HFCL’s AI, data centre exposure drives Nuvama’s Buy call; target implies 56% upside

ETMarkets.com

Nuvama has initiated coverage on HFCL with a ‘Buy’ rating. 

HFCL has been moving away from its earlier focus on turnkey contracts towards optical fibre, telecom products and data centre connectivity. Products accounted for 83% of revenue in Q1FY27, compared with 27% in FY21, according to Nuvama.

The brokerage expects HFCL’s revenue, EBITDA and adjusted profit to grow at CAGRs of 39%, 68% and 92%, respectively, between FY26 and FY29.

AI demand supports optical fibre outlook

Nuvama expects the global optical fibre market to benefit from the increase in AI and data centre spending. As AI infrastructure expands, data centres are using more fibre to connect GPUs and racks, while workloads are increasingly being connected across multiple facilities.

The brokerage said recent generations of GPU clusters require significantly higher fibre density, with recent clusters requiring up to 64 times more fibre per rack than older infrastructure.

At the same time, supply remains tight. Nuvama said optical fibre demand is increasingly outpacing supply, while capacity additions across preform, fibre and cable require significant investment and time. A new preform facility typically takes 24-36 months to become operational and reach optimal utilisation.

This has also led to a recovery in fibre prices. The global CRU optical fibre price index, which had declined for 32 consecutive months, rose from a record low of 79 in March 2025 to 263 in March 2026. Nuvama said higher demand and constrained supply have supported better realisations and margin recovery for optical connectivity companies.

Order book shifts towards products and exports

HFCL’s order book has also changed in terms of both size and composition. It stood at Rs 26,700 crore in Q1FY27, equivalent to around 5.4 times FY26 revenue. Product orders now account for around 65% of the order book, compared with 22% in FY25. More than half of the product orders come from exports, reflecting a shift away from the earlier domestic project led business.

The company also has a USD 1.1 billion long term OFC supply agreement. Export orders stood at Rs 12,250 crore at the end of FY26, when the total order book was Rs 21,200 crore. Nuvama expects the higher contribution from products, exports and optical connectivity to improve HFCL’s earnings profile. It forecasts EBITDA to rise from Rs 762 crore in FY26 to Rs 3,599 crore by FY29, while adjusted profit is expected to increase from Rs 312 crore to Rs 2,203 crore.

Defence adds to growth outlook

Nuvama also expects HFCL’s defence business to become a larger contributor. The company is expanding its defence portfolio and is also entering aerospace component manufacturing through a proposed acquisition. The brokerage expects defence revenue to increase from Rs 310 crore in FY26 to Rs 1,720 crore by FY29.

Nuvama expects HFCL’s shift towards a products led business, strong optical fibre demand and defence expansion to support its earnings growth. It has valued the company at 18x FY29E EV/EBITDA and initiated coverage with a target price of Rs 380. The key risks identified by the brokerage are a slowdown in global data centre capex and delays in HFCL’s preform capacity expansion.