Tejas Networks Ltd (TEJASNET) Q2 FY23 Earnings Concall Transcript

Tejas Networks Ltd (NSE:TEJASNET) Q2 FY23 Earnings Concall dated Oct. 21, 2022

Corporate Participants:

Bhupendra Tiwari — Analyst

Sanjay Nayak — Chief Executive Officer & Managing Director

Venkatesh Gadiyar — Chief Financial Officer

Kumar N. Sivarajan — Chief Technology Officer

Analysts:

Pratap Maliwal — Mount Intra Finance — Analyst

NGN Puranik — Enam — Analyst

Vimal Gohil — Alchemy Capital Management Private Limited — Analyst

Subrata Sarkar — Mount Intra Finance Private Limited — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Tejas Networks Q2 FY’23 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions]

I now hand the conference over to Mr. Bhupendra Tiwari from ICICI Securities. Thank you, and over to you, sir.

Bhupendra Tiwari — Analyst

Thank you, Andrew. [Phonetic] Good evening, everyone. On behalf of ICICI Securities, we welcome you to Q2 FY’23 results conference call of Tejas Networks Limited. The Company is represented by Mr. Sanjay Nayak, who’s CEO and Managing Director; Mr. Arnab Roy who’s COO and Whole-Time Director; Mr. Venkatesh Gadiyar, who’s CFO; and Dr. Kumar N. Sivarajan, who’s CTO.

We’ll begin with the opening comments by the management, post which we’ll take up the Q&A session. So over to you, Sanjay.

Sanjay Nayak — Chief Executive Officer & Managing Director

Thank you, Bhupendra. And first of all, wish you all a very Happy Diwali, and thank you for joining the earnings call of Tejas Networks. We have uploaded the presentation that I’m going to walk through on our website and in other places, so I hope you have the chance to either download it or follow it as we discuss.

So, I’m on the first Slide which is the key updates of the quarter. In terms of the financial update, our net revenues for the quarter were INR220 crores. Our profit after tax was marginally profitable at INR1 crore. Our cash and cash equivalents are at INR1,402 crores with no debt, and order book at the end of Q2 has increased to INR1,455 crores, which is an all-time high for our company.

In terms of key highlights, we had very, very strong Q2 bookings and lot of new wins, so we had INR481 crores, a lot of new order wins across optical products, both in India and outside of India. We’re also very happy to say that we introduced our wireless products at the Indian Mobile Congress so our 4G and 5G products, the outlook is looking quite strong. We believe we have a very good opportunity to get large-scale wins starting from India. And we also see that there is a lot of push by Government of India to create indigenous telecom ecosystem, and we believe that we have a very good opportunity to take advantage of the supportive policies of government, both in India as well as outside of India.

Supply chain performance and component shortages were something that has been impacting our revenues in the past, while I would say that the things have started to improve but the global component situation, chip situation, especially for certain kind of component is still not that good. However, as I mentioned in my last earnings call, we had taken some very proactive internal actions in terms of reengineering our processes, IT systems, tools, and so on and so forth, and as a result of that we are starting to see good results coming out so we’ve crossed the INR200 crores per quarter revenue after a gap of about 10 quarters or 11 quarters.

We do expect that — and as a result, not only our revenues improved, we also saw improvement in our gross margins. We do expect that as the year progresses, we should see continued improvement in the second half of the year in terms of revenue performance as well. There’s another important thing which is the design-led PLI incentive scheme, which was launched during the quarter by the Government of India Telecom Department. We had earlier been approved for the PLI scheme for telecom products. This new design-let scheme is a very innovative scheme there. All the investments that are made in R&D which are capital in nature including salaries and manpower cost can be counted as investments for the PLI policy, given that and given our potential for much higher revenues in the future, we have re-applied under this new policy which is available to us and increased the size of our PLI commitment, which has a fairly large potential for higher incentives. In addition, the design-led PLI gives 1% extra incentive if you’re a R&D-led company like ourselves.

We have been increasing our R&D headcount and operations headcount quite substantially in line with the growth that we expect going forward. As a result, for the first time in the history of the company, our total employee strength has crossed 1,000 employees as a total. And as you are aware, we have acquired Saankhya Labs. And between Saankhya Labs and ourselves, we now have a patent portfolio of 434 patents.

I’m on the next Slide. Continuing with the corporate highlights of Q2. So, the integration of Saankhya Labs is on track. We had earlier acquired 64.4% of Saankhya Labs in July 2022, and for the balance 35.6%, we have filed for amalgamation of Saankhya Labs and Saankhya Strategic with Tejas through the NCLT process as of 30 of September.

What we have already done is we have integrated the R&D teams between Saankhya and Tejas, and the focus of Saankhya R&D team now is to strengthen and accelerate the development program, so 5G, radio, cellular broadcast, satellite communication, and other areas like semiconductor design. And in addition, Saankhya Labs, before the acquisition, was also having R&D services for external clients. We believe that the value of the team and the capabilities that exist in Saankhya are far more valuable and better utilized if we use them for our in-house product development and acceleration of the opportunity that we see in the market. So, we would be reducing the focus of Saankhya Labs for external contract R&D and increasing the focus more on in-house exploration and in-house development of products for which we see large market opportunity.

There was India Mobile Congress in New Delhi, a few weeks back, where — which was inaugurated by the Prime Minister and the 5G was launched in the country. During that congress, we showcased end-to-end portfolio of our indigenous products. Some of you might have had an opportunity to be in Delhi and see those, but I can tell you that the kind of product portfolio, the kind of live demos, and the capabilities that we showed from hardware to software to chips, and to technology domains across wireless, optical, and satellite, was possibly the best that was available in the country. We, of course, we’re very heartened and honored that the Prime Minister himself visited us and spent significant time understanding all the products and technologies that are available with us.

We also showed live demonstration of our 5G radios, which are required in the bands which is being auctioned in India, so we have the 5G radio products as well as some very new innovative technology like Direct-to-Mobile which is one of the latest technologies that is getting standardized in the world and we are having a lot of IPR from the Saankhya Lab portfolio there as well. And icing on the cake was that we won the best Designed and Made in India Telecom Innovation for our TJ1400 which is a very unique product which we’ve been talking about for some time which can give both, and it can become a base station, it can become a GPON box, and it can, of course, become a transport product, all from the same hardware and configurable software and configuration. And recently, we were again the same product given the best — product by Indian Electronics and Semiconductor Association for contribution to India’s ESDM sector.

So, all I can say is that from a technology angle, from a business angle, we are investing and we are confident that what we have created, in the direction in which we’re going sets us up quite well for executing and scaling up the company to much larger level going forward.

The next set of Slides which are a little bit more details about the financials, I’ll request Venkatesh Gadiyar to walk us through those, and then I’ll come back again into the presentation.

Venkatesh Gadiyar — Chief Financial Officer

Thank you, Sanjay. Good evening, everyone. This is on the financial update. Q2 revenues were INR219.9 crores, which we saw a year-on-year increase of 27.3 percentage, and on a half-yearly basis around 9 percentage growth. And while we had a loss on EBITDA of INR4.3 crores for a quarter, we had seen the profitability in terms of PBT and PAT. We had a PBT profit of INR10.9 crores and a PAT of INR1.1 crores. And EPS of INR0.07. And above Q2 our figure includes Saankhya, for example, the Saankhya revenue of INR13.9 crores for Q2 has been included in the revenue. Similarly EBIT includes Saankhya EBIT of — loss of INR5.7 crores and the PBT and PAT of Saankhya for INR5.3 crores in Q2 ’23 — loss of Q2 ’23.

Next Slide. Key Financial Indicators. We had a cash outflow of — from operations of INR71 crores and net worth has been improved to INR2,548 crores. And there was an increase in the inventory to INR399 crores as of 30 of September. Inventory has been increased since we could not ship out the complete or — unbalance in the systems to fulfill the customers’ order due to the critical component shortages. And hopefully, we expect to consume or — consume these inventories in the second half of the — this fiscal year.

And trade receivables were at INR380 crores and we have collected INR201 crores during Q2. And the working capital has been increased by INR100 crores, and primarily due to the increase in the inventory level. Our cash position as of September 30 is INR1,402 crores, which includes the — after making the cash investment of INR280 crores for acquiring the 64.5 [Phonetic] percentage of Saankhya Labs’ stake. [Phonetic]

And with our healthy cash position of INR1,402 crores, we are in a well position to execute larger opportunities to scale up our business. And also, I would like to inform you that this quarter we had turned into the profitability.

With this, I will hand over to Sanjay Nayak.

Sanjay Nayak — Chief Executive Officer & Managing Director

Thanks, Venkatesh. I’m on the next Slide which gives you the break up of where our sales is coming from. So, as we have been doing in the past, we look at the trend line in terms of the total of last year and year-to-date, which is the first half of the current year in terms of how the different, you know, segments of our business are performing. So, if you really see the Run-rate business, which is a combination of India Private plus International, contributed to 80% of the revenue for the first half of the year out of which the India Government was total up 20% of the first half which represented a year-on-year growth of 66.7%. India Private was 51% of the firs -half and year-on year growth of 35.5%.

We do expect that going forward given all the things that are happening in India in terms of investment as well as — favorable environment for domestic companies, we expect that the growth in India will continue to be at quite a significant pace for our business as well. International was a total of 29% of the total for first half which on an absolute basis a decline of around 30%. So, we did around INR101 crores of International for first half versus INR200 crores for the whole year last year. So, we do expect that as the second half happens and given the backlog situation of more than INR187 crores that we have for International, we should see you know improvement on the International revenues for the second half of the year as well. In terms of the breakup of the backlog that we have of INR1,455 crores, India backlog is INR1,268 crores and International backlog is INR187 crores of total.

I’ll go to the next Slide which is just, again, a recap of all the different segments of the business, of the technology that we are playing into. If you see the chart on the right-hand side, is all the Wireline and Optical products that we’ve been having for a while. The DWDM category of our products continues to do extremely well. We are winning a lot of business in India and outside of India as well. The Broadband access which is the GPON portfolio, again, has been doing very well for us. And the product that you see on the left-hand side just over the star is our flagship product, the Ultra-converged Broadband Access, which is the same product that we had earlier used for other applications, and now is also being used as a 4G and 5G base station going forward. And this is a product that we have been trialing in various networks. So — and on the left-hand side, if we now see that we have a 4G radio product, we have a 5G product which is both O-RAN as well as the normal compliance, as well as we have products on the satellite IoT and Direct-to-Mobile broadcasting which come from the Saankhya Lab portfolio along with the software-defined Radio chipset that they have.

So as a res — as a result, if you see the richness of our product portfolio from Radio to Wireless to Optical is very rich. The challenge for us is to continue to make sure that we invest and make sure that these products are technically as good as they get in the world. But more importantly, start generating large business opportunities for the technology and product that we have created, and this is where we are seeing benefits. Last part of this technology I wanted to also talk about is the Secured Ethernet Switches which are used in smart cities, safe city, and other applications. And which again is a part of the business which is a fragmented business in terms of distribution, but it is starting to aggregate and become reasonably meaningful business, mostly from the Indian customer which are non-telco customers within the country.

Coming to the next Slide which is the summary Slide for me, and then we will, of course, open it up to questions, because I would like to give a more time for that. If I look at it from where we stand, our Q2 performance improved on the revenues and margins. We crossed INR200 crore revenue threshold after a while and we expect that we have [Technical Issues] now finally got a very good handle on supply chain. And we believe with our own internal processes and systems as well as overall global outlook, the supply chain is starting to look better. We expect that second half revenue starting from Q3 onwards would continue to see improvement and we should continue to see more revenue, better revenue performance going forward.

Order book is excellent at INR1,455 crores, and in addition, which is primarily on our Wireline products. Our Wireless products which we launched recently for the 4G and 5G will start generating reasonably meaningful revenues and bookings going forward. We have fairly good visibility to some of the larger orders and we hope that with those backlogs also coming in in the near term, we should have a very strong order book to be able to have predictable execution going forward from future quarters as well.

On the product side, we’re again very proud and confident that our products are world-class, they are award-winning, and the successful demonstration of our truly indigenous 5G technology with all kind of features and capabilities during the IMC, and the customer response that we got from the stakeholders who visited us there has been very encouraging, and we believe that now we are well set to become a both Wireline as well as a Wireless company.

We continue to make significant investments in R&D as well as in manufacturing operations because while we can get the orders, we also need to make sure that we can execute them — effectively. And I think we have been investing a lot into upgrading all our systems, processes, capabilities, and we are confident that as the business comes, we should be able to scale up our revenues and manufacturing operations as well.

The integration of Saankhya Labs is progressing well. They have a very capable team of people and products and our objective is to take the best advantage of synergizing what they have and what we have together and really build a very, very robust product business going forward. And as Venkatesh had said earlier, our cash position is solid. We are confident that we have the capability and now the balance sheet to execute large orders and scale up our business which is what we’ve been lining up to do over the last 12 months to 18 months.

That’s really where I’ll pause and thank you for understanding the details of our business and now we will open up for questions for the rest of the — part of this hour.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions]

The first question comes from the line of Pratap Maliwal from Mount Intra Finance. Please go ahead.

Pratap Maliwal — Mount Intra Finance — Analyst

Hi, and thanks, for taking my question. So, I just had a question on the BSNL 4G deal update. So, there were reports that the TCS was on the final stages of closing a deal with BSNL for the 4G network the reported figures to be around the $2 billion range, so could we just get an update here on the timeline of orders and what progress we’re making here?

Sanjay Nayak — Chief Executive Officer & Managing Director

So, I think as we’ve been mentioning, we have been a part of that consortium. We have made very good progress in terms of all aspects of the deal in terms of technology improving as well as making sure that it’s a commercially viable dean, and the process is on and we do expect that sometime during the current quarter, all of those things should — in the right direction.

Pratap Maliwal — Mount Intra Finance — Analyst

So, sir, can we — you maybe have thought [Phonetic] that maybe in this current quarter, Q3, we should start getting some orders for that particular deal?

Sanjay Nayak — Chief Executive Officer & Managing Director

It’s very difficult to predict anything from the Government, but all I can say that anything that has to be done from our side in terms of enabling this business whether it’s from a product readiness or commercial viability has been done, and the process is on. And we do hope that we would get an opportunity to close that business at the earliest.

Pratap Maliwal — Mount Intra Finance — Analyst

Okay. Sure, sir. And regarding the order book, for how much of the order book we have the execution in the remainder of HY — sorry, FY’23, as I believe the seasonality kicks in and the later part of the year is seasonally better for us, so how much of the order book would we be executing in the remainder of FY’23?

Sanjay Nayak — Chief Executive Officer & Managing Director

Yeah, so typically, as you know, we have a fairly heavy second half compared to the first half. In different years, there has been 35%, 65% or 40%, 60% [Phonetic] between first half and second half. So, I think [Technical Issues] nonetheless, this year where the second half [Technical Issues] from the second half. What we talked about earlier in terms of getting a much better [Technical Issues] in terms of supply chain, in terms of planning process being in our internal tools, we do expect that the second half to be strong.

So, from the order book that we have, anywhere around 40% or so we would like to [Technical Issues] subject to, of course, supply chain issues not coming in the way. And if we see actually are able to manage that valve, the kind of number that I mentioned should be possible.

From customer angle, there’s a lot of demand for our products and the soonest we can produce and deliver is something that they would like. We have taken a [Technical Issues] quite a while back. The challenge in the supply chain difference [Phonetic] we are on the topic is that while certain parts of the [Technical Issues] component industry [Technical Issues] expected to come back to normal starting from next year [Technical Issues] parts still may have a slightly longer lead time. And unfortunately, in our industry, for example, in our company, we use [Technical Issues] parts, and even if one part or one component or once it gets delayed, there [Technical Issues]

So, we’ve taken all the actions. We do expect a fairly strong second half, in line with what have been [Technical Issues] have been very, very bigger compared to first half. But we still — I would have to be carefully watching [Technical Issues] situation is managed or doesn’t go out of what we think it should be in terms of improvement, and so on.

Pratap Maliwal — Mount Intra Finance — Analyst

Okay, understood. And just one final question if I may, the India order book as I understand it’s INR1,268 crores, so can we maybe break that up into India Private and India Government, the order book? India?

Sanjay Nayak — Chief Executive Officer & Managing Director

Usually, we do not break up the order book by customer segments, we break it up by International. But I can tell you that within the India order book, just to give you this sense of the kind of delivery timeline or pressure that we have on the two aspects of the order book. The International order book we typically will have to execute much faster because customers would require those equipment sooner. A significant part of the India order book is in — more in the form of say, for example, projects in the critical infrastructure segment, like we had announced the deal for power grid. So, now power grid when the power lines are set up or when the networks get set up, they are more like infrastructure-like execution projects which have a slightly longer duration.

So, the India order book, I would say, will get executed over a slightly larger duration of time. The India private gets executed quite quickly. The India Government takes a little bit more time to execute. And in International order book is, ideally speaking, if we have the material, they would want it from us immediately. So, I think this is how the blend of the delivery of the order book would come into play.

India Private, as we said, continues to be a strong segment for us, as I mentioned in my commentary earlier. India Government is, of course, we have a good backlog and a lot of funnel for new business as well. And the basis which is what I was saying that going forward even with the larger base, our India Government would continue to accelerate. And International on an absolute basis will continue to, of course, increase. But as a percentage because if India — India is going to grow at a much faster pace, we will still have a mix where India business will dominate the overall.

Pratap Maliwal — Mount Intra Finance — Analyst

Okay, sir. Thank you. I’ll get back in the queue. Thank you so much.

Sanjay Nayak — Chief Executive Officer & Managing Director

Thank you.

Operator

Thank you. Next question comes from the line of NGN Puranik from Enam. Please go ahead.

NGN Puranik — Enam — Analyst

Hi Sanjay. Nice to know that you have showcased a 5G Radio. It’s good to hear an Indian company doing all this. Can you give a sense of how we are going to production-ize [Phonetic] this, monetize this? What’s the path to glory in this? How will you — what are the steps forward?

Sanjay Nayak — Chief Executive Officer & Managing Director

Certainly, Puranik, first of all, thanks for your words. Really appreciate it. So, in fact just to give you a little bit of thought process and the strategy for building the 5G business. One good thing which Tejas has which is a very, very big headstart and — is that lot of the technology that we have developed whether it is for Wireline, which is Optical or 4G or 5G is all integrated. So, we actually have a product, they’re in the same box or same shelf, which you saw the picture earlier, you could make it as a base station, which could be 4G, 5G, or it could be an Optical.

So, the good part for us is that the incumbency that we have, we have shipped more than 700,000 to 800,000 of our systems worldwide, so the incumbency that we have allows us to upgrade some of these networks with newer technology that we introduce. So, the game plan for Wireless which is —

NGN Puranik — Enam — Analyst

Perhaps, marginal effort?

Sanjay Nayak — Chief Executive Officer & Managing Director

— With marginal effort. And that is why if you see the product portfolio that I displayed on my chart to create a product portfolio Wireline, Wireless, and Radio. And I would encourage you to look at even the biggest names in the world in the telecom OEM industry, probably one or two companies, maybe one from China and one from Europe, might have the same range of products that we have. So that gives you a direct confidence that the efficiency of our R&D processes and system and maturity is very good.

But then comes back to how do you commercialize this and how do you make a good business out of it. So, one is that we can upgrade a lot of our products for newer technology. Our game plan in Wireless is to make sure that we initially get a very large beachhead account for 4G, and 4G still has long legs and lot of business is there. And 5G will be a seamless upgrade on the existing product architecture that we have. So, the incumbency that we will now — so we take the incumbency of our Wireline and Optical business to get our feet wet into the Wireless business and the incumbency of Wireless starting from 4G will be used to leverage that we seamlessly upgrade to 5G.

So, from a customer experience, this migration becomes very easy. The maturity of technology, the products which have been field-hardened for 15 years — run the same software code base, so those are the benefits which we get. In fact, the use case for 5G around the world is using 4G as an anchor so the —

NGN Puranik — Enam — Analyst

Anchor…

Sanjay Nayak — Chief Executive Officer & Managing Director

— best [Phonetic] networks which have done that is to use a 4G anchor, put 5G on top, look at the markets where 5G has the highest potential, look at the bands where the 5G is going to give the maximum bang for the buck, and go and upgrade those things seamlessly on a pay-as-you-grow basis.

So, I think our architecture allows us. So our game plan is in the next 15 months, which is now till end of next calendar year. We would be focusing more on building this 4G anchor base in India, upgrading it to 5G in India, and maybe multiple accounts, and then start engaging during the middle of the year with International customers. And we have a lot of inbound inquiries from customers in Europe, in particular, who are looking to find an alternate to some of the incumbent suppliers from certain countries whom they would like to replace with new supplier, not just with the guide that you are used to from Europe.

So, actually, we have a “vacuum” to fill in certain markets, and it’s our ability to scale up and engage with them and be able to supply them equipment in their labs and in their fields, which is coming in the way. So, we’re taking a step-by-step approach, mature the products in India, get your supply chain up, get the products into right shape, size, and competitiveness, then go outside of India, the opportunities are large. And we believe that this way, we’ll nearly leverage all the stuff that we have done and really make a good business out of it, rather than just building products and then not being able to sell them commercially.

NGN Puranik — Enam — Analyst

So, you are now ready with both 4G and 5G?

Sanjay Nayak — Chief Executive Officer & Managing Director

Absolutely.

NGN Puranik — Enam — Analyst

So — and the 5G has happened with incremental effort?

Sanjay Nayak — Chief Executive Officer & Managing Director

5G — we — a significant part of the 5G comes from the Saankhya Labs acquisition. They have been working on 5G for quite some time, so we took their technology and their engineers and we are all working as one team. If you look at the radio architectures, we have really convert. So, that lot of the hardening and lot of the productization which has happened for the 4G radios that were already in play along with the 5G technology and all the different frequencies and different modes of working of Saankhya, we are able to accelerate the two together, which individually, would have taken a lot more time.

So, really taking advantage of the best that we have from both sides and accelerating the 5G.

NGN Puranik — Enam — Analyst

So, the TCS BSNL deal is extremely critical to both 4G and 5G today for you?

Sanjay Nayak — Chief Executive Officer & Managing Director

Yes. Any anchor customer of this size is very, very important for a company like ours because it just gets us into a step function increase in terms of capabilities as well as deployment opportunities and, of course, revenues.

NGN Puranik — Enam — Analyst

And your own share of economics in this deal will be how much?

Sanjay Nayak — Chief Executive Officer & Managing Director

Typically, RAN is a fairly large portion of network so as you can see, because that’s a very large amount of field deployments, every site or cell site could potentially have, radios have one or two bands, or three at times, so it’s a fairly large opportunity. And a very significant opportunity to scale up our company in terms of supply chain capabilities — financials and everything else.

NGN Puranik — Enam — Analyst

So, in a INR2,000-crore deal, you will get a share of what, 50%, 60%, or more?

Sanjay Nayak — Chief Executive Officer & Managing Director

I think let the deal happen and then we’ll, of course, will happily share.

NGN Puranik — Enam — Analyst

Let the deal happen, yeah. No, I’ll leave the deal happen. That’s very critical to — for India and for you and both in the 4G and 5G, that’s very important.

I have another question — but you mentioned a very interesting number that you have 400 IPs combined, you and Saankhya combined, 400 IPs. I think you are an IP company. Very few IP companies of your stature, but what I want to understand is, see what happens is, generally, most of the IP companies work on product benefit and new ideas and all that, but they get lost on the monetization road [Phonetic] on the road to economics.

So, I want to understand this 400 IPs, the character of this 400 IPs, potential of this 400 IPs. In fact, last time also, I asked you — asked you about, how many of them are production IP, sales IP, process IP, defense IP? And which will — for example, if you can explain through, for the 4G and 5G creation, what — how many of these IPs are deployed. So, if you can give some sense of the power of these IP — so, we’ll get an understanding when they’re going to get monetized.

Sanjay Nayak — Chief Executive Officer & Managing Director

Yeah, so first of all the good part about our company is that we just don’t create IPs for the sake of creating IPs or filing patents. The best part is we actually productize them, so if look at even — if I look at the total IP portfolio, it is spread across Optical products, Ethernet products, 4G, 5G, and even 5G advance, which is going to be a part of 6G. Some of the IPR also pertains to that because some of the new things which are coming, those standards are contributed by our teams here in India, from India, right. And in fact, even there is a lot of talk that finally for the first time, India is actually contributing to global standards and correspondingly filing the IP.

So, I think we have a whole spectrum of IP which is across these four domains that I mentioned, it is Optical, Ethernet, and 4G, and 5G, and onwards. Now, what we do is all the product that we create, so everything that we build, for example, or a transmission — box, or a 4G Radio or a 5G Radio, or a broadcast tool, a direct to broadcast radio, and so on. So, there’s a lot of offerings. These are actually, of course, embedded into it.

So, as such, we are not in the business of selling the IPO licensing, the IP to anybody else. It is not for use in our own products so that we get a differentiation to begin with. And secondly, as you also mentioned, part of this patent is also defensive in nature because we also need to make sure that we have a reasonable portfolio of IP with us so that, at any point in time, we always have a situation that we can have a fair negotiation with anybody. So, I would say, it’s a combination of all of that. Our interest in the IP is to really make products which are world-class mix products which are — and are really meaningful and differentiated to the customer, and at the same time also, protect some of the uniqueness of things that we have done.

NGN Puranik — Enam — Analyst

And you are saying there is a method in the creation of this IP, they have a direction, they have their own proprietary stature in the portfolio, they can add value, there is not — none of these IPs are redundant if — when you do an IP audit, perhaps you will know. If you give some sense of that, that will be useful.

Sanjay Nayak — Chief Executive Officer & Managing Director

Yeah, we have not done a formal IT audit but, yes, as we [Speech Overlap] said, just to maybe highlight that some of the IP that Saankhya has been creating is actually going into 6G standard, that’s right. So, that gives you a sense of the importance of that IP, right, in terms of how would you do a broadcast 5G application in a certain way, let’s say, right? So, those are all things which are extremely valuable. They will be productized in the form that will be meaningfully useful for a customer to do something new, do something in a different or a clever way, give a differentiation to a product.

So, that’s what our focus is. And really, as I said, I mean productization of the R&D or the intellectual talent that we have in the company is something that really is what we focus on versus just creating a portfolio and — that [Indecipherable] it to someone else. In that sense, we are a — make the — because — and similar — actually just to give the same point, like Saankhya earlier, we used to do a lot of the R&D services -work, very, very complex R&D services work for — certain kind of customers who would love to get stuff done by Saankhya.

We believe that the talent and the capabilities are better utilized for accelerating our own products. And then, getting that kind of service revenue is not that meaningful for us. If we were a services company, then absolutely. But we’re a product company. We see a lot of business opportunities, we see a lot of things that if we have this product yesterday, we could sell it. So, we would rather put all our engineers and all our talent in that direction rather than, in the short-term, maximizing our revenues and providing services to someone else.

NGN Puranik — Enam — Analyst

So, if you had to — be yourself [Phonetic] for International opportunities, Europe or US, how do you — for a large deal, how do you pace [Phonetic] it? Is it different from how you do it for an Indian company?

Sanjay Nayak — Chief Executive Officer & Managing Director

So clearly, I think depends on the market and depends on the dynamics of the customers. So, I think, one other thing I would like to highlight here is that, over the past two years, there is a lot of geopolitical situation which has changed in the world. So, if earlier on, if you were a new equipment provider — one of the questions someone would ask is how are you better than company A from country A or company B from country wherever else, right? And the owners are proving that you are far better than either on cost or feature or performance, the technology wasn’t new, right? Now, there is a slightly different conversation which is: I have to replace equipment from vendor A or B, and I do not want to go to the same set of people who were there before, and I want to get competition, and if they just look around in the world, probably, we appear to be one of the best set of people or set of product that can give them that confidence and comfort that not only this product’s good enough that it has worked against global competition in India, it has been warrant [Phonetic] Indian price points, and this company continues to do well. And the fact that now we are a part of the Tata Group and have all the other benefits of the Group companies, the confidence, and the trust is much higher.

So, really feel that in that sense when now — as you ask the narrative when we start attacking international deals of the larger clients, is really that we are a very credible alternative to the whole ecosystem which is 4G, 5G transmission or whatever, than what was earlier. And if you see some of the commentary that — even at a national level from India which is being — said by leaders in our country that for the first time, India now actually has 4G and 5G products which world-class, hence, we want to not just become an importer of telecom products, but become an export hub.

So, I think that just kind of gives you a sense that the opportunity is coming from different corners and for different reasons. And the fact that we have had success in India is a very good benchmark of confidence because every global player and everybody watching what’s happening in India and [Technical Issues] in India is always considered highly valuable and we do get instant credibility.

Where we were handicapped earlier was lack of brand on international market, lack of local support, lack of a comfort that you guys will be around five years or 10 years from today. But with the partnership of the Tata Group, I don’t see [Technical Issues] any more relevant. Of course, we want to mature our products, especially the newer ones, like I mentioned on 4G and 5G in India before we go for an all-out thing, internationally, which is what the prudent thing to do given the complexity of this technology.

NGN Puranik — Enam — Analyst

Excellent. One last question on business economics. The bread and butter, livelihood question. When to think you will get back to a 15%, 20% operating margin, which typically a power of IP company? How soon?

Sanjay Nayak — Chief Executive Officer & Managing Director

[Speech Overlap] Yeah, so what we would like to compare ourselves out in the medium-term would be we try to become among the best-in-class among telecom equipment companies worldwide — because our comparison with the IT services company may not be the right comparison because the market and the profit dynamics are slightly different —

NGN Puranik — Enam — Analyst

But comparing an IP company only, no —

Sanjay Nayak — Chief Executive Officer & Managing Director

— Okay, IP company, yeah. So, if I look at a product global telecom OEMs, our target is that in medium-term we should become among the most profitable, and in the long-term, not only should we have very large revenue in terms of global market share, we should possibly be the best-in-class, because with Indian R&D cost advantage, with a large home market that we have, which of course in the local market your sales cost are lower. The fact that in India if you win and you fine-tune your processes, system, product, you can make a lot of margins when you go outside of India, are all positive.

So, I would [Speech Overlap] what we are thinking right now is rather than optimizing and getting to this profit target in the next one quarter or two quarters, [Speech Overlap] let’s invest for the next, you know, short period of time, I would say. Get the scale, get the size, get the feasibility, and after that, it’s very, very straightforward, because if you can make X percentage of profit really [Phonetic], you sell outside of India, you can add 10 months to 20 months. And I think that’s something which we have done it before, and our goal today is to really make sure that we build the company for long term, we build processes, systems, people, talent, manufacturing — cost optimization, so that everything that we do in India is a [Indecipherable]. And that success will really leave products a very short — in a very short period of time when we go internationally, rather than trying to defuse our resources and optimizing the near term.

NGN Puranik — Enam — Analyst

Absolutely. Now, that’s what I was asking, I’m asking you, then two year down the line, will you be at 25%, 30% margin company? [Speech Overlap]

Sanjay Nayak — Chief Executive Officer & Managing Director

I’m not going to state the [Phonetic] numbers, but two years along the line, we should be definitely among the better-run telecom equipment company in the world.

NGN Puranik — Enam — Analyst

Correct. Because with the power of your IP, you should be a lot more profitable than the rest.

Sanjay Nayak — Chief Executive Officer & Managing Director

And then the fact that lot of it is done from India which is — we never took advantage as a country to do a lot more R&D for a lot less. And which is all evident in what we’ve already done and what we will be doing. So, sighting all those basic elements which you articulated are all right. The reality of that comes with scale. Scale is what we need to get sooner than later, and then, focusing to make that happen. So, I think if we just play the thing in the right sequence, we are very confident that we will deliver what the potential of the company and country in a larger sense, since you mentioned that it’s important for India, so now we’re in this new ecosystem. I think we feel that we have the best shot to do that.

NGN Puranik — Enam — Analyst

Wonderful, Sanjay. Thank you. All the best to you and your company. And Happy Diwali.

Sanjay Nayak — Chief Executive Officer & Managing Director

Thank you, Puranik.

Operator

Thank you. Next question comes from the line of Vimal Gohil from Alchemy Capital Management Private Limited. Please go ahead.

Vimal Gohil — Alchemy Capital Management Private Limited — Analyst

Yes, sir. Thank you for the opportunity. Firstly, it’s good to see quarterly improvement in your revenues, even excluding Saankhya’s, so congratulations on that [Indecipherable]. Sir, just I joined the call a bit late so please pardon me if I’m making you repeat something. Sir, just on your profitability, I mean, you had guided that — some of your fixed costs agreements which you have signed which are already presenting your order book are already at higher raw material level — are at higher cost level, so that could have an impact on the margins going forward is what you had indicated last quarter. But it certainly seems that you have sort of turned the tables around in this quarter despite Saankhya having a loss of about INR5 crores on the property level. [Phonetic] So, just wanted to get a sense on what has led to this positive surprise if at all if you feel so?

And second question was on your International revenues. We have seen a bit of softness with — would you attribute that to?

Sanjay Nayak — Chief Executive Officer & Managing Director

Yeah.

Vimal Gohil — Alchemy Capital Management Private Limited — Analyst

These are my two questions.

Sanjay Nayak — Chief Executive Officer & Managing Director

So — no, fair enough because I did not answer these questions so you didn’t miss anything. We have — on the first question, yes, you’re absolutely right that some of the rupee-denominated contracts in India were fixed-price and given this component cost increases and all that, we did have a challenge. The product mix in the last quarter was a little bit more favorable to us in terms of things where we could get certain cost down or get cost reduction or maybe the margin on those specific deal that we had signed or the things, I wouldn’t have the exact pulse [Phonetic] in terms of what were the one or two deals that actually made it happen. But broader base, I think we did do better in terms of improving the margins.

One other thing that’s relative here on the topic of margins, one thing which we also are trying to do is that as we lineup for executing at a much larger scale, and I’m again very happy to say that, lot of the global chip suppliers are treating us far more seriously than they would have treated us a year back, let’s say, right? Because they do see that what I mentioned earlier that if in a few years’ time, there could be a new global OEM which could be emerging which could potentially be a large-scale company, we have a very good shot at being that company. And if that is the case, those chip suppliers are also giving a strategic pricing, strategic delivery timeline, not as good as we would like today, because they still are handicapped by their supply chain shortages in terms of frac [Phonetic] capacity, and so on. But the way things are unraveling, especially in the last two weeks, how some of the geopolitical developments have happened, we have reasons to believe that the supply chain situation in terms of chip supplies can potentially only improve from the levels that things are, including some of the pressure on pricing can release. But of course, all of that will take time to unravel. So, that’s one part on the margin side.

Second question you had was on the International side. So, as you saw, we have a backlog of more than INR150 crores-odd or INR180 crores on the International side. It’s again a situation where we, especially for international customers because in India, Indian customer, suppose we have to ships an X number of systems, you could ship some percentage of X in lot one and you can do some percentage in lot two. But in international customers of — different time, they would prefer all of that equipment to be delivered in a certain way, in which case if we have any kind of imbalanced inventory, I would not be able to ship it to them.

So, I would say that, this quarter, it was just a function of what were the customers that we had to give priority, what are the things we could manufacture, and complete our systems. But as I mentioned earlier, going forward, on an absolute basis, at least, International performance in the second half will be better. But as a percentage, if India continues to grow at a very fast pace, either this year as well as next year, as a percentage, of course, International will be lower. And our target is that we are taking one step at a time and get to scale using the volumes of the home market in India, while all the engagements in terms of lag [Phonetic] price and other stuff, it’s the critical customers internationally we will continue to do.

But I must also highlight that our existing customer base continues to do well. That is the reason the Run-rate account from various international geographies like Africa, Southeast Asia, and so on and so forth, continue to give us good revenues. But developing Europe and US, which can give us significantly larger revenues, will be something that will take a little bit more of our time. And given just the priorities, given the amount of opportunities available in front of us, starting from India, on larger deals, we just have to make sure that we do a good balance and don’t ignore the home market just because it’s home market. I think it’s a very valuable home market and we wanted to take the best advantage of it.

Vimal Gohil — Alchemy Capital Management Private Limited — Analyst

Understood, sir. That’s great to hear. So, basically, what I would — the short takeaway would be that going forward would be — there would be sequential — the sequential improvement that you’re showing will sort of continue? Would my assumption be right in terms of top line and profitability?

Sanjay Nayak — Chief Executive Officer & Managing Director

Top line, definitely. We believe that with all the action that we have taken internally and the external — situation seeming to improve, we definitely do believe that the top line situation will continue to improve over the next few quarters. And as scale catches up with us, we also believe that we should start getting better control on our margin and pricing. And I mean, I would say it would not happen overnight but the trend, definitely, it looks very positive and upwards for us.

And, of course, our objective is to make sure that, larger deals, of course you know, come with their own set of challenges and we want to make sure that we are ready to execute. Because scaling up and getting to the right size and getting to the right capabilities, and proving this [Phonetic] is very, very crucial because that really propels us into the larger lead if we can execute these near-term opportunities very well.

Vimal Gohil — Alchemy Capital Management Private Limited — Analyst

Understood. Sir, another one on Saankhya. Again, I’m not sure if you’ve addressed this, but just on profitability, what is the output there? I mean, while you have indicated in the presentation that the integration is on, but are you as confident in Saankhya that Saankhya will be able to be profitable — as profitable as Tejas is going forward?

Sanjay Nayak — Chief Executive Officer & Managing Director

So, I think I mentioned actually in the context of Saankhya integration that the focus for Saankhya is not — we — I mean, Saankhya had two businesses before we acquired them, one was Services business, very high-end R&D services that they were doing in addition to including their own IP in those services for clients abroad, right, or in India, wherever. And that was a reasonably profitable business for Saankhya.

And the second thing Saankhya was doing was developing their own products which, of course, once your own product, we have a lot more potential. So, what we have taken a conscious decision is that we want to focus on the second activity a lot more. You’d rather take the outstanding talent and the capabilities and use them for not just Saankhya products but all the 5G subject, for example, we talked about. A lot of the 5G heavy lifting from the — capabilities came from the Saankhya team.

So, rather than focusing on the profitability of Saankhya, we are now looking at is Tejas plus Saankhya as one team, one entity, and really creating a portfolio of products and prioritizing the R&D in areas where we see maximum possibilities of revenue scale up and profitability scale up going forward. So, we are kind of doing a Tejas plus Saankhya optimization rather than Tejas optimization, rather than Saankhya optimization only. I hope that answers your question.

Vimal Gohil — Alchemy Capital Management Private Limited — Analyst

Sure, sir, it does. And sir, lastly, some media reports indicate that, you know, we are sort of frontrunners for the large BSNL deal along with the first — along with TCS. Sir, just to understand this — just to understand this a bit better, the receivables with BSNL that will happen while you are actually putting this project, how will this get certified? I mean, will TCS be — will we provide our services to TCS, and then TCS takes the receivables on our behalf, or will it work the way it used to? Because our historical experience has been that — typically, execution of — the execution of these contracts have sort of stretched our balance sheet a bit in –which I’m sure you’ll agree, which has happened in the past.

What are we doing so that that does not repeat going forward, then maybe, which is [Phonetic] the BSNL subject?

Sanjay Nayak — Chief Executive Officer & Managing Director

First of all, let me tell you that, at least, whatever we can do from our side as Tejas to be successful in winning large deals, we are doing. And as I mentioned earlier, whether it’s technical or [Technical Issues] I think we are playing our part well. And I am confident that, at least, everything that should be done from our side is being done.

In terms of the media reports, we also read the same media that you do. So, I guess, when the things actually fructify, we’ll all know it. So, that’s the second part.

Coming to the third part in terms of the financials and the receivables from BSNL, all I must tell you is that the good news is — that BSNL is a very well-capitalized company right now. They have been given I believe from the media report that I’ve seen close to INR160,000 crores worth of support from the Government of India which is including a significant amount of cash infusion. So, I think as an operator BSNL is a fairly healthy and solid customer. So, I don’t think we need to worry about that part of it in terms of the receivables.

Second thing I must tell you that over the years we’ve had a fairly good and detailed working experience of how to work with, not just BSNL, but any other BSU [Phonetic] operator or even private operator or anybody else, in terms of making sure that we follow the processes and systems to the T, because the better you do at that, the lesser the chance of any financial — receivables or anything adding up. The problem comes when the company is financially not solid, which was a case of BSNL in the past. But going forward with the kind of government support they’ve got, we being much more experienced in terms of the processes and systems, we’re working with other consortium partners who are quite mature and experienced in handling large projects. Over — and the government intent overall to make sure that we create a vibrant and healthy ecosystem from India, which not just does well in India but does well around the world for India, I think all of those things make us far more confident that we will be disciplined about execution and we will make sure that whatever profit and whatever financial gains that are got are all done and actually realized.

And so, we will be using all our experience in all the noise to make sure that we execute well on these larger opportunities as and when they cook for us.

Vimal Gohil — Alchemy Capital Management Private Limited — Analyst

Great, sir. Thank you so much for your detailed answers and all the very best for the future.

Sanjay Nayak — Chief Executive Officer & Managing Director

Thank you. We’re almost out of time but if there is one last question since didn’t announce, I’ll be happy to take that.

Operator

Thank you. The last question comes from the line of Subrata Sarkar from Mount Intra Finance Private Limited. Please go ahead.

Subrata Sarkar — Mount Intra Finance Private Limited — Analyst

Yeah, hello. This is just a follow up question. Sir, where — as per whatever product we have like we have 5G SA product right now, not NSA product as we are all aware like largest Indian operator, telcos have announced for SA kind of 5G setup. So, in this context light, how would we seep [Phonetic] in, or like — comment on that, sir.

Sanjay Nayak — Chief Executive Officer & Managing Director

I would actually — I have the pleasure of Dr. Kumar Sivarajan, our CTO, so I think between SA and NSA, as you mentioned, I’ll request Kumar to give a — give his views on that.

Kumar N. Sivarajan — Chief Technology Officer

Yeah, sure. So our 5G products will support both SA and NSA, okay. And the — our 4G which is deployed will be able to work with our 5G in NSA mode. So, we are supporting both modes of operation depending on the choice [Phonetic] of the offering.

Sanjay Nayak — Chief Executive Officer & Managing Director

And, in addition, by the way, the 5G product that we have architected is also going to be compliant to the kind of thing that Kumar spoke, but in addition, even if it’s an O-RAN architecture, it will be compliant to that as well. So, in that [Technical Issues] agnostic to the deployment scenario and standard scenario that an operator may choose, and that gives us the flexibility to be in larger number of opportunities than we would have otherwise done if we were bottled into a particular architecture or a particular way of implementation alone. I hope that answers your question.

Kumar N. Sivarajan — Chief Technology Officer

Yeah, perfect. Thank you.

Sanjay Nayak — Chief Executive Officer & Managing Director

Okay, great. So, thank you. You know, again, we appreciate you all taking the time just before Diwali and as I said, you know, this quarter has been a good quarter in terms of getting the momentum in the right direction. The order inflow is good. The order book is very healthy, that is for the Wireline part which gives us confidence that all the work we have done over the years is very, very impactful and getting good. On top of that, the Wireless business is coming as a nice add-on business. And we — good — see good signs of larger opportunities closing. The supply chain and the operations that we have taken a lot of active role in terms of fine-tuning and shifting — shifting the systems and processes is all coming together, which showed in terms of the Q2 performance.

And as we mentioned earlier, going forward, we expect to continue to see improvement in both directions. So, overall, I feel as a company, we are all committed in making sure that we look at the medium and long-term picture, do all the right things, and in the short-term, make sure that the execution continues to improve so that the company starts realizing the full potential that we have been working for so many years.

So, thank you. I wish you all and your families a very, very Happy Diwali. And enjoy the upcoming holidays. Thanks, again.

Operator

[Operator Closing Remarks]