Congrats on a good quarter. My first question is for Sumit sir. Sumit sir, if you can just hel p me understand on the gross margin front, while you've highlighted what are the levers that have impacted the margin this quarter. But if you can just help me understand what was the change in mix like in the wireless piece? My assumption is that when you say mix change, it would be the increase in the wireless equipment sale that would have happened this quarter. So if -- and most of it would be coming from BSNL. And given the fact that BSNL would be at the fag end of execution, should our gross margins be much better going forward? That's question number one. The second question is on -- if you could help us with an update on how is the overall business piece or the pipeline looking like excluding of the BSNL deal, both in India and abroad. I do understand we have won some deals, but if you can just help us with some timelines, etc., that will give us better clarity. And lastly, just one data point. If you can help me what is our headcount like at the end of the December quarter?
Tejas Networks Limited analyst Q&A
So I'll take the first question on gross margin. And so basically, like I think we've mentioned also in our earlier conference calls, while it’s difficult to comment specifically on project -by-project, but what it means by changing product mix is that even as part of one project, there could be various types of products, different configurations that we ship. And depending on the product -- depending on the margins of the products that get shipped within a particular quarter, whether it be one project or across multiple projects, that would drive the margin movements up or down. And the other point related to your BSNL project as again, mentioned this in the past, given that this is a first wireless project, margins were slightly lower than what you would see, let's say, in typical wireline business. As we go along, as our international business picks up, as we're able to widen our order book, we expect margins to improve over the next few quarters. On your second question about the business pipeline, I think I'll request Arnob to comment
Yes, yes. So -- our business pipeline has 2 portions. One is, of course, the run rate business from existing customers, which have long- term contracts. The Vodafone-Idea deal is an example, where it's a 3-year contract for supply. So with most of the private operators, I mean that's what we have, and that's not there in our order book, right? We don't show that in our backlog order book. But the major components that we are banking on in our order book are the projects tha t we talked about for the expansion of BSNL's 4G network and 5G upgrade. And as we speak, there is a lot of movement and progress happening over there. This is also something that is going to be one of the significant opportunities that we are planning to close in this quarter and next. The other one is, if you are aware, BSNL is also planning on building their stand-alone 5G network in 3.5 gigahertz band. So that's another area where we have a very strong opportunity. And the third one was the Railway's Kavach, the collision avoidance system. We did a successful POC over there for our 4G products, and we also wanted to try out 5G. And that testing has also been done successfully. We are waiting for the tender to come out and bid over there. Then I talked about private 5G application. This is also a deal where we have completed the POC and we are in commercial discussions. The other one, we're talking about is the engagement with a few tier 1 international operators. That's a little longer sales cycle because we are currently in advanced technical discussions and there will be some amount of R&D work required for the customization of these products. And for the wireline, the BharatNet Phase 3, I think that's been in the news and you're aware of it, and we have an opportunity for these projects. We're also expecting very large deals for the utility segment for the power and rail segment where they are significantly investing in growing their nationwide WDM backbones to address their telco business. And a lot of that has been built using our equipment. So as they upgrade it from 100 gig to 400 gig and above, this is another major opportunity that we are lining up for. And the others, of course, the run rate, the Metro network expansion and similar opportunities. So that will happen consistently quarter- over-quarter over the year. So these are some of the key deals in the pipeline that will go into adding to our backlog that we have and we expect to contribute significantly to our FY '26 business. The first question was about headcount. So as of today, we are upwards of 23 50 people, and more than 60% of them are in R&D, that is part of our engineering team.
And sir, one last question. On the BSNL deal, given the fact that our initial dea l that we had with BSNL was for 1 lakh towers for their 4G equipment. We have already completed 86,000. Would it be fair to assume that next quarter, we'll see this execution being complete for the 4G part and post which in FY '26, we should see the 5G part ramping up. Is my understanding correct?
That's correct. I think this initial 1 lakh site order should get executed in this financial year. So what we expect to see is, again, an expansion of this 4G network because I think there is still some way to go for them to get coverage across the country wherever their plans are. So there will be expansion of this 4G network and upgrade of this network to 5G as well. And there are separate opportunities for 5G in the n78, 3.5 gigahertz bands. So there are multiple opportunities. One is the 4G expansion itself. There's a 5G upgrade of the existing network and then the 5G build-out in the n78 band.
The next question is from the line of Ritesh Poladia from Girik Capital.
Sir, on BSNL, can you comment how is the working of this 86,000 sites? I assume substantial would be already operational. So are they working as per your expected parameters and managing peak process?
Yes. As you can see, we only report what we supply, which is more than 86,000 sites. But BSNL themselves have reported, if you see yesterday or day before that 65,000 of these sites are operational and live. Field installation is a little more than 65,000 but 65,000 are actually live and radiating and actually serving customers. So as far as we are concerned, I think BSNL is quite happy with the performance and quite happy with the customer acquisitions that they are doing. So yes, I would say it has been quite successful as far as we are concerned, both in terms of the equipment supplies as well as their performance in the network.
So the product doesn't need much of tweaking. In terms of also feet traffic, it's working as per the parameter...
Yes, yes, yes absolutely. I t hink performance has been tested extensively during the POC that happened before we got awarded the contract. There was almost a year -long POC that happened where every aspect of our equipment's performance got compared with the state-of-the-art that has been deployed in the country. So only after that, we got awarded the contract. So I think there is no concern on that front at all.
So POC and reality is same?
Sorry, what and reality?
POC performance and real performance is same.
Absolutely. And by the way, I mean, just to let you know, POC was not just a small-scale lab test. POC was done across many sites in Chandigarh for more than a year . It was built across the Chandigarh City, across many sites and testing has happened extensively over these sites. So with that kind of rigorous field testing, it’s not surprising that the real-world performance and POC performance are at par.
Second question on R&D spend. I think roughly company is spending about INR600-odd crores on R&D. Now if the company doesn't win substantial contract in next few months, so there is a possibility of revenue decline. So in that scenario, do you think in FY '26, the R&D spend can be curtailed? Or will you still maintain your R&D as whatever are your plans?
So I think without commenting on the revenue visibility and outlook, from an overall long -term investment perspective, I think we'll continue to build our products, continue to invest in R&D. As I mentioned in earlier conversations as well, it's an important part of what we do in terms of the industry that we operate in and our overall plans that we continue to build on the products . While we would always look at optimizing and controlling the overall spend in general, but at an absolute level the investments in R&D will continue.
Then lastly, sir, what would be your import content in the materials? Or now is the domestic sourcing is higher?
Yes. So we have localized a lot of the components that go into our products, especially in our 4G, 5G radio. But having said that, I think most of the electronics -- active electronic components are imported and it varies from product to product. The amount of it can vary between 40% to 65%, in terms of the active electronics that gets imported especially for the semiconductor chips. But a lot of the key ingredients in terms of enclosures, accessories, cables, connectors, mechanical items, Passive components, a lot of that has been localized in India. In addition the entire manufacturing and assembly process including the PCB assembly as well as system assembly and testing are localized. So a significant part of the entire manufacturing operations are actually done in India.
I want to understand on the international order front, I think we target tier 2 and tier 3 vendors. So how do we ensure that we win the orders from these kind of customers and the order does not go to the foreign players like Cisco, Ericsson and Nokia. Also, what kind of cost advantage do we really have? Because these players also have Indian R&D and manufacturing setup, right? So what is the cost advantage we have? And what can be the reason for maybe not winning an order and maybe Nokia, Cisco, Ericsson winning it? Like I want to have some granular insights on it, sir.
Yes. So the same equipment fr om different vendors are not identical. Each vendor builds their product with their unique thinking in terms of the network applications they want to optimize it for and want to serve well. So what usually happens is that based on the application s a particular architecture wins. For example, as we've spoken before, if you compare our equipment with other wireless equipment, it is differentiated by the kind of technology integration that we have done in terms of combining the baseband unit with the transport or backhaul functionality. So in a typical RAN equipment, an operator would need to have the radio, the baseband unit and a separate backhaul unit in terms of a router or some other transport equipment at the tower to really backhaul the mobile traffic. And we have implemented a very unique architecture where we integrated the entire backhaul functionality in our RAN equipment thereby giving the operator significant savings in terms of his network deployment cost. Similarly, our baseband unit is also a converged network product where you can also plug in additional modules, which can do broadband services for enterprises and homes . So given a footprint in a particular area, say under a tower, by adding these modules, the operator with a very incremental cost can actually reach out to many more customers in that area by deliv ering broadband services. So while the technology still remains 4G or 5G from a radio perspective, but the total cost of ownership, the total cost of the solution for building the network and the other applications that come along with it gives our implementation and architecture, a unique cost advantage for the operator. So the cost advantage is not in terms of using a cheaper component than my competitor for a specific functionality. It is in the novel architecture of the product, how we have designed it and what kinds of applications it serves more cost-effectively. So I just gave an example of that. And so similarly, we have many other such examples even for our wireline products . So I hope I've been able to answer this question. And that when actually operators value that kind of cost optimization that we get in the network, that's the key reason that we win.
So what kind of lifetime value, right, maybe a customer saves, right, because of all this integration and all? Like can you give some more granular insights on that, like some numbers or some percentage?
Well, it depends on the application . The integration of radio with transport is one kind of optimization, the access to transport, that's another kind of optimization. And so the cost savings are not only in terms of the cost of the equipment, but also in terms of the operational expenses. Being able to deliver multiple services from a single equipment with a single management software gives them a lot of operational savings in terms of their own training costs, power etc. So you may get a cost of goods advantage of maybe 20% -25% to that extent, but you get a larger benefit in terms of the opex also in terms of running a converged or integrated equipment. So it's like it really varies, and these are just kind of indicative of where the benefit really comes from.
Very helpful. what would need to happen, right, for us to win India wireless orders, right? So I wanted to understand what is the status of ongoing POCs, right? When do you think the outcome of these POCs will come through? Also, if such POCs are happening for international orders, what do you think about that?
Yes. So as I mentioned that live POCs are going on for operators in India, and we think probably in this quarter or in Q1FY’26, we should be able to see some success in that in terms of additional orders and additional deployment. For international customers, we have a lot of ongoing engagement. Obviously, our success in BSNL has given us a lot of visibility globally. And people see our equipment and see our architecture and the efficiency of our product, and they are very interested. And there's a lot of discussions which are going on in terms of how do we customize it for their specific bands, which are there in th eir countries, right? So that's what is going on. So those will take a little longer to really convert because that will require some amount of customization as well. But that's the kind of engagement that is happening in the international market for our wireless equipment.
Just one last question from my side. On the international front, right, we have said that we are expanding teams in North America and LatAm region and partner networks in Europe, Asia, ANZ. Can you give some numbers, right, or some insights on how we have performed -- how we have expanded versus last year, right, or maybe 2 quarters before. Some numbers on headcount in the sales team outside India or partner networks outside India like that?
Well, with respect to l ast financial year, we have grown our teams by more than 50% in those regions. In the US and LatAm, we've added at least 6-7 people, both in terms of system architects, senior sales, marketing people as well as account executives. That's a significant incr ease in headcount. In every region, we've added 1 or 2 partners based on their geographical territories. So that's roughly an example or quantification of how we have invested in terms of sales.
And how does this partnership work? Like do they -- how do they help you in getting the orders? Just if you can give some insight on that?
So the sales partners, basically, they are people who have operations local to the region. And there are many countries where the business is done in the local language, right? So they are people who are set up over there who have the expertise of building telecom networks, who have the expertise of supplying in that region . They understand the technology well. They have the customer relationships. They have the experience of building networks using these technologies. We have countrywide presence in those countries, whether Indonesia, Malaysia, maybe in the Middle East and all, where we need on the ground presence and country presence for building networks because that's how our equipment is deployed. So we need that we need local language support for dealing with the customers as well as for handling business at remote locations within the country. So those are the nature of the partners who are there, people with significant in-country presence, significant local language support and significant customer relationships in those regions. So those are the people we work with in terms of partnering, in terms of sales and supplies and deployment and support.
The next question is from the line of Advait Lath from Nippon India Mutual Fund.
So just congrats on a solid set of numbers. Just picking up from the previous question. I just wanted to know what is the environment we are dealing with in the North American continent and LatAm in terms of the regulatory environment, especially because of regime changes, etcetera, and also the tariffs that we might be getting incurred upon us because of this and how we are going to deal with it and also the lead times within these continents?
Yes. So in terms of regulatory environment, there are really no issues. I think the only regulatory thing we need to meet is the performance of the equipment because these are advanced equipment, and they have to meet the global or country-specific standards in terms of their performance, safety, radiation etc., certified by agencies such as TUV and UL. And we have to have our equipment certified against those standards before we ship to those markets. And when we design our equipment, before we take it to production, we make sure that we have tested for those standards in various markets. Many of them are very, very similar. A few of them may have one-off extra features but we make sure that the equipment are upfront designed to meet those regulatory requirements and we get the necessary certifications before we ship the equipment to these countries . And that testing happens actually in India because all those global certification labs like TUV, UL actually exist in India. So that's as far as regulatory compliance is concerned for global standards. Now as far as tariffs and all are concerned, it's still an open question. We really do not know. I mean nothing has been announced, so nothing has come up. So until that time it comes up, it's all pure speculation on this front. In terms of lead time it's very similar for customers everywhere. There is a process of lab testing, there is an initial technical engagement, we make presentations, go through extensive technical discussions on what is the value that we're providing to the customers. We then enter into a cycle of product testing. Sometimes they do remote demo followed by testing in their labs. The customer actually deploys our equipment in their network in the field to see its performance, so this stage often takes some time. And after that we engage in commercial discussions and get into an agreement. So that's how a deal progress. That's the reason why from the start of investment of a particular opportunity cycle to closure , it usually takes a long time. But when you are selected, and if your performance is okay, the supply cycle is also a long one. It's at least a year, if not a multiyear cycle or it's a major project deployment that happens because the operators also invest a lot in going through the testing process in selecting a particular vendor.
Got it, sir. And just a follow-on question. This has to do with our Vodafone and Idea -- Vodafone Idea deal. So just wanted to ask what are the terms of the agreement, if you can share some detail on that?
Yes, yes. It's a very standard agreement like we have with any other private operator, which is to do with supplies of our equipment in a few set of states for a set of circles. So we are building the entire network for the state across multiple states. And the contract includes supply and deployment and commissioning of the equipment, including supply of networ k management software and making the equipment live and connecting it to their mobile 4G, 5G networks and getting the traffic running. So there's the entire scope of the equipment and we are getting paid as we do the supplies.
Got it. And this will be in tandem with TCS or this would be an independent contract?
No, this is an independent contract with us directly.
The next question is from the line of Sunny Gosar from MK Ventures.
Congratulations on the very quick execution for the BSNL project over the last 3 or 4 quarters. My first question is related to the PLI incentive. So we have booked about INR500 crores plus of PLI incentive in the last 4 quarters. Have we been receiving the money on a regular basis? O r is this still completely outstanding as on December?
We received the PLI incentives for FY '23 in FY '24. And typically, the payment happens in the subsequent year. So what you would see in recognized as revenue in FY '24 is what we would expect to receive this year. The process for that is on. We've submitted documentation. There is back and forth with the nodal agency and thereafter with the ministry. So we are hopeful of getting the incentive for FY '24 soon. And then for FY '25, the cor responding incentives are something that we would expect to get in the next fiscal.
Got it. That's quite helpful. In the earlier part of the call, you alluded to a few opportunities like the Kavach program, the 5G -- private 5G application, the BharatNet Phase 3 project. Will you -- like if you could give some color on the quantum of some of these opportunities, some ballpark numbers or some indicative color on how large some of these opportunities could be? And like on an annual basis, how much revenue opportunity that could lead to over the next few years?
These are very significant 5 projects. For the BharatNet Phase 3 project the overall budget has been public information for some time. And I think in all of them, t he equipment opportunities for us ranges from a few hundred crores to several thousand crores as well. There's a wide range and a lot of it, but each of them is a fairly significant sized opportunity. And what it will turn out to be for us depends on how much of each of those opportunities we win. But each of them is of a very significant size.
Got it. And in terms of the conversion of these opportunities or proof of concepts into actual orders and then eventually into revenue, can you like give some kind of indicative time lines or which of the projects are more closer to conversion as compared to some of the others? So some indicative color because the order backlog now is about INR2,600 crores and most of it is related to BSNL, which would mean that post Q4, assuming that no new orders come in, there could be a temporary dive in terms of the revenue. So how should we look at this in terms of continuity of revenue and the future outlook in that sense?
Yes, yes. So first of all, back log right now, a lot of the BSNL backlog rundown -- order book rundown has happened. And a good part of the backlog is also the non-BSNL business. But having said that, you're correct in the sense that it is still significantly small compared to what we ha d at the beginning of the year. So yes, most of these opportunities that we're talking about -- whether it's BSNL 4G network expansion, 5G or the Kavach or BharatNet, we expect to see conversion in these in Q4 and Q1FY’26 and a significant part of that should be executed in FY '26. So if we are successful in most of the se opportunities, it could lead to a significant bump or refilling of our order book.
Got it. And one last question.
I would also like to make it the last question of this session, if you don't mind. I think we're running out of time. So please let's take this last question.
So one last question from my side. Basically, the BEAD program in US, which is like a multibillion-dollar government program and also the Rip and Replace initiative that the US government has announced. So are we likely to be beneficiaries of those programs? And what kind of opportunity do we see in the North American market?
Yes, both of those programs we are trying to addres s with our local partners . BEAD is about the expansion of broadband rollout in the rural areas of US where there is a significant amount of investment. And a lot of the investment is happening in phases, and we are working actively with our sales team as well as partners over there to win a part of this business. The same holds for Rip and Replace. Rip and Replace, doesn't really imply that there is some equipment to be replaced. It typically happens when customers and operators expand their network in those regions. And along with that, the replacement of equipment and expansion of the network also happens. Besides BEAD and Rip and Replace, another significant opportunity that we are targeting in North America is network modernization. Most telecom networks in North America have been built over many, many years using old T DM technology which were optimized for voice. And as they modernize the network to a more modern packet -based infrastructure, they cannot really replace all of their endpoint connectivity so easily. So they require a special technology called circuit emulation over packet networks for being able to modernize the heart of the network and slowly transition their older networks to more modern interfaces. And that is something that we are able to address with our products, along with BEAD and other optical transport opportunities. Our dense circuit emulation solution is seeing a lot of traction in these markets.
Got it. That's quite helpful. And thanks for the detailed answers on all my questions.
So with that, I would like to thank everyone for joining the call. Thank you for your questions and hope we've been able to provide a good insight on our business and look forward to talking to you all again the next quarter. Thank you very much.
On behalf of ICICI Securities, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.
This transcript has been edited for readability and does not purport to be a verbatim record of the proceedings