Synopsis: HFCL Ltd outlook remains strong with Rs 11,125 crore order book, rising optical fiber demand, defence growth, improving 18–20 percent margins, and healthy revenue, EBITDA, and profit growth visibility over the coming years.
The shares of this small-cap company majorly engaged in telecom infrastructure development, system integration, and manufacture and supply of high end telecom equipment, Optical Fiber and Optic Fiber Cable (OFC) were in focus after the brokerage firm saw around 115.3 percent upside potential based on the strong earning visibility.
With the market capitalization of Rs. 10,374 Crores, the shares of HFCL ltd were trading at around Rs. 67.8 per share and is trading at a P/E of 200 where as industry P/E stands at 14.1
Company Overview and Rating
Arihant Capital has assigned a ‘Buy’ rating to the stock of HFCL with a target price of Rs 146 and the current market price is Rs 67.8. The brokerage firm is of the view that the company has good growth potential as it has opportunities in the defence and data center businesses. The company is in the cables and telecom equipment business and has shown improving business fundamentals with rising demand and execution.
Q3FY26 Result Update Summary
HFCL reported revenue of Rs 1,211 crore in Q3FY26, up 19.6 percent YoY and 16 percent QoQ, primarily driven by higher volumes in optical fiber cables and price realization. EBITDA also increased by 51.5 percent YoY to Rs 230 crore, driven by gross margin improvement and cost optimization. PAT increased by 40.7 percent YoY to Rs 102 crore, beating estimates. The brokerage points out that defence and data centre will be key growth drivers for the company.
Structural Upswing in Optical Fiber and OFC
There is increasing demand for optical fiber and OFC globally, especially for hyperscale data centers and AI infrastructure, for which high fiber count cables are required, and these are scarce and command premium pricing. Global telecom operators have cleared inventory and started ordering, resulting in improved demand and a resulting increase of 10 percent QoQ, and another increase is expected. HFCL plans to increase capacity from 30.5 million f.km to 42.36 million f.km by June 2026 and plans to increase OFC business from Rs 2,400 crore in FY26 to Rs 3,400-3,500 crore in FY27.
Strategic Transformation in Telecom Products
HFCL is moving from low-margin hardware to more profitable telecom solutions. The router business is also doing well with orders of 1 lakh units valued at Rs 700-800 crore in the BharatNet program. The tariffs imposed by the US government on Indian telecom equipment are expected to be reduced, which would help in increasing export opportunities in the area of Wi-Fi and broadband solutions. The company is also investing in Wi-Fi 7 technology, which is expected to aid in margin expansion.
Defence Segment Growth
The company is focusing on defence and has indigenously developed electronic fuzes in advanced stages of trials, with the next trial scheduled for April 2026. The domestic requirement is 5 lakh fuzes, and the company is targeting 1 lakh units. The company has also received orders in thermal weapon sights, electro-optics, and UAV-related technology. The defence business is expected to reach Rs 500 crore by FY27.
Outlook and Valuation
The outlook for the company is positive with the current order book position at Rs. 11,125 Crore. The order book is around 2.7 times the FY25 revenue. The growth prospects for the company are expected to be driven by increasing demand for optical fiber in AI-based data centers, expansion in global telecom networks, and the commercialization of the defence segment.
The company is also increasing business in higher-margin segments. The margins of the company are expected to improve with the improvement in the overall business scenario. The margins are likely to increase to the range of 18-20 percent. The financial growth of the company is also expected to be robust.
The revenue growth, EBITDA growth, and PAT growth are expected to be at the rate of 19.9 percent, 36.4 percent, and 58.9 percent respectively over the period of FY25 to FY28. Considering the order book position and the improvement in the overall business scenario, the outlook for the company is positive. The brokerage has maintained the Buy rating with the target price of Rs. 146 against the current price of Rs. 67.8.
Q3 FY26 Highlights:
The revenue for the quarter ended in January 2026 was Rs 1,211 crore, up from Rs 1,012 crore in the corresponding quarter of the previous year and Rs 1,043 crore in the quarter ended in October 2025. Gross profit for the quarter was up at Rs 459 crore, with gross margins increasing to 37.9 percent due to lower raw material costs. The company’s EBITDA was up at Rs 230 crore, with an increase in EBITDA margins to 19 percent, reflecting better control over costs. Profit after tax for the quarter was Rs 102 crore, with improved PAT margins and EPS.
Gross Margin Improvement
The gross margins have improved by 703 basis points YoY to 37.9 percent. However, they have declined slightly by 33 basis points QoQ. The improvement in gross margins was driven by the decrease in raw material costs and the improvement in the product mix.
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