Himachal Futuristic Communication Ltd. Stock: Buy/Sell or Ignore?

Background

Himachal Futuristic Communications Ltd(HFCL) was incorporated in May 1987[16][17][18]. The company is being promoted by Deepak Malhotra, Mahendra Naha and Vinay Maloo.

HFCL is a telecom equipment manufacturer who produces Transmission equipment, Terminal equipment, Access equipment and Optic Fibre Cable(OFC) besides providing Turnkey solutions to ISP & MNC’s in the country[16][17].

It also carries out in-house R&D activities to explore newer venues like radio design, access equipment, optical transmission equipment and solutions for network management systems[18].

HFCL has many telecom and core companies in its client list like BSNL, MTNL, TTL, Reliance, Bharti, PGCIL, GAIL and VSNL[18].

Currently, HFCL has manufacturing plants located in Himachal Pradesh, Goa and New Delhi.

 

Services provided by HFCL[1][16][17][18]

HFCL can be divided into three business/product verticals which can be utilized subsequently as required for Telephony/ISP or Smart City or Defence Applications

  • Wireless 

This vertical manufactures mobile equipment based on CDMA and CorDECT technologies and a spectrum of digital microwave communication equipment

  • Wire division

This vertical manufactures primary digital multiplexer and an analog subscriber carrier systems (ASCS). It also has an assembly line for coils and cables.

  • Cable division

This vertical manufactures various types of cables for different uses(connectors, shielding equipment etc.)

HFCL also has an offering regarding Power Management. It can design energy efficient and cost-effective Infrastructure while meeting the green energy norms.

 

 

Competitors to HFCL

HFCL_Competitors

Fig 1. HFCL & it’s listed competitors[4][5][9]

 

Share Holding

HFCL_Shareholding Pattern

Fig 2. Share Holding Pattern (As of Sept 2017)[9][10]

 

Financials

Last Closing= Rs. 25.35 on NSE (On 23rd March, 2018)

Face Value = Rs.1, EPS = 1.03, Book Value = Rs. 9.21 [11]

P/E =24.56, P/B =2.75 , ROE = 14.36 (As on Sept’17) [11]

Market Cap = Rs. 3,141.82 [Small Cap]

52-Week Range: Rs. 11.85 – Rs. 36.65 

1-yr Return = 98.82% [March 24,2017 – March 23,2018] 

HFCL_Stock Performance

Fig 3. Himachal Futuristic Communication Ltd. performance in the past 1-yr[12]

 

Company Financial Operation[FY 17]

Debt – ~Rs. 473.85 Cr(Company size >Rs. 3000 Cr)
Debt to Equity Ratio – 0.39 (down from 0.45 last FY which is pretty good)[13]
Reserves & Surplus – ~Rs. 919 Cr[13]
Sundry Debt borrowing ~Rs. 1150Cr(Strange considering surplus at hand as per FY17 Results)[13]

 

Mutual Fund Exposure to HFCL

The last Mutual Fund house to hold a stake in HFCL was Goldman Sachs MF which in itself was a small fraction[11].

Currently, no fund manager is deploying their cash reserve earned through Systematic Investment Plans(SIP’s) towards this stock as it is overvalued[9][11].

HFCL_Mutual Fund

 

HFCL in the News

  • HFCL is setting up an Optic Fiber Cable(OFC) manufacturing facility in Fab City, Hyderabad for an estimated cost of Rs. 260 Crores. The facility will cater to the civilian and defense market[6]
  • In February 2010, market regulator Securities and Exchange Board of India (SEBI) did an out of court settlement with HFCL[14]. The company was found guilty of colluding with stockbroker Ketan Parekh to rig the share prices and violating governing norms during the period 1999-2001. HFCL had to cough up Rs10 crore under the consent order. 
  • HFCL emerged as the L1(lowest bidder) for more than Rs 2600 crore worth tender for GIS-based Optical Fibre Network Management System (GOFNMS) floated by BSNL.

 

 

Value Investor’s view on HFCL

“An investor should remember when he plays these kinds of high-risk themes is that your allocation should be something that you should control with very strict discipline whatever be the stature of peers and put big money into those kinds of themes. You should understand that you do not have the risk appetite or you should align your bet size to your own risk appetite and not see what is the size of their bet, that is the second point.” – Value Investor Shyam Sekhar to ET

 

Further Reading on HFCL

  1. https://www.indiaratings.co.in/PressRelease?pressReleaseID=28680&title=India-Ratings-Revises-Himachal-Futuristic-Communications%E2%80%99-Outlook-to-Negative%3B-Affirms-%E2%80%98IND-BBB%2B%E2%80%99
  2. https://www.ndtv.com/business/stock/himachal-futuristic-communications-ltd_hfcl/financials
  3. https://m.economictimes.com/markets/expert-view/shyam-sekhar-on-how-to-invest-in-financial-and-deleveraged-themes/articleshow/60823217.cms

 

Conclusion 

HFCL (like Jai Corp) has been rumored to be linked with Reliance Industries(RIL)[7]. This is an important piece information considering the health of the telecom sector since Jio’s entry in 2016.

Also, HTL Limited, a subsidiary of HFCL has been in the negative despite being in the business[15]. The huge demand for data speeds and consumption has got HTL into manufacturing Optical Fiber Cable(OFC). HFCL is considering the equity route to raise capital and turn HTL positive.

Taking all this into account, Marginal and retail investors need to be cautious about their investments and not get swayed by the low stock price as compared to peers who are fundamentally on a stronger footing.

 

If you want to share your opinion kindly do so in the comments section or email me at u2d2tech@gmail.com.

References

  1. http://www.hfcl.com/
  2. http://m.moneycontrol.com/stock/HFC/financials/financials-ratio
  3. https://simplywall.st/stocks/in/telecom/nse-hfcl/himachal-futuristic-communications-shares/news/what-does-himachal-futuristic-communications-limiteds-nsehfcl-balance-sheet-tell-us-about-its-future/
  4. https://economictimes.indiatimes.com/himachal-futuristic-communications-ltd/balancesheet/companyid-13649.cms
  5. ‎https://www.edelweiss.in/quotes/equity/Himachal-Futuristic-Communications-Ltd-1189
  6. ‎https://www.thehindubusinessline.com/info-tech/hfcl-to-set-up-260-cr-optical-fibre-facility/article23137951.ece
  7. ‎https://www.moneylife.in/article/why-is-himachal-futuristic-in-the-elite-list-of-cnx-sp-500/13463.html
  8. ‎https://www.indiainfoline.com/company/himachal-futuristic-communications-ltd/summary/1189
  9. http://www.moneycontrol.com/india/stockpricequote/telecommunications-equipment/himachalfuturisticcommunication/HFC
  10. https://www.ndtv.com/business/stock/himachal-futuristic-communications-ltd_hfcl
  11. https://www.valueresearchonline.com/stocks/snapshot.asp?code=1533
  12. https://www.google.co.in/search?q=hfcl+share+price&oq=hfcl+&aqs=chrome.1.69i59j0j69i60j69i57j69i60l2.4066j0j7&sourceid=chrome&ie=UTF-8
  13. http://www.moneycontrol.com/financials/himachalfuturisticcommunication/ratios/HFC
  14. https://www.livemint.com/Money/mgyHUs6H88q7LQPVALe8CN/Sebi-settles-HFCL-share-price-rigging-case-with-consent-orde.html
  15. https://www.indiaratings.co.in/PressRelease?pressReleaseID=28680&title=India-Ratings-Revises-Himachal-Futuristic-Communications%E2%80%99-Outlook-to-Negative%3B-Affirms-%E2%80%98IND-BBB%2B%E2%80%99
  16. https://www.ndtv.com/business/stock/himachal-futuristic-communications-ltd_hfcl/reports
  17. http://www.business-standard.com/company/himachal-futuristic-communications-ltd-1189/information/company-history
  18. https://economictimes.indiatimes.com/himachal-futuristic-communications-ltd/infocompanyhistory/companyid-13649.cms
  19. http://www.business-standard.com/article/news-cm/hfcl-rises-on-emerging-as-lowest-bidder-for-telecom-tender-118011500335_1.html
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