HFCL: How ₹580 Cr Capex and Defence Expansion Could Drive Long-Term Growth

Synopsis: The company is expanding in defence through a consolidated platform while investing in backward integration for optical fibre, aiming to improve supply control, execution visibility, and long-term growth prospects. 

The shares of this small cap company majorly engaged in enabling telecom infrastructure with active interest spanning telecom infrastructure development, system integration and many more, were in focus after announcing the capex plan 

With the market capitalization of Rs. 10,915 Crores, the shares of HFCL ltd were trading at Rs. 71.3 per share which is 24 percent less from its 52 weeks high of Rs. 94 per share and is trading at a P/E of 211 whereas industry P/E stands at 15.4

Optical Fiber Capex Update

The company has approved a capex of around Rs. 580 crore to set up a preform manufacturing facility with a capacity of ~300–310 metric tonnes per annum, expected to be completed by July 2029. Preform is a key raw material for optical fibre, and its availability has been constrained due to strong demand. The company’s optical fibre capacity has already increased from 14 mn fkm to 28 mn fkm and is targeted to reach ~33.9 mn fkm, with further expansion under consideration. This backward integration will reduce dependence on imports, ensure steady raw material supply, and support full utilisation of capacities. Strong demand drivers include data centres, 5G rollout, BharatNet, and enterprise networks. The move is expected to improve cost efficiency and margins over the long term.

Defence Business Expansion

The company plans to invest up to Rs175 crore into its defence subsidiary, which will remain a 51 percent  owned entity post investment. As part of the consolidation, it will acquire 100 percent  stake in Spiral for up to Rs. 25 crore, 80 percent  stake in Raddef for up to Rs. 75 crore, and the thermal weapon sight business for up to Rs. 50 crore. Additionally, Spiral will acquire the aeronautics and aerospace business of Defsys for up to Rs. 25 crore, along with liabilities of around Rs. 292 crore. The platform starts with a confirmed export order book of ~Rs. 1,570 crore and domestic orders of ~Rs. 110 crore, taking the total order book to ~Rs. 1,680 crore. This integrated platform strengthens capabilities across aerostructures, radar systems, and defence electronics, supporting long-term growth. 

About the company and Financials

HFCL is a world leader in telecom and defense technology, offering high-end optical fiber and digital network technology. Through robust R&D, they are able to develop state-of-the-art technology in IP MPLS routers and WiFi products, thereby offering sustainable high-tech connectivity to the world of modern telecommunications and business.

Using their state-of-the-art manufacturing facilities in India, HFCL has been offering high-end defense technology products like thermal weapon sights and radar systems, acting as a reliable partner to a variety of clients in Europe, Africa, and the USA.

Year on Year analysis: Revenue from Operations has increased from Rs. 1012 Crores to Rs. 1211 Crores, up 20 percent. Operating profit has increased from Rs. 152 Crores to Rs. 228 Crores, up 50 percent and net profit has increased from Rs. 73 Crores to Rs. 102 Crores, up 39 percent 

Quarter on Quarter analysis: Revenue from Operations has increased from Rs. 1043 Crores to Rs. 1211 Crores, up 16 percent. Operating profit has increased from Rs. 190 Crores to Rs. 228 Crores, up 20 percent and net profit has increased from Rs. 72 Crores to Rs. 102 Crores, up 41.6 percent 

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