ACCELERATING INNOVATION HFCL LIMITED ANNUAL REPORT 2019-20 What’s Where… Corporate Overview Accelerating innovation 02 We are HFCL 04 Financial highlights 08 Letter from the Managing Director 10 Innovate for a connected, secure world... 12 Management Reports Management Discussion and Analysis 16 Directors’ Report 34 Corporate Governance Report 67 Business Responsibility Report 86 Financial Statements Independent Auditors’ Report on Standalone Accounts 94 Standalone Accounts 102 Independent Auditors’ Report on Consolidated Accounts 144 Consolidated Accounts 150 Notice of the AGM 193 Forward-Looking Statements: Certain statements in this Annual Report relating to the Company’s future growth prospects are forward-looking statements, which involve several risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Our Value Proposition Robust foundations n Rich legacy of over three decades in enabling telecom revolution in India n Five state-of-the-art manufacturing facilities n Diverse offerings of products and solutions across communication, defence, railway and surveillance n Enviable global clientele from across governments and private sectors Integrated business model n Wide coverage of telecom value chain – equipment, optical fiber, optical fiber cable, passive interconnect solutions, network project execution on a turnkey basis, operation & maintenance n A prudent mix of telecom and new business segments including defence, railway communication and signalling and security & surveillance Focus on hi-tech products and innovation n A rich haul and pipeline of technological breakthroughs and innovation n Accelerated investments in revving the innovation engine – proprietary and collaborative n Focus on hi-tech products such as Wi-Fi Network Products, High Capacity Radio Relay, Microwave Radios and Cloud-Based Management Platform, Switches, Routers, Intelligent Antenna Systems, Software Defined Radios, Ground Surveillance Radars, Electro-Optic Devices and Electronic Fuses Consistent performance n Steady growth in income and net profit -7- year CAGR of 27% and 23% respectively n YoY improvement in FY20 EBITDA and net profit margin of 378 bps and 129 bps respectively n Order book of ` 8,409 crores as on 31st March, 2020 n FY20 debt equity ratio of 0.43, RoCE of 21.50% ACCELERATING HFCL Limited INNOVATION Accelerating Innovation To innovate is human. At HFCL, innovation has always been intrinsic or innovating a range of connectivity equipment and solution for to our being. Be it the design and development of customized the 5G era, HFCL has always been at the forefront of technological microwave radios for Indian defence forces about two decades ago innovations. The fact that a vast majority of those microwave HFCL LIMITED ANNUAL REPORT 2019-20 2 I Annual Report 2019-20 Corporate Overview I Management Reports I Financial Statements radios are still in use signifies the robustness of our technology Cognizant of technology’s expectations from HFCL, the pioneering and durability of our solutions. HFCL has been the first domestic domestic innovator of the Indian telecom revolution, we are player to introduce various indigenously developed products intensifying our innovation overdrive with a 360-degree approach and technologies which brought considerable savings to the across our focused domains. Besides in-house research and Government coffer. development, our multi-dimensional approach to innovation is also blending acquisition or strategic early-stage investments in The hyper-connected world has about 4.8 billion mobile phone innovation focused assets towards collaborative exploration of users today, nearly 3.5 billion of which are smartphone users. technological advances. The financial year 2019-20 (FY20) witnessed While the phase of global, universal human connectivity is being three such investing activities. The innovation hallmarks of the year accomplished, what lies next? were the launch of our indigenously developed next-generation Well, the next set of connectivity consumers are already queuing WiFi products and solutions under the ‘IO’ brand and the successful up. Billions of industrial machines, household gazettes, residential development of our High Capacity Radio Relay. and commercial buildings, and automobile and other transport units – all of them are headed for connected co-existence with already connected personal devices such as mobile phones, PCs, With a firm belief that technology would be our and smart televisions. key differentiator and profitable growth our Expectations from communication networks are poised to raise business driver, we, at HFCL are intensifying manifolds. Not only in terms of the volume of data and speed our focus on hi-tech products and accelerating of access, but also in terms of security of data transmission. The innovation. fact that strategic sovereign assets such as energy grids, financial systems, defence framework, public transport, etc. would all get hyper-connected, cyber security would become a paramount consideration, all along. Annual Report 2019-20 I 3 HFCL Limited We are HFCL We, HFCL Limited (formerly known as Himachal Futuristic Our integrated manufacturing network of five World Class facilities Communications Limited) are a leading Technology Enterprise produces the widest range of new generation communication connecting the world with the fully integrated communication products in India. We serve an enviable list of customers globally network solutions and specialised services. Consistently empowering with exports to over 40 countries. innovation, we endeavour to develop new technologies and Offering design, equipment, installation, system integration and next-generation products which are globally benchmarked and cost operation & maintenance services, we are a preferred go-to partner effective. Research & Development activities are spearheaded by our for a wide range of customers. Leveraging our extensive experience two Centres of Excellence (CoEs) at Gurgaon and Bengaluru, further in advanced communication networks, we are fast establishing supported by invested R&D Houses and Collaborators from different our communication network credentials in emerging sectors such locations in India and Overseas. as Railway Communication & Signalling, Defence, and Security & We manufacture Optical Fiber, Optical Fiber Cables (OFC), Passive Surveillance. Interconnect Solutions and high-end Transmission and Access Listed on BSE and NSE (Scrip code BSE: 500183 & NSE: HFCL), we Equipment. Our technologically advanced offerings span the employ over 1,700 people on our rolls (besides generating several entire value chain, from manufacturing hi-tech communication thousand indirect employment) and closed the financial year network products to providing specialized services, which get 2019-20 with a consolidated annual turnover of ` 3,839 crores and deployed across Telecom, Defence, Railways, Utilities and Security & order book of about 8,409 crores. Surveillance Networks, both in the Private and Government Sector. Upcoming Optical Fiber Cable Plant, Hyderabad 4 I Annual Report 2019-20 Corporate Overview I Management Reports I Financial Statements Our Manufacturing Assets Optical Fiber Plant, Hyderabad Optical Fiber Cable Plant, Goa Optical Fiber Cable Plant, Chennai# FRP Plant, Hosur# Telecom Equipment Plant, Solan # belongs to Subsidiary Company, HTL Limited Annual Report 2019-20 I 5 HFCL Limited Our Marquee Customers Our Export Destinations AMERICAS Brazil Canada Uruguay Peru El Salvador Argentina Mexico USA 6 I Annual Report 2019-20 Corporate Overview I Management Reports I Financial Statements EUROPE Albania Czech Republic Hungary Lithuania UK Bosnia and France Ireland Macedonia Switzerland Herzegovina Turkey Italy Poland Ukraine Cyprus Greece Spain Slovakia Georgia ASIA PACIFIC Bangladesh Australia Bhutan Thailand Nepal Philippines Singapore Malaysia MIDDLE EAST AND AFRICA Iran Egypt Saudi Arabia Morocco Rwanda Tanzania Mauritius Kuwait UAE Qatar Mauritania Somalia Uganda Seychelles Jordan Oman Kenya Nigeria South Africa Zimbabwe Sierra Leone Annual Report 2019-20 I 7 HFCL Limited Financial Highlights Total Income (` Mn) PAT (` Mn) EBITDA (` Mn) 47,805 2,323 2,373 5,162 4,583 38,610 1,717 32,730 3,076 1,237 22,243 2,143 FY2017 FY2018 FY2019 FY2020 FY2017 FY2018 FY2019 FY2020 FY2017 FY2018 FY2019 FY2020 EBITDA Margin (%) PBT (` Mn) PAT Margin (%) 13.37% 3,584 6.15% 3,393 5.60% 5.30% 4.86% 9.60% 9.40% 9.59% 2,204 1,242 FY2017 FY2018 FY2019 FY2020 FY2017 FY2018 FY2019 FY2020 FY2017 FY2018 FY2019 FY2020 RoCE (%) EPS (`) (Diluted) Debt and Equity 0.43 0.34 0.44 0.41 23.60% 1.75 1.76 16685 21.50% 14317 18.20% 1.35 12169 10461 13.30% 1 7116 5903 4582 4077 FY2017 FY2018 FY2019 FY2020 FY2017 FY2018 FY2019 FY2020 FY2017 FY2018 FY2019 FY2020 Debt Equity D/E Ratio 8 I Annual Report 2019-20 Corporate Overview I Management Reports I Financial Statements Total Income EBITDA EBIDTA Margins ` 38,610 Mn ` 5,162 Mn 13.37% - 19.2% YoY + 12.6% YoY + 378 Bps YoY PAT PAT Margins Diluted EPS ` 2,373 Mn 6.15% ` 1.76 + 2.2% YoY + 129 Bps YoY + 0.6% YoY Annual Report 2019-20 I 9 HFCL Limited Letter from the Managing Director Dear friends, I take pleasure in presenting our Annual Report 2019-20. I hope this letter finds you and your dear ones in the pink of health and pray for the well-being of you all.