HFCL Ltd., one of India’s leading telecom technology companies, has emerged as a multibagger stock, delivering an impressive 171% return over the past year. Despite the sharp rally, brokerage Deven Choksey Research believes the company is entering an even more significant phase of growth, initiating coverage with a ‘BUY’ rating and a target price of ₹362, implying nearly 75% upside from the current market price of around ₹207.
The bullish outlook is underpinned by HFCL’s transformation from a traditional telecom infrastructure company into a diversified technology platform spanning AI-powered optical connectivity, defence electronics, aerospace manufacturing and data centre infrastructure.
Strong Institutional Shareholding
HFCL enjoys strong backing from prominent institutional investors. Reliance Industries holds a 4.65% stake, while Quant Mutual Fund owns 7.7% of the company. Global investor Smallcap World Fund also has a 3.02% stake, reflecting continued institutional confidence in the company’s long-term growth story.
Robust Q1FY27 Performance and Record Order Book
The company’s strong investment case has been reinforced by its robust Q1FY27 financial performance and a record order pipeline.
HFCL’s order book has climbed to an all-time high of approximately ₹26,665 crore, equivalent to nearly five times its FY26 revenue, providing exceptional revenue visibility over the coming years.
The company has also announced a ₹215 crore investment in an AI Data Centre, strengthening its presence in one of the fastest-growing segments of digital infrastructure.
According to Deven Choksey Research, these developments mark a clear inflection point in HFCL’s evolution.
AI Optical Connectivity Becoming the New Growth Engine
The biggest structural change, according to the brokerage, is HFCL’s emergence as a provider of high-value AI optical networking solutions rather than merely an optical fibre cable (OFC) manufacturer.
Earlier this month, the company launched its OptiQ AI platform, targeting the rapidly expanding market for AI data centre connectivity.
A major catalyst has been HFCL securing a USD 1.1 billion hyperscaler optical fibre supply contract, the largest such order ever won by an Indian telecom company.
The contract has significantly strengthened the company’s export business, with exports rising from 12% of revenue in FY25 to 41% in FY26.
Through its subsidiary HTL Limited, HFCL expects its Data Centre Interconnect (DCI) business to generate around ₹400 crore in FY27 and ₹800 crore in FY28, while earning margins higher than the company’s existing business.
With global spending on AI optical interconnects expected to reach USD 73 billion by 2030, the brokerage believes HFCL is well-positioned to capture a meaningful share of this rapidly expanding opportunity.
Defence Business Could Become the Biggest Surprise
While the market largely views HFCL as a telecom equipment company, Deven Choksey Research believes the defence segment has the potential to fundamentally alter the company’s earnings profile.
HFCL has consolidated its defence operations under HFCL Advance Systems Pvt. Ltd. (HASPL), bringing together aerostructure manufacturing, radar and surveillance systems, thermal weapon sights and other defence technologies.
The company is also setting up an ammunition manufacturing facility in Andhra Pradesh to produce electronic fuzes, multi-mode hand grenades and 155 mm artillery shells, further expanding its defence manufacturing capabilities.
The brokerage projects defence revenues to increase sharply:
- FY26: ₹77 crore
- FY27E: ₹400 crore
- FY28E: ₹1,200 crore
- FY29E: ₹5,000 crore
Besides higher growth, defence projects typically enjoy EBITDA margins exceeding 25% and involve advance customer payments, resulting in significantly better working capital compared with traditional EPC contracts.
Backward Integration to Boost Margins
HFCL is also investing ₹580 crore to establish a preform manufacturing facility.
Preforms account for nearly 60% of optical fibre manufacturing costs, and domestic production is expected to reduce import dependence substantially.
Once operational in FY28, the facility is expected to meet 30-50% of the company’s internal preform requirements, potentially expanding margins in the OFC business by 300-500 basis points, according to the brokerage.
Transformation Into a Technology Platform
The research report argues that HFCL is no longer just a telecom infrastructure contractor.
Instead, the company is steadily transforming into a technology-led enterprise driven by:
- AI optical connectivity solutions
- Data Centre Interconnect products
- Defence electronics
- Aerospace manufacturing
- High-value telecom products
- Export-led growth
Over the next three years, Deven Choksey expects product revenues to exceed 80% of total revenue, compared with around 62% currently, while exports could contribute more than 50% of sales.
Such a shift would significantly improve the quality of earnings, margins and cash flows.
Aggressive Growth Forecasts
The brokerage projects a strong financial trajectory between FY26 and FY28, estimating:
- Revenue CAGR: 35%
- EBITDA CAGR: 70%
- PAT CAGR: 108%
To capture the varying growth profiles across businesses, the brokerage has adopted a Sum-of-the-Parts (SOTP) valuation methodology, assigning premium multiples to AI optical networking and defence businesses while valuing telecom products and EPC separately.
After incorporating a modest conglomerate discount and adjusting for the company’s net cash position, the brokerage arrives at a fair value of ₹362 per share.
Key Risks
The report also highlights several risks that investors should monitor:
- Any sharp correction in global optical fibre cable pricing could pressure margins.
- Dependence on a large hyperscaler customer creates concentration and execution risk.
- Rapid scaling of the defence business will require timely execution of acquisitions, manufacturing expansion and order conversion.
The Bottom Line
HFCL appears to be entering a new phase of growth driven by three structural themes—AI infrastructure, defence manufacturing and export-led technology products. A record order book, strong institutional ownership, robust quarterly performance and strategic investments in AI data centres provide a solid foundation for future growth.
If management successfully executes its ambitious expansion plans, HFCL could evolve from a telecom equipment manufacturer into a diversified technology and defence company with significantly higher earnings quality. While execution risks remain, Deven Choksey Research believes the ongoing transformation justifies a substantially higher valuation, making HFCL a company that investors may want to watch closely.
