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HFCL Ltd

| Q2 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤17th Oct 25

Summary : HFCL demonstrates strong Q2 FY26 performance, driven by robust global OFC demand, strategic defense sector expansion, and increasing telecom product exports, positioning for sustained growth.

Management Perspective positive : ['I am very, very confident about defense business in future.', 'I expect a very, very good future.', 'I still maintain that revenue growth of about 20%, which we said it could happen. It is definitely going to happen.', 'I’m sure we will be able to maintain that in the next 2 quarters of the current year also.']

Concall Report Analysis & Insights

Business Overview

  1. HFCL is strategically shifting from 'Make in India' to 'Innovate in India' for global markets.
  2. The company reported strong Q2 FY26 financial results, with revenue at INR 1043.34 Crores and PAT at INR 71.92 Crores.
  3. Global Optical Fibre Cable (OFC) market is reviving due to demand from hyperscalers and data centers.
  4. HFCL is expanding its high fibre count cable manufacturing capacity to 19.01 million fkm p.a. by June 2026.
  5. The defense business is gaining momentum with new contracts and product developments like electronic fuzes and drone detection radar.

Future Growth Prospects

  1. Global OFC demand is surging, driven by AI, cloud, and hyperscaler-led network expansions.
  2. India's telecom market is one of the fastest-growing, with 5G rollouts and Bharat 6G Vision 2030.
  3. Data traffic in India is projected to grow at a CAGR of ~22.39% over the next five years.
  4. Defense business is expected to grow strongly, targeting INR500 crores next year and INR1,000 crores the year after.
  5. New defense manufacturing complex in Andhra Pradesh will produce ammunition and critical defense products.

Management Insights

  1. Management maintains its 20% revenue growth guidance for the current financial year.
  2. The impact of U.S. tariffs on HFCL's exports, primarily OFC to the U.S., has been minimized through legal procedures.
  3. OFC capacity will reach 42.36 million fkm per annum, positioning HFCL among top global manufacturers.
  4. Secured export orders exceeding INR 650 crore for OFC in H1 FY26, to be executed by April 2026.
  5. Divested 15.19% stake in Nivetti Systems Private Limited for INR 52.51 crore to sharpen focus on core strengths.

Signs of Skepticism

  1. Management did not provide specific details on how US tariff impacts were minimized, citing confidentiality.
  2. Defense revenue targets of INR500 crores next year and INR1,000 crores the year after seem ambitious given trial delays.
  3. Confidence in defense product success is high, despite acknowledging first-time development challenges.
  4. No clear timeline or detailed plan for addressing increased interest costs beyond relying on internal generation and receivables.

Risk Factors

  1. Geopolitical environment and rising defense modernization priorities create opportunities but also uncertainties.
  2. Previous chipset supply problems impacted 5G product revenue, though now rectified.
  3. Payment delays from state government authorities for some EPC projects have slowed execution.
  4. 5G Fixed Wireless Access products face pricing pressure, requiring price reductions for increased demand.
  5. Developing new defense products for the first time can involve initial problems and delays in trials.

Good To Know

  1. HFCL's plants are operating at full capacity utilization due to robust demand across telecom, defense, and exports.
  2. The company received an improved ESG rating of 65 (Strong) from ERAIL and 73 from CFC Finlease.
  3. Order book stands at INR 9981 Crores as of September 30, 2025.
  4. The company is developing passive connectivity solutions for hyperscale data centers, expecting 4-figure revenue next financial year.
  5. HFCL is backwardly integrated in manufacturing fiber and raw materials, providing economies of scale.

Key Drivers

  1. Global OFC demand surge.
  2. Accelerated 5G/6G network rollouts.
  3. Growing defense sector orders.
  4. Increased export market penetration.

Key Analyst Discussions

Competitive Environment

  1. China is not a significant threat in developed markets (Europe, U.S.) due to geopolitical reasons.
  2. HFCL has successfully gained entry into Tier 1 telecom operators in Europe and America.
  3. The company's local design and manufacturing are more competitive and acceptable in India's 'Atmanirbhar' environment.

Market Trends & Consumer Behavior

  1. Demand for high-fiber-count cables is very high from both data centers and telcos.
  2. AI, cloud applications, and increasing smartphone/OTT usage are driving immense data consumption.
  3. 5G expansion is incremental, with operators also looking towards 6G development.
  4. Global operators are asking for 3-year commitments to reserve capacity, which HFCL is currently not providing.

Financial Highlights

  1. EBITDA margin for Q2 FY26 was 19.49%, with net margins generally around 10%.
  2. Interest costs increased due to expansion and working capital, expected to decrease as receivables come in.
  3. The company's debt-equity ratio is low at 0.35, indicating no significant financial concern.
  4. O&M contracts will contribute significantly from the next financial year, with decent margins of about 20%.

Product Composition

  1. Q2 FY26 revenue mix was approximately 80% from optical fiber cable and 20% from other telecom products.
  2. Defense products include Tactical Optical Fiber Cable, Thermal Weapon Sights, electronic fuzes, radars, and ammunition.
  3. HFCL is developing passive connectivity solutions for hyperscale data centers, including MPO cable solutions.
  4. The company produces 5G Fixed Wireless Access products, with demand expected to increase if prices reduce.

Strategic Considerations

  1. No current plans for value unlocking via demerger of business segments.
  2. Hosur defense facility capex is around INR15-20 crores, with a maximum planned INR50 crores, capable of INR400-500 crores revenue.
  3. Current capacity utilization is 90%, with plans for further expansion to meet surging demand.
  4. The company is focusing on OFC, telecom products, defense, and EPC as its four major growth areas.