Abstract: HFCL has rebuilt itself round AI knowledge centre cables, changed a government-heavy buyer base with world hyperscalers and assembled an order ebook of Rs 21,200 crore in underneath two years. The enterprise seems to be reworked on paper. But, the money stream tells a distinct story.
HFCL simply had its finest 12 months on paper. Export income quadrupled. Margins expanded. A single hyperscaler order value Rs 10,159 crore over 5 years, locked in half its capability.
And but the enterprise didn’t generate a rupee of free money.
That’s the story. A commodity cable producer that noticed the AI knowledge centre growth early, retooled quick, and changed its total buyer base in two years. The transformation is actual. However the money register hasn’t rung but and with Rs 900 crore of capex nonetheless touchdown and curiosity prices practically matching reported revenue, the query is now not whether or not the enterprise has modified. It’s whether or not the stability sheet can maintain lengthy sufficient for the change to repay.
The pivot
A hyperscaler facility connecting tens of 1000’s of GPUs requires intermittently bonded ribbon (IBR) cables that pack anyplace from 1,728 to six,912 fibres right into a single duct, with precision tolerances that customary optical fibre cable machines can’t obtain. AI server racks demand as much as 36 occasions extra fibre than a standard CPU rack. Manufacturing these high-fibre-count ribbons runs at 30 per cent decrease line effectivity than commodity cables — the identical machine produces far much less output. That provide constraint, multiplied throughout a worldwide scarcity of certified producers, is what creates the premium.
HFCL had the certifications, the bodily capability, and an in-house R&D workforce that had already designed these IBR cables earlier than the demand arrived. When hyperscaler buildouts accelerated in FY26, the corporate went from 45 per cent utilisation to full capability. Export income jumped from Rs 497 crore to Rs 2,047 crore in a single 12 months. Over 70 per cent of cable output was exported. Personal prospects now represent 84 per cent of the enterprise, up from 57 per cent in FY22, when the enterprise was government-dominated.
One order tells the story: a single contract from a global hyperscaler value Rs 10,159 crore over 5 years. It constitutes roughly half all the order ebook and locks in over half of HFCL’s optical fibre cable capability over the medium time period.
What the headline numbers masks
HFCL has seen a average however regular rise in gross sales and margins through the years
| FY26 | FY25 | FY24 | FY23 | FY22 |
|---|---|---|---|---|---|
| Whole gross sales (Rs cr) | 4,949 | 4,065 | 4,465 | 4,743 | 4,727 |
| EBITDA margin (%) | 15 | 11 | 13 | 13 | 14 |
| PBT margin (%) | 9 | 5 | 10 | 9 | 9 |
The consolidated margin enlargement seems to be modest. That’s as a result of consolidated numbers more and more masks the economics of HFCL’s telecom merchandise enterprise.
FY26 revenue earlier than tax margin stood at 9 per cent. This features a substantial drag from the legacy EPC division, which has been making losses for 2 years. EPC (engineering, procurement, and development) refers to massive infrastructure contracts during which HFCL manages all the venture, from sourcing supplies to constructing and handing over the community. The telecom merchandise section, in contrast, operates at roughly 26 per cent PBT (revenue earlier than tax) margins. In This autumn FY26, aided by a very beneficial product combine, the telecom merchandise section reached a 40 per cent margin for the quarter. Alongside optical fibre cable, the section now consists of 5G networking tools, fastened wi-fi entry gear, unlicensed band radios, and Ethernet switches, all designed and manufactured in-house.
The drag on consolidated profitability comes solely from the legacy EPC enterprise, which nonetheless constitutes 38 per cent of income and reported a PBT lack of Rs 336 crore in FY26. The principal trigger is the military community venture, the place HFCL continues to incur prices with out recognising income as a result of guarantee section. Delays in state-led initiatives, together with UP Jal Nigam, have added to the stress.
Administration will not be exiting EPC however is turning into significantly extra selective. New contracts similar to BharatNet and Jio’s North India fibre backhaul carry margins of 6-8 per cent and are accompanied by long-tenure operations and upkeep agreements which are extra worthwhile. The Punjab BharatNet order alone carries over Rs 1,250 crore of future upkeep income. As legacy loss-making initiatives roll off and annual upkeep earnings scales up, the blended margin profile ought to enhance. Administration has guided to a 3-4 proportion level enlargement in EBITDA margin over the approaching 12 months.
The money downside
Rising receivables and orders are but to transform into money flows for HFCL
| FY26 | FY25 | FY24 | FY23 | FY22 |
|---|---|---|---|---|---|
| Money from working actions (Rs cr) | −422 | 527 | −98 | 234 | 646 |
| Receivables (Rs cr) | 2,212 | 1,892 | 2,215 | 1,886 | 1,896 |
| Stock (Rs cr) | 1,416 | 899 | 774 | 758 | 573 |
| Money conversion cycle (days) | 157 | 108 | 83 | 56 | −23 |
Working money stream was unfavorable Rs 422 crore in FY26, in opposition to a reported revenue of Rs 329 crore. The hole is working capital deterioration: receivables not changing, stock piling and suppliers unwilling to increase credit score phrases.
Commerce receivables stand at Rs 2,212 crore. Roughly Rs 400 crore is trapped within the military venture. One other Rs 652 crore is unbilled income from fibre cable compliance delays that administration says started changing in April and Might 2026. If that timeline holds, some money arrives in Q1 FY27.
The stock line tells its personal story. To service a Rs 21,200 crore order ebook, of which Rs 18,000 crore are bodily merchandise to be delivered over one to 5 years, HFCL has been aggressively accumulating uncooked supplies. Shipments to its US subsidiary have been caught at customs for months. All of this sits on the stability sheet as stock till it clears and sells. The money conversion cycle, which must compress as a enterprise shifts from long-cycle EPC to product gross sales, has as an alternative expanded from a unfavorable 23 days in FY22 to 157 days in FY26.
Return on capital employed has recovered from a low of 8 per cent to 11 per cent, however stays under the place the corporate was earlier than its enlargement cycle started.
The enterprise will not be self-funding. HFCL is concurrently working probably the most aggressive capital expenditure cycle in its historical past — Rs 900 crore, together with a Rs 580 crore preform manufacturing plant that may deliver a key uncooked materials in-house — and increasing optical fibre cable capability to 42 million fibre kilometres. Free money flows are firmly unfavorable. Curiosity prices mirror this, up roughly 30 per cent in FY26 to Rs 242 crore, in opposition to a reported revenue of Rs 329 crore.
Promoter holding has declined from 39 per cent in FY23 to 29 per cent at present, largely as a consequence of fairness fundraising via institutional placements moderately than direct promoter promoting. Promoters lately subscribed to warrants value round Rs 555 crore to assist funding for the brand new preform facility, and promoter possession now seems to have stabilised.
The place it stands
At roughly 70 occasions earnings, HFCL is buying and selling at practically double its historic median of 36.1 occasions. The premium displays how a lot the market has already priced into the transition: a half-idle commodity producer rebuilt right into a specialised, export-led enterprise in two years, all the buyer base changed, and a Rs 21,200 crore order ebook as proof.
Three issues are value watching over the subsequent two quarters.
Whether or not the receivables convert to money, whether or not the anchor hyperscaler order begins executing on schedule, its timing now issues greater than another single variable. And whether or not incremental borrowings stay contained, as a result of with heavy capex nonetheless to land and free money flows firmly unfavorable, the tempo at which web debt grows will decide how a lot stability sheet headroom stays.
The enterprise that exists at present is genuinely higher than the one which got here earlier than it. However a greater enterprise and a confirmed one are various things.
Till the money conversion catches up with the story, that hole is the one factor value watching.
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