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The 20-year old HFCL group is in the process of infusing a fresh lease of life into its businesses and looking at becoming a key player in the triple play business. HFCL Infotel, a group company, is gearing up to launch triple play services in Punjab, Delhi and other parts of North India in the coming months.

Despite best efforts, the ambitious plans of Mahendra Nahata, group chairman, HFCL, to get the telecom services venture to take off in a big way did not materialize earlier. In fact, the group has lost a number of opportunities in the last 10-15 years when telecom big wigs like the Mittals, Ruias, Rajeev Chandrasekhar, Sivashankaran, etc, made their fortunes riding on the telecom bandwagon.

But this time the group is more confident. The reason for this cheer can be attributed to a number of facts. The proposed $100 mn infusion of funds by private equity funds and their commitment of more funds into HFCL Infotel, the basic services provider, will change the face of the HFCL group as the presence of the group will be strengthened across the country in a big way.

Telecom Services
The HFCL group is planning to become the first triple play player in the country. TRAI, the telecom regulator, though, is yet to come out with its policy on triple play services.

HFCL Infotel will dilute the promoters' holding to below 50% from the present 62% to bring in close to $100 mn. "Following the much-awaited capital infusion by private equity funds, the triple play services (voice, data and video) will be launched in J&K, Himachal Pradesh and Haryana in phase one, and Uttar Pradesh and Delhi in phase two of the operations. Trial runs are on in Punjab at present and the telecom regulator has already inspected our services," Nahata said.

"In order to reach out to the masses, we are talking to cable TV distributors. This will be a good revenue model and depending on the alliances, we will be able to offer revenue sharing to cable distributors," Nahata added.

According to analysts, triple play is big business in the US. Companies like Time Warner made billions. Indian customers will get a chance to enjoy an international experience with the launch of triple play services.

"We enjoy a happy customer base in Punjab despite competition from other telecom players with national presence. We want to repeat our successful venture in other markets as well. However, we will be focusing only on broadband and triple play services in other markets," says Nahata.

Launched in October 2000, HFCL Infotel's new generation telecom service, CONNECT, is today a leading brand in Punjab and Chandigarh. A subscriber base of over four lakh, steady revenue streams, and services in 130 cities and towns emphasize the company's growth.

HFCL Infotel has collaborated with technology leaders such as Lucent, Compaq, Cisco, Bell Nexxia, and Suntec. But for the proposed triple play services, the HFCL group will not go for any technology alliance. The company has a future-proof network that connects every town and village in Punjab, along with an emphasis on service excellence and quality. Once triple play services are launched in other parts of the country, the group hopes that there will be no looking back for them.

Turnkey Services
There is a dearth of companies with proper domain knowledge in telecom and HFCL wants to encash on the opportunity. With telecom services providers aiming at enhancing their networks across the country with a focus on rural expansion and a target of 500 mn telecom subscribers by 2010, the volume of business is escalating. Riding this, HFCL's turnkey services business is expected to contribute around 60% to the total turnover, up from the previous 30%, with the remaining coming from products.

According to HFCL's quarterly results ended December 31, 2006, the turnkey network implementation division had a strong growth and it is expected to be a significant driver of HFCL's growth and margins as a result of the steep pace of network rollouts by cellular operators. During the third quarter, revenue from turnkey contracts and services stood at Rs 179.15 crore as compared to Rs 24.75 crore during the corresponding period of the previous fiscal. The turnkey business contributed Rs 35.62 crore towards EBITDA. The capital employed in this business stood at Rs 169.81 crore during the quarter.

HFCL is also participating and executing various international turnkey projects, and has also successfully completed a large DECT-based WLL turnkey project in Nepal. Several proposals from the company are under evaluation for equipment supply and turnkey projects in countries such as Kuwait, Iran, Sri Lanka, Bangladesh and Iraq, etc, according to Nahata.

Manufacturing
A number of Indian companies failed to succeed in the telecom equipment manufacturing business as accessing the right technology from overseas players was a key issue for them. Competing with the likes of Nokia, Alcatel, Ericsson and Motorola became a Herculean task for many.

According to Nahata, HFCL, which wants to be a leading player in the equipment manufacturing sector, faced similar hurdles though it has developed a vast base for indigenous telecom equipment manufacturing in India. It started with manufacturing transmission equipment and soon expanded its product portfolio to manufacture access equipment, optical fiber cable, accessories and terminal equipment. "Realizing the atmosphere, we increased our focus on turnkey implementation and emerged as a key company offering end-to-end solutions," he added.

Though HFCL has curbed its efforts in the telecom equipment making, it will have a major presence in the manufacturing of CDMA phones and low-cost GSM phones in the future. An association with an R&D house abroad is also in the pipeline.

According to Nahata, their initiatives on customer premises equipment and access products business would start rewarding in a big way. The new thrust is yet to reflect in its topline growth in telecom products business. HFCL's revenue from telecom products declined to Rs 137.42 crore during the third quarter ended December 31, 2006 as compared to Rs 145.10 crore during the corresponding period previous year, while capital employed has gone up to Rs 618.82 crore from Rs 539.91 crore.

Turning Around HTL
Following the acquisition of HTL from the government in 2001, the HFCL group, which holds 74% stake, is looking at turning around the fortunes of the loss-making HTL.

"We are looking at selling some vacant land attached to HTL in Chennai and the proceedings are expected to be around Rs 250 crore, which will be used for its expansion and upgradation plans. In fact, the excessive debt is creating hurdles on its way to become profitable. We hope to revive HTL in the next one year and are planning to increase the number of products and services," Nahata said.

Initially, HTL was a manufacturer of teleprinter machines. Subsequently, the company embarked on a diversification plan and underwent modernization of its product range to high-end products like digital switching equipment, switching accessories, transmission products and a very wide range of access and terminal products.

Bright Future Ahead
According to analysts, the HFCL group needs to connect with the retail customers if they need to keep pace with other leading players in India. Triple play services will play a key role in this direction. With telecom saturation happening in Western countries, investments in Indian telecom ventures will be a priority for foreign companies and capital infusion will not be a big issue for the HFCL group.

Domestic stock market analysts and investors may not be really bullish about HFCL, the only listed entity from the group, as the stock prices tell us. However, the recent acquisition of stake in HFCL by major global investors and also a recent acquisition of 5% stake in HFCL by Emerging Markets Management LLC, a US-based $18 bn fund, shows renewed confidence of international investors in HFCL. Thanks to the new thrust, HFCL is on track to meet its Q4 earning guidance (turnover of Rs 240-250 crore and profit before restructuring and non-recurring charges at Rs 11-14 crore) as well as FY07 revenue and earning guidance (sales turnover of Rs 1,500-1,600 crore and net profit at Rs 170-180 crore).

The journey of the HFCL group from being a regional player to a company with international presence is taking place amidst lots of hurdles, but the management is seriously looking into its businesses to speed up the growth.

Baburajan K
baburajank@cybermedia.co.in