Buy HFCL Ltd For Target Rs.59 - Ventura Securities
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A number of bullish factors have come together which ensures bright prospects for HFCL in the medium to long term. The opportunities emerge from
* 5G roll out (Rs 1.5-2 lakh cr market opportunity and system integration opportunity)
* 4G expansion (Rs 15-20,000 cr market opportunity)
* FTTH and broadband penetration (Rs 30,000 cr market opportunity)
* Bharat Net which is a Rs 40,000 cr opportunity.
* Railway segment which has the potential of Rs 50,000 cr over the next 5-7 years
* Defense opportunities for communication (Rs 25000 cr market size) and electronic (Rs 40,000 cr market size) products
These are the key go to areas which the company has identified based on their inherent capabilities.
In order to monetize these opportunities, HFCL has already incurred a total capex of Rs 350 cr over the period FY18-20 for beefing up their manufacturing capabilities in the following areas
* Expanding OFC capacity from 10mn fkms to 18mn fkms and also setting up facilities for the manufacturing of OFC accessories.
* Backward integration to manufacture 6.4 mn fiber kms of optic fiber. This was operationalized in January 2020 and now meets 30% of the company’s internal demand. This has helped improved the cost efficiency and also enhanced the supply chain.
* Set up a FTTH cable manufacturing facility at Hyderabad which commenced operations during Q3FY21. With this facility HFCL today has emerged as India’s largest manufacturer of FTTH cables (capacity of 6 lakh cable kms).
We expect this capacity to be further enhanced to 2 lakh cable kms over the next few months
Going ahead the company expects to incur a total capex and R&D spends
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