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HFCL: Betting big on OFC

April 02, 2019
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HFCL: Betting big on OFC
Himachal Futuristic Communication Limited (HFCL) specialises in the manufacturing of telecom equipment and optical fibre cable (OFC), and development of intelligent power systems. Over the past three decades, the company has installed over 25,000 2G/3G sites and laid over 200,000 km of OFC for sectors including telecom, oil and gas, railways and defence.

 

The company is expanding its installed base with the roll-out of next-generation value-added OFC. HFCL has also started the backward integration of OFC to increase the operating margins of its OFC manufacturing business. The company is also leveraging its telecom product and EPC capabilities in segments such as railways, smart cities and defence. tele.net takes a look at the company’s key focus areas…

OFC manufacturing

In order to meet the OFC demand, HFCL has decided to set up a greenfield OFC manufacturing facility in Hyderabad at an estimated capex of Rs 750 million. The facility will have an annual manufacturing capacity of 7 million fibre km (mfkm). In January 2019, the company’s board decided to increase the capacity of this plant by 3.5 mfkm to 10.5 mfkm at an additional investment of Rs 350 million. Commercial production at this plant is expected to begin by June 2019. In addition, HFCL has earmarked an investment of Rs 500 million to expand the capacity of HTL Limited, its subsidiary in Chennai, from 7 mfkm to 10.5 mfkm. With this, HFCL’s annual OFC manufacturing capacity will increase to 28 mfkm.

The company’s backward integration greenfield project in Hyderabad is already under way. It is expected to be fully operational by November 2019. The plant will have an annual manufacturing capacity of 6.4 mfkm. It can be further scaled up to 9.6 mfkm. A total of Rs 2.28 billion has been earmarked for this plant.

Telecom networks

HFCL is also building futuristic telecom networks. The company operates and maintains over 500 GSM network sites commissioned in left-wing extremism areas across six states, including 48 sites deployed in 2017-18. During the same year, the company completed a Wi-Fi project for Bharat Sanchar Nigam Limited (BSNL), which involved the deployment of over 3,150 Wi-Fi hotspots across 16 states in the northern and eastern parts of India. A project to provide Wi-Fi services to 6,000 access points across the gram panchayats of Rajasthan is also under progress.

Smart cities

HFCL is also leveraging opportunities in smart city development. It specialises in CCTV surveillance, traffic enforcement and adaptive traffic management systems, and city command and control centres. It is also focusing on the system integration segment. It aims to offer innovative solutions through its value-added products and service offerings to meet smart city requirements. It is also looking to integrate smart components with command and control centres. The company plans to augment revenue by targeting cities selected in Round 3 and Round 4 of the Smart Cities Mission.

Railways and defence

Established over three years ago, the company’s railway business vertical deploys telecom and network development products to advance the railway signalling and information management framework. Contracts signed thus far involve the design, manufacture, supply, FAT, installation, testing and commissioning, training and DLP of telecom systems. The company is also providing turnkey telecommunication solutions to expand its scope. In 2016, HFCL entered the defence sector. It plans to manufacture electro-optical and night vision devices, mini unmanned aerial vehicles and electronic fuses. It is also exploring opportunities such as perimeter security at airbases, and border management and surveillance systems.

Key financials

HFCL posted net sales of Rs 11.05 billion in the quarter ended December 2018, up 54.76 per cent from Rs 7.14 billion in the corresponding quarter in 2017. Net profit for the quarter stood at Rs 484.2 million, an increase of 6.46 per cent from the corresponding quarter in 2017. Earnings before interest, taxes, depreciation and amortisation (EBITDA) stood at Rs 1.06 billion during the quarter, a 42.77 per cent jump from Rs 747.7 million in the quarter ended December 2017. Meanwhile, the EBIDTA margin stood at 9.66 per cent as compared to 10.46 per cent in the previous year.

Key orders

In March 2019, HFCL secured orders worth Rs 1.17 billion from Tata Projects  for the supply of OFC in Chhattisgarh under BharatNet Phase II. In January 2019, HFCL won orders worth Rs 5.02 billion for the supply of OFC from Larsen & Toubro (L&T) and a consortium led by ITI Limited. Under the L&T project, worth Rs 1.47 billion, the company will supply 16,882 km of OFC in Andhra Pradesh. The other project, worth Rs 3.55 billion, involves the supply of 37,798 km OFC in Maharashtra. Both these projects fall under BharatNet Phase II.

In 2018, BSNL awarded a project worth Rs 3.66 billion to HFCL for the roll-out and maintenance of a broadband network under the BharatNet project. HFCL also received advance purchase orders worth Rs 6.11 billion from BSNL for the survey, procurement, supply, trenching, laying, installation, testing and maintenance of OFC and GPON equipment under BharatNet in Madhya Pradesh. It also received advance purchase orders worth Rs 5.83 billion from BBNL under the BharatNet project in Punjab.

Meanwhile, HFCL received a purchase order worth Rs 5.58 billion from BSNL for implementing high capacity wireless backbone links in strategic locations of the Indian armed forces. HFCL, along with Vanu India, secured a project worth Rs 5.79 billion from BSNL for setting up a green-energy based GSM network under the Universal Service Obligation Fund programme, which aims to connect the unconnected villages of Karbi Anglong and Dima Hasao districts in Assam. The network, planned to be rolled out in 18 months, will include 924 base transceiver sites and cater to 1,313 villages.

In 2018, HFCL won two international contracts worth Rs 1.48 billion from L&T for the Mauritius Metro Express Project and the Dhaka Metro Mass Rapid Transit System. Also, HFCL is executing some key defence projects including GIS-based OFC network management systems and Network for Spectrum (NFS) DWDM.

Future outlook

Going forward, the OFC demand is set to increase significantly given its role in providing high speed internet connectivity. It will be further bolstered by the growing demand for data, the government’s emphasis on digitalisation with projects such as BharatNet and NFS, telecom operators’ network strengthening plans, upgradation of broadband infrastructure, and the commercial launch of 5G in India. HFCL is rapidly expanding its OFC manufacturing capacity to match this increase in demand. The company also stands to benefit from opportunities in the railway and defence sectors. The government’s projects for modernising these sectors will attract significant investment inflows. Indigenous manufacturing in defence has opened up new opportunities for private participation.

A healthy order book and several advance purchase orders will shape the company’s future growth trajectory. Going forward, HFCL is betting big on OFC, while expanding its scope and augmenting revenues from newer segments such as railways and defence.


 
 
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