HFCL Limited Q3 FY26 Earnings Call Summary

Summary

HFCL Limited - Q3 FY26 Earnings Call Summary Tuesday, February 03, 2026, 4:00 PM IST

Event Participants

Executives 4 Amit Agarwal (Head, Investor Relations), Mahendra Nahata (Promoter and Managing Director), Manoj Baid (Company Secretary), Vijay Raj Jain (Chief Financial Officer)

Analysts 10 Abhishek Kumar Leekha (Neste Wealth LLP), Amar Ahir (Raedan Capital), Arun Malhotra (CapGrow Capital), Bajrang Bafna (Sunidhi Securities), Balasubramanian (Arihant Capital), Dhaval Jain (Sequent Investments), Parth Mehta (Individual Investor), Pushkar Jain (Mili Capital), Saket Kapoor (Kapoor Company), Smith Gala (RSPN Ventures)

Financials & KPIs

Geographic & Segment Commentary

• Optical Fibre Cable (OFC): This segment is the primary growth driver, with management targeting ₹3,500 crores revenue in FY27 (up from ~₹2,400 crores in FY26). Demand is pivoting toward high-fibre-count cables (3456-fibre and 6912-fibre) for global hyperscale data centers. While recent Q3 exports faced temporary logistical hurdles due to US tariff ambiguities, the situation stabilized by mid-December 2025.
• Telecom Products: 5G products and routers contributed ~20% of product revenue. The company has a strong order book of 100,000 routers (worth ₹700-800 crores) for BharatNet. Management is shifting focus from domestic FWA CPE, where demand is slowing, toward international markets and higher-capacity IP/MPLS routers.
• Defence: Revenue for FY27 is guided at ₹400-500 crores. Key initiatives include indigenous electronic fuzes (trials in April 2026), thermal cameras for UAVs, and shortlisting for the BMP-2 tank upgradation program. The company is developing a 1,000-acre ammunition manufacturing hub in Andhra Pradesh to produce grenades and specialized fuzes.
• EPC & Services: EPC is no longer a priority segment, with revenue expected to scale down to ₹1,000 crores in FY27 to prioritize higher-margin product sales. However, O&M (Operations & Maintenance) services are expected to grow to ₹450-500 crores annually within three years as warranty periods on large projects expire.

Company-Specific & Strategic Commentary

• Capacity Expansion: OFC capacity is increasing from 30.5 mn fkm to 42.36 mn fkm by June 2026. Optical Fibre capacity will reach 34 mn fkm by December 2026, supported by new machinery arrivals.
• Data Center Interconnect (DCI): Launched Pre-Connectorised Solutions (PCS) and MPO cables specifically for AI-driven data centers. Management expects these new product lines to generate ₹400–500 crores each in additional revenue over FY26–FY27.
• Backward Integration: Management is finalizing plans to manufacture optical fibre preforms indigenously to secure supply chains, as preform prices are expected to rise by 20-25%.
• Capital Allocation: Successfully raised ₹550 crores via QIP in Q3 FY26 for R&D, capacity expansion, and debt reduction. Promoters expressed willingness to increase their stake, subject to regulatory approvals.

Guidance & Outlook

Risks & Constraints

Q&A Highlights

Data Center & AI Opportunity

• Question: What is the specific opportunity in AI and data centers? (Rishubh Vasa)
• Answer: Data centers require cables with up to 6,912 fibres, far exceeding the 288-fibre standard for telcos. We are one of the few global players with the machinery to manufacture these. We are currently refusing orders due to capacity constraints and expect ₹500 crores from passive connectivity solutions alone (Mahendra Nahata).

Defence & Fuzes

• Question: When will the electronic fuzes be commercialized given previous delays? (Abhishek Kumar Leekha)
• Answer: Delays were due to the non-availability of ammunition from Munitions India Ltd for testing, not technical failure. Ammunition is now secured; we expect final DRDO approval after the April/May 2026 trials (Mahendra Nahata).

OFC Pricing & Realization

• Question: How are realizations trending given the market recovery? (Dhaval Jain)
• Answer: Realizations rose from ₹964 to ₹1,055 per fkm this quarter. I expect at least another 10% increase driven by high-density cable demand (Mahendra Nahata).

Equity Dilution vs. Debt

• Question: Why raise equity at low valuations instead of debt? (Arun Malhotra)
• Answer: Growth requires a combination of both. While debt is cheaper, maintaining a low debt-to-equity ratio is vital for sustainable large-scale expansion into defence and global markets (Mahendra Nahata/Vijay Raj Jain).

Key Takeaway

HFCL delivered a robust Q3 FY26 with a 41% YoY increase in PAT, primarily driven by a strategic pivot toward high-margin products and exports. The company reported a consolidated revenue of ₹1,210.79 crores, with product revenues now constituting 60% of the mix. Strategically, HFCL is positioning itself as a critical supplier for AI-ready data centers globally, leveraging its new 3456-fibre Micro Duct IBR cables and expanded fibre capacity (targeting 34 mn fkm by end of 2026). While the defence segment faces rigorous trial phases for electronic fuzes, management anticipates it to become a ₹500-crore vertical by FY27. Looking ahead, the company is intentionally scaling back low-margin EPC work to focus on OFC and O&M contracts, which are expected to yield higher PBT margins of 10-12%. Monitoring the successful commissioning of preform manufacturing and the April fuzes trials will be critical for long-term margin sustenance.