Tejas Networks Limited conducted its Q3 FY25 Earnings Conference Call on January 23, 2025, discussing financial performance, operational achievements, and future prospects. The management team included Arnob Roy (COO and Whole-Time Director), Sumit Dhingra (CFO), and Dr. Kumar N. Sivarajan (CTO). The company reported robust revenue growth, significant progress in its wireless and wireline businesses, and a focus on domestic and international expansion.
Financial Highlights:
- Q3 FY25 net revenues reached INR 2,642 crores (including INR 145 crores from PLI incentives), a 4.7x increase from the previous year.
- Profit after tax (PAT) was INR 166 crores, with an order backlog of INR 2,681 crores.
- Margins dipped due to a shift in product mix, provisions for old inventory, and higher depreciation, though margins are expected to improve as international business scales.
Operational Achievements:
- Wireless Business: Delivered RAN equipment for over 86,000 sites in BSNL’s 4G/5G network, with 65,000 sites operational. Engaged in POCs with domestic and international operators for 4G/5G solutions.
- Wireline Business: Secured a 3-year contract with Vodafone Idea for 4G/5G backhaul, selected as a supplier for BharatNet in Tamil Nadu, and won orders for network modernization in the US and mobile backhaul expansion in Asia.
- Corporate Updates: Sanjay Malik joined as EVP, Chief Strategy and Business Officer, and the company expanded its Bangalore facilities, doubling R&D and manufacturing capacity.
Growth Strategy:
Tejas Networks is pursuing a multi-pronged growth strategy:
- Product Innovation: Developing advanced 5G RAN equipment (supporting diverse bands, massive MIMO, and ORAN standards) and upgrading wireline offerings (e.g., 400G to 1.2T per channel, 10G/50G PON).
- Market Expansion: Targeting India’s government and private sectors (e.g., BSNL expansion, BharatNet Phase 3) while increasing international presence in North America, LatAm, Europe, Asia, and ANZ through expanded sales teams and partnerships.
- Leveraging Leadership: Sanjay Malik’s expertise is expected to drive strategy and business development, enhancing global competitiveness.
- Infrastructure Investment: Expanded facilities to support R&D and manufacturing scale-up, including a Center of Excellence for wireless communications.
Future Outlook and Market Situation:
- Domestic Opportunities: Management anticipates order conversions from BSNL’s 4G expansion, 5G upgrades, BharatNet Phase 3, and projects like Indian Railways’ Kavach system in Q4 FY25 and Q1 FY26, boosting FY26 revenue.
- International Growth: Longer sales cycles are expected due to customization needs, but POCs and engagements with tier-1 operators signal steady progress.
- Market Drivers: Continued global investments in 4G/5G, broadband connectivity, utility network modernization, and AI data center infrastructure (e.g., $500 billion in US AI investments) are seen as key growth catalysts.
- Competitive Positioning: Tejas emphasizes unique product architectures (e.g., integrated RAN and backhaul) for cost advantages, targeting both emerging and mature markets.
Challenges:
High inventory (INR 3,127 crores) and receivables (INR 4,730 crores) reflect ongoing project execution, with collections expected to reduce these over time. International business remains a small portion (3%) of revenue, requiring time to mature.
Detailed Question and Answer Session (Minimum 10 Questions)
Below are the detailed questions and answers from the Q&A session, reflecting key insights into Tejas Networks’ performance, strategy, and outlook:
- Vimal Gohil (Alchemy Capital Management): Gross Margin Trends and BSNL Impact
- Question: What caused the gross margin decline this quarter? Was it due to increased wireless equipment sales to BSNL, and will margins improve as BSNL execution nears completion?
- Answer (Sumit Dhingra): Margins fluctuated due to a change in product mix within projects, not just across them. The BSNL wireless project, being the first of its kind for Tejas, had lower margins than the typical wireline business. As international business grows and the order book diversifies, margins should improve over the next few quarters.
- Insight: Margin recovery hinges on diversifying beyond BSNL and scaling higher-margin international deals.
- Vimal Gohil: Business Pipeline Excluding BSNL
- Question: How does the business pipeline look outside BSNL, both in India and abroad, with timelines?
- Answer (Arnob Roy): The pipeline includes run-rate business from long-term contracts (e.g., Vodafone Idea’s 3-year deal) and large projects like BSNL’s 4G expansion, 5G upgrades, Railways’ Kavach, private 5G, and BharatNet Phase 3. International engagements with tier-1 operators involve longer cycles due to customization. Key conversions are expected in Q4 FY25 and Q1 FY26, significantly impacting FY26.
- Insight: A balanced mix of immediate run-rate revenue and large tender-driven opportunities supports growth.
- Vimal Gohil: Headcount Data
- Question: What is the headcount as of December 2024?
- Answer (Arnob Roy): Over 2,350 employees, with more than 60% in R&D.
- Insight: Heavy R&D focus underscores Tejas’ innovation-driven strategy.
- Vimal Gohil: BSNL Execution Timeline
- Question: With 86,000 of 100,000 BSNL sites delivered, will 4G execution complete next quarter, followed by a 5G ramp-up in FY26?
- Answer (Arnob Roy): Yes, the initial 100,000-site order should conclude this fiscal year. Expansion of 4G, upgrades to 5G, and a separate 5G build-out in the 3.5 GHz band are anticipated, offering multiple revenue streams.
- Insight: BSNL remains a multi-phase growth driver into FY26.
- Ritesh Poladia (Girik Capital): BSNL Site Performance
- Question: How are the 86,000 BSNL sites performing, and are they meeting expectations?
- Answer (Arnob Roy): BSNL reports 65,000 sites operational, with strong performance validated by a year-long POC in Chandigarh. Customer acquisition reflects satisfaction.
- Insight: Proven reliability enhances Tejas’ reputation for large-scale deployments.
- Ritesh Poladia: R&D Spend Sustainability
- Question: With INR 600 crores in R&D spend, can this be curtailed if revenue declines in FY26 due to lack of new contracts?
- Answer (Sumit Dhingra): R&D investment will persist as a long-term priority, though spending will be optimized. No significant cuts are planned, given its critical role in competitiveness.
- Insight: Tejas prioritizes innovation over short-term cost-cutting.
- Ritesh Poladia: Import Content
- Question: What is the import content in materials versus domestic sourcing?
- Answer (Arnob Roy): Active electronics (40%-65%) are imported, while enclosures, cables, and assembly are localized. Manufacturing, including PCB assembly, is fully in India.
- Insight: Localization reduces costs but reliance on imported chips persists.
- Rishab Gang (Sacheti Family Office): Competing Internationally
- Question: How does Tejas win international orders against Cisco, Nokia, and Ericsson, given their local setups, and what’s the cost advantage?
- Answer (Arnob Roy): Tejas differentiates through unique architectures (e.g., integrated RAN and backhaul), reducing total cost of ownership (20%-25% equipment savings, plus opex benefits), not just cheaper components.
- Insight: Innovation, not price alone, drives competitiveness.
- Rishab Gang: POC Status and International Expansion
- Question: What’s the status of POCs in India and internationally, and when will outcomes emerge?
- Answer (Arnob Roy): Domestic POCs may yield orders in Q4 FY25 or Q1 FY26. International engagements, bolstered by BSNL success, involve customization and longer cycles but show strong interest.
- Insight: Global visibility is rising, with phased revenue potential.
- Rishab Gang: Sales Team Growth
- Question: How has the sales team expanded internationally compared to last year?
- Answer (Arnob Roy): Teams in the US and LatAm grew by 50%, adding 6-7 senior staff. Partnerships increased by 1-2 per region, leveraging local expertise for sales and deployment.
- Insight: Targeted investments aim to accelerate international traction.
- Advait Lath (Nippon India Mutual Fund): North America/LatAm Environment
- Question: What’s the regulatory and tariff environment in North America and LatAm, and how are lead times managed?
- Answer (Arnob Roy): Equipment meets global standards (e.g., TUV, UL), certified in India. Tariffs remain speculative, and lead times align with typical testing-to-deployment cycles (1+ years).
- Insight: Regulatory compliance is in place, but tariffs pose uncertainty.
- Sunny Gosar (MK Ventures): PLI Incentive Receipts
- Question: Have INR 500+ crores in PLI incentives been received regularly?
- Answer (Sumit Dhingra): FY23 incentives were received in FY24; FY24 payments are expected soon, with FY25 payments due next fiscal.
- Insight: PLI cash flow lags revenue recognition by a year.
- Sunny Gosar: Opportunity Quantum
- Question: What’s the size of opportunities like Kavach, private 5G, and BharatNet Phase 3?
- Answer (Arnob Roy): These range from hundreds to thousands of crores, with BharatNet’s budget publicly known. Success depends on win rates.
- Insight: Multi-billion-dollar potential exists across projects.
- Sunny Gosar: Opportunity Conversion Timelines
- Question: When will these opportunities convert, and how will they ensure revenue continuity post-BSNL?
- Answer (Arnob Roy): Conversions are expected in Q4 FY25 and Q1 FY26, refilling the order book for FY26 execution, balancing the BSNL rundown.
- Insight: Timing aligns to mitigate revenue dips.
Conclusion
Tejas Networks is capitalizing on its BSNL success and domestic dominance while aggressively pursuing international growth through innovation and partnerships. The management’s optimism about FY26, driven by a robust pipeline and global market trends, positions the company well, though execution and international scale-up remain key variables.