Tejas Networks Limited analyst Q&A

Thank you very much. We will now begin the question -and-answer session. The first question is from the line of Sohan Joshi from ASC Consultants. Please go ahead.

That's correct. It just covers our existing backlog using 4G and other wireline order books that we have. This doesn't cover the 5G upgrades.

My second question is, this system on chip IP design regarding the semiconductor developed by the Saankhya, I presume it will be captively consumed for first 5G wireless equipment and then we will market it for outside market, right?

So, the current SOCs are actually getting used in one of their chips for their satellite transponder products, which has been designed using the semiconductor. The newer chips that they are designing, I mean, we will evolve our products subsequently when the chips are ready. But our current 5G products are not held up by that because our current generation produc ts are getting designed and will get launched this year. And when their semiconductor gets ready at that time, we will try to optimize the equipment at that point of time.

Thank you. The next question is from the line of Santosh Sinha from Emkay Global. Please go ahead.

My question is regarding the BSNL project. So, what exactly is the timeline for this project? Is the whole of many portion will be excluded in FY '25 alone or will they be excluded in FY '26 as well? Is there any resource related to BSNL, sir? So, my question is regarding this BSNL project. So, we were reading about some news articles that there has been concern regarding delays in the project and BSNL is also looking for help from the vendors as suc h. So, do you want to comment on that? And the last question is, what kind of margins do we expect in the long run?

So, you have asked three questions, Santosh. The first thing is BSNL supplies. Yes, I think we expect to finish our supplies in this financial year, in FY '25 itself, right? And I think, again, most part of the network will also get deployed and commissioned during that time. So, this is the answer to the first question. Second question was about news reports that have come up and just to reiterate what that report really meant. I will give you the subsequent clarification that came. See, the RAN equipment is actually getting deployed all across the country right now in different zones, right? North and then West and other zones also started right now. But what has happened is the core has been deployed in a few of the zones, not in all of them. So, wherever our RAN is getting deployed and installed, at that time, whenever the CDOT core is not there, the equipment is getting inte grated to the existing core. So, when the CDOT core gets deployed in those circles, in those zones, they will get parented to the CDOT core as well. So, this is just a temporary situation where the RAN is deployed. And in that zone, the core is not available. So, it is getting integrated with the existing core in the network. So, that is all that the report has meant. Your third question was about margins. As you have seen, our margins have actually grown over the last quarter. And going forward, we don't comment on how the margins are going to look like. But as a combination of our wireless and wireline equipment, we keep saying that our long- term goal is to see a historical margin that we have in the company. Over time, we will be growing the projection and keeping those kinds of numbers in terms of margins and financials as well.

Just two more questions. After that I will fall in the queue. One is regarding international. So, what kind of headway we are seeing at the international fr ont? Because ultimately FY '26 we will have to grow on the international side. So, what kind of, are we seeing any new interactions or interest from the client? And second is regarding BharatNet. So, what is the update there ? And where can we see actually the revenue coming from BharatNet?

I am not sure we could follow your questions because your line was not too good. I think your question was, I understand was international business and what kind of opportunities we see and what do we see in B haratNet? If you recall the last slide that I presented on the immediate and the upcoming opportunities in international market, we are increasing our focus and investments in international markets . We have given you a big picture of the opportunities tha t we are looking at both in the U .S. and Europe as well as the kind of opportunities and utilities as well as emerging markets. There are several projects and the opportunities we are currently engaged in in these markets without giving a lot of details, but that's going to be a focus area for us. That's going to be where our investments are also going to happen in the next few quarters, that's internationally. As far as Bharat Net is concerned, as you know, the project is already announced. Lot of the technical documents and tender documents are out, but right now, there are questions and clarifications are going on with that tender, and we expect that sometime during the year, the tender will be picked and completed and so on. And a lot of the active equipment over there is for IP/MPLS routers, the kind that we have and that we have shipped to BSNL and also for the FTTx equipment or the xPON equipment OLT and ONT. So, we are well covered in terms of products for the opportunities in BharatNet, in the upcoming BharatNet tender. I hope I have answered your question.

Thank you. The next question is from the line of Deep Mehta from Bank of India Mutual Fund. Please go ahead.

Hi sir, thank you for the opportunity and congratulations for a very robust set of ex ecutions which you have done for this quarter. I just have one question. This quarter we have seen significant stretching of our working capital cycle. How should we look at this number as you ramp up our orders and what can we steady state working capital cycle, if you can comment on that?

I will let Sumit take your question. Please go ahead.

So, as we had commented earlier, the working capital currently needs to be looked at in context of the BSNL 4G project. We are in the midst of executing this large project. This is 7,700 crores worth of value over the next four quarters. A lot of working capital build up is in context or in preparation or execution of that project. As we go along over the next couple of quarters, you will see eventually the working capital tapering down as the execution progresses.

Thank you. The next question is from the line of Ashish from JM Mutual Funds. Please go ahead.

Sir, in terms of our RAN, if you could highlight the competitive scenario in the Indian market. We understand there are international players also selling similar radios. Is there a cost advantage for private telcos? So, basically, are our products cost competitive ? And if you could also highlight whether there is a difference in technology stack for 4G and 5G RAN between us and those guys?

Yes, we have bid and won this large BSNL network and BSNL has ensured that they get the most competitive prices which are available in the market. So, you can be rest assured that the products that we have designed and that we are selling are extremely competitive as far as the global operators go. So, that's one part from a cost competitiveness perspective. The other part is about technological differentiators. Yes, any product that we make are always made with several technological differentiators and I will let Kumar, our CTO talk about that.

One of the important differentiators we have is that we integrate optic al transport into the wireless, which almost no one else is doing in the industry, and that's the key differentiator. We also have the ability to integrate other forms of optical access into the same product, what we call universal converged product. So, that's the key differentiator. This integration actually helps bring down the total cost of ownership of the wireless operators by doing multiple technology integration into our RAN equipment. So, they save a lot of money in buying and building the backhaul equipment and as well as it gives them the platform for launching other services apart from the mobile services which is like helping them address all the home and the enterprise for broadband opportunities in and around the area where they are installed. So, this is one of the key differentiators and the customer really appreciates this and is leveraging this technological advantage as well.

This is helpful. Secondly, on this private telcos, apart from BSNL, as far as the private telcos are concerned, is there an opportunity for us? Obviously, you have mentioned on the slide that more than $3 billion of CAPEX will be rolled out in terms of opportunity size and are we in discussion with some of the bigger private telcos as far as these radios are concerned?

So, as I mentioned in the earlier slides, that we are actually engaged in a few opportunities of the telcos and in the critical infrastructure sector . And as we speak, to name them, we are into multiple POCs where our radi os are actually deployed and undergoing trials. So, yes, even beyond this, there are multiple opportunities, and we have started engaging with other customers and they are all in India , and we hope to actually line up some opportunities internationally as well.

And lastly, do we have sufficient manufacturing capacity on our side? And to that extent, would you say that the borrowings would not increase from current levels or would stay at current levels?

So, after the manufacturing capac ity has been built up, that is why the investments have been happening over the last few quarters and now we have established a scale where we can execute a project of this size within the timelines that are expected and these are very aggressive, right? So, we have to invest in that kind of manufacturing capacity. So, that is there. And I think your question was about the working capital going forward. See, the one part is the investment in manufacturing for filling it up, but a lot of the working capital is in procurement of components which go into these manufacturing lines . And that is a temporary phenomenon for executing this large project where existing inventory that is getting converted into the finished products and they will get shipped out and we are getting our collections in as well and that is where the working capital cycle will go through and go down over time.

Thank you. The next question is from the line of Pavnish from Hridya Cars. Please go ahead.

Sir, I just wanted to make a request if we could release our results a bit early because today the conference call was scheduled at 7 and results were declared at 7.10. So, didn't get much time to analyze the presentation and ask the question. Otherwise, my questions have mostly been covered by other analysts. Just this request.

Sure. Yes, this was a first for us, but yes, definitely we will do it ahead of time.

Thank you. The next question is from the line of Pratap Maliwal from MountIntra Finance. Please go ahead.

So, I just wanted to confirm that I was seeing in the presentation that these cumulatively shipped equipment for about 10,000 plus sites on the wireless business. So, just to confirm, the overall order was for about 100,000 sites. So, we will be looking to the remaining 90 ,000 in the next three or four quarters going ahead. Is that correct?

And just one more thing. We have had an improvement in profitability as well this quarter. So, last quarter we have seen that the low margin parts of the network equipment were deployed more and that had consequently affected our profitability a little bit. So, has that actually been compensated for this quarter? And going ahead, can we expect this improvement to sustain now that the low margin parts are out?

So, yes, your observation is right. I mean, we mentioned that last quarter and that's correct. I think this quarter we shipped components of products with higher margin and that's what is showing in our overall margins .. So, going forward, I think the blended margin, as I said, we don't comment on future margins, but we can see the trend out there and as you said, our margins, the blend of wireless and wireless products. So, yes, the trajectory is there and it will depend on the combination of products associated.

So, we do expect to hopefully maintain the improvement going forward as well?

We don't give guidance on that.

The next question is from the line of Hirenkumar Thakorlal Desai who is an individual investor. Please go ahead.

I have just one question. Do we have an estimate of what PLI incentives we may receive for FY '25?

The PLI estimates for the year are dependent on the revenues that we do for the year. For FY '25, since we don't give any guidance on the revenue, it will be difficult to give you that estimate.

Can you provide some percentage of revenue as an incentive that is there? I mean, what is the percentage number?

Policy states that the PLI would be between 5% -6% of the manufacturing revenue, which is incremental revenue over the base year. So, for every year, whatever is the manufacturing revenue, less the revenue for the base year. On that number, you would get, let's say, 6% kind of PLI.

Thank you. The next question is from the line of Prathamesh Dhiwar from Tiger Assets. Please go ahead.

So, I was having just one question. How are we looking at a strategic partnership with Valiant Communications? Are we looking at any acquisition which will help us doing any backward integration, like...?

Yes. So, with Valiant Technologies, we have a very strong partnership going over many years. They are our key partners for the utility markets. Their teleprotection technology gets integrated with our trans mission products to provide a n optimized solution to our utility and critical infrastructure customers. So, that partner offers an orthogonal set of products, but they work very well together with our products to address this market. And this is going to continue. We are looking at opportunities together in markets, not only in India, but globally. But that's how it works.

Thank you. The next question is from the line of Gurvinder Juneja from Fortuna Investment Advisors. Please go ahead.

My first question is about getting some clarity on this proof of concept you are doing on the utility side. What does that mean? Is that including any work with Valiant? And second question is, I probably misunderstood or didn't understand the split of revenue you gave between India Government and India Private. What gets classified as India Government revenue and what gets classified as India Private? I just wanted some clarification. I missed that piece.

First of all, the POCs that we are doing is on our wirele ss 4G/5G RAN equipment. And this is not including Valiant. So, this is purely applications in wireless. So, these are multiple networks where they are getting tried out as you see for potential deployment. Your second question is about India government and all. As you see, as you know, we split our revenue in terms of three sectors. One is the Indian government, which is mainly the public sector companies, the operators, the EPC companies, BBNL, BSNL and so on. And then the Indian private, which are the telcos, private telcos and I SPs in India. And the third part is the international customers. So, the clarification we gave was, in India private in the last few quarters, our shipment to BSNL 4G is categorized as India private, because actually our immed iate customer i s TCS and not BSNL. And we look at our immediate customer who we are shipping to, to kind of classify the business segment. So, we just want to make sure that we understand that the India private numbers that we are showing, reporting, that includes the BSNL 4G/5G shipment.

Thank you. Our next question is from the line of Harshit from Wallfort PMS. Please go ahead.

Just wanted to get a sense of the kind of order book build -up that we can have going forward. Could you give some sense on that?

We don't give guidance on future business. You know, you have the order book and a kind of painted color of the opportunities in front of us, both in India as well as internationally. So, I think that's the best that we can do, right? Talk about our products, talk about our current order book and talk about the market for these products and the immediate large opportunities that we see in front of us. I think that's the best we can do.

Well, if you look at it in India, all the global vendors and our global competitors are actually doing business in India, right? I mean, all the names that you know of. So, internationally also, we compete against them in India and it's the same set of vendors that we compete against in the rest of the world. So, there is no difference. I think it's the same comparative environment that you see in India that you see internationally.

And so, would you like to share how many tenders have we filled in or how many, what is the win ratio or something like that? Is that possible?

Yes, I think those are far more details of our business. Unfortunately, we cannot share, but I think bidding keeps happening all the time and we win some and lose some. . But those are numbers that we really don't share in terms of how many bids and win ratios and all t hose kind of things. I mean, that's really confidential information.

Okay, sir, not a problem.

Thank you. Our next follow-up question is from the line of Hirenkumar Thakorlal Desai, who is an individual investor. Please go ahead.

One more question was just regarding the inventory part of it, or you may just say the entire inventory cycle. The fact that we are dealing with TCS in a way, do we have a sort of better estimate or better certainty in terms of how long that cycle will be? I mean, what is the inventory turnover that we need to maintain, especially for BSNL business?

See, as I mentioned, this project is a 7,700 crore s worth of projects. The execution in terms of number of sites is about 10,000 sites, as against 1 lakh sites. So, it's about 90% yet to be executed. And from a lead time perspective, we have done some advanced procurement to be able to ship these products in time. Now, purely from that perspective, if you see the order size versus the inventory, we have inventory for the next few months of delivery. We have not fully yet procured all the inventory for the project, but a significant part of it is in place and it helps us have that assurance with respect to being able to deliver. On an overall basis, the operating cycle is less than 12 months from a working capital standpoint, but that would essentially, as we go along, it could ease off.

So, Hiren, I think the inventory is basically the time cycle between the time we procure the components, and we actually manufacture them and ship them out. So, it's really not connected to TCS. It's connected to the cycle of manufacture and shipment to the warehouse, to TCS and regional warehouses.

Yes. The inventory levels wouldn't depend on the payments. That is something that we procure from our vendors and against that we would have payables in the books. And as we go along, as we ship and deliver the sites to TCS, then the payment cycle starts.

Yes, you just mentioned that we have built inventory for a few months. Can you quantify a few months?

See, when I say a few months, I was referring in the context of the BSNL project execution.

Yes, that's what my question is regarding.

Over the next two to three quarters is what we're looking to execute this project. And the inventory that we have is a portion of what we really need to execute that. There are some advanced actions that we have taken. So, this inventory would, let's say, peak up a little bit from here and thereafter as the execution progresses, we would progressively see it coming down.

In that case, are you in a position to specify, okay, not exact, but some ballpark number, at what level will it peak?

It's difficult to give any guidance on what level would it peak. Maybe in the next three to four months is where you would see this peaking up and then possibly coming down. But as I said, it depends on the pace of execution of the project.

Thank you. We will take our last question from the line of Sohan Joshi from ASC Consultants. Please go ahead.

Thanks a lot, sir, for taking my follow-up question. I just want to understand, when will the PO of the 5G sites will be out ? Will it be out by this year only or first the entire execution is completed, then the PO will be out for the 5G sites?

Yes. So, the PO, see, it's not designed to wait for the entire project to get over. We will be doing a POC for this 5G upgrade shortly. In the next few months, when all that is completed, I think we expect to get the 5G upgrade business, obviously.

So, that will be for the 40% sites of the existing 1 lakh sites, right?

So, the current order book doesn't contain that 40% of the upgradation, right?

That's correct. It does not contain that.

Thank you. Ladies and gentlemen, we will take that as the last question for today. I would now like to hand the conference over to Mr. Anand Athreya sir, for closing comments.

Thank you. So, as the FY '24 closes, first I would like to thank our employees, customers, board members, investors, and stockholders for your continued support. This has been a record year for us, and we will continue to stay focused and execute month-on-month and quarter -over- quarter to put Tejas on a world map. Again, I wish you all the best and thank you very much.

On behalf of ICICI Securities, that concludes this conference. Thank you for joining us. Yo u may now disconnect your lines.

This transcript has been edited for readability and does not purport to be a verbatim record of the proceedings