Tejas Networks

FY2021-22 was a landmark year for Tejas Networks, during which the company became a part of the Tata Group. Tata Sons Private Limited, through its wholly-owned subsidiary Panatone Finvest Limited, acquired a majority stake in Tejas Networks. With this move the vendor now has the requisite resources, a trusted brand, and capabilities to truly realize the vision of building a top-tier global telecom equipment company from India, a world class telecom OEM, capitalizing on the end-to-end group capabilities in software and system integration, design and manufacturing of electronic sub-systems and telecom equipment, in which the company will serve as the centerpiece.

As a part of the strategy to build a competitive end-to-end portfolio of products, Tejas Networks has entered the wireless product segment in addition to the wireline segment, which has been its strength thus far. As a part of this initiative, the company demonstrated 4G/5G network and applications on an end-to-end indigenous network, using its designed-and made in India hardware and software products at India Mobile Congress 2022, held recently in the Capital. The management expects large-scale wins starting from India.

This strategy is further strengthened by the acquisition of Saankhya Labs Pvt. Ltd., which enables the company to be a strong player in the broadcast domain and become an active player for wireless, broadband, and broadcast segments, as the industry enters the convergence era. Tejas Networks acquired 64.4 percent of Saankhya Labs in July 2022 and for the balance 35.6 percent, has filed for amalgamation of Saankhya Labs and Saankhya Strategic with Tejas through the NCLT process as on September 30, 2022. Saankhya Labs is synergistic to its business and expands the offering in 5G Open RAN, 5G broadcast, and satellite applications. Saankhya also has strong chip design expertise and has developed its own chip, which is used for satellite and wireless equipment. The wireless product development efforts have been strengthened with the addition of over 250 highly skilled R&D engineers from Saankhya, having experience in wireless system design, hardware, software, as well as chip design. Saankhya’s 73 patents, coupled with their in-house hardware and software IPR, will also enhance the IPR portfolio. And some of the IP that Saankhya has been creating is going into a 6G standard.

On May 18, 2022, N. Ganapathy Subramaniam was appointed as the new Non-Executive Chairman of the Board, succeeding Balakrishnan V, who decided to step down.

For H1 FY23, consolidated net revenue was ₹345.7 crore, a YoY increase of 9 percent, resulting in a loss before tax of ₹2.1 crore as compared to a profit of ₹11.7 crore for the corresponding previous period. Loss after tax was ₹5.6 crore as compared to a profit of ₹11.2 crore for the corresponding previous period.

Order book at the end of September 2022 has increased to ₹1455 crore, which is an all-time high for the company, including ₹481 crore worth of new order wins across optical products, both in India and outside of India. The India contribution is ₹1268 crore. And there remains a backlog of ₹187 crore on the international front.

The vendor’s game plan in wireless is to make sure that initially it gets a very large beachhead account for 4G. And then 5G will be a seamless upgrade on the existing product architecture. From a customer experience, migration then becomes very easy. The vendor gets the maturity of technology, the products, which have been field-hardened for 15 years, running the same software core base. In fact, the use case for 5G around the world is using 4G as an anchor. The networks, which have done that, use 4G as anchor, put 5G on top, look at the markets where 5G has the highest potential, look at the bands where 5G will give maximum bang for the buck, and upgrade those networks seamlessly on a pay-as-you-grow basis since its product architecture allows it.

The vendor’s existing customer base continues to do well. That is the reason the run rate, accounting from various international geographies like Africa and Southeast Asia, continue to give good revenues, but developing Europe and US, which can give significantly larger revenues, will take a little more time. And given the amount of opportunities available, starting from India and larger deals, a good balance needs to be there, so that the home market that is very valuable is not ignored.

The game plan for Tejas Networks is in the next 15 months, i.e. till December 2023 is to focus more on building this 4G anchor base in India, upgrade it to 5G; it may be in multiple accounts, and start engaging during the middle of the year with international customers. The vendor has many inbound inquiries from customers in Europe, in particular, who are looking to find an alternative to some of the incumbent suppliers from certain countries, whom they would like to replace with new suppliers.

The vacuum in certain markets, with the vendors’ ability to scale up and engage with them and be able to supply equipment in their labs is providing good opportunity. Taking a step-by-step approach, maturing the products in India, getting the supply chain up, the products into right shape, size, and competitiveness and then tapping the overseas markets should work well.

Declared eligible under the PLI scheme as well as the Trusted Sources mandate in the last fiscal, would go a long way to help Tejas Networks in growth in domestic market share in both public and private sector procurements. Under the design-led PLI incentive scheme, launched during Q2 FY23 by the government, all the investments that are made in R&D, which are capital in nature, including salaries and manpower cost, are considered as eligible investments for the PLI policy, and being an R&D-led company gives the vendor 1 percent extra incentive.

All the wireline and optical products, encompassing the DWDM category; the broadband access, which is the GPON portfolio; and its flagship product, the ultra-converged broadband access, the same product that earlier used for other applications and now being used as a 4G and 5G base station is the product that has been trialing in various networks continues to do extremely well.

Also, the 4G radio product; 5G product, which is both O-RAN as well as normal 3GPP compliant; the products from the satellite IoT and direct-to-mobile broadcasting, which come from the Saankhya Labs portfolio; along with the software-defined radio chipsets make it possible for the vendor to offer richness of a product portfolio, from radio to wireless to optical. Moving forward, the challenge is to continue to invest and ensure that these products are technically world-class.

Last part of its technology is the secured Ethernet switches, used in smart cities, safe city, and other applications, and which again is a part of the business, a fragmented business in terms of distribution, but it is starting to aggregate and become a reasonably meaningful business mostly from the Indian customers, who are non-telco customers within the country.

Tejas Networks is looking at being a 25–30-percent margin company, making it among the better-run telecom equipment companies in the world over the next couple of years, once it gets the requisite scale. As it lines up for executing at a much larger scale, it finds that the chip suppliers are also giving strategic pricing, strategic delivery timelines, in spite of being handicapped by their supply chain shortages in terms of fab capacity, etc. It expects the top line situation will continue to improve over the next few quarters. And as scale catches up, it should start getting better control on margin and pricing too.

During FY2021-22, while Tejas Networks witnessed a strong demand for its products and solutions in the form of new order wins, revenue growth was relatively modest due to global chip shortages that impacted manufacturing operations. The shortfall in revenues, in turn adversely impacted profitability.

Technology and products. Being in the technology business, the vendor continued to maintain focus on R&D and innovation, while ensuring that investment continued to build globally competitive products. During the year, 24 percent of the revenues (on fully expensed basis) were invested on R&D, making it one of the top spenders of R&D amongst listed companies in India. In the wireline segment, in order to cater to the ever-increasing demand for carrying high-speed data, it strengthened its optical transport portfolio with 400G/600G speed interfaces, which enabled customers to build multi-terabit backbone networks. To cater to the demand for high-speed home broadband, it enhanced its FTTX (fiber-to-the-home) products, based on GPON and XGS-PON technologies, both for the OLT as well as the ONT devices. It continued to invest in building secured switches for applications, such as smart cities, safe cities, and other critical infrastructure.

On the wireless side, Tejas Networks upgraded its 4G LTE Radio Access Network (RAN) base station product to meet the technical requirements of a large pan-India mobile operator in India, and successfully completed the proof-of-concept (PoC), and are now well positioned to win large orders in the coming years.

India business. In FY22, business from Indian customers, including both government and private sector clients, contributed 64 percent of net revenues compared to 60 percent in FY21. India-government business grew 8.7 percent year-on-year (YoY) and contributed 17 percent of net revenues, of which business from BSNL/MTNL constituted 5 percent while critical infrastructure business remaining 12 percent. In FY22, Tejas Networks had multiple tender wins in BSNL and MTNL for wireline products, DWDM, and GPON. It successfully completed 4G RAN proof-of-concept (POC) testing for BSNL’s 4G tender, where it participated as a consortium partner along with TCS and C-DoT. The vendor continued to maintain strong momentum in critical infrastructure segment with multiple new orders from power, railways, oil, and gas sectors.

In FY22, India-private business contributed 47 percent of net revenues with a YoY growth of 14.9 percent. Being an incumbent supplier to all major telcos in India, it is expecting to see an uptick in FY23 business, based on wins in new applications areas, such as FTTX, OTN/DWDM, and PTN. In FY22, Tejas Networks was selected by Airtel as a DWDM equipment supplier for their backhaul capacity upgrades as they prepared for 5G rollouts and as a GPON equipment supplier for their fiber broadband deployments. It also registered several wins with system integration partners for Ethernet switches in smart/safe cities, campus network, and bank-connectivity opportunities.

With 5G spectrum auctions completed during H1 2022, a multi-year CapEx spend cycle for building both wireline and wireless infrastructure, and deployments of next-generation radio products, 5G will also require significant increase in cell-site fiberization and augmentation of optical backbone capacities, augur well for the business.

International business. On a YoY basis, international business declined marginally and contributed 36 percent of net revenues in FY22, compared to 40 percent in FY21. Broadly speaking, international sales are generated from four regions – Africa and Middle East, South and South-East Asia, Europe, and Americas. The telecom network requirements of service providers in the developing economies of Asia and Africa closely mirror those of Indian telcos, thus enabling the vendor to leverage success in the Indian market to expand in these regions.

In FY22, it continued to gain traction in DWDM, OTN, and FTTX segments in Africa and Middle East region, which is witnessing strong investment activity in broadband networks and large-scale build-outs by web-scale companies. Besides winning large business from a single pan-Africa Carrier of Carriers, the company also signed-up multiple customers in the West Africa region including a new Tier-I operator in Nigeria. The FY22 revenues from the South and South-East Asia region declined on account of weak order flow as multiple RFPs got pushed out to the next fiscal year. In FY23, it found itself well positioned for expansion opportunities in existing accounts for its wireless and optical products. Sales activity in the Americas is mainly focused on USA and Mexico. There was an uptick in the USA business as it signed up a large Tier-I OEM for its MSPP products while Mexico saw reduced order flow. In Europe, it registered its first multi-million dollar win for its DWDM and FTTX products. The vendor has multiple ongoing customer engagements in Europe, primarily targeting high-speed broadband rollouts and a growing demand for trusted telecom equipment in certain countries.

In the backdrop of recent geo-political developments post-Covid, Tejas Networks is increasingly being seen as a competitive and trusted alternative for providing world-class telecom equipment to customers. Going forward in FY23, the company plans to further build on this momentum by leveraging its reference customer base, Tata brand, and a stronger balance sheet to win larger deals.