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Managing Director’s Message Annual Report FY 2016-17

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Dear Shareholders,

One of the most widespread socio-economic transformations of global significance is taking place in India. An ambitious all-encompassing vision is being fast converted into reality. The vision comprises of a globally competitive manufacturing sector that contributes about 25% of the national GDP, a modernised railway network that redefines passenger and freight transport, a broadband proliferation program that connects 250,000 Gram Panchayats, a holistic agricultural uplift that doubles farmers’ income, a vibrant urban infrastructure that makes the cities smarter with a perfect blend of technology and amenities, and an inclusive social progress agenda that ensures housing and power for all in the country…
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Dear Shareholders,

One of the most widespread socio-economic transformations of global significance is taking place in India. An ambitious all-encompassing vision is being fast converted into reality. The vision comprises of a globally competitive manufacturing sector that contributes about 25% of the national GDP, a modernised railway network that redefines passenger and freight transport, a broadband proliferation program that connects 250,000 Gram Panchayats, a holistic agricultural uplift that doubles farmers’ income, a vibrant urban infrastructure that makes the cities smarter with a perfect blend of technology and amenities, and an inclusive social progress agenda that ensures housing and power for all in the country.

It is a matter of great privilege for us to be part of such a grand vision and make our enhanced contribution in realising the India of our dreams. At HFCL, we are spreading our operational universe to leverage our technological, manufacturing and telecom infrastructure development prowess in order to profitably serve a larger part of the opportunity universe.

The year gone by was a year of greater significance for our Company. Building upon the strategic groundwork of the previous year, we made decisive foray into railway and smart city segments while also making some inroads in long-gestation defence segment. We strengthened our OFC business with capacity, capability, range and market expansion while adding a few marquee deliveries in our turnkey business.

Strengthening our OFC offerings
FY17 proved to be a year of significant achievement for our OFC business. We modernized and expanded the installed capacity of our Goa plant. Capacity expansion was also undertaken at the Chennai facility of HTL Limited, a subsidiary company. Addition of FTTX cable in our manufacturing capability and increasing contribution of margin accretive value-added products and export sales augurs well for future. Recording a handsome growth of 25% in export revenue, OFC business clocked consolidated annual revenue of Rs.700 crore.

Worldwide shortage of optical fibre, a key raw material has been posing a challenge of sustainable sourcing for OFC manufacturing in the recent years. In order to reduce our dependence on external sourcing, we are entering into in-house manufacturing of optical fibre with an initial installed capacity of 6 MFkm per annum. With an estimated investment of Rs.225 crore, the new plant at Hyderabad shall commence production by the end of FY19.

Raising Turnkey Business Capabilities
In Turnkey business, our ability to develop and deliver telecom networks, even in difficult terrains such as LWE area and hilly terrains in Jammu & Kashmir has won appreciation from our customers. Our track record of delivering projects in a timely manner and cost competitiveness continues to win promising projects for us. Procedural delays at our customers’ end in flagging off two sizeable projects adversely impacted the performance of turnkey business in FY17, while its carry forward impact has strengthened our order book for the current year.

Emerging Business Segments
Winning two significant orders in both the dedicated freight corridors –Eastern and Western, marked a good beginning for our strategy of developing railway signalling and telecom segment as a focused business vertical. A slew of initiatives towards raising our value proposition and expanding our target market to metro rails and also international geographies are gradually shaping up.

Winning another two orders in smart and safe city segment, one in Ludhiana and other in Jaipur marked an auspicious beginning for this segment. From digital surveillance to traffic management systems to energy management systems, our opportunity universe in this segment appears quite wider. Considering the vastness of unfolding demand in the immediate future, we are fast scaling up our capabilities.

Developing a defence eco-system commensurate with country’s vision of indigenized defence manufacturing matching global benchmarks is a time consuming one. Thankfully, the government and regulators are addressing the stumbling blocks with urgency and decisiveness. Your Company’s efforts are aligned with the steady stabilisation of the policy framework. During the year, we signed an MoU with a French conglomerate for opto-electronic night vision devices, manufacturing facility for which has been planned at our Solan unit. We are exploring more such partnerships with global OEMs and are optimistic of carving a sizeable defence manufacturing business for our Company.

Strengthening Organisational Capabilities
Sustaining our growth momentum over a longer period of time requires strengthening of organisational capabilities, beyond production and marketing. We are holistically upgrading our talent management system, information sharing and data management system, corporate governance, enterprise risk management framework and business responsibility across environment, community, employees and customers. We are benchmarking our practices against those of the best of our global peers.

Business Performance and Outlook
The fiscal year 2016-17, for the reasons mentioned above, witnessed a drop in our immediate performance. Our net revenue decreased to Rs.2015.24 crore in FY17 in comparison to Rs.2569.53 crore in FY16. Our net profit decreased to Rs.123.72 crore in FY17 from Rs.150.45 crore in FY16. The EBITDA stood at Rs.197.89 crore in FY17 as compared to Rs.233.77 crore in previous financial year.

On the back of carry forward impact of our turnkey order pipeline coupled with promising prospects for our newer businesses and added strengths of our OFC business, we are confident of steadily improving our operational performance over the coming years.

Acknowledgement
FY17 marked significant advancement of our strategic goals and I congratulate every member of team HFCL for making it happen. I extend my sincere thanks to our lenders and customers for their continued trust and patronage. It is your unstinting backing of our business plans and potential that fuels our journey from strength to strength, dear shareholders. I call upon your continued participation in HFCL’s journey on the path of continued evolution and progress.

With best wishes,

Mahendra Nahata
Managing Director

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