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Managing Director’s Message Pursuing growth in a dynamic environment

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Dear friends,

The world has quietly ushered in a new decade in the midst of a pandemic. Although the scars of the pandemic run deep, they have not been able to dim human spirit, ingenuity and the courage to forge ahead. Let’s commend each one of us for facing the adversity with grit and determine to pursue the path of progress and prosperity together…
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Dear friends,

The world has quietly ushered in a new decade in the midst of a pandemic. Although the scars of the pandemic run deep, they have not been able to dim human spirit, ingenuity and the courage to forge ahead. Let’s commend each one of us for facing the adversity with grit and determine to pursue the path of progress and prosperity together.

For HFCL, FY21 was a standout year in many ways. We recast our aspiration to transform ourselves as a Company, led by technological innovations and backed by our cost leadership, an attribute, we knew, would help commoditise our innovations. We also aimed to foster a wider global collaboration to co-develop new technologies and expand our manufacturing capabilities so that we could deploy our products and network solutions over a wider area across the globe.

We navigated the COVID-19 storm with dexterity and compassion, protecting our assets, including people, while preparing the organisation for the next era of digital revolution.

And that dream of a ‘digital tomorrow’ is dawning upon us. Right here, right now.

From the neighbourhood dispensary to a school in distant rural India, everything is going digital. Shop floors are turning digital, and soon, automated cars may be plying the road. In the immediate future, data consumption could become as integral to life as oxygen.

A decade of evolution

It is in this context that I reminisce on our evolution (2011–2020) with pride and look ahead at opportunities with excitement. Thankfully, our preparation and perseverance over the years have positioned HFCL at the right place at the right time with the right bouquet of products, solutions, an innovation mindset and a strong pipeline.

An important facet of our transformation has been the consistent work that we have succeeded in putting across in three areas.

First, in deepening our inherent strengths in globally competitive manufacturing of network equipment, optic fiber, optical fiber cables and cable accessories.

Second, in sharpening our skills and credentials in adjacencies by way of newer business avenues and divisions.

Third, and the most decisive aspect, continued calibration of our positioning in the opportunity landscape, which led to a robust organisation that delivered sustained profitable growth.

As we progress into this new decade, it is truly upon us to pick and pursue opportunities in segments and geographies that we find most fulfilling and value accretive. All the strategic moves that we have been making in the last six to eight quarters are now crystalising into building blocks for a decade of future growth.

In this age of technological advancements and digitalisation, it is imperative for organisations to ramp up their R&D investments to ensure that they are able to stay ahead of their peers. Aware of this reality, we have substantially increased our R&D focus over the years, to ensure that we are able to position ourselves as a technology-driven company.

Looking back at FY21, we saw decisive growth in our technological strength. We opened a new R&D Centre at Bengaluru. We empowered ourselves with various collaborative arrangements to co-innovate future technologies. This is reflecting in our R&D investments, which rose significantly during the last few years. We intend to continue increasing it, going forward.

Our efforts yielded success in form of several products already developed and few under development.

At HFCL, our goal has always been to become an industry benchmark, irrespective of the sector. Our business/functional heads for each segment have years of experience and expertise in their respective fields. They operate/function independently and take decisions they feel are best-suited for the business.

Performance review

At the same time, we made a conscious effort to tilt our revenue as well as order mix towards a margin-accretive and capital efficient mix. Our FY21 performance reflects the kind of results that this shift is likely to generate in the near future.

While analysing our consolidated financial performance, we must bear in mind the impact of the lockdown in the early part of the year and the continued restrictions and volatilities that we had to embrace throughout the year. Our revenues grew by 15.2% to reach Rs. 4,422.96 crores while a healthy growth of 13.5% took our EBITDA to Rs. 585.71 crores. Profit after tax grew by 3.8% to reach Rs. 246.24 crores. We closed the year with an outstanding order book of Rs. 6,875 crores.

A world of possibilities

The changing world dynamics and the operational environment – given the emphasis on digital and personal safety – are leading to a surge in demand across our end markets, be it in telecom, defence, railway, security & surveillance. Additionally, the GOI’s focus on self-reliance and improving homeland security has opened up multiple opportunities for us.

The telecom sector in India is at an inflection point, given the impending switch to 5G network; expanding 4G rollout by telcos; PLI schemes to boost exports; the implementation of BharatNet Phase 2 and the GOI’s focus on rural connectivity through Digital India drive are creating an unprecedented environment for growth.

Moreover, the additional 4G spectrum allocation and increased broadband adoption have led to increased demand in the Optical Fiber Cable including FTTH cables. In the defence market, the increasing focus on upgrading equipment to world standard, growing emphasis on better network connectivity and communication, and the call for self-reliance through AatmaNirbhar Bharat Abhiyan are also widening possibilities. At the same time, railway systems are being expanded and modernised. There is also growing awareness on the importance of security and surveillance. There are now multiple opportunities we can pursue across all the areas we are present in.

Strategic objectives

Gearing up to take full advantage of the emerging opportunities, we have devised multiple strategies.

The first is the formation of a strategic business division for pursuing the 5G opportunity, including in-system integration required for a seamless implantation through O-RAN. The division is undertaking an inside-out approach to identify, strategise and execute all relevant 5G opportunities in a centralised manner, leveraging our existing strengths in R&D, manufacturing, network implementation and customer relationships while bridging the gaps through collaborative pursuits, wherever warranted.

The second strategic move is to scale up our manufacturing capacities and capabilities across optical fiber, optical fiber cable and FTTH cable. We are already implementing modernisation and expansion of Optical Fiber and Optical Fiber Cable manufacturing capacities by 20-25% and also in the process of setting up a greenfield facility for manufacturing defence equipment. The expansions are taking place across three manufacturing locations in Hyderabad, Goa and Chennai (HTL), and are expected to be commissioned between October 2021- March 2022.

Third, we participated in the recently announced PLI scheme of the Government of India through our newly formed wholly owned subsidiary, HFCL Technologies Private Limited. We believe this will aid us in further expanding our geographic markets by making our products more competitive and our margins more attractive. To grow our footprint abroad, we are recruiting technocrats with proven track record and international experience to guide product and market development.

Additionally, we are strategically focusing on increasing our product business share to ~60% of revenue over the next couple of years. This will aid us in increasing margins and expanding our market presence while leading to a faster turnaround and reduction in working capital requirements.

Sharpening focus

Having laid robust foundations for future growth, we continue to invest in strengthening our capabilities by enriching our talent pool, sharpening and digitising our operational processes. We continue to look for opportunities to leverage our strength in building indigenous technology-driven products to enter new segments, including IoT and contributing to Industry 4.0. We are also looking for opportunities to enter data analytics, big data and cybersecurity as a natural extension of our product basket.

Before I conclude, I must mention that your continued trust and patronage, through thick and thin, inspire us to put in our best efforts. I thank you for your steadfast belief in our capabilities and look forward to co-creating greater value throughout a new and promising decade.

Stay safe and stay positive!

Mahendra Nahata
Managing Director

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