HFCL Ltd

Dear shareholders,

In the past year, we witnessed volatility in financial markets, inflationary pressures and modest global GDP growth.

However, India emerged as one of the world's fastest-growing economies due to robust domestic consumption, ongoing economic reforms and increasing public and private investments. These factors and a strong focus on digital transformation and innovation, have made India an attractive destination for global investments. Against this backdrop, HFCL remains poised to leverage India's promising growth trajectory for sustainable growth.

RESILIENT PERFORMANCE

During FY23, the Company achieved a net revenue of Rs.4,743.31 crore, reflecting a marginal increase from Rs.4,727.11 crores in FY22. Notably, net revenue from turnkey contracts and services decreased to Rs.2,103.60 crores in FY23 from Rs.2,671.74 crores in the previous year, constituting 44.35% of the total consolidated revenue. Meanwhile, sales from telecom products grew, reaching Rs.2,637.97 crores in FY23 from Rs.2,055.16 crore, accounting for 55.61% of the total consolidated revenue, per our farsighted strategy to increase revenues from products.

We can gauge the benefit of a revenue shift from project to product from our margin improvements.

Total operating expenses amounted to Rs.4,124.63 crores in FY23, slightly higher than Rs.4,077.04 crores in FY22.

The Company's EBITDA for FY23 stood at Rs.665.86 crore, a slight decline from Rs.692.98 crores in FY22.

Net profit for the fiscal year stood at Rs.317.71 crore, compared to Rs.325.86 crores in FY22. The net profit margin decreased slightly to 6.70% in FY23 from 6.89% in FY22. Earnings per share for FY23 were Rs.2.18, as compared to Rs.2.38 in the previous year.

The Board of Directors recommended a final dividend of 20%, i.e., H0.20 per equity share of face value HI/- each for FY23, subject to approval by the shareholders at the forthcoming Annual General Meeting. The Company's net worth grew, rising to Rs.3,144.14 crores from Rs.2,818.37 crores in the prior year.

THE BIGGER PICTURE

FY23 witnessed remarkable growth and transformation in the global telecom sector. The rapid rollout of 5G networks and fiber-optic broadband worldwide marked a significant shift towards high-speed connectivity. This surge in demand for broadband wireless technologies fostered innovation, driving progress in smart cities and advanced manufacturing, thereby boosting economic advancement.

India, in parallel, emerged as a prominent digital economy. The strategic emphasis on 5G implementation and indigenous design by the Indian Government further propelled sectoral expansion. With the increased adoption of digital technologies, 5G rollouts and the growing demand for highspeed connectivity driving innovation and investment in the sector, India will soon be among one of the top 5G ecosystems in the entire world. 5G rollout, FTTH along with the national priorities like development of homegrown products under PLI scheme, fiberisation under BharatNet are fuelling massive opportunities for players like us. The launch of Bharat 6G Alliance further solidifies India's position as one of the world's top leaders in 5G ecosystems and we aim to be at the front-line, contributing to 6G technology and fostering the growth of the Indian telecom sector.

HFCL is well-positioned to capitalise on these opportunities. The Company's strong focus on innovation is evident in developing a number of advanced telecommunication products including for 5G networks.

I also wish to update that expansion of Optic Fiber manufacturing capacities from 10mn fkm to 33.90mn fkm 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 25mn fkm to 35mn fkm. This expansion will also lead to significant increase in revenue and profitability. The capacity will be added in a phased manner, with the completion targeted by FY25.

LEVERAGING OPPORTUNITIES WITH A FOCUSED STRATEGY

The Company's core focus revolves around three main pillars: Innovation, Expansion and Sustainability. Innovation drives the Company's competitive edge, fuelling product development and market distinction. The emphasis on in-house design and manufacturing has earned recognition from the Indian Government with a significant production-linked incentive. Driven by innovation, the Company has invested substantially in cutting-edge technologies, including 5G products, Wi-Fi Access Points and Backhaul Radios, Routers and Cloud based

Network Management System etc. It has also collaborated with esteemed technological institutions and industry leaders across the globe to drive innovation.

The Company's collaborative ventures with industry leaders such as Qualcomm, Microsoft and Wipro have fortified its capabilities to gain a competitive edge and achieve sustainable growth.

Expanding into global markets is a key strategy, with targeted efforts in the US, Europe and the Middle East.

The Company's reach spans over 45 countries, strengthening partnerships and broadening revenue streams. We are also diversifying our product portfolio to capture emerging market opportunities.

COMMITMENT TO SUSTAINABILITY

The Company's commitment to sustainable growth, innovation and ethical conduct has led to notable progress. With a strategic focus on ESG factors, we undertake various initiatives to ensure ecological and societal sustainability.

HFCL is deeply committed to fostering workplace diversity and inclusion through various initiatives, fostering an equitable and inclusive environment. Implementing our diversity, equity and inclusion (DEI) policy across HR processes highlights diversity's vital role in attracting talent, enhancing innovation and ensuring organisational success.

As a responsible corporate entity, the Company conducts various corporate social responsibility (CSR) initiatives, including healthcare support, education for underprivileged children, digital infrastructure in rural areas and collaboration with non-profit organisations, underscoring our aim to impact communities positively.

HFCL's environmental sustainability efforts encompass energy, water and waste management practices. The transition to LED, reduced optical fiber cable diameters, dry core construction and solar energy adoption highlights our commitment to resource optimisation and responsible manufacturing.

The proposed installation of solar/wind model of 10 MW capacity in HTL Limited, a subsidiary company, emphasises our commitment towards renewable energy integration and emission reduction. Similarly, setting up of a 1 MW solar system at our Hyderabad facility, along with the shift to LED UV lamps and also the transition to solar energy at our Goa facility, reflects our continuous efforts towards sustainable development and emissions reduction.

Furthermore, achieving the zero-waste- to-landfill certification underscores the Company's responsible waste management practices, resulting in substantial cost savings and notable CO₂ reductions. These collective initiatives align with our goal of sustainable growth with a significant positive impact on society.

WAY FORWARD

Looking ahead, FY24 holds the promise of transformative accomplishments.

Our ongoing pursuits in 5G technology, capacity expansion and the launch of innovative products position us for substantial revenue growth. The augmentation of our optic fiber and cable production capacities ensures our readiness to meet industry demands while enhancing revenue and profitability.

In conclusion, I sincerely thank our esteemed stakeholders for their continued trust and support. As we move ahead, we remain resolute in our vision to bring innovative products and solutions to strengthen our leadership in the industry, deliver consistent value to shareholders and contribute to the Country's growth.

Best wishes,

Mahendra Nahata

Managing Director