Tejas Networks Ltd Q4 FY23 Earnings Conference Call Insights

Key highlights from Tejas Networks Ltd (TEJASNET) Q4 FY23 Earnings Concall

Management Update:

• [00:02:44] TEJASNET’s wireline business saw strong momentum, with the company winning a pan-India router tender for around INR696 crores.

• [00:05:35] The company has continued to hire throughout the financial year, increasing its headcount by 41% YonY.

• [00:24:41] TEJASNET said it’s managing its supply chain issues, has a strong order book of INR1,934 crores and good visibility on new orders in both wireless and optical products. The company expects to accelerate revenue growth in FY24.

Q&A Highlights:

• [00:27:37] Vimal Gohil from Alchemy Capital asked if FY24’s lower GM can be offset by operating margins due to investments made in FY23 and expected large revenue ramp-up. Sanjay Nayak CEO said the volume advantage will more than make up for the percentage reduction in GM, and the GM should return to where it was during the ’17-’18 time frame.

• [00:27:53] Vimal Gohil from Alchemy Capital also asked about the steady-state margin after challenges in the wireless segment are met. Sanjay Nayak CEO replied the wireless business will have lower GM, but the volume economics will be large enough to not dilute EBITDA. TEJASNET expects blended GMs to be similar to the previous fiscal year. In FY25, optical margins will be up to historical average and wireline margins will improve as initial volumes are replaced by larger steady-state volumes.

• [00:30:15] Vimal Gohil of Alchemy Capital asked if the company will reach a similar run rate in the next year with INR2,000 crore worth of orders. CEO Sanjay Nayak said the wireline business is growing at 60%, and the wireless business offers large deals in India. The wireline business has steady-state gross margins while the wireless business has lower margins but larger volumes, leading to a healthy EBITDA and profitability outlook.

• [00:34:03] Mukul Garg from Motilal Oswal asked how will winning a BSNL contract for a router open up opportunities for the company at a private or global level. Sanjay Nayak CEO said TEJASNET has been successful in developing new technologies and enhancing its products, then getting an anchor customer to take them from low volumes to high-volume production. TEJASNET focus on making sure their products are feature-rich for all customers.

• [00:34:49]  Mukul Garg from Motilal Oswal enquired which areas of TEJASNET the company would focus on to bring it forward over the next 3-5 years. Anand Athreya MD Designate said the initial focus is to ensure that the optical business is stable and that the supply chain and manufacturing can deliver on orders. The second focus is to ensure that 4G and 5G wireless are delivered. Then TEJAS will work with the team to evolve its strategy into a global telecom and networking company.

• [00:40:33] Mukul Garg from Motilal Oswal asked if Saankhya is a subsidiary of TEJASNET. Sanjay Nayak CEO answered that Saankhya Labs is a subsidiary of Tejas and owns around 65% of the company. TEJASNET plans to complete ownership of 100% of Saankhya Labs through a merger process which it has already triggered. The process is expected to be completed in the next few quarters.

• [00:42:53] Vivek Namasivayam asked if the company’s large private sector projects will have a similar impact as the government initiatives, resulting in holistic growth. Sanjay Nayak CEO said in terms of private sector growth, TEJASNET have seen good traction in optical and FTTX products. The company is focusing on getting an anchor customer for its wireless products, but as the year progresses, TEJASNET believes it will be able to break into private operators.

• [00:45:18] Hirenkumar Thakorlal Desai enquired if the L1 announcement from last quarter is related to the INR696 crore router order announced recently. Sanjay Nayak CEO replied it is the same order from last quarter which is a backhaul order for the BSNL pan-India rollout. TEJASNET announced it as soon as it got the order.

• [00:46:39] Hirenkumar Thakorlal Desai asked what is preventing the final order for 4G deployments in certain locations. Sanjay Nayak CEO replied that the company has done all that it can do to make sure that everything runs smoothly and efficiently, but due to the size of the project, it will take time. TEJASNET believes that the outcome should happen soon, and based on what’s in the news, it looks like it will happen sooner rather than later.

• [00:51:12] Narasimha Murthy from Cloud Orange asked about the status of BSNL receivables. Sanjay Nayak CEO answered that during the fiscal year, a lot of older receivables have come in and the overall collection track record has been good. There is still some residue left, but TEJASNET is confident that it will come in too.

• [00:52:44] Yadav asked what kind of contracts is TEJASNET winning now and if they are fixed or variable. Sanjay Nayak CEO clarified that the company has taken steps to ensure that new bids account for increased costs, as well as to reduce prices by taking advantage of its buying power. This, combined with factoring in exchange rates when bidding on wireless projects, should lead to healthy growth in EBITDA and PAT on a YonY basis.

• [00:56:32] Naveen Bothra at Subh Labh enquired about the current status of Saankhya’s merger integration, D2M and [ATS-3] offerings in India and international markets. Sanjay Nayak CEO replied that Saankhya has completed the necessary steps to merge the remaining 35% of its shares and expects to do so by the end of this fiscal year. The company is also expecting revenues from its broadcast business, chip development project, and SATCOM business. Saankhya has restructured its sources and direction in order to optimize operations.