Thread by @alphaspotcap

HFCL Ltd Analysis!

Here’s everything you need to know about the company, it’s financials, future prospects, industry outlook and more!

A detailed thread 🧵👇🏻
#investing #StocksToBuy

(1/17)

About-

HFCL is engaged in the business of manufacturing of Optical Fiber (OF), Optical Fiber Cables (OFC), Cable Accessories, Telecom Transmission.

It provides turnkey solution to telecom service providers, railways, Defence, smart city & surveillance projects.

(2/17)

HFCL is a leading manufacturer of OFC in India. It’s a leading player in turnkey OFC projects.

HFCL has supplied OFC to all major telecom service providers in India. It also exports OFC to more than 30 countries. It is a large contributor to the GOI’s
BharatNetProgramme.

(3/17)

Telecommunication Overview 🇮🇳

1. 2nd largest in the world (~1.2Bn subscriber base)

2. Contributes ~8% to India’s GDP

3. ~765mn Internet Subscription

4. Govt backing to the sector for “Make in India” initiative.

5. 5G technology at the cusp of commercialisation

(4/17)

Optical Fiber Cable Industry

1. Govt plans to connect ~6lakh villages with fibre net

2. India has 24 lakh kms of fibre based network & the target set by the govt is 50lakh kms by 2024

3. Fibre deployment to population is at 0.09% vs 1.7% in USA

(5/17)

5G implementation-

Implementation of 5G network will result in a boost of demand for telecom equipment, fibreoptic cables & related services. HFCL is developing 5G radio & transport products. With 5G network, demand for HFCL’s products is expected to grow substantially

(6/17)

Expanding Capacity-

Due to the increase in demand for optical fiber & OFC, HFCL had decided to expand its manufacturing capacity of optical fiber, a vital raw material for the manufacture of optical fiber cable to 22 Mn km per annum from present 10 Mn fiber km per annum

(7/17)

Increasing input prices-

The fiber price in Q2FY22 was ~₹265 per km, Q1 it was around ₹ 250 per km, Q3 it has become ₹320 per km.

Logistics Cost-

Company has additionally incurred ~₹10-12Cr due to higher freight and VRS

(8/17)

Increasing debtor days-

HFCLs debtor days has increased substantially due to the issue of milestone completion. The management said it was a problem from customer end that the projects were not completed in time. And HFCL doesn’t see it to be a case of bad debt in future

(9/17)

Key Strengths of HFCL-

1. Strong demand potential for telecom products, optic fibre cables industry

2. Robust forward, backward and horizontal integration done by the company which is helping it to get higher revenue & higher competitiveness.

(10/17)

3. HFCL has a strong order book position having firm orders to the tune of ₹5,500 crore as on
Dec 31, 2021 which is almost equivalent to one year’s revenue.

4. Comfortable financial risk profile with healthy debt coverage indicators.

(11/17)

Changing Revenue mix-

26% of HFCLs revenue was coming from the product & 74% was coming from projects in FY21.
It has now changed to 42% from products and 58% from projects in 9MFY22.

Products segment is more profitable for the company as it has a good integration.

(12/17)

Advancements in Q3FY22-

1. Successful completion of QIP

2. Got approval of the PLI scheme

3. 100% release of the promoter pledged shares

4. Coveted enrollment as the trusted source from the National Security Council Secretariat

(13/17)

Financials Q3FY22-

1. EBITDA increased from 13.78% to 14.32% on YOY basis

2. Revenue at ₹1,215 cr Vs ₹1,122 QoQ

3. PAT margins remained flat at 6.7% YoY

4. Revenue ₹3,544 cr vs ₹3,031 cr YOY

(14/17)

Key risks-

1. High debtor days and working capital days

2. Concentrated customer risk
(Top 10 customers generated ~80% of total revenues in FY21)

3. Intense competition exposure, but the company says it has margin and supply side advantage over its competitors

(15/17)

Clientele-

Company's client base includes Jio, Tata, Airtel, Vodafone, Nokia, L&T, Orange, BSNL, BBNL, TCIL, BPCL, IOL, Railtel, HPCL, PGC, GAIL, Saudi Railways and others

(16/17)

Conclusion-

HFCLs focus on designing its own products has shown good results in terms of profitability.
5G era will further boost its products demand & it will be upto the execution part of HFCL as to how it manages its margins while keeping an eye on its competitors.

(17/17)

What’s your view about this industry and HFCLs future?

@caniravkaria @ishmohit1 @kuttrapali26 @ArjunB9591 @Arunstockguru @Jitendra_stock