HFCL Q2 FY27: Data-Center Demand Lifts Scale and Margins

HFCL Limited reported a sharp step-up in its Q2 FY27 performance as demand for optical connectivity products, especially for data centers, translated into higher revenue and profitability. Consolidated revenue rose 143.62% year on year to ₹2,541.79 crore. Earnings before interest, tax, depreciation and amortisation, or EBITDA, increased 223.55% to ₹658 crore. Profit after tax rose 448.14% to ₹394.22 crore.

The quarter also showed a major improvement in profitability. EBITDA margin reached 25.89%, up 640 basis points from a year earlier and 264 basis points from Q1 FY27. Profit after tax margin was 15.51%. Management attributed the improvement to higher volumes, improved pricing, a greater mix of advanced optical products and growing connectivity-solutions revenue.

The company has now raised its FY27 revenue-growth expectation to at least 80%. It had started the year with an aspiration of about 20% growth and raised that estimate to 40% after Q1. Management also said its earlier target of ₹10,000 crore of revenue by FY29 could be reached earlier.

A quarter of rapid financial expansion

HFCL’s first-half numbers underline the extent of the change in operating scale. H1 FY27 revenue was ₹4,457 crore, based on management commentary. Consolidated profit before tax increased from ₹61.64 crore in H1 FY26 to ₹870.12 crore in H1 FY27. Profit after tax increased from ₹42.62 crore to ₹639.86 crore.

The company’s Q2 performance was led by optical fiber, cable and data-center connectivity. Management said the telecom segment generated roughly ₹2,300 crore of revenue in the quarter. It also indicated that connectivity-solutions revenue was about ₹300 crore in Q2, compared with nil in Q1, and expects more than ₹800 crore of such revenue during FY27.

The important point is that HFCL is not describing the revenue increase as only a price-led event. Management said Q2 growth came from both higher production volumes and better prices. It expects further revenue growth in Q3, barring an external disruption, supported by existing orders and capacity additions.

Data centers change the mix

The central driver is the company’s exposure to hyperscale data centers. Management said roughly 70% of its export-order book is from hyperscalers, though it did not disclose customer names due to confidentiality agreements. It also said data centers represented around 65% to 75% of revenue, while telecom operators represented around 25% to 35%.

This matters because data-center products are more specialized than conventional telecom products. Management cited 180-micron A2 fiber used in data-center applications, versus more standard telecom fiber types. It said data-center fiber commands higher realizations because production requires lower drawing speeds, tighter geometry control and specialized cable configurations.

HFCL’s management believes demand remains intact despite concerns about higher interest rates and debt-funded data-center construction in the United States. Its argument is that artificial intelligence infrastructure has become a business necessity rather than a discretionary investment. It also expects demand to broaden beyond North America, with Europe, Asia and India becoming more meaningful markets over time. Telecom operators could add a further demand source as they expand fiber networks after a period of restrained purchases.

The current order book stands at ₹28,900 crore. Management said the contracts have different delivery schedules, ranging from four to six months to as long as four or five years. It stressed that the backlog is not evenly spread across the period and is being replenished: during the quarter, the order book increased from roughly ₹26,000 crore to ₹28,900 crore even as the company executed revenue.

Capacity and preforms are the next test

HFCL is investing about ₹1,800 crore across optical fiber, cable and preform manufacturing. Fiber capacity is planned to increase from 28 million to 38 million and then 43 million fiber kilometres. Cable capacity is planned to rise from 39 million to 56 million and then 63 million fiber kilometres.

The expansion is focused on products in demand, including data-center cables. Management said fiber capacity is fully utilized. Cable utilization is more complex because individual machines serve different cable types, such as armored, unarmored and tight-buffer cables. But it said utilization is effectively at the level envisaged in revenue terms.

Preforms are the key input issue. Management described current spot-market preform prices as unusually high, while noting that HFCL is protected for now by pre-arranged supply contracts. The company is building a 600-tonne preform facility, targeted for October 2028, and said it has an interim in-house solution expected from the first quarter of calendar 2027. The full 600-tonne capacity would meet about half of HFCL’s future preform requirement.

That leaves continuing reliance on external suppliers for the balance. Management has begun discussions with germanium suppliers, which will be required for future preform production. The company’s view is that germanium is available and that the present scarcity is more geopolitical than a physical resource shortage. Still, input contracts and selling-price reset clauses will remain important for protecting margins as the business scales.

Defence becomes a second growth pillar

HFCL is also attempting to build a meaningful defence and aerospace business. Management expects defence revenue of about ₹500 crore to ₹600 crore in FY27, at least ₹2,000 crore next year and has an aspiration of ₹5,000 crore within three years.

The immediate catalyst is an aerospace acquisition expected to close in the current quarter. The acquired business has an unexecuted order book of approximately ₹1,600 crore, which management said is export-oriented. HFCL also cited its thermal weapon sights, electronic fuzes, surveillance radars and multi-mode hand grenades as areas of focus.

The company delivered a second batch of thermal weapon sights for AK-203 rifles in September. It said its foliage-penetration radar had completed a successful first trial, with a second trial expected shortly in a different terrain. It has also participated in a tender for drone-detection radar and expects export potential for ground-surveillance radar.

In Andhra Pradesh, HFCL has received 1,000 acres from the state government for an ammunition manufacturing complex. Construction is expected to begin soon. Management said the facility could begin contributing revenue in about two years and could manufacture multi-mode hand grenades if the company wins the tender for 800,000 units.

There is a clear execution gap to monitor. Defence revenue was only about ₹80 crore in the first half of FY27. Reaching the full-year target will therefore depend on acquisition closing, order execution and approvals arriving on schedule.

EPC remains the weak link

The engineering, procurement and construction, or EPC, segment was the main negative in the quarter. Management said the segment recorded a loss of about ₹121 crore. The explanation was timing: costs were incurred for BharatNet work before billing milestones could be completed and verified, while an Army annual maintenance contract awaited final approval.

Management expects bills related to earlier BharatNet costs to be submitted in the current quarter. It guided that combined EPC losses over the next two quarters should not exceed ₹75 crore to ₹100 crore and said the segment should become profitable from Q1 of the next financial year. HFCL is also considering a restructuring of the EPC business, with a board committee and external adviser reviewing recommendations.

The Q2 FY27 story is therefore one of strong optical-connectivity demand, higher-value product mix and a potentially meaningful defence platform. The ₹28,900 crore order book gives the company a substantial base for execution. But the next phase depends on keeping preform costs controlled, converting connectivity revenue into a durable business, closing the aerospace acquisition and normalising EPC billing. HFCL has lifted its ambition sharply. The coming quarters will show how much of that growth can become repeatable.