What is the rationale behind creating a separate entity for defence and aerospace?
We decided to diversify from telecom into related areas, either by product or by customer segment. Defence was a natural fit, given our experience executing a large project like Network for Spectrum — a secure, pan-Indian communication network for the Indian Army and Air Force, initiated in 2018.
Initially, we focused on electronic products, but we have since expanded into non-electronic offerings and developed critical technologies, including ground and coastal surveillance radars. We are the only Indian company with foliage-penetration radars. We have also developed electronic fuses for artillery, which are currently under testing, and are exploring the manufacture of shells. Our drone-detection radar is also undergoing field trials.
On the inorganic side, we have acquired Spiral EHL Engineering. We therefore created a dedicated subsidiary, HFCL Advance Systems, focused exclusively on defence. It currently has an order book of ₹1,700 crore, and we expect further orders soon.
Between telecom and defence, which will drive growth going forward?
Both segments will contribute to growth. Until last year, demand for fibre optic cables was subdued. However, we foresaw the rise of data centres and expanded capacity accordingly, which is now supporting stronger revenues. That said, we did not expect the scale of the jump in demand, including securing a $1 billion order.
Will you need additional capacity to service this new order?
Our current fibre manufacturing capacity is 30 million fibre kilometres (mfkm) per year, which is being expanded to around 36 mfkm. We plan to add another 6 mfkm, taking the total capacity beyond 40 mfkm.
In collaboration with the Indian Institute of Technology Delhi, we are developing hollow-core fibre for low-latency applications, particularly suited to data centres. We are also working on multi-core fibre.
For fibre optic cables, our capacity stands at about 45 mfkm per year. We are now backward integrated and recently announced further integration into preform manufacturing — a key raw material. We will require an additional 1,200 tonnes annually and are setting up an initial capacity of 300 tonnes. This will involve an investment of ₹580 crore through warrants issued to promoters.
What is the planned capital expenditure across both segments over the next two to three years?
The preform project will require about ₹580 crore, while expansion in defence and fibre optics will involve an additional ₹300–400 crore.
How has the West Asian conflict impacted your business?
The impact has been specific. Polybutylene terephthalate, a key raw material used in fibre manufacturing, is imported from the region. If the conflict persists, we may need to shift sourcing to other countries, which could raise costs.
On foreign exchange volatility, we are slightly on the positive side, as over 80 per cent of our fibre optic cable business is export-driven. However, in telecom equipment, we face some downside, as most components — including bare printed circuit boards — are imported.
Has the impact of US tariffs eased?
The situation has stabilised for now, as the US Supreme Court of United States’ ruling prevails. We are currently paying an 18 per cent tariff applicable to India. Three to four months ago, tariffs had risen to as high as 50 per cent, which created huge disruption. More critically, shipments were stuck at ports and airports, leading to high demurrage costs as bonded warehouses became congested.
Will exports be a bigger focus going ahead?
Exports already account for about 80 per cent of our fibre optic cable business. However, only around 10 per cent of telecom equipment is exported, and this share needs to increase. We intend to expand our presence in export markets more aggressively in the coming years.
Do you plan to exit the engineering, procurement, and construction (EPC) segment?
We have a clear strategy here. EPC will account for less than 25–30 per cent of revenue. We are not aggressively pursuing EPC projects. We will take up such projects only where there is meaningful value addition and reasonable profitability. We do not plan to exit entirely, but we will avoid unprofitable business.
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