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Managing Director’s Message Annual Report FY 2019-20

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Dear friends,

I take pleasure in presenting our Annual Report 2019-20. I hope this letter finds you and your dear ones in the pink of health and pray for the well-being of you all.
The past five-six months have been a quite testing period for all of us. While the entire country was (and parts of it still is) under lockdown or social restrictions, the vital role of our communication industry in keeping us all connected through mobile, internet and broadband got emphasized…
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Dear friends,

I take pleasure in presenting our Annual Report 2019-20. I hope this letter finds you and your dear ones in the pink of health and pray for the well-being of you all.

The past five-six months have been a quite testing period for all of us. While the entire country was (and parts of it still is) under lockdown or social restrictions, the vital role of our communication industry in keeping us all connected through mobile, internet and broadband got emphasized.

The current adversity is going to incubate a new world order. The country under its present leadership appears geared up to leverage it towards a larger national objective. The clarion call of Atmanirbhar Bharat, a self-reliant India and Vocal for Local are a true embodiment of dreams and aspirations of 1.3 billion Indians.

The time has come to accelerate innovations that drive mass benefits, outclass our adversaries and pave way for larger export of Indian goods and services, again aimed at a larger global good. For our Company, thankfully, the opportunity is knocking at a time when it is ready to meet with full rehearsals that have been taking place over the last four to five years. Having said that, it is also important to remind us about the sudden brakes and pain that the pandemic is inflicting upon us, in the intermittent phase of our protracted preparations of the past and prolonged accelerated growth in the future. Thankfully, the worst impact of pandemic appears to be well behind us and we have the ability to not only withstand but also excel in this intermittent phase.

Coming to our business strategy and performance in FY20, accelerated innovation and profitable growth were our two overarching themes. Our growth strategy is to produce technology Products and Solutions with competitive capabilities for a diverse and expanded Customer Base which is guided towards creating Shareholders’ Value with strong fundamentals for sustained growth. Our product development capabilities are continuously taking us forward as a technology enterprise where we develop products with latest technologies with the futuristic approach which are cost effective and have our IPRs. Our products have worldwide deployment capabilities with major global and Indian Certifications. Our products and technologies are expected to make our margins even better.

I am glad to share with you that we have already developed Wi-Fi Network Products, High Capacity Radio Relay, Microwave Radios and Cloud-Based Management Platform. We are in the process of developing Switches and Routers and Intelligent Antenna Systems, Software Defined Radios, Ground Surveillance Radar, Electro-Optic Devices, Electronic Fuses, etc. either by ourselves or by collaborative research and development. The initial market response to our Wi-Fi products and solutions have been very positive and our conviction in innovation-led HFCL stands reinforced. Furthering our technological quest with added speed, we inked three investment deals with tech startups in complementing fields. During the year, we acquired a majority stake in Raddef Private Limited (“Raddef”), making it an HFCL subsidiary. We also executed two separate share purchase agreements, one with Nivetti Systems Private Limited (“Nivetti”) and another with BigCat Wireless Private Limited (“BigCat”). All three companies possess deep technological and innovation capabilities and we intend to combine our scale and financial strength in their respective pursuits of creating value.

The overall slowdown during the year and COVID-19-induced disruptions in the last quarter of the year impacted our FY20 performance adversely. Our total revenue dropped by 19% to ` 3861 crores from ` 4781 crores recorded for the previous year. However, our profitability-focused efforts helped to slightly improve our EBITDA and Net Profit to ` 516 crores (` 459 crores in FY19) and ` 237 crores (` 232 crores in FY19) respectively. The fact that these improvements were achieved despite a drop in revenue and we boosted our EBITDA and Net Profit margins to 13.37% (378 bps rise over previous year) and 6.15% (129 bps rise over previous year) respectively.

Our order book stands protected with the only adverse impact being elongation in the execution cycle. We closed the year with an order book of ` 8,409 crores including the O&M component of ` 1,614 crores. Looking ahead, our margin enhancement campaign would get further boosts from optimal operations of our optical fiber plant, increasing realizations of annuity O&M revenues and high-margin next-generation products. In addition, the stricter cost and efficiency regime would further aid our margin improvement goal. Successful launches from our innovation pipeline shall also increase overall revenue and margins from turnkey projects.

The Government of India’s (GOI) stated the doctrine of ‘vocal for local’ and proposal of levying anti-dumping duty on optical fiber cable augurs very well for your Company. Emphasizing the strategic importance of the telecom sector, GOI is considering a slew of other measures to promote domestic players and manufacturing. The broadband connectivity drive covering the furthest villages including the bordering areas would create multiplier demand for a couple of years. The honorable Prime Minister’s promise of providing OFC connectivity to the remaining 4.5 lakh villages over the next 1000 days is the indication of the kind of opportunity coming our way. And then there is the mega 5G opportunity that would make telecom infrastructure play to be a dream segment to be in.
The opportunity landscape across all our other verticals namely defence, railways, surveillance, etc. is brimming with prospects. You will be happy to note that your Company spotted these sectors well in time and made the right investments and progress to become ready to participate in the ensuing growth phase with confidence and credentials.

The Government of India’s Make in India program particularly for Defence equipment and recent announcement to restrict imports in case of various products open up large opportunities for the Company. Besides Electronic Fuses and Electro-Optic Devices, we are now identifying more products to be developed and manufactured indigenously.

The post COVID-19 world would be ushering us into a new normal which would further accelerate digitalisation. While we are upping the ante on hyper-digital customer offerings, an equally sharper focus is on digitally transforming our working. An extra layer of work safety, hygiene and social distancing is getting ingrained in our working. These progressive changes are going to stay with us even after the scourge of COVID-19 gets eradicated. Safety and well-being of our people is paramount and central to our Company’s success.

I conclude with expressing my sincere thanks to you, our dear shareholders, who have stood rock solid behind HFCL with a firm belief in our competence, capabilities and competitiveness. I place on record my heartfelt thanks to an ever growing list of our esteemed customers and sincere appreciation to HFCL employees and partners for their innovative, efficiency-accreting efforts that are reflecting in our improved performance.

The fight with this pandemic is going to be a little longer than what was estimated a few months ago. On a positive note, the recovery is going to be much sharper than estimated and the growth phase is going to be speedier.

Warm regards,

Mahendra Nahata
Managing Director

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HFCL Limited (formerly Himachal Futuristic Communications Limited)
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New Delhi – 110048
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Email Id : investor@hfcl.com