HFCL Limited: 23% YoY PAT Growth, Aiming ₹10,000 Cr Revenue by FY28

Executive Summary

HFCL Limited (“HFCL”), a leading telecom infrastructure provider, demonstrates significant potential for future growth, driven by advancements in telecom, defense, and international markets. Despite short-term headwinds in the optical fiber cable (OFC) segment, HFCL is strategically positioned to capitalize on expanding opportunities, backed by robust R&D, diversified product portfolios, and global market penetration. This report analyzes HFCL’s recent performance, market metrics, and growth prospects.

Key Financial Metrics (as of Q2 FY25)

Market Metrics

Market Capitalization: ₹16,543 Cr.

Current Price: ₹115

52-Week High/Low: ₹171 / ₹80.2

Stock P/E: 44.0

Financial Indicators

Book Value: ₹29.0

Dividend Yield: 0.17%

ROCE: 13.3%

ROE: 9.34%

Performance Metrics

Debt: ₹1,215 Cr.

Reserves: ₹4,047 Cr.

Sales Growth (3 years): 0.32%

Profit Growth (3 years): 10.9%

Operational Metrics

Operating Profit Margin (OPM): 14.0%

Profit After Tax (PAT): ₹376 Cr.

Order Book: ₹6,151 Cr.

Future Growth Drivers

1. Telecom Sector Expansion

5G and 6G Deployment

HFCL’s focus on 5G equipment, including unlicensed band radio and broadband network gateways, positions it to benefit from India’s accelerated 5G rollout and emerging 6G opportunities.

BharatNet Phase III

With a government-backed budget of ₹65,000 Cr., HFCL is strategically poised to secure significant orders, leveraging its technical expertise in fiber optic cable manufacturing and system integration.

Global Fiber-to-the-Home (FTTH) Demand

The U.S. Build America, Buy America initiative and Europe’s digital transformation are expected to drive international revenue growth, with HFCL aiming for 70% of optical fiber revenue from exports within three years.

2. Defense Sector Potential

Indigenous Development: HFCL’s focus on cutting-edge defense technologies such as electronic fuzes, thermal sights, and surveillance radars aligns with India’s Atmanirbhar Bharat initiative.

Strategic Partnerships: Collaborations with General Atomics and others underscore HFCL’s capabilities in providing advanced subsystems for unmanned aerial systems and combat vehicles.

Revenue Contribution: Defense revenues are expected to constitute one-third of HFCL’s product revenues in the medium term.

3. R&D and Innovation

HFCL’s continuous investment in R&D enables the development of high-density optical fiber cables and advanced 5G solutions, ensuring sustained competitiveness in domestic and international markets.

4. Geographical Expansion

HFCL’s newly established subsidiaries in the UK and Netherlands aim to enhance market share in Europe, supported by exemption from anti-dumping duties.

Strong focus on the U.S. market, with tailored products to meet specific regional demands.

5. Sustainability and Cost Efficiency

Backward integration initiatives, including in-house fiber manufacturing, are expected to improve margins and reduce dependency on external suppliers.

Power-efficient solutions like HFCL’s unlicensed band radios address cost and environmental concerns.

Challenges and Mitigations

Optical Fiber Market Slowdown: The global OFC market downturn has impacted revenue. However, recovery signs and increased inquiries signal potential stabilization from Q4 FY25.

Margin Pressures: EBITDA margins (15.71% in Q2 FY25) are expected to improve with backward integration and increased product sales.

Debt Management: The company maintains a comfortable debt-to-equity ratio (0.25-0.30) and funds capex through a mix of equity, debt, and internal accruals.

Valuation and Investment Outlook

Revenue Growth Target: HFCL aims to achieve ₹10,000 Cr. in revenue by FY28, representing a CAGR of ~25%.

Profit Growth: Strong PAT growth (23% YoY in Q2 FY25) reflects HFCL’s ability to manage cost efficiencies and leverage high-margin segments.

Export Contribution: With international revenue targeting 70% in fiber optics and 40-50% in telecom, HFCL is well-positioned to benefit from global market dynamics.

Recommendation

HFCL offers a compelling investment case with significant growth potential across telecom and defense sectors, supported by robust R&D capabilities, strategic partnerships, and geographical diversification. Investors with a medium to long-term horizon should consider accumulating at current levels, given the promising growth trajectory and improving macroeconomic conditions.

Risks to Watch

Delays in BharatNet Phase III execution.
Global economic uncertainties impacting export demand.
Increased competition in the telecom and defense sectors.