 85% in Q4 of FI26.

[00:18:37]Export revenue stood at rupees 1,63 crores in Q1 of FI27 as compared to only 210 crores on Q1 of FI26 and 122 crores in Q4 FI26.

[00:18:52]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 solutions together with disciplined execution and favorable industry dynamics is enabling us to build a stronger and more resilient business.

[00:19:16]Going forward, our priorities remain clear. We'll continue to strengthen our global leadership in optical connectivity. We'll continue to scale our defense investment into a major growth platform. We'll continue to invest in innovation, advanced technologies and differentiated products. We'll continue to deepen our relationship with customer across India and global markets. Above all, we will remain committed to disciplined execution, prudent capital allocation and sustained value creation.

[00:19:46]Friends, 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 benchmarks and strive for excellence in everything we do. Thank you once again for joining us today. We'll now be happy to take your questions.

[00:20:13]>> Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchstone telephone.

[00:20:23]If you wish to remove yourself from the question queue, you may press star and two.

[00:20:28]Participants are requested to use handsets while asking a question.

[00:20:32]Ladies and gentlemen, we will wait for a moment while the question queue assembles.

[00:20:42]The first question comes from the line of Aman Seafi with Stallion Asset.

[00:20:47]Please go ahead.

[00:20:49]>> Hi sir, I hope I'm audible.

[00:20:51]>> Yeah. Yes, very much. Do you Aman?

[00:20:54]>> Yeah. Thank you so much for the opportunity Mr. Nhata and congrats on a great set of numbers. Sir, I just wanted to understand we have recently announced uh investment of 215 crores and we are already doing a pre preform kex as well.

[00:21:09]What would be our total capex for this year and next year?

[00:21:13]>> Well, total capex of this year and next year I can tell you this year total capex is 640 crores which includes part of the preform.

[00:21:24]Uh then the towers three towers which we are adding as increasing the manufacturing capacity of uh fiber from 24 to 30 million fiber kilometers. 28 >> sorry 28 to 32 >> 34 f million fiber kilometers and uh IBR lines you know which have been already been ordered and under delivery uh 60 crores and uh in our subsidiary the data connectivity business of 65 crores uh in defense sector 100 crores and today what I announced 215 crores out of which 100 crores will be spent in this The total would be 640 crores.

[00:22:10]Next year would about 615 crores. Out of which 325 crores will go to uh preform and 175 to defense and 115 balance of 215 will be in data center connectivity solution that would be 615.

[00:22:29]>> Got it. Got it sir. That's great. And sir my second question would be uh as you mentioned that this year you are targeting around 500 crores of defense execution and when I see s our telecom product business our revenues on a sequential basis are holding up uh really nice and if I just annualize that number our uh annualized revenue comes to around uh 9,300 cr that's a significant uh you know revenue growth versus what you are guiding as 40%, I'm just trying to understand when you're having a such a large tailwind, why are you being so conservative?

[00:23:09]>> Well, look, you know, I have not gone into this calculation of 9,000 or so, but I I can tell you one thing, you know, we had uh talked of 20% uh growth in revenue in the last call and looking at the business potential and all that and now I say we'll grow by 40%. But it is always good to be conservative. You know, if I promise you one and give you two, you would be happy. If I promise you two and give you one, then you are unhappy.

[00:23:38]>> That's great, sir. That's great. That's great. Yeah. That's it from my side. All the best sir.

[00:23:44]>> Thank you.

[00:23:46]>> The next question comes from the line of Balas Subramanyam with Aryant Capital.

[00:23:51]Please go ahead.

[00:23:53]>> Good day sir. Thank you so much for the opportunities. Uh congratulations for good setup. Napas I think uh we have really did well and so first question uh what is that uh global scenario on the pricing side uh especially in data center and uh uh telecom side I think we have varieties of products like like premium side uh more than uh uh,700 fiber counts and we have 3,500 we have 6,900 uh counts. So I'm trying to understand what is the pricing level for higher fiber count cables and specialized cables compared to standard 288 432 fiber cables for telecom product side and uh uh I think international market we have seen a higher realization compared to domestic market. I think recently we have uh got one of that uh biggest uh export orders for data centers uh for hyperscalers. We could talk about overall scenarios and uh earlier the pricing range anywhere, 200,300 rupees per kilometer. uh what is that current uh trend uh on that pricing side and if you're talking about 40% growth uh whether uh if you could quantify uh how much we can expect on that realization side and how much we can expect volume growth side >> you have asked so many questions in one question that it's difficult to remember also what you asked but anyway uh you know the fiber realization price depends on various things you know you standard you know for telos the fiber is different kind you know A1 fiber with 250 micron data centers is A2 fiber with 200 microns or even less so price differs significantly so a range I can give you you know it range could be starting from $18 per fiber kilometers to $28 fiber kilometers it all depends upon what fiber count what kind of fiber size uh you know what kind of fiber you know all all depends upon so many things but I can only give you a range there's no particular number I can tell you but this is the number range you can say from $18 to $28 >> at least international market right sir >> international market that's what I'm saying depends who is buying what kind of fiber he's buying you know how many count of fiber he's buying you know so this is all very uh very dynamic and and again whether they are long-term orders, short-term orders so you know there no particular fixed price I can tell you but yes you know international market you can you can take somewhere between 22 26 $28 depending again upon you know what kind of numbers and what kind of quantities and all that. Tel cost could be little lower because they are different kind of a fiber. So there's no fixed thing as such. This all varies with type of fiber, quantity and [clears throat] the long-term contract or all those kind of different things but suddenly prices have gone up quite a bit significantly in last six months.

[00:27:23]>> Okay.

[00:27:29]I think sorry to interrupt subra you're not subraum you're not audible uh could you please come closer to your microphone yeah >> on the project side earlier call it's mentioned about the the army project uh uh that things we'll realize from Q2 I think we can expect 170 cr uh like a revenue from from that trend uh we are on the track sir >> yes 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.

[00:28:02]>> Okay. So, so we can expect uh uh the loss reduction from Q2 onwards.

[00:28:08]>> Yeah. Q I would say Q2 middle of Q2.

[00:28:11]Yeah, something like that or maybe few days here there you know these are the government things can always change by a month. So but yes sometime mid of Q2 you can say >> okay sir so my last questions on the margin side I think last three quarters uh we are meeting nearly 30% kind of margins per telecom product side right now we are in that 80% uh 85% kind of mix uh whether we we should assume same kind of mix the entire year and what is the sustainability of these margins over the next two to three years >> yeah you know I think you uh are 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.

[00:29:05]>> Thank you participants. In the interest of time and fairness to others, please restrict yourselves to two questions.

[00:29:13]For any more questions, you may rejoin the queue.

[00:29:16]The next question comes from the line of Kush Tundan with Ananta Capital. Please go ahead.

[00:29:24]Uh >> thank you. Uh sir, good evening.

[00:29:25]Congratulations on uh significantly better than expected results. Uh and uh you know uh so a couple of questions that I had. The first one was uh sir in this quarter uh were there any uh higher margin orders? You're saying margins are sustainable at these levels but uh the quarter's performance is it sustainable going ahead sir was there any one time large execution of an order not sustained in the next quarters anything like that >> Mr. Of course you first let ask you a question. You said that are better than expected. What did you expect?

[00:30:04]>> Uh sir it would be won't be fair on my part to answer that question but uh uh you know it's significantly better than at least my expectations.

[00:30:13]>> Okay I was joking. I was joking you know just joking you know uh as far as the margins are concerned course these are sustainable. There's nothing called a particular high value or high margin order which you have executed. These are the average orders uh average prices you know on on the orders which should continue possibly throughout the year.

[00:30:36]So there is [clears throat] no kink up and down in any of these uh you know uh margins. So is it sustainable? Totally sustainable.

[00:30:47]>> Okay. So and let's say if you take a three-year view on the business uh you know this super cycle in the optical fiber for data center business uh so how are you seeing a three-year outlook uh if if I may just ask on the pricing environment the supply demand environment >> look I will give you five year outlook by three years three years is a no brainer even five years is no contracts is now contracts are now getting set for 10 years you would have heard that molex had a contract distribution for 10 years. So five year outlook as far as I can understand there is absolutely no there not going to be any letter demand.

[00:31:26]Demand is going to increase. I give you the reason for that. Okay.

[00:31:30]>> Right now as you see most of the expansion is taking place in North America. Uh you compare India as an example. India's total capacity is I think 1.5 gawatt. In 3 years we are expecting it to become 3 gawatt. US's current capacity is about 115 gawatt and 3 years it is expected to be 300 gawatt.

[00:31:52]So Europe the situation is similar to India very low growth Southeast Asia Middle East very having to pick up Middle East at the moment is a different kind of envir that but minor that they are picking up the data centers construction India is picking up data center construction Europe has to pick up they cannot be far behind US you know they can be can't be far behind US so World over market of data center uh creation is going to go up and up and the kind of data flow which is required massive amount of data flow is required. Fiber optic is the only solution there no other solution in the world available today. So demand of fiber optic cable is going to increase only. US will have a huge amount of demand and the places where data center construction have now started for them to reach to the level of buying fiber they will take one year two year kind of a time frame. So this demand will continue for at least 5 years and maybe more than that maybe more than that but five years I can see a clear yeah demand is not going to go down and sir uh if you can give a view on supply also uh uh and uh especially Chinese supply uh which may not be going to US immediately but so in a fiveyear horizon whenever there is a a large supply demand gap probably then suppliers also catch up sir. So any view on the supplies >> look you know you ask a question on China right now as you know US is the largest market now in the US China one they don't prefer China as a I don't think there is an administrative order not to buy from China but there is an administrative advice that administration is not in favor of buying from China. I was with one of the customer whom I am I will not name in US a few weeks ago and when we talked about the Chinese they said look our administration is not in favor of our buying Chinese fiber and this was a major hyperscaler now question is uh what would happen to China increase it capacity one is unwillingness to buy from China then higher duty on China today there is a 35% duty on Chinese fiber Well, anything you import from China and US. So in any case, the competitiveness of Chinese fiber goes down when you compare with us because of this higher amount of duty 10 service 35. So supply yes would increase but demand would also increase as you can see it. Now the another sector of demand which has come for defense industry is fiber optic drones. Today there is a demand of almost 70 to 100 million fiber kilometers of fiber for A2 type of fiber for fiber optic domes and this demand is going to increase because till now only those countries are buying fiber for the fiber optic domes which are in war. But now slowly every country is realizing that you know radio control domes are not good. 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 you know artillery and all that. So drones are becoming increasingly popular. So every country is now preparing for fiber optic drones. There's a huge new demand opportunity has come up there. So supply is going to increase. Now China I would not worry much as far as US market is concerned which is a major market at this point of time. Southeast Asia yes China would dominate but the Middle East Europe we have always been competing with China and telecom market and we'll continue to do so for the data center market also because you know our capacities are also now you know big enough you know world-class capacities. It's not that we don't have economies of scale. We do have economies of scale and we would be able to compete.

[00:36:14]>> Okay. Uh sir is the cost of production uh in India and the cost of production in China with the duty uh is it significantly cheaper than to procure from India?

[00:36:28]>> No, I don't procure anything from ch China.

[00:36:31]>> No sir, not you sir, your customers. No today you know us 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 to procure it's not cheaper >> okay >> I don't >> I'm sorry I would request you to rejoin the queue for more questions thank you.

[00:37:04]The next question comes from the line of Ricken with Capri Global. Please go ahead.

[00:37:11]>> Hi sir, thank you so much for the opportunity and congrats.

[00:37:17]Sir, I have two questions. First if you could help understand uh both on the uh uh long-ter uh are these price fixed price in nature or what kind of mechanism because you've your orders are like 3 years four years out kind of orders. So what kind of pricing mechanisms do they have and uh in one of your comments you did touch upon the fact that on the raw material side also we have uh kind of uh fixed contracts. So if you could elaborate a little bit in terms of the kind of inflation that you are seeing on the raw material and whether that could have any impact on our margin performance.

[00:37:59]Most of the long-term contracts with the raw material or the uh sales have a variation clause on a yearly yearly basis yearly basis price are redised but in between if there are large variations then that will also be discussed you know if there are large variations which I don't anticipate but if the yearly reset of the prices is always there that depending on the market condition also there are reset clauses but that opportunity has still not come because this contracts are not even year old. So I cannot say but uh that the sales contract would there would be any reset or not but yes there was reset in between when US imposed 50% duty uh at some point of time there were reset customers paid large part of that duty and good thing is that that duty has been refunded and we have paid them back >> right right got it got it so in terms of both on the fix on the supply side uh 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 some form of pass through >> because I tell you uh you know it's both sides you know uh sales price will increase if the raw material price increase significantly significantly I'm using the you know if there is a 5% increase then the customer is not going to increase 5% you know it's not a moving thing if there is significant increase then we go back to the customer significant decrease customer comes back to us the 50% example I give you when there was 50% duty position now I could not take a 50% uh you know duty customers helped me and they were very helpful but when the duty has been defunded we have paid them back got it got it so that is very clear sir the second question which I have is on the new uh pillars of growth which you alluded to which is the defense and aerospace business uh 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 uh uh by let's say FI28 or 29 and defense business what kind of uh execution or topline do you think that we would be able to achieve in these two businesses each of these businesses >> in 2829 I think you know this is 26 27 27 28 28 today 2829 in a defense and aeros business we should be crossing 3,000 crores at least and the year next to that our target is 5,000 crores. So 289 we should be 3,000 cr plus because we are right now having including one of the acquisition which we have signed and which is in process of getting completed you know acquisition process in >> uh advanc stage u including that we will definitely cross 3,000 uh because in that we are in negotiation for larger contracts uh for export also currently order book for export is roughly about uh 2200 crores. We have been shortlisted for a major contract for uh modernization of BMP2 and we have submitted the modernized sample also and uh I would like to say that but is a fact uh that uh in the internal trials our equipment has been found to be the best what we have modernized but again that is the internal trial not army trial army trial has started from 20th so that should be summer trial should be completed in one and a half month then the winter trial trial and then the order takes time but I'm quite hopeful on that. So aerospace order land system orders I believe that uh we should 3 years time I have given to myself for 5,000 crores you know >> got it so this year at least we should see order inflow starting to to come through in a meaningful way for both these segments. Yes, I agree with you.

[00:42:09]Meaningful way for our indigenously designed products. We are now what we have done different kind of radars and sensors. We have integrated by uh C2 system, command and control system and we are going to give demonstration to army northern command sometime in the month of September uh for as the integrated system and moreover you must have heard of home ministries uh this thing for securing the borders bordering Pakistan and Bangladesh through border protection system there also the products which are designed are going to work quite significant use. So they're also they are talking of a P proof of concept there also we will be working with them uh to work on a proof of concept which BSF is organizing. So all these places we expect a reasonable amount of orders to come to us.

[00:43:04]>> Got it sir. So just one last question.

[00:43:07]>> Sorry to interrupt. I would request you to rejoin the queue. Thank you. The next question comes from the line of Sanjay Sha with KSA Securities Private Limited.

[00:43:16]Please go ahead.

[00:43:18]>> Good evening sir. Uh Nat first of all highly highly congratulations and your uh tone of confidence in opening remarks was excellent and the way you put in so many efforts in last so many years are now coming to show and uh we are very well placed. So my question was more regarding the op projected to reach around 21 billion by 2033 because of these growing driven by hypers scale data center and surging bandwidth demands of artificial intelligence. But what we see that there are many international players from Italy and uh uh Japan and all who are increasing capacity like Trismia and and Corning and all. So how we look HFCL on that side after this capacity which may come up because PressNAN is spending around $1.5 billion uh to double their capacity. So how what is your thought process on that which can help us a lot to understand the growth path and just first of all thank you very much for your compliments. Look we are also increasing our capacity. We are also world class players. You know we started with 8 million kilometers of uh uh you know fiber capacity. Now today we are going to be 34 million very soon. Cable way started something like 10 12 million. Uh I'm talking about this recent years not old old days. Old age was much less. So today we are going to 45 million. So a and uh you know last two 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 the you know we are constantly reviewing that as we receive more orders as we receive more demand as we receive more inquiries from customers we constantly reviewing that and JB we will have to further increase capacity. I'm not denying that you know I'm not saying that we will but this is under constant review and if necessary we will also increase the capacity and uh no doubt that we are receiving 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. I'm really telling you you know if I say yes to one I have to say no to other one. So you know that becomes a 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 but 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 >> you know flood of supply I tell you one thing there are two major issues out here technology the data center operators are not buying normal fiber optic cables for example they are buying 7,000 fiber cables now how many of fiber optic cable suppliers have that kind of number of fiber cable only very few handful so there India we 20 suppliers for fiber optic cable but there are only two cables. My other friends may so you know or there are only two.

[00:46:55]So 18 do not have. So if you look that kind of a number there would 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.

[00:47:11]You know it's not going to be technology is not going to remain constant. For example, multicore fiber, holo core fiber, all these are coming up. We are developing holo core fiber. Now there are how many people in the world who are developing holo core fibers. So this is also a question of technology. Number one. Number two, a reputation in the market. Look, I am not I but number of other people also are connected with the hyperscalers who are already supplying to them and we will have a long-term relationship with those guys. We have signed a five-year contract. So when more demand comes up naturally we are they are not going to be changing their suppliers unnecessarily just because demand has gone down. maybe that us at that point of a time but as I said I don't expect demand to go down for next 5 years at least capacities are not going to be matching uh you know the increase in demand demand is still going to outstrip the capacity for 5 years at least I can see >> on technology side can we take HFC at par with the global players ah >> yes absolutely 7,5 we have already developed We are now developing 14,000 fiber cable. Maybe there is a difference of two three months here there you know that can always happen but not more than that. Holocore fiber. Yes, Cornine has already done higher amount of work in holo core fiber than others. But we are also doing you know by the time holo core fiber becomes somewhat commercial you know it is right now thousands of dollar per kilometer it's not even worth considering but by the time it becomes somewhat commercial in any quantity we would also be coming up with the holore fiber. We are already in development phase with IIT Delhi for holo fiber. IT Delhi and one of the government organization in Kolkata which already has tower for manufacturing holo code kind of a fiber we already working on that so we are staying in forefront of technology you know another point unless we were in the forefront of contra technology we'll not be receiving a billion dollar contract kind of a thing either for the cable or for connectivity solutions we recently received a contract worth money 500 crores for now you know 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 almost as near about as big as the you know higher length cable market because you need as much connectivity solutions also that is more value added product because you buy connectors you cut into pieces you characterize them and you send them which is all a manual process so where there higher value addition. So it is also a very high potential market and what your company is doing I am increasing my capacity for connectivity products by 5x in less than a year's time or less than a year's time progressively my capacity will be five times more than what it is today because that's a major market which is emerging now where uh you know the size is going to be very very big billions of dollars worth of market because if you need data instead data center you need connectivity solution then what also we have done not only cable or you know cable loops and all that we are also developing uh developed you know passive all kind of a product of passive connectivity solution plastic boxes cassets jointing boxes and all that so we can be one-stop shop for all connectivity solutions S for a data center cable and all other products you know the plastic trays and the cassette and all that you know which are required inside data centers will be one-stop shop. So it's going to be entire set of connectivity solution that is another leapu we have taken in this business.

[00:51:30]>> Thank you. The next question comes from the line of Manik Mahajan with Balyasi Asset Management. Please go ahead.

[00:51:40]>> Hi, thank you sir. Thank you for the opportunity and congrats on the good set of numbers. Um the first thing I wanted to understand was uh with respect to your comment on the margin and the margin guidance of 20% you mentioned that the telephone can be near the microphone and say that again >> sure can you hear me now better?

[00:52:01]>> Yeah.

[00:52:03]>> Okay. So I was saying that with respect to your comment around the margins uh you mentioned that u the margin of the telecom business would be sustainable at 30%. So when I think about the overall drivers of 20%. Um is there any seasonality we need to take in account because this quarter we've only run about 23% of the data audience.

[00:52:26]>> Your voice is bit [clears throat] you know echoing. Uh just just let me >> give let me try to >> it's why lot of eos so it doesn't come up.

[00:52:38]>> Is it better? Is it better now?

[00:52:40]>> Yeah. Say that again. No.

[00:52:45]>> Yeah Mr. Mahamemed. Go ahead.

[00:52:52]>> Can you hear me?

[00:52:53]>> Manik you're not you're not audible.

[00:52:56]your voice is echoing you know so that your voice is particular kind of echo so it does not yeah say that again but try again >> okay so I'm saying that with respect to the margin if you can share whether we should expect some seasonality from a quarter perspective because we've already lo there any seasonality in telecom margin or is it sustainable >> so you are saying that is there any seasonality in telecom margin or is it sustainable is that the ship.

[00:53:27]>> Yeah. Because the full year guidance is 20%, and this quarter you have already done 23%.

[00:53:33]>> Yeah. Yeah.

[00:53:34]>> So I'm trying to understand why is the full guidance lower than the quarterly guidance.

[00:53:39]>> Interesting. I understand. Look, there's no seasonality. You know, reason being as I say in one of the previous questions answer that this 23% margin is out of the normal average contracts which we are executing and which we would be executing throughout the year.

[00:53:55]These are the average contracts which more or less would remain same throughout the year. So there's no seasonality at all. Seasonality is not there. So this 23% margin is something minimum we would be able to protect to the best of my information at this point of time out of the orders I have from cost I have. But if there is some geopolitical situation happens and something changes which is not in my control or your control you know some people close sew canal and the deliveries become delayed and any such thing happens which you I cannot control I cannot say but whatever in control of a businesses this will be having no problem.

[00:54:43]Got it. That's helpful. And just uh one more followup from a uh with respect to the green preform project. Um how does it alter the company's overall return profile and uh or the margin profile?

[00:54:59]>> You know the pre you know would mean I think you asked about the preform isn't it?

[00:55:06]>> Yes that's right. Yes that's right.

[00:55:08]>> Yeah preform project is designed for the two perspectives. one bring in more sustainability in the raw material supply chain because you we would need a lot of reform and that lot of reform some part should we 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 today now situation might change 5 years down the road I don't know but as on today make is 30% cheaper than buying so raw material cost would go down for preform to that percentage in a fiber 70% cost is preform so 65 to 70% you would say so fiber cost would go down by 80 to 20% but again when you go to cable then you know cable fiber constitutes about 60% So total of the total cost roughly about 45% is you would say is preform. So total there would be 10% saving the raw metal cost something like 10 12%.

[00:56:24]>> Thank you. The next question comes from the n from the line of nicl purohit with fidend asset management. Please go ahead.

[00:56:33]>> Hi sir, thanks for the opportunity and congrats on another great set of numbers. Uh so firstly we had some unbuild revenues at the end of quarter 4 FI26 uh and expected this to be built in quarter 1. What is the update on this?

[00:56:48]>> So it has been built it stands built. So a major amount of 300 K which has been built.

[00:56:55]>> Okay great. Um we had also said that the 1.1 billion order that we got from a hyperscaler would only start execution from the end of quarter 1 FY27.

[00:57:05]My question is do we expect uh to sustain this kind of revenue of 1900 kores 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 quarteronquarter decline? No, there not going to be quarter on quarter decline you know five or 10% here there you know it's very difficult to predict but generally we should be able to maintain roughly about this kind of a revenue and uh profitability I would say also not decline profitability will also be remaining to the best of my estimate around the you know we we will not be inferior than this better how much I cannot say will not be inferior to this in my opinion >> thank you the next Question comes from the line of Kushi Sony with Noama Institutional Equities. Please go ahead.

[00:57:59]>> Hello sir. Uh 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 cables?

[00:58:16]Look optical fiber cable is roughly about 16,000 crores defense part you know including the you know acquisition which we have proposed uh if I take that into account then it would be roughly about uh and which is not included in this 2,600 let me tell you this sorry it's not included in this 26,000 crores but I would take it as my order you know because that acquisition is already finally stage of uh completion. If I take that into account then order book would be something like 2300 crores or so. Without that it would be about something like 300 cr or so but uh one should take that into account because that is acquisition is almost done.

[00:59:05]>> All right. So out of this 2600 crores if I understand correctly currently only 300 crores of defense order is included.

[00:59:12]Additional acquisition is uh over and above that >> thousand groups >> thousand grows. All right. And uh if you could help me with what kind of revenue breakup in the telecom segment do we see with OFC and the data center solutions that we've been providing.

[00:59:31]>> The data center solution business they started this year only. This is the first year of data center business and first year I think Q1 would have been about 100 crores or so. I think something like 100 C maybe a little bit here there but the current full year we are looking at 800 course number roughly about 800 course number this is the first year of but as I said little while ago I'm increasing this capacity by five times times