Feb 02, 2024 / 10:30AM GMT
Operator
Gentlemen, good day, and welcome to Q3 FY24, Himachal Futuristic Communications Limited conference call hosted by ICICI Securities. (Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit. Please, over to you, sir.
Mohit Lohia - ICICI Securities - Analyst
Yeah, hi. Good afternoon, and thank you, everyone, for joining us for this call. In this call, we have Mr. Nahata, Promoter and Managing Director of the company; Mr. V R Jain, CFO; Mr. Manoj Baid, Company Secretary; and Mr. Amit Agarwal, Head, Investor Relations.
So without further delay, I would now hand over the call to Mr. Nahata for the opening remarks, And then we will open the floor for Q&A. Thanks, and over to you, sir.
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
(technical difficulty) technical glitch at the end of the conference agency, which has caused this delay. I'm truly sorry for that. Good afternoon once again, ladies and gentlemen, and welcome to HFCL's earning call for the third quarter and nine months ended December 31, 2023, of financial year '24.
I truly appreciate and express my gratitude to all of you for making it to today's earnings call of the company. I'm sure that you got a chance to walk through our financial results, press release, and investor presentation, which are available on the website of the company and also on the website of stock exchanges.
To begin with, I would like to express immense satisfaction witnessing the resilience of Indian economy. India growth still remains intact despite the subdued global growth outlook. Global economy is set for weakest half-decade performance in last three decades, said the World Bank in a recent report. And one that global growth in 2024 is set to slow for the third year in a row.
Amongst this, Indian growth story is promising, and World Bank sees India retaining the fastest growing major economy title. Its forecasts growth rate of 6.4% in FY25, accelerating to 6.5% in FY26. India has witnessed an extraordinary decade making significant progress on innovation led by technological advancement. India 's telecom market is now the second largest in the world. Our telecom industry is currently valued at USD48.61 billion and we expected it to reach to USD76.16 billion by 2029, going at a CAGR of 9.4% during the forecast period of 2024 to 2029.
India's digital public infrastructure is testimony to its technological progress, and we are well poised to become a global leader in information and communication technology and becoming a global digital powerhouse. The ongoing digital revolution and investments in building a robust 5G network makes us optimistic about significant upsell in the demand for fiberization both India and locally.
This heightened demand is further fueled by increased government focus on fiberization, including BharatNet Project, the expansion of fiber-to-home networks, the qualification of data centers, widespread adoption of cloud computing, the rise of Internet of Things, investment in 5G CapEx, and the continuous improvement of telecom infrastructure in these global markets, that is India, United States, United Kingdom, France, Germany, Middle East and other nations.
From being an importer of telecom technology, India has taken a significant step and leap in developing technologies indigenously. KPMG estimates the three technologies, 5G, 6G, satellite communication and semiconductors, collectively will add the USD240 billion to the Indian economy in next five years and add 1.6% to India 's GDP by financial year '28. Government initiatives like BharatNet, implementation of fiber-to-home PLI scheme, and growing demand for high-speed 5G connectivity further fosters indigenous manufacturing as a result of which India is fast becoming an attractive global investment and manufacturing destination.
As our company aggressively moves towards a product-centric approach to embark on a transformative journey aimed at amplifying our global footprint and solidifying our position as an industry leader. As a strategic shift away from product-centric endeavors, we are proud to unveil an array of innovative telecom products tailored to meet the diverse needs of both domestic and international markets.
This strategy revolution underscores our unwavering commitment to product excellence and customer satisfaction, indicating a new era of sustainable growth and expansion. By harnessing cutting-edge technology and leveraging our deep industry expertise, we are poised to captivate global audiences with solutions that transcend geographical boundaries and redefine the benchmarks of excellence. Embracing and export focus strategy, we are trying to unlock unpacked opportunities for the strategic partnerships and establish a formidable presence in key markets worldwide.
Fueled by sharp focus on innovation, HFCL unveiled a comprehensive suite of next-gen connectivity and 5G back in products like fixed wireless access equipment, MPLS routers, point-to-point unlicensed band radios, and unified cloud network management systems during the India Mobile Congress 2023 for both India and international markets.
We also launched 1,728 high-fiber intermittently bounded ribbon cable, promising high-speed data transmission, expansion of FTTH connectivity, and adapting the demand of hyperscale data centers in India Mobile Congress. As per end of this venture, 45 new data centers covering 13 million square feet are expected to come up in India by the end of 2025.
HFCL is well positioned to capture the growing impetus from data centers with the launch of its 728 high-fiber IBR cable.
Before launching our telecom and communication products in Q3, HFCL's first transform it to impact in the defense sector as well. HFCL, through its 90%-owned subsidiary, Raddef Private Limited, an R&D enterprise specializing in cutting-edge radars and RF solutions and designed a range of surveillance radars taken to meet diverse operational needs. These radars employ frequency-modulated continuous wave technology offering numerous advantage over other radar technologies which includes high accuracy, low power consumption, lightweight, and resistance to interference.
HFCL is also actively engaged in the development of state-of-the-art drone detection radar poised to be an important component of modern drone detection system. HFCL's ongoing cutting-edge research and development initiatives extend to diverse range of radar technologies. This includes Doppler weather radar, [threat emulators], LTE-based passive radars, fog and foliage penetration radars, coastal surveillance radars, avalanche detection radars, ultimatus and most.
HFCL received an advanced purchase order aggregating to INR1,127 crore to transform the optical transfer network infrastructure across BSNL pan India network. Within the dynamic landscape of India's technological revolution, HFCL stands unequivocally, and are force in the innovation and progress. The order aimed at revolutionizing BSNL's optical transfer network is a testament of our unwavering commitment advancing the national technology in progress.
Our comprehensive network upgrade will not only address the heightened demand of enterprise and FTTH and broadband services, but strategically positions BSNL for the seamless launch of 4G services and anticipation of 5G services.
Another very significant achievement is the receipt of INR623 crore order during the current quarter from a leading telecom service provider for 5G telecom networking equipment. This is first such large order for 5G networking equipment based on any Indian company by any telecom service provider. This strategy is a testament to HFCL vision of designing and manufacturing high technology telecom equipment in India.
The newly secured purchase order underscores HFCL's commitment to providing cutting-edge solutions tailored to the unique needs of telecom landscapes. Moreover, with enormous export market potential, these indigenously developed products are in line with the country's Make in India for a global stage vision. HFCL with a strategy rightly positioned to not only boost the revenue but also enhance profitability leading to increased returns for the shareholders.
In recognition of our superior quality products, HFCL has secured product orders exceeding INR1,700 crore from its customers in the last few months. With these new orders, the current order book of the company as on December 31, 2023, stands INR7,678 crore.
Moreover, HTL Limited, a subsidiary of the company, has secured an order from a defense PSU for supply of fiber optic expanded beam plug cable assembly. These assembly slides for the 3D central acquisition radar, our medium range, high resolutions surveillance radar designed to detect and sanitize the truck multiple targets in hostile environments.
HTL has already established itself as a go-to wiring harness supplier for a leading OEM, which is the largest supplier of logistic vehicles to the Indian Army. HTL wire harness is all set to be deployed in a popular high mobility and specialized truck vehicles of the OEM that cater to the diverse needs of personnel and logistics across the armed forces.
HTL is also securing an order from one of India's leading vehicle manufactures for wire harnesses. The order encompasses 1282 BS-VI diesel buses intended for significant transport needs.
Our Hyderabad optical fiber plant cleans the Silver Certificate of Merit for manufacturing excellence in Frost & Sullivan Indian Manufacturing Awards of 2023 alongside a Certificate of Appreciation for good practices in digital systems at the second FICCI Industry 4.0 award ceremony. The automotive team at HTL won the Gold Award at Quality Circle Forum of India in the ninth convention of quality concepts held recently.
Our recent order wins are clearly a testament that our strategy of moving from projects to margin-accretive products, launching new products, reaching out to new customers and new geographies is paying off well and will bolster our position even further in 2024. The expansion of optical fiber manufacturing capacities is progressing well and shall be operational as planned.
In addition, the company is also in process of expanding its optical fiber cable production capacity from 25 million kilometers to 35 million fiber kilometer. This expansion will also lead to a significant increase in revenue and profitability. The capacity will be added in a phased manner with the completion of targeted FY24-'25
Let me now brief you on the key performance metrics of quarter three of financial year '24. Revenue of Q3 FY24 stood at INR1,032.31 crore as compared to INR1,111.49 crore in quarter two of FY24, and INR1,085 crore in quarter three of FY23.
EBITDA for the quarter stood at INR163.45 crore as compared to INR149.77 crore in quarter two FY24 and INR193.33 crore in quarter three of FY23. EBITDA margin stands at 15.83% for quarter three of FY24 as compared to 13.47% for quarter two FY24 and stood at 17.8% in quarter three of FY23.
Profit after tax for quarter three of financial year '24 stands at INR82.43 crore as compared to INR70.17 crore in quarter three and INR101.62 crore in quarter three of FY23. PAT margin stands at 7.99% in quarter three as compared to 6.31% in quarter two and 9.36% in quarter three FY23.Segment revenue for telecom products during quarter ended stood at INR363.83 crore, that is 35.24% of quarter three of FY24 revenue as compared to INR473 crore in quarter two of FY24, which is 42.63% of the revenue.
During this quarter, our product revenue declined quarter-on-quarter basis and year-on-year basis due to the continued softening of demand of optical fiber cable. This temporary decline is in line with the worldwide trend seen in the last quarter, and it can be attributed to inventory buildup with major operators, resulting overall reduction in revenue in absolute terms as well as lower sales realization per kilometer fiber.
Revenue of all major manufacturers of optical fiber cable has declined worldwide. We are optimistic that demand will be restored from next quarter onwards in both India and three global markets. Furthermore, we are confident that our continued efforts in designing and developing innovative and robust optical fiber cables for international markets, along with the introduction of new 5G telecom network equipment will further yield results in coming quarters. These efforts are expected to provide impetus to both revenue growth and profitability along with potential to increase our margins.
To conclude, 2024 is poised to be a transformative year for HFCL. We can confidently affirm that our strategic focus on new products, global expansion, focus on building both capacities and capabilities, backward and horizontal integration has begun to yield positive results. Our commitment to strengthening market share and technology leadership position remain steadfast as we continue to invest in innovation for both cost and performance benefits.
Ladies and gentlemen, thank you once again for your keen participation. With this, I conclude my opening remarks and open the floor for question-and-answer session. Thank you very much.
Questions and Answers:
OperatorThank you very much. We will now begin the question-and-answer session. (Operator Instructions)
Balasubramanian, Arihant Capital.
Unidentified Participant
Good evening, sir. Thank you so much for taking my questions. My first question regarding 5G CapEx side. One of the Indian telco talked about 5G CapEx is peaked out in this year. And the global level also, 5G CapEx are coming down. What's your view and overall demand environment on 5G. These are my first question.
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Let me answer the first question. Thanks, Mr. Balasubramanian. 5G, when you said the CapEx has peaked out, it has to be seen with respect to the applications. 5G networks will again start growing. It's the initial stage, 5G networks have been put down. Now the 5G network will grow as the new applications come in.
But we find that one of the new applications, which has come as a fixed wireless access instead of mobility -- so which has started increasing in the CapEx in that area. So as the applications for 5G grow related to IoT and other areas, medical, education, Industry 4.0, you will find that 5G networks will again get expanded; expansion will again take place.
So the mobility is not the only thing, which will drive 5G growth. It will be the applications which will drive the 5G growth. So you find that new application is coming, the growth cycle will restart in the 5G. It's a temporary decrease, not a -- kind of a decrease on a permanent basis. Once the application is coming, it will start increasing again.
Unidentified Participant
Okay, sir. As per our channel checks have indicated, still the majority of the inventories are with the global telcos and distributor levels. Are they getting repetitive orders and new orders from the telcoâs levels? And what's your view on this inventory issue? When the things are expected to shut out?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
I think you are talking about fiber optic cable. You did not mention, but I understand your question. You are talking about fiber optic cable.
Unidentified Participant
Yes, sir.
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Now it is true that there has been an inventory build-up with the telcos as well as distributors as a result of which you will find sale of fiber optic cable has slowed down, which I said in my opening remark also -- not only us but worldwide.
What had happened a year ago in US market, for example, delivery of fiber optic cable had become 7 to 10 months. As a result of this, telcos around the world -- and there was a situation in many other places -- telcos around the world had bought a lot of cable anticipating that demand will be so high that cable availability would be low. So the ML dual of stock. So is the situation with distributors.
But as it happened, Chinese demand was less than what was expected, and as a result of which, there was inventory built up in China, which was going into the market worldwide. So that, including then inventory accumulated with the operators, let to this lull in the -- temporary lull in this demand.
So we expect -- in US, market has started looking up again. European market, we believe, will start looking up again in the next one or two quarters. US market, particularly with the government funding, which has been done to access the inaccessible areas of fiber, is going to pick up very significantly in the next couple of quarters.
So you're right, this inventory build-up is doesn't lie on demand, and that you will find in our results also that fiber optic cable sales has gone down drastically in the current quarter and in the last quarter also. But this is all expected to again come back to the normal levels in next couple of quarters.
Unidentified Participant
Got it, sir. Sir, right now, we are in the progress of new products on 5G. Right now, you mentioned about new applications are coming up. When the benefits are expected to realize on this new product side?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Look, we have already started realizing those benefits. As I said, again, in my opening remarks that an order of INR623 crore has been received for 5G networking product by HFCL. Now let me tell you, which I said in my opening remarks also, that we are the first Indian company to receive such a large order for 5G equipment or indigenously designed product, first Indian company to receive such a large order for indigenously designed 5G products. Nobody else has done so.
So this speaks itself of our initiative, which we took to design equipment in India, keeping in view of our Make in India initiative of government. And today, we are able to receive 5G orders in large quantity. And not only this, we will be exporting these products to different countries also as we are doing in fiber optic cable.
So we have done 5G fixed wireless access equipment, other networking equipment, routers for example, which are used in 4G and 5G both. But specifically, the routers which we have designed are going to be used in large quantity in BharatNet, which government has already announced and draft RFP has been sourced for industry consolidation, and we expect the final tender would come out in next 2 to 3 weeks' time, which would also see a large demand of fiber optic cables as well as routers.
There is going to be a demand of about 6 lakhs kilometers of cable, fiber optic cable, equivalent to about 20 million fiber kilometer equivalent cable and about 160,000 or so routers. All these are very large opportunities for HFCL because if these are indigenously designed products, indigenous products and we will do more cost competitive.
So not only in India, but we are able to export these products also in the coming financial year. So benefit of these products which we've designing has started accruing and number of large orders are further expected for these indigenously designed products. And I'm sure that export also would be a good market opportunity for HFCL.
Unidentified Participant
Got it, sir. Sir, my last question regarding on the telecom product side. So last two quarters, we have reported single digit margins. I just want to understand the lower performance because of volume-driven or price-relationship-driven? And I just want to understand about the OF and OFC site realization in this quarter.
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Look, basically a decrease in margin has been the lower sales for optical fiber cable because lower sale of optical fiber cable has resulted in higher cost because the fixed costs are still remaining same. So it has been driven down by the lower sale of optical fiber cable.
And these sales pick up, the margin will pick up once again. And, moreover, for the new products which we're building, 5G products and all that, their margin is reasonably good, and it is expected to remain reasonably good.
Unidentified Participant
Okay, sir. Sir, and the realization side, sir, OF and OFC side, what are the current realization in Q3? How much it changed compared to last quarter?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Realization in fiber optic cable -- if you look at fiber, the realization are roughly, I would say, has come down by some percentages, it has come down. Practically, if you see, the per fiber kilometer realization has come down roughly almost about 20%.
What used to be in Q2 about INR1,200 per fiber kilometers has come down to about INR1,000-some per kilometer. So about 15% to 20% decrease in the realization per kilometer is there. But that kind of -- some decline is there in the raw material cost also, particularly in case of fiber.
Unidentified Participant
Got it, sir. And that OF side, sir, optical fiber side?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Optical fiber, again, as I said, the prices have come down. What used to be the prices of something like INR350 to INR380 per kilometer has come down to something like INR250 to INR260 per kilometer.
Unidentified Participant
Got it, sir. Should I ask one question, sir? Or should I come back?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
I think you should give chance to others.
Unidentified Participant
Yeah, fine, sir. Yeah, thank you.
Operator
Thank you. Santosh Sinha, Emkay Global.
Santosh Sinha - Emkay Global Financial Services Ltd. - Analyst
Thanks for taking my question. My question is regarding the BharatNet III. Now government has -- actually, the cabinet has approved around INR1.5 trillion for BharatNet III project. So are there opportunities for HFCL in areas other than optical fiber and optical fiber cable? Are there other products that HFCL can supply? And what can be the overall opportunity size for this? And what are the margins that we can expect from BharatNet III projects? And -- yeah, I will ask later the other question.
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Mr. Sinha, thanks a lot for your good question. BharatNet is a large opportunity for everybody, all tele companies involved. It's about INR1.4 lakh crore, out of which -- but let me be clear -- out of which roughly about somewhere INR40,000 crore to INR50,000 crore would be CapEx; rest would be OpEx, which would incur over 10 years.
So it is going to a turnkey contract whoever wins. There are 16 different cells, they have carved out. And it will be 16 different tenders. And maximum four would be given to one company, not more than that. And it is divided into CapEx as well as OpEx, as I just mentioned.
So something like HFCL, where are the opportunities? One, -- first let me limit ourselves to CapEx. One, if we do EPC projects as we've been doing, till now, the payment conditions are not 100% clear because the current payment conditions are a little bit onerous on the vendors in a sense that part of the payment will be received much later with overall per year execution.
So all the vendors have represented that the payment condition need to be proved. So whatever draft tender has come that is undergoing some changes -- and we would see the final tender coming up in the next two to three weeks' time -- there's no other payment situation then.
So imagining that payment situation will improve, which I'm pretty confident of, I think the opportunity -- maybe we don't want to go for a very large-scale opportunity for EPC projects. But yes, there are EPC opportunities because we are trying to transform our company and product company from an EPC company, from an EPC -- more of EPC driven for years, we are making our company -- not only trying in real sense, we've sensibly done so, to a product-led company. So one opportunity is there in the EPC business.
Second opportunity is there which is in EPC business, then there is a continuous revenue on every year basis for O&M -- operational and maintenance, there will be an annuity revenue coming up for 10 years. Now but the good opportunity is in the equipment side also and the fiber optic cable side also.
As I said, there is a demand of 6 lakh kilometer of fiber optic cable in this tender for three years. This implementation period is three years. So every year, there is requirement of about 2 lakh kilometer of fiber optic cable. So that's a good opportunity for us.
Number two, then there is opportunity for selling fiber also because, let us say, somebody else wins a fiber optic cable from some other EPC players -- if we need fiber because there are not many people who manufacture fiber in India, we'll be able to supply the fiber.
The routers. Routers is a significant part of the equipment, significant part of equipment. Router is the, I feel, most significant part of the equipment required. And routers are required about 160,000-plus in the quantity. Let me tell you, we have designed our own router.
We are now one of the two companies who have got indigenously designed routers required by BharatNet. Indigenously designed routers -- only one of the two companies, we and Tejas, which is Tata-owned company. They have routers, and we have routers. So I think we enjoy a significant cost advantage over our multinational friends on account of our local production as a result of which we should be able to have a good opportunity for selling routers also.
So fiber, fiber optic cables, routers, some of the other optical equipment, we have a good opportunity coming up in front of us. And I think BharatNet should be a very significant opportunity, not only for HFCL, but all indigenous vendors who manufacture in India. However, HFCL has got a significant footprint, which is fiber, fiber optic cable, routers, other optical equipment.
And then if you go to the next phase of BharatNet, which is going to be implemented not by government but which is going to implemented by private enterprises for giving connectivity to the houses -- so the government is taking the network to the panchayat building or whatever. From there on, it would be the private enterprises, which will be giving connectivity.
They may be using Wi-Fi; they may be using optical -- ONTs, again, those are the areas where HFCL is present. And those will also present significant market opportunity to HFCL.
Santosh Sinha - Emkay Global Financial Services Ltd. - Analyst
Thank you, sir, for the detailed answer. My last question is regarding the PLI benefit. So how much of the product of HFCL is actually eligible for PLI benefit? Is it only the optical fiber and cable or the other products also? And when is the first year from which this actually -- PLI benefit will start coming from?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
PLI benefit is not available on fiber optic cables. It is available on telecom equipment, and we will start receiving this coming the financial [24th].
Operator
Pranay Gandhi, Green Portfolio.
Pranay Gandhi - Green Portfolio - Analyst
Hello, sir. Can you hear me?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Yes, yes.
Pranay Gandhi - Green Portfolio - Analyst
So firstly, I would like to express my gratitude to the management, including you, Mr. Jain, and Mr. Agarwal, for accommodating our request to connect with the management on one-on-one basis in the last con call. The proactive outreach from Mr. Amit after the last conference call reflects positively on the management, and it has really helped us understand the company prospects in a better way. So thank you so much.
Now turning to my questions, I would appreciate if you could provide more details on the recent order from 5G telecom equipment secured from domestic telecom operator. Could you elaborate on the nature of the products that the company will be supplying? And considering the fact that the INR600 crore order is already on hand, are there any upward revision to the projected revenue of INR1,000 crore from this segment in FY25?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Look, we have this 5G networking equipment for subscriber access. So wireless equipment for subscriber access. So that's the equipment because there are certain non-disclosure agreements; so I cannot go in more detail, but it is subscriber access equipment on wireless or broadband on 5G. And this is INR623 crore order, which has to supply within the next financial year or as soon as possible, if we can do it early. If we do it early, we can certainly expect more orders from our customers.
And then this is the demand from one customer. But we would be going ahead to sell this to other customers also in India and abroad both because this equipment has very significant demand opportunities worldwide because fixed wireless access and the broadband access has come up as a significant use case for 5G networks. So we can definitely look forward for more revenue from this equipment in the next financial year.
Now coming to INR1,000 crore or so, whatever numbers you're using, I think indigenously developed equipment, we should be able to do quite more than INR1,000 crore, which we might have projected earlier. It should be quite more than that because we are expecting more orders of reasonable size.
In coming weeks, we are expecting more orders including from BSNL, including from private operators. So I expected -- I have no doubt that it would be significantly more than INR1,000 crore.
Pranay Gandhi - Green Portfolio - Analyst
And sir, these orders would be for telecom equipments itself and not for the projects, right?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
No, this will be telecom equipment itself. I'm not talking about projects. Project is different. This is telecom equipment itself. Because why I'm saying so -- one, the sixth will be INR3 crore is already there. Some large orders are in pipeline, which I should be able to receive very, very soon -- very, very soon.
Then, as I said a little while ago, BharatNet is coming up. BharatNet has got huge demand (technical difficulty) for routers, which are, again, we have, and we have indigenously designed them, which is a very major thing. We are only one of the two companies who have designed routers in India. We and the other is the Tata TCS company, Tejas, nobody else. All others are international -- multinational companies. So there is significant demand opportunity there.
Then we have a significant demand opportunity for unlicensed band radios, which are being used for enterprise connectivity, but not only that, but backhaul of the traffic of the 4G network. So that is also a good demand opportunity.
In fact, BSNL came out with a large tender for that about INR200 crore for 5G -- this backhaul for the unlicensed band radio. And we have been L1 in that. So we expect that we should receive order for that also. So these are all equipment orders, which I'm talking about, and we I'm saying that we should definitely cross INR1,000 crore without iota of doubt.
Pranay Gandhi - Green Portfolio - Analyst
Perfect, sir. Sir, just an add on to this, I believe, previously, you had mentioned that regarding the UBR equipment, you had received a very strong feedback from one of the international companies. So is there any progress I mean in terms of it getting converted to orders?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
We are talking to quite a few companies, quite a few companies. I would not name them, but we are talking to quite a few companies internationally and locally also. Locally, we have deployed a huge quantity of this UBRs. We have been lowest in our large tender of BSNL also. And likewise, we are talking to a number of international companies also where I believe we will be receiving reasonably sized orders sometime in near future.
Pranay Gandhi - Green Portfolio - Analyst
Okay. Perfect, sir. Sir, my second question pertains to the defense side of the business. Previously, you had mentioned electro-optics that we had participated in one tender, and there was an upcoming tender. So if you could give a brief on that.
And same goes by ammunition fuses. I believe the company had approached Indian Army for trials. Any update on that? And lastly, the SDR, which was still under development and was scheduled to be completed by mid of this year. So if you could just shed some light on all these three aspects.
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
I will go through all the defense products, which we are doing. Some are under development; some are being tried in army. Coming to one of the projects, which is -- recently, we have participated in upgradation of BMP-2 armored fighting vehicle, where fire control system and optical sites are to be upgraded. We have successfully gone through UTRR, which is usual trial readiness -- something like that, they call it. And now we'll wait for the RFP to come where we will be participating.
On SDR, which is already under development, as I told you -- on the other hand, the radars, which is a recent development where we have already gone through development cycle of some of the radars and others are under development. So we expect this year to receive reasonably good quantum orders for the radars also.
On the few sides, we have not been lucky so far, we have asked for a retrial by Indian Army, which, I think, expected to happen in next two to three months' time. After we go through those trials, then would be the question of orders will come.
Till now, we have no orders for figures. But yes, this is a consumable item -- this is a consumable item, and there is continuous demand for fuses. So I'm sure that once we pass through these trials in next few months' time, there should be demand coming up for figure.
So again, since all the defense orders take a lot of time, we have not included in our projections even for '24, '25 any orders from the defense. When we do AOP, we have not included anything, but we expect -- still we expect products like radars, products like electro-optic sites should give us some revenue -- should give us some revenue.
On the optical side, yes, we have some products under development. One of the tenders we participated there has been -- we were a little bit unlucky. We could not get that order. But yes, nevertheless, our fight has proven very successful. So we should be able to get more orders in future.
So as I said, this year, we have not included in our projections any orders from defense, but we are very bullish about it, particularly this BMP-2 upgradation, than for this electro-optics products, then radars. We are quite bullish about that, that this should fetch us good results in the next financial year. But yes, results will start coming in '24, '25 also.
Pranay Gandhi - Green Portfolio - Analyst
Okay. Perfect. Sir, thank you so much for the opportunity and all the best for the future.
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Thank you.
Operator
Thank you. [Parth Mehta, M Capitals].
Parth Mehta - M Capital - Analyst
Good afternoon, sir. Sir, my first question was, what is the new products on the 5G plant that we are developing at Raddef? The R&D expenses, are they deducted on the P&L? Or how do we capitalize?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
No, Raddef, we are not doing any 5G product. Raddef, we are developing radars. There is no 5G products in Raddef. So nothing has been developed as a 5G product in Raddef.
Parth Mehta - M Capital - Analyst
Okay. So whatever R&D expenditure we incur at Raddef for the radar --
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Please repeat it. I could not follow you.
Parth Mehta - M Capital - Analyst
Any of the 5G R&D that we do and indigenous products that we develop is that being capitalized on the P&L?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Yes. Yes. It is being capitalized, and they are being amortized over a period of time.
Parth Mehta - M Capital - Analyst
Okay. Sir, my second question is whatever products that we have developed, we will need approvals for those 5G products -- even if we are exporting globally, will we need a blanket approval or we will need an approval for each country for making it to the P&L?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Well, look, any operator, which buys any telecom product go through its own approval cycle. There are some countries where there are agencies which approve the products omnibus basis for all the operators. But most of the places, operators have their own testing facilities, and they go through their own approval cycle, whether the product suits to their requirement or not.
;So there is no such global approval that is you get it approved from one source, then it is approved for everybody, it doesn't happen that way. It is more of a individual operator -- like India for example. BSNL has got its own approval TAC. Jio has got its own approval; their own lab is there where they put the product. So is Airtel, so is Voda Idea. So every operator goes through its approval cycle, where it includes lab testing as well as field trials, which is very normal.
Parth Mehta - M Capital - Analyst
Okay. So do we think that will happen in this financial year, and we'll see some contribution from those 5G products in the financial year '24, '25?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Yes, INR622 crore order has been received after approval only.
Parth Mehta - M Capital - Analyst
Yeah. More on that, we are looking to receive in the next (multiple speakers)
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
We are looking for more such orders. There are, I think, two, three places where trials are already going on.
Parth Mehta - M Capital - Analyst
So they're domestic or they're export orders?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
This INR623 crore is the domestic. Others that I'm talking about are domestic as well as international.
Parth Mehta - M Capital - Analyst
Sir, my last question is on the front of contribution from projects and contribution from products. The line has been -- we have been going more on the product. 70-30 was the contribution that we were looking at. But if you look at contribution for this quarter, it has been tweaked on the other way. So more from the project side and less on the product side. Apart from the fall in prices of OFC, what has gone wrong for the product side?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
No, there's nothing gone wrong. It is because of the lower sales of OFC. As I said, optical fiber cable sale has gone down significantly. It has gone down significantly in the last quarter and the current quarter, as a result of which, product-led has gone down.
If you look at same quarter last year, it was INR693 crore. In the current quarter, it is INR364 crore. So this kind of a number, what -- just let me correct this number. Little wrong, just hold on a second. Yeah, this is more or less the same percent; there would be -- some small difference will be there.
More or less, OFC sale -- yes, I've given the right numbers. Last quarter, it was -- December quarter of the last financial year, it was INR625 crore. This year, it has been INR295 crore. It is less than half. So this is what is getting reflected in this ratio, which was changed.
And as I said, the ratio will further improve again as the demand of optical fiber cable improves. And also, with this large orders we have received for products this current quarter, which is about INR2,000 crore -- which is about INR1,800 crore, this will also improve the ratio of products into the overall revenue because INR1,800 crore orders for products is a very significant number. And also the fiber optic cable demand is expected to improve.
So our overall strategy for becoming a product-led company is very, very successful -- very, very successful. We can't compare it, take it on a quarter-to-quarter basis because quarter-to-quarter ups and downs may happen. In the overall basis, we are going very smoothly on that strategy.
If you just exclude the optical fiber cable for temporary lull in the demand, you've seen that this quarter we've received orders worth INR1,800 crore for the products alone -- INR1,800 crore for the products, which is a very, very significant thing, which includes INR623 crore and a little bit more; for other products we have received orders in the quarter -- for indigenously designed products. So our strategy is very successful, and I'm pretty sure that with this strategy, company's return ratios will improve significantly in coming future.
Parth Mehta - M Capital - Analyst
Sir, are we doing any CapEx for these products, new products to be developed? Last time, I think we had said that we are doing a little south of INR100 crore, we are doing CapEx for developing these products.
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Yes. There are two kind of CapEx. One is R&D. One is the setting up of the facility for manufacture of products. So we are doing both. R&D is happening, which would be a continuous process in the company. And also, there would be expense of about INR80 crore to INR100 crore on setting up the facility for manufacturing of the products so as to we can -- start taking benefit of PLI from the next financial year.
Parth Mehta - M Capital - Analyst
And this will be for all the products put together as in we don't need to go fund for (multiple speakers)
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Yes, yes.
Parth Mehta - M Capital - Analyst
Okay. So, it is across products?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Yeah.
Parth Mehta - M Capital - Analyst
Okay. Thank you so much, sir. And I expect the OFC cycle to improve a couple of quarters from now.
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Absolutely.
Operator
Thank you. (Operator Instructions)
Saket Kapoor, Kapoor & Co.
Saket Kapoor - Kapoor & Co. - Analyst
Thank you for this opportunity. Sir, out of this order book of INR7,678 crore for Q3 ending FY24, INR2,051 crore is towards the operation and maintenance. So when this (spoken in Hindi) and out of this balance amount, how much is towards the OFC? Especially about are we exporting optic fiber cables also, sir, if you could give that number?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Order of what you mentioned about this O&M, this is the next seven years. Optical fiber cable, we are exporting, no doubt. Last year, we had a good year of export, about INR800 crore. This year, worldwide demand has slowed down. The export will also go down.
But yes, we keep on receiving continuous order for exports. These are not major orders at one point of time. Orders keep on coming, and we keep on supplying. We had expected to cross INR1,000 crore in this current financial year, but with this downturn in demand, all over the world, of course, we are going to be falling short of our estimation through a large number. But as I said, from next year onward, it is expected to become better in the next two quarters, and it will further inflow.
Saket Kapoor - Kapoor & Co. - Analyst
Sir, as you just explained in the earlier reply that both OF and the OFC prices are corrected by 20%, correct me there. And then also the demand is down. So where have the things gone wrong? And is it -- I think one of the key players did mention about the demand fall in the US market has resulted in this percolating to the domestic Indian market.
So do you think only when the demand from US and Europe improve, then only our domestic OF and the OFC market will improve? Or when the BharatNet comes into foray, that is the time when things will start looking up, sir? If you look at our operational numbers, sir, barring this other income component, we have done -- the numbers are not up to the mark if we exclude the other income part.
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Demand of fiber optic cable for Indian companies, when I say improvement will come from two, three different areas. If you look at domestic, BharatNet is going to play a major role because that's 6 lakh kilometers of fiber optic cable, it's a large quantum. And now it should translated into more than 20 million kilometers of fiber, which is a large quantum. That is one.
Second, US demand is going to go up significantly in the next financial year. I'll tell you why. The US government has announced a large subsidy for serving unserved or less-served, low-served areas by fiber optic cable, to ensure people are able to have a seamless broadband connectivity from their homes and offices.
Total subsidy for the last mile, only for the last mile, announced about $61 billion, and statewide division has also been announced. Disbursement of this subsidy is expected to start from middle of this financial year -- sorry, this current calendar year.
So once that subsidiary disbursement picks up, the demand of fiber optic cable would increase significantly because this is for giving broadband connectivity over fiber. So US demand will start happening in the next couple of quarters itself, with these BEAD and BABA and all those names are there, broadband subsidy which US government has announced.
Similarly, when -- as I said a little while ago, the stocks with the distributors and operators go down as was there in a case in the beginning of the year, demand for Europe will also pick up. Demand will pick up not only because of BharatNet, it is demand from US, demand from Europe. All these places, either they will pick up from another couple of quarters or maybe quarter more, depending upon country to country, place to place. But demand is certainly going to pick up in fiber optic cable in the next financial year itself.
Saket Kapoor - Kapoor & Co. - Analyst
Right, sir. So just to conclude on this point. Then it is only the OF prices that has corrected -- led to be lowering of realization? Fresh capacity in OF has been added or the lower utilization levels for OFC worldwide has led to this decline, sir?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
This is both factors. One, the prices have come down; second, the utilization has also gone down. That is why this revenue reduction of roughly about 50% is there. Some extent, prices have gone down 15% or so versus the less demand at this point of time, which, as I said, again, next couple of quarters, we are pretty sure will start improving.
Saket Kapoor - Kapoor & Co. - Analyst
Okay. So one more question I would like to ask is about the -- sir, second question --
Operator
I'm sorry to interrupt, sir. May I request that you return to the question queue for follow-up questions as there several participants --
Saket Kapoor - Kapoor & Co. - Analyst
(spoken in Hindi)
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Hello. Next question, please.
Operator
Rajesh Agarwal, Moneyore.
Rajesh Agarwal - Moneyore - Analyst
Sir, going forward, what will be our product component, the mix? How the percentage mix will change and from when? And second, the margins in telecom products are more than the optic cables are?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
No. Look, market for telecom instrument is not only optical fiber cable, but it is for telecom equipment also. We have large orders for telecom equipment, which are indigenously designed telecom equipment also. Because as I said, INR1,800 crore orders we have already received in the last quarter for equipment.
Again, I would like to emphasize that we are becoming a product-led company. This quarter was a particular aberration quarter because of a lower demand of fiber optic cable, but which has settled very quickly. From the equipment side also, we are doing significant amount of work.
And I think, I can say with a lot of pride that your company has received the largest 5G orders, which any Indian company received till now -- INR650 crore. Nobody else has received till now, which is -- which itself speaks of the kind of development we are doing. And I am expecting -- I don't know the size of the new orders, which will be there -- but yes, I'm expecting more orders to come for the equipment in near future to HFCL.
So my target is to become at least 70-30 -- 70% product, 30% EPC. Or if possible, even reduce that also -- maybe 75-25, something like that. But with 70-30, we should definitely be able to reach at least two-third, one-third, we should be able to reach in the next financial year itself.
Rajesh Agarwal - Moneyore - Analyst
And when you will start delivering this order, sir?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
We should be -- this particular order I'm talking about, 5G-related order, our target is to start delivering from April -- April-end.
Rajesh Agarwal - Moneyore - Analyst
In a year's time?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
I would try to do it quicker than that. I would try my best to do earlier than that.
Rajesh Agarwal - Moneyore - Analyst
And what would be EBITDA margins on that?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Well, EBITDA margins -- I don't want my customers to know my EBITDA margins. Then that would be a problem for me.
Rajesh Agarwal - Moneyore - Analyst
But overall, the company's EBITDA margin will go up from here?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
EBITDA margin will go up -- definitely go up because what has pulled down the EBITDA margin is fiber optic cable reduced sales. Once that increases, EBITDA margin will definitely go up.
Rajesh Agarwal - Moneyore - Analyst
Okay. And what is your view on the optic fibers? From when it will improve, sir?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Start improving from the first quarter of the next financial year, but significant improvement on the second quarter.
Rajesh Agarwal - Moneyore - Analyst
Second quarter. Okay. Thank you, sir. Thanks a lot.
Operator
Thank you. [Dipesh Sancheti, Manya Finance].
Dipesh Sancheti - Manya Finance - Analyst
Just wanted to know what is the capacity utilization in optical fibers out of the 25 million kilometers. And what gives us the confidence for the capacity expansion we're going to do of 35 million kilometers?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
So it is about 50%, even a little less than that.
Dipesh Sancheti - Manya Finance - Analyst
In this quarter?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Yeah, this quarter I'm talking about. Now capacity expansion is the right thing to do. If you see when we started capacity expansion, the market was really booming. We didn't have any free capacity. Our factories were working 24/7, and we were not able to fulfill the demand of customers. So as a result of which, we expanded our capacity.
But this is a cyclical thing. Every three, four years, for some time, demand goes down and then comes up again. You have to see the overall need of the fiber optic cable, and then we have to plan capacity, not on the basis of one year up or six months down. Because if you see, as the need for broadband goes up, as the need of a data goes up, as the need for -- as video kind of applications go up -- today Netflix and Amazon Prime, all these OTT applications, you know how far we have up.
Without fiber optic cable, would you have been able to access Netflix at your home? Would you have been able to watch live television at your home without having access to fiber optic cable? Nothing of this would have been possible. This is all becoming possible because of fiber optic cable. So as these applications grow, demand of fiber optic cable is going to keep on going immensely.
So this few month downturn because of certain factors does not mean that it is a downturn forever. It is only a temporary and which happens every three, four years, it happens once. It has happened now; it will come up again. So increase in capacity was commensurate with this expected demand of increase in the fiber optic cable, and you would find the next couple of quarters, the demand will go up again, and this capacity would -- deterioration would again reach to the previous levels.
Dipesh Sancheti - Manya Finance - Analyst
Since you mentioned that it is cyclical, generally, this downturn remains -- in your experience, this downturn remains for how many quarters?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
There is no fixed rule for that. There's no fixed rule for that -- it will remain for how many quarters. Now this has gone down, but the US demand is going to be there in the next couple of quarters. It is going to come up again.
Indian demand is going to increase again, maybe next three quarters -- two to three quarters with BharatNet happening. So normally, two to three quarters is our number. I would say the demand slows down and then comes up again. There's no fixed rule for that.
Dipesh Sancheti - Manya Finance - Analyst
Right. So what is the risk in the US market as well as the Indian market? If something like for -- Tesla is developing a direct satellite internet. What will be the risk to our optical fiber business? Have we assessed that?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Yeah, we have discussed that. We have understood that. Satellite is a completely different segment of market. It can never compete with fiber. What bandwidth fiber can provide, satellite can never provide, at least not in the foreseeable future that satellite would provide that kind of bandwidth.
And number two, handsets are very costly, service pricing is costly. Satellite would be more used for remote areas where fiber accessibility is not there, broadband accessibility is not there, telephone accessibility is not there. So those would be the places where satellite would be used. For in terms of bandwidth, satellite will never be able to compete with the fiber optic cable. So it's not a competition, more of a complementary approach.
Dipesh Sancheti - Manya Finance - Analyst
Okay. And just last question, is BharatNet -- will give more opportunities on product base? Is it the product-based opportunity or a project-based opportunity?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
It's both. It's both. It's a mixed opportunity.
Dipesh Sancheti - Manya Finance - Analyst
What ratio --
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
There are three things -- there are three. One is product, another is project and third is operations and maintenance, which is going to be annuity revenue for the next 10 years. There are three opportunities in this.
Dipesh Sancheti - Manya Finance - Analyst
And when we are bidding for BharatNet opportunities, we are going to look at more product-based or we're going to explore in all the opportunities?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
So we are currently working on analyzing all the aspects of the tender. Let the final draft of the tender come out; then only we will decide how are we going to do about that. Because final tender has not come out. It is the -- first draft come out for just a consultation. Many suggestions have been given.
But once the final number comes out, final shape of the tender comes, we will decide at that point of time. We're evaluating. But yes, no doubt it's a good opportunity for us.
Dipesh Sancheti - Manya Finance - Analyst
Okay. And I was just going through the presentation, and it shows that domestic railway opportunities. How many orders have been received as Kavach and because that has been a buzz word for (multiple speakers)
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
We are not in Kavach. That's a part of product. We are in telecom systems for the railways. So we are working on telecom. Kavach is signaling product and our (multiple speakers)
Dipesh Sancheti - Manya Finance - Analyst
And how much of the orders we've received is from the railway sectors?
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Railway order should be around INR600 crore-some. Yeah, it is about INR620 crore or something like that.
Dipesh Sancheti - Manya Finance - Analyst
Okay. I would really appreciate if you can divide the order book into how much is railways, how much is telecom, how much defense in telecom, how much it is for optical fibers. Because that will help us to understand how we're going to go (multiple speakers)
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
I have noted your suggestion, and we will publish it in our website. Definitely.
Dipesh Sancheti - Manya Finance - Analyst
Thank you. Thank you so much, sir, and all the very best.
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Thank you very much.
Operator
Thank you. That was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Mahendra Nahata - HFCL Ltd - Managing Director, Executive Director
Thanks a lot, ladies and gentlemen, for attending this earnings call for third quarter of FY24. As I have been saying that we have got three strategies -- more number of products, more customers, more geographies. And we are very successful at that.
This quarter, though you would see the results are a bit subdued because of fiber optic cable demand going down -- which is a worldwide factor and nothing to us, nothing in particular to us -- but if you look at the product side of it, we have received orders for INR1,700 crore, INR1,800 crore just for the products alone. And this effort of making company a product-led company is becoming successful, and we will remain successful, and we will keep on increasing our revenue from products and more so from indigenously designed products, not only for Indian market but from the world market.
And that strategy through our R&D is proving to be very successful. And I can ass
