Tejas Networks Limited analyst Q&A

Yeah, set of numbers. Wanted to understand what is the total universe of sites which are eligible for 4G, 5G RAN? I understand for BSNL, we have done 100,000 sites as of now. So what is the universe for BSNL? Above that, how much percentage is eligible for a 5G RAN? Like, what is your best estimate? How much sites will go to 5G upgrade? And what is the kind of cost which will be incurred? Let's say 100 rupees, it costed for 4G RAN equipment. So how much would it cost for the 5G upgrade? And regarding the 4G, 5G RAN, for the private telcos, like Jio and Airtel have done a good amount of capex some years ago. So when do you think the replacement cycle will come from the private telco site? Yes, sir.

Yeah, so as far as BSNL is concerned, we are seeing that a lot more investment needs to be done in 4G. And I talked about a good network expansion in terms of the saturation sites that are going to come up in BSNL. There's all the remote sites across the country. So the 4G expansion is a key part of our upcoming wireless business. As far as 5G is concerned, there are two parts to it. One part is the 5G upgrade in the existing 4G bands which is part of the existing tender that we are executing right now. So that's going to happen. And that's the business that is part of the tender but is going to be executed later on. Apart from that, BSNL is also going to come up with a nationwide tender for 5G in the performance back in the high speed 3.5 GHz bands. So that is still in the works. There will be a process of POC of equipment and it will likely be a nationwide build out, depending on the scale at which they deploy 5G. And it is certainly going to be on the scale of what the private operators have done.

Can you draw some comparison between the 4G spends per site and 5G spends per site? Like I want to have some numbers or some percentage?

Yeah, so absolute numbers are difficult to give. But if you see the kind of spend that has happened in 4G, and if you take another 20-30% more spend that's going to happen in 4G, then 5G is going to be not of that scale. It is going to be smaller because a lot of the initial 5G deployment happens in urban areas. So it's going to be in a smaller percentage of that. And then when 5G adoption happens, and 5G monetization happens, then like the rest of the operators, I think a lot of increase in 5G deployment will also happen across the length and breadth of the country. It's going to happen in phases.

So how much does an upgrade cost? Let's say 100 rupees is the 4G cost. So how much is an upgrade for 4G to 5G?

So as I said, there are two parts. Upgrades of 4G to 5G in the existing 4G bands, that's a fraction. I mean, that's a smaller fraction because it comes with a small amount of hardware and so ftware upgrades. But 5G deployment in the newer bands, in the performance bands, that spend is as much as that and if not more than that of 4G bands. Because especially if it's deploying elements like massive MIMO with 8 T8R, 32T32R and advanced technology which is very high performance radio capabilities, those costs are obviously higher. But on the average, you can look at -- so the 4G site plus kind of thing as a per unit site cost.

Got it. On t o private telco site, can you give some idea on when did the 4G, 5G capex actually started for players like Jio and Airtel? And when do you think the replacement cycle will come? And some idea on how much sites can come? Yes.

I mean, so 4G, we already know the 5G deployment that these operators have done. And you know, and right now, we see the first phase of deployment that has happened. And going forward as 5G usage goes up and 5G monetization goes up, I mean, we expect to see a lot more deploy ment to happen because this network is still small compared to the overall 4G network. And 4G is still the backbone of the mobile data network of the operators. But as 5G becomes more and more popular, more cost effective and more newer applications come in, I think 5G network will go up as well and kind of cover the entire country and maybe over time replace the 4G network.

What is the useful life of such equipment?

Well, useful, I think you can look at how, you know, the 2G network has been deployed and living and then how 3G got deployed. So it depends on the success of a particular technology. A particular technology can keep it alive for seven, eight, nine years, you know, if the technology is successful. If the transition happens sooner, then it can happen in five years, I mean, you have to just look at how things evolved in India to get an idea of that.

Got it. Very interesting. Sir we compete with players like Nokia, Cisco and Ericsson, right? So I wanted to ask, how much cost advantage do we actually have against these players? And how much of the cost advantage is taken away when these players have an Indian R&D and manufacturing setup? Because I believe all of these three players have R&D and manufacturing setup in India. So do we really have a cost advantage there?

Rishabh, I really suggest in the interest of time, we should give an opportunity to other people for asking their questions. I'm sure your questions will be covered during the call. I'm sure people will have similar questions. And if not, I'll come back and answer at the end of conference.

Okay. Thank you so much, sir.

Thanks, Rishabh.

Thank you. Next question is from the line of Ashish Shriram Thavkar from JM Mutual Fund. Please go ahead.

Yeah, thanks for the opportunity. Sir if you can elaborate on the data center side, do we have a role? Obviously, you in your opening commentary did mention the play. But are these L1 and L2 switches ar e probably going to be some differentiation on our part? And also, potentially, by what timelines are you targeting some of these plays?

Yeah, so I think there are two parts to the question. What is our role in data centers? So our communication equipment is applicable for the data center connectivity. We don't sell equipment inside the data center. It is mainly for the high bandwidth connectivity that is required between data centers as they exchange traffic, sometimes to build backups and those kinds of applications. So the data center interconnects is the market that we play in. I also talked about, you also raised a question about our switches, the L2/L3 switches. So the switches that we have is mainly for building campus networks and enterprise networks. And the ir application is not inside data centers such as the top of rack switches . That's not where we play. Our switches are used mainly for building campus networks.

Okay, excellent. And Ericsson, they recently said that the telcos in the North American region have depleted all their excess inventory. And since we are now also deploying our investments to tap those markets, and obviously, we have won one of those deals. How do you see the landscape evolving, especially in the U.S. now?

No, I didn't get the point on excess inventory in the U.S. I didn't quite understand that. But in general, I think there's a lot of investment that is happening in the U.S., again, driven by the cloud, driven by AI, AI data centers and so on. I think it is for everyone to see, right, how the AI component suppliers, how that is going. All of that is going into building AI cloud centers and more and more applications running over there. So the phenomenon that I talked about of interconnectivity, that is also there, very strong in the U.S., right? Apart from that, we're also seeing a huge investment happening in the government, what they call as the BEAD program, for rural connectivity across all of the U.S., because the U.S. is a very large country and population is well spread out. So there's a lot of investment going on in those markets for providing broadband connectivity. So all of these provide us opportunities. The initial opportunities that we have, apart from these things, some of the interesting opportunities that we are targeting is modernizing of very old networks in the U.S. As you know, U.S. has a very advanced economy with telecom networks that have been built over a long period of time. So a lot of it is legacy networks which are getting transformed as we speak, and so we have very interesting technologies in the area which we are engaging with several customers there.

Yeah, fair enough. Also, lastly, the entire BSNL execution that will happen in FY '25, that's first, and second, the EBITDA margins that we reported this quarter are around 15%. Is this a sustainable number for the entire year?

I didn't get your question fully, but the first part I got, which is that, yeah, the current P.O. that we have, the current opportunity that we expect to complete in FY '25. Yeah.

And the EBITDA margins of 15% this quarter that we did, t hat's a sustainable number to assume going forward?

So we don't give any guidance on our margins and financials, but I think you can look at the trend and make your assumptions about that, but that's as such we don't give guidance on these operations.

Yeah. Thank you. Thanks a lot. All the best.

Thank you. Next question is from the line of Vimal Jamnadas Gohil from Alchemy Capital Management Pvt. Ltd. Please go ahead.

Yes, sir. Thank you for the opportunity. I have two questions. One is on our visibility post FY '25 in terms of our GPON and DWDM, which is our cash cow, so to say, for our customers, ex of BSNL, which is India private and international customers. So what's the visibility looking like? Since we have sort of increased our manufacturing capacity, how do we sort of make sure that as and when the BSNL contract ramps down, we utilize our manufacturing capability to the most efficient possible extent? So that's question number one. The second questi on is for Mr. Dhingra. Sir, on the wireless margins, how do you see the wireless margins panning out over a period of time? I do understand that you don't give out forward guidance, but as and when the BSNL contract comes into our numbers, do you expect the wireless piece to sort of come in line with company average post FY '25? Thank you so much.

Yeah, so I'll address the first two questions about GPON and DWDM outside of BSNL. Yes, I mean, most of our GPON and WDM business right now is outside of BSNL, such as the private operators, from the utilities and from our international customers. And as I mentioned, there is a huge demand for broadband connectivity and for upgrading of backbone networks. And these are the places where our equi pment is very applicable and very relevant. So as and when we win additional deals based on the increasing demand, I mean, that business looks healthy and will continue to grow. I mean, that's what our expectation is. As far as manufacturing capacity is c oncerned, as we have mentioned earlier, we have an asset-like manufacturing model, right? Where in the back end, we work with large EMS vendors of scale for building our PCB assemblies. You know, there's a hardware block that go into and get assembled into our systems. So as we scale up our manufacturing capacity, in the back end, we just sign up with multiple EMS partners and they have a lot of capacity. For us, all we have to scale up is our system assembly and test capacity in our factory in Bangalore. So as we scale up our manufacturing capacity, the largest scale up happens in the back end, which is EMS. So, you know, it's a low effort or, you know, low intensity investment for us to really scale up and scale down our manufacturing because of the model that we follow. But, you know, the reason we have also scaled it up is not only for the BSNL business, but over time, over a long term, we are bullish about how our business is going to grow both in wireless and wireline. So a lot of the preparation and the investment that will happen is to address opportunities in the future as well. Thank you. So, wireless margin?

Yeah. See, as I mentioned earlier as well, this is the first wireless project that we're executing. And as we go along, as we add more wireless orders going forward, we would expect the margins to improve. Now, there is no particular reason to suggest that the wireless margins wou ld be very different from wireline margins in general. And as we ramp up our businesses and as we ramp up our international orders, you'll see the margins improve and potentially be at the same level for both wireless and wireline products.

Sir how does the visibility look for international orders for our wireless products post FY '25?

Yeah. So, as I said, we are engaged deeply with many opportunities in the international market. And these take some time to convert because they go through extensive trials and commercial cycles. So we are at the initial phase of international engagement with our wireless products. And they will close over a period of time. But we do see a lot of opportunities given the huge amount of 4G build-out that is happening in a lot of the emerging markets. And also the 4G replacement that will happen, of very old 4G gear that’s going to happen in those market as well, as well as the 5G expansion in the developed market s. So, all in all, it's a good opportunity space for us.

All right, sir. Thank you so much. I'll go back to the queue.

Thank you. Next question is from the line of Khush Gosrani from Incred Asset Management. Please go ahead.

Yeah. Hi, sir. Thank you for the opportunity. Sir, I wanted to understand what is -- how much we would have bid for the BharatNet phase 3? What would be our opportunity sense over here?

Could you please repeat the question? I didn’t…. Khush Gosrani Sir, for BharatNet phase 3, what kind of order size opportunity is there for us?

Okay. See, the BharatNet phase 3 for us, as far as the equipment is concerned, comes with two parts. One is the GPON equipment, ONTs and OLTs. And the other part, our larger part, are the IP/MPLS routers, which are going to be used in BharatNet. So, for both of them, they are very relevant products and we are actively working with customers and our system integration partners to bid into this project. Initially, as you know, the BharatNet budget is quite a large one. Of around INR1,30,000 crores and the equipment budget is roughly 9% to 10% of that. And in the first phase, we see anywhere between INR4,000 to INR5,000 crores of equipment which is getting addressed in the initial tenders. But that is the overall landscape and we hope to win a significant part of that.

Sure. And this would be for how many GPs? 1,67,000?

I am not sure about the number of GPs that are getting covered. I don't have the number upfront.

Got it. And one last question, sir. What kind of debt numbers we would have to take more debt now going ahead for working capital purposes? What kind of peak debt we would have?

See, again, it's diffic ult to give guidance on future numbers, but as a trend, this increase in borrowings is essentially for working capital purposes, which is predominantly led by the wireless project that is getting executed. Now, as mentioned earlier, this project, we're expecting to complete this year. And as shipments progress, working capital intensity would increase a little bit from here and thereafter keep coming down. So, I think within this year, you would see that the working capital would spike up and then gradually come down.

Sure. Got it, sir. Got it. I will get back. Thank you.

Thank you. Next question is from the line of Kaushal Kedia from Wallfort PMS. Please go ahead.

Yeah. Sir thank you for taking my question. My first question is what kind of an order book pipeline are we looking at on the Opportunities Fund that you mentioned that the BSNL 4G network, the BharatNet Stage 3, Kavach for Railways, expansion of utility networks. What is the kind of order book pipeline that we are looking for?

So these are not orders that we have won as of now . We have an order book of INR7,000 crores and these are some of the new opportunities, new large opportunities that we are targeting, right? So, they will give a flavour of what is the size of expansion of the BSNL 4G network or BharatNet Stage 3. I just talked about that right now. So, similarly, I mean, there are the Indian Railways as well as, you know, broadband utility operators. These are all quite large opportunities which will enable our growth for the future and, you know, create our business pipeline as we ll as backlog for the future. But it is hard for me to quantify and say that this is going to be the number going forward quarter after quarter. Just wanted to give a flavour of what is coming.

Sure. Okay. So, one more thing, in the previous participant's question, you answered that BharatNet equipment budget is around INR4,000 to INR5,000 crores in Phase 1.

Yeah, this is actually called BharatNet Phase 3. YThe sanctioned budget is much more than that. But initially, what we are saying in this current phase, what is being tendered would be in the range of INR4,000 crores, I would say, of the equipment.

Okay. Okay, sir. Thank you. That's it from me. Thank you.

Thank you, Kaushal

Thank you. Next question is from the line of Sachin Jain, an individual investor. Please go ahead.

Yeah. Excuse me. My question is, the P OCs which we are doing for a lot of private and utilities, first is, are there international players we are doing this POCs? And where are on this POCs, what would trigger this success of business to get a confirmed order? And what is right to win over there? Essentially, we are fighting with Nokias o r Ericsson of the world. So, can you give more qualitative color on this aspect?

Yeah. So, I guess your question was specific to wireless to 4G, 5G, right? So, the POCs which are ongoing are deployments across a few sites, right? It could range anywhere from 5 to 10 sites to even more than that. And it goes through an extensive field trial which also includes interoperability with the software, with the core, and also interoperability with other radio equipment which is deployed out there . Because in a lot of places handovers between POC sites are tested. So, POCs for wireless equipment is of this kind of a nature. My question is that, how do we compete with Nokia and Ericsson and ? So, there are few areas, ours is a more modern 4G equipment with support for many different bands which are deployed by operators. And then we also have a lot of efficient technologies which are built in. For example, our RAN equipment comes with integrated backhaul, integrated transport, right? So, with technology like that, it saves a lot of capex and opex for the operator because typically RAN equipment is back -ended with a separate backhaul equipment, a rout er, or an equivalent equipment like that. But what we have done is we have integrated a lot of this technology into our RAN equipment, into our eNodeB. So, as a result of which, there is a significant saving to the customer for building his backhaul network, both in terms of capex, but also in terms of opex and reduces the costs of having to manage a different backhaul network. So, apart from that, I mean, our baseband unit, which is part of the RAN, is also what we call th e Ultra Converged Broadband Access equipment. So, whenever you deploy our BBU, the equipment is architected such that you could also insert hardware modules from where you could launch your broadband services for homes and enterprises. So, there is a huge amount of technology integration that we have done in our RAN equipment, and specifically in the baseband unit. So these are some of the big differentiators that we actually project and our customers also appreci ate, which helps them in optimizing their network costs. So, these are some of the areas, and of course, there are many other finer details that we can't discuss right now.

Sir how big this opportunity would be, some of these opportunities, say, in the future?

Yeah. So, obviously, it is not going to be, you know, one shot as big as a large BSNL deployment of 100,000 plus sites. I mean, if you consider potential expansion, it's going to be even more. So, these are definitely not going to be one-shot things like that. Even if it is a greenfield deployment, you know, a lot of the emerging economies are smaller countries, right? So, each of them would be in several thousands or tens of thousands of sites, but not in the scale of what you see in India. That would be there, but on the aggregate, there would be many opportunities like that. So, that's how we see at least the international opportunities. So these are all the greenfield networks, but whenever there's an existing 4G, 5G deployment, and they're trying to upgrade it's again going to be a portion of the network, a fraction of the network that they want to upgrade, either w ith a different band or replacing old 4G equipment with our kind of 4G, which is also upgradable to 5G. And that's the refresh of 4G equipment that we can do. So, all of this will be portions of the network and will not be as large as one large BSNL network of 100,000 plus sites.

Opportunity for you in India, relevant opportunity sites for you, can you give some idea on that also?

Relevant opportunity for India or in the global?

In the railway Kavach project.

In the railway Kavach, from what I know, it's like ly to be around 15,000 sites, which is covering the entire railway network. You know, that's our initial estimate of what's coming in, so that's going to be tendered.

Opportunity for you, if you can highlight.

Yeah, so I think the overall scale is 15,000 and it depends on how it is tendered and whether it goes to a single party or i t is divided . So we don't know all the details yet, but that's just kind of the scope of the railway opportunity.

Or you are providing entire coverage system, entire?

Didn't understand the question.

On the Indian Railway Kavach, what part of opportunity you are addressing? Is it only the connectivity part or you are providing the entire solution?

Only connectivity. Only the wireless part.

Only connectivity. Yes, understood. Sir last question is, post 2025…

Sachin, can we give opportunities to the others also. And maybe you can…

Perfect. Thanks.

Yes, thanks Sachin

Thank you. Next question is from the line of Prabir from Ratnabali. Please go ahead.

Thank you, sir, for providing me the opportunity. I have a couple of questions. First, so far you have received the highest order in terms of BSNL 4G, so now is it fair to assume that in the next few years, the large two orders that you are expecting are BSNL 4G to 5G and BharatNet, is number one. Related to that, are we going to see a similar kind of execution cycle that we have seen for BSNL 4G in terms of, in case of this 5G as well as BharatNet, just 12 to 15 months?

So roughly you are right, it's going to be not 12 months, it is going to be more than that, based on the size of the networks that they are going to come up with. So there are going to be tenders, and also when the tender is going to happen. But once it is decided and once the execution happens, yes, each of the opportunities is going to be between 18 to 24 months, I would say, given the scale of things that are going to happen.

And, sir, like what we have understood, like in case of 5G, the number of base stations, am I correct if you tell me that the 5G stations are more because the frequency is higher, wavelength is low compared to 4G, so the base station will be smaller and the number will be much bigger. So can we assume that as the numbers are bigger in the 5G, the order potential will be bigger also?

So if you look at 5G deployment, I think initial 5G deployments have been focused more towards the metros, right, towards the high usage and high paying customers. So initially, if you look at the 5G deployment that will happen on the private operators, it is smaller than the overall 4G network. Well, that's for a reason, because they wanted to focus on the customers who will be using it. As 5G becomes more popular and becomes widespread, the network will definitely become as big as the 4G networks. And also what will happen is that as more advanced technologies, advanced radios of massive MIMO, and the perf ormance goes up, I think the cost of those radios will also be higher as advanced technologies are coming out. So that's the way to really look at it, that over time, the initial 5G deployments are small, but they're going to go and cover a lot of the geography as we go forward and as our business matures. And also, a lot of the high performance radios are going to come in, which is also going to drive a lot of capex for that deployment.

Okay. So in July of this year, we have come across with the news that Chinese equipment makers like Huawei or ZTE, they're planning to make some JVs with Indian companies. So do you see more competition coming because when there will be JVs with Indian companies, so they can be considered as an Indian entity and they can bid also in Indian projects?

No, I think all the policies about JVs with Chinese companies, that is not yet clear how that's going to happen. But as far as Indian products are concerned, I think there's a very clear definition about what Indian indigenous products are, and that is not only designed and manufactured in India, but also the IPRs have to reside in India, have to be owned in India and registered in India. And there are other rules in terms of where the profits of the companies have to reside and where the company headquarters are located. So there are well-defined rules in terms of what defines a true Indian company making indigenous technologies. So we don't see joint ventures or anything like that diluting that definition. I mean, if at all the JVs happens, they might be regarded as a facilitated business in India. But as far as true blue Make-in-India is concerned, I don't think that the current rules will enable that for technologies which may be imported or based on technology transfer from somewhere else.

Okay. So my last two questions are, if you can help us understanding the potential of data center business, and the margin that you have reported this quarter, which is around, EBITDA margin, I am talking about, around 15%, will this be a sustainable margin going ahead? Thank you, sir.

So the data center, as I said, the growth of data centers enables our business, because even though we do not sell inside the data centers, the data center interconnectivity is what drives our business. So with th e growth of data centers, with the growth of traditional data centers, as well as the AI cloud centers and so on, the interconnectivity gives us an opportunity for our communication equipment. And as far as EBITDA margins are concerned, I think Sumit clarified earlier, we don't give a guidance of margins and profitability. And I think we have to really make our estimates on the trends that we see, right?.

Thank you, sir.

Thanks Prabir.

Thank you. Next question is from the line of Abhishek, an individual investor, please go ahead. Abhishek, your line is unmuted, please go ahead. As there is no response from the current questioner, we will move to the next question from the line of Puvvada Ram Koushik, who is an retail investor, please go ahead.

Okay. Sir may I know, when would the international orders come to the scale of Indian orders in terms of scale?

Yeah, so I think, as we mentioned that our ambition is to become a global OEM in telecom, so a lot of our new investments in sales and marketing is happening in global markets. Earlier they were in markets in Southeast Asia and Middle East and Africa, neighbouring countries. Now we are making a lot more sustained investments in advanced economies like t he US and Europe. There are a lot of opportunities and also relevance for the kind of products and technology that we have in these markets. But the sales cycles are long. This takes a lot of patience, a lot of trials, a lot of investments and proof-of-concepts before these opportunities materialize. So this will happen over time. Over a period of time, of course, we want to see our international business to grow to be as large as our domestic business. But that's going to happen over a period of time. And while that is happening, we do not want to take our eyes off the Indian market opportunities, which is very exciting. I mea n, a lot of investments are happening, a lot of growth is happening. This is our home market. We want to make sure that we do not miss out on any opportunities in India, while at the same time, growing our international investments. So long story short is that India is going to remain a key focus market for us as we grow our international business over time. Our ambition is to make it as big as the domestic market, but it's going to happen over a period of time.

Sure, sir. And also, can I know what is our company doing in order to secure the international orders when the cycle arrives? And what can we do more?

Yeah, so what we're doing is we are increasing our presence. We are increasin g our sales offices, support offices, warehousing, building our teams over there, engaging with customers, setting up labs in many different geographies, setting up trials and actively participating in RFPs. So that is what is happening. And that is an integral part of engaging with international customers.

Thank you. We want to hand it over to Anand for his closing remarks.

Thanks, Arnob. So thank you, guys, for asking a lot of good questions. So I just want to close that, you know, while we're h appy about this quarter, we are also heads -on focused on execution and delivering the rest of the orders and also to see how we can grow the business more. So the team is very focused on making it happen. And again, I want to thank you for your time and questions.

Thank you very much. On behalf of ICICI Securities, that concludes this conference. Thank you all for joining us, and 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