HFCL's X-factor is defence & aerospace? Deven Choksey sees another 66% upside potential, here's why

Telecom equipment and optical fibre cable maker HFCL has surged 250% in just six months, but Deven Choksey Research sees another 66% upside, saying the company's defence and aerospace business is the "X-factor" that could transform its investment thesis.

The brokerage initiated coverage on HFCL with a 'Buy' rating and a target price of Rs 362 apiece, implying 66% upside potential from the stock’s previous closing price of Rs 218 apiece on NSE.

While the sharp surge in HFCL's share price has delivered strong returns for its investors, Deven Choksey feels defence and aerospace is where the market is most wrong on the counter. Defence is not optionality, it is a confirmed, order-book-backed, export-oriented growth engine that will contribute a major chunk of the company’s revenue by FY29, it said.


HFCL has consolidated its defence assets under HFCL Advance Systems (HASPL), integrating aerostructure manufacturing (acquired business with more than Rs 2,000 crore export orders), radar or surveillance systems (Raddef), and thermal weapon sights into a single scalable entity. An ammunition manufacturing facility is being established in Andhra Pradesh for electronic fuzes, multi-mode hand grenades (only 3 licensees in India), and 155 mm artillery shells.

“We believe defence revenue trajectory to be Rs 77 crore (FY26) to Rs 400 crore (FY27) to Rs 1,200 crore (FY28) to Rs 5,000 crore (FY29), at 25%+ EBITDA margins. Critically, defence customers provide advance payments, dramatically improving working capital dynamics compared to the legacy EPC business,” Deven Choksey said.

AI-data centre interconnect

HFCL is gradually transitioning from a commodity OFC supplier to a high-value Al optical connectivity platform through its OptiQ Al brand, which was launched earlier this month, Deven Choksey noted.

"Through subsidiary HTL Limited, data centre interconnect (DCI) solutions are expected to contribute Rs 400 crore in FY27 and Rs 800 crore in FY28, at margins above the blended corporate average. The global Al optical interconnect TAM is projected at $73 billion by CY30," the brokerage further said in its report.

Meanwhile, HFCL is investing Rs 580 crore in a preform manufacturing facility, reducing its imports dependence on the single highest- cost raw material (preform accounts for ~60% of OFC cost), Deven Choksey said.

Also read | HFCL bags Rs 495 crore optical fibre cable export order from international data centre company

HFCL is at an inflection point

HFCL is at an inflection point where three structural shifts converge simultaneously, according to the brokerage. The company is transitioning from a domestic EPC-dependent telecom contractor into an export-led, product-driven technology platform spanning Al optical connectivity, defence electronics, and aerospace manufacturing, it said, adding that it expects revenue to exceed 80% of the mix (from 62% today), exports to surpass 50% (from 41%), and defence to scale into a meaningful second engine alongside the core OFC/DCI business fundamentally altering the earnings quality, working capital profile, and investor perception of this company over the next three years.

“The preform backward integration and OptiQ Al brand create structural competitive moats that did not exist 18 months ago. HFCL is evolving from a single-segment OFC manufacturer into a diversified, multi-vertical technology platform and the building blocks for that transformation are already in place,” it added.

HFCL share price

HFCL shares gained around 2% to trade at Rs 222 apiece on NSE on Wednesday. The stock has gained nearly 6% in one month, but skyrocketed more than 255% in six months. It is up over 220% in 2026 so far.

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In the longer term, HFCL shares have delivered 175% returns over one year, 242% over three years and 188% over five years. The company currently has a market capitalisation of Rs 33,988 crore. The stock’s P/E ratio stands at nearly 102x.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)