Sterlite Technologies Limited (532374) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the STL Q3 FY '21 Earnings Conference Call. I'm Pankaj Dhawan, Head of Investor Relations at STL. To take us through the Q3 FY '21 results and to answer your questions, we have Dr. Anand Agarwal, CEO, STL; and Mr. Mihir Modi, CFO, STL, with us today. [Operator Instructions] Please note that this call is being recorded. You can also download a copy of the presentation from our website at stl.tech. Before we proceed with this call, I would like to add that some elements of today's presentation may be forward-looking in nature and must be viewed in relation to the risk pertaining to the business. The safe harbor clause indicated in the presentation also applies to the conference call. For opening remarks, I now hand over the call to Dr. Anand Agarwal. Over to you, sir.

Thank you, Pankaj. Good day, everyone, and thank you for joining us for our Q3 FY '21 earnings conference call. I'll start off with talking about how 2020 clearly came as a year of inflection other than what we saw on the pandemic front. We saw that it, in some way, created also an inflection for the digital networks as these networks clearly proved to be the backbone of the society in the year of the pandemic. We saw that Internet user growth accelerated as almost 2 million new users were getting added every day in 2020, which was unprecedented, increasing the percentage of globally connected population to almost 60%. We also saw a disproportionate amount of investment coming in to create these networks. We saw strategic investments such as our Jio raised capital of almost $20 billion and financial investments by various private equity players, particularly in European FTTx networks. And this investment momentum has further gained traction in the previous quarter. Some of the notable investments that were announced in Q3 included Amazon's investment in data centers in India, FCC's allocation of almost an additional $10 billion in the Rural Digital Opportunity Fund in U.S., Telefónica and Allianz private equity investment of close to $5 billion to create FTTH infrastructure in Germany, as well as EQT's investment in Proximus to create fiber-to-the-home networks in Belgium. And we are seeing this trend, what we've been reporting quarter-on-quarter across geographies. We are seeing the strength continuing and strengthening itself. So as we've been mentioning, we clearly believe that the decade of digital network creation has started, and this is powered by this investment momentum that we see. And what we are seeing other than this investment momentum, the -- there's a shift which is happening in terms of technologies also. There are new technologies which are entering in stream. And the networks that are getting created with both scale, reach and the right kind of quality. If we look at overall 5G in 2020, multiple operators, more than 100 operators launch 5G services across 48 countries. And almost more than 230 million 5G connections came in globally at almost 4x the adoption rate than LTE in a similar time scale. Plus, 5G is also driving very significantly both data consumption as well as nonhuman connections. And the supporting ecosystem is also clearly getting built up with this almost 229 million connection. More than 300 5G devices have become commercially available as of now. We are seeing a great amount of network development. China deployed almost 700,000 base stations in the previous year and is planning to almost double that rate and reach more than 1.7 million base stations by end of this current year. In terms of fiber-to-the-home rollout, we saw that Europe continues to witness great amount of build-outs with multiple operators doing more than 1 million home pass every year. And in the next 5 years, Germany, Italy, U.K. are -- have announced the most aggressive and frantic FTTH build-out. Plus, we have seen announcements back home in India as well, both our Jio and Airtel planning to reach between 75 million that Jio has announced and 40 million home pass at Airtel as announced in the same time frame. On the technology front, as expected, what we've seen, that open radio access network or ORAN is making inroads with major communications providers deploying this new technology in the network. Airtel has deployed open RAN software and is starting to do that across some of the test areas, especially in the rural side of the network. We have seen Telefónica in various parts of Europe. We have seen multiple [ both ] trials as well as commercial deployments with Dasa Telecom, Vodafone, MTN, Saudi Telecom. So with these developments happening, we believe even open RAN market is very focused towards growing rapidly in the coming years. And what this has led to the things that we spoke about in terms of investment, in terms of technology shift, it has also led to a revival in terms of an optical demand. The demand of fiber has come back, as we had mentioned at the end of H1 of 2020 calendar year, that the demand strengthened to almost 255 million kilometers in H2 of the year, which has annualized more than 500 million kilometers. It was not only better than H1, which was expected, but it was also better than H2 of the previous calendar year. With different markets, where North American market has seen continued growth in deployment, we've seen China market turning a corner and is seeing growth in volumes on the back of the 5G base station deployments. Europe is improving on back of the FTTH activity, while at the same time, there is the second wave of this pandemic has acted a bit of a dampener in terms of the demand recovery in the current quarter. And demand in the Indian market is also expected to clearly revive based on the backhaul linkage of towers, FTTH announcements done by the telcos as well as the rural deployment focus, which is continuing to be there. And as we have been talking about it, that this is -- this current focus is different because investment shift is also coinciding with the technological confluences which is happening. So 4 clear technological confluences, which we have been mentioning and we are keeping a clear eye on. One -- first is the fact that the networks are getting benched very, very closer to the edge. And that's for Gartner by -- in the next 4 years by 2025, 75% of enterprise-generated data will be both created and processed at the edge as against just about 10% in 2018. The second shift which is happening is that the new age networks are no longer wireless separately or optical separately. These are converged networks. So the 5G networks are as much fiber networks and visa versa rather than it becoming one or the other. So 5G networks build-out is coinciding with fiber to the cell, fiber to the home and fiber to the enterprise network. So it is coming together to provide this high-speed connectivity. The third shift which is happening is that the networks are not only about connectivity. The networks are about connectivity, compute and storage. And there is data from global market insights that micro data center market, which is the data centers at the edge, will grow fivefold from now till almost 2025 or so. And the fourth shift, which has been -- we have been talking about, that open and virtual radio access network is now a reality. DISH Networks in U.S. has committed to covering more than 70% of the U.S. population by June 23 with its stand-alone 5G network, which is based on this open RAN architecture. Moving forward. How all of this is relevant for STL, as we have been talking about it, at STL, our strategy has been based on these shifts and these technology trends, and these are getting validated as we keep moving forward. And we have been building our capabilities very systematically towards this technology evolution. As you know, in the optical connectivity area, we have been very strongly in the industry for more than 25 years now. And now with this acquisition of Optotec, we have clearly strengthened our capability in providing end-to-end solutions. We have built our capability in the wireless area and the software and the cloud with investments in Elitecore that we did 5 years ago, ASOCS and IDS, which we did over the last 2 years. And we -- combined with the ecosystem alliances, we have a full solution available that we are getting for wireless in software. And then lastly, on the basis of our experience and execution of large-scale projects, which we have built up over the last several years, we have also strengthened our end-to-end capability in creating, designing and deploying a system integrated network. So we shall now talk about our focus, our strategy as we see this next decade of network creation. And we will just update you on the key levers that we have been talking about for the last several quarters, that we are ready and continuing to strengthen our capability and readiness with our 5 strategic key pillars, the first pillar being the end-to-end solutions with a lot of focus on the technology, which is matching both the shift in the customer requirements as well as helping us address a much larger total addressable market. The second pillar, clearly, is the very strong ecosystem alliances and investments towards increasing the total addressable CapEx. The third pillar is large-scale, complex system integration for these converged networks, which are both wireless and wireline networks, compute and connectivity networks to deliver both speed and value to our customers. And the fifth and very important pillar is in terms of continuing to build top talent as well as the right culture towards driving and creating our own knowledge base and delivering great returns of our shareholders and community. So talking more about these individual pillars, if I start off with the technology-led solutions. Our flagship portfolio on optical connectivity is now largely fully integrated. We have made great investments and advancements in optical fiber cable as well as optical interconnection kits. In terms of fiber, as we had mentioned, we had introduced and we are now selling industry-leading, first of its kind fiber called Stellar, which offers very high resistance to bend as well as very negligible data loss as the cable has very high micro bend resistance. We have introduced a new cable field, which is a new entire cable, which is very high-density-driven cables with up to 7,000 fibers in those cables being deployed largely for data center interconnects. And this capability with the optical interconnect makes this our solution, which is called Opticonn, a great comprehensive solution. And Opticonn is that end-to-end solution for transmitting data with a very strong plug-and-play component, which decreases the need of skilled manpower in the field as well as significantly saves time with field-ready plug-and-play solutions for our customers. We have also done significant technology-led enhancements for our integration and delivery solutions. We launched this STL LEAD 360, the second 2.0 version, which is our fiber rollout solution. This new version of LEAD 360 has a lot of technology interfaces using the robotics, using drone survey, using VR-based digital training as well as very strong cloud-based planning and integrated remote field management to ensure both very fast as well as long-lasting network rollout. So a great degree of focus and technology enhancement is also going for our field rollout and project rollout areas. The third focus that we have done is we have launched our range of wireless solutions in Q3. Again, the first amongst this is, again, our industry-leading, what we are calling it Garuda, which is a smart 5G indoor small cell as we all know that 5G signal will require closer proximity to mobile devices. And so creating a need for short-range networks, and this Garuda will seamlessly complement the network capacity, density and coverage of macro network and serves as a single board optical-to-radio interface solution for 5G low-power pico cell application. Another thing that we have also introduced solution is our end-to-end multiband radio for next-generation 5G networks. And this one is a comprehensive open RAN solution spanning across both radio unit, centralized unit and distributed units. And STL is now one of the very few in the world to offer the 5G ORAN solution for multiband radio. And we have also launched our high-capacity outdoor Wi-Fi access point for high-density deployments. All these products right now have kind of gotten converted towards both lab deployments with some of our customers as well as field deployments. And we believe the commercial rollout of these products will start happening post these phases that we go through our customers towards H2 of FY '22. So we are very focused on these products getting rolled out towards -- in terms of field deployments. In terms of ecosystem investments, we are very happy to announce that we have completed the Optotec acquisition in the current quarter. All the pending approvals, et cetera, which were there in the local market have been completed, and we have finished this acquisition. And we are very optimistic that with the combined capabilities of STL as well as Optotec, we'll start making quick inroads in the global optical interconnect market with a total addressable market of almost between $8 billion to $10 billion globally. Also, as we had announced last time, we have the investment from 18 million to 33 million kilometers that we had put on hold temporarily. We had this fully running back on. And by June of this year in modular fashion, the entire capacity of 33 million will be fully available in terms of operations. And as we had announced at the end of last quarter, our optical fiber cable capacity is running almost at full capacity. And we believe, between 18 million to 33 million, we will have some capacity also available before we end this quarter in March. In terms of another shift for the ecosystem, we have -- for 5G access, it's clearly becoming more and more an ecosystem play for us. The ecosystem alliance is bringing together complementary capabilities with us integrating the entire solution. We are working with several companies on the hardware front. We are working with several companies on the virtualization front, both with the partnership as well as investments, including on the go to market. And on the software side, clearly, we are building in-house capability. At the same time, we have formed various academic alliances. We are also a part of various standard forums, playing a very active role in developing these new open networking standards. In terms of our large-scale integration capabilities, our -- this large-scale integration engine is running on full throttle. Most of our projects that we have on hand, Project Varun, which is for the Navy, is now 87% complete. The Maharashtra project for rural broadband, again, 92% for the Phase 1 and 35% for the additional phase. The T-Fiber rollouts have started in the current quarter. And the rollout for telcos, the fiber rollout has also significantly moved forward, almost 20% complete in the current quarter. So we have various orders between some getting towards completion, some getting towards start, and that's the right mix as we keep moving forward. On the key account TAM side, we have built clearly an account-based organization with global expertise in customer engagement. In addition to that, we are investing clearly in processes and capability. And put together, it is resulting clearly in deep engagement with our key customers globally. Moving forward, we have key talents which have joined the company also in the last quarter. We have Sandeep Girotra joining us as our Head of Sales with this account-based organization. Sandeep has more than 25 years of global experience in Nokia. We have Srini Jagadeesan joining us as Head for Wireless Product Development. And then joining us on the policy side, Keith Rowley joining us on the services and in U.K. and Saikat joining us on the network software. These -- all these leaders are extremely important, driving key parts of the growth for the company as we continue to move forward. In addition to this, we have -- also have additions to our Board of Directors. We are extremely happy and excited to announce that Mr. B.J. Arun, as well as Mr. S. Madhavan are joining us as Independent Nonexecutive Directors. And Ankit Agarwal has joined us -- joining in as a whole-time Director. Mr. B.J. Arun is a serial entrepreneur in the technology space and is currently the President of TiE in Silicon Valley. Mr. S Madhavan has had multifold experiences and is currently an Independent Director in HCL Technologies, ICICI Bank and a few other companies. And of course, as you know, Ankit is our CEO for the Connectivity Solutions business and now is coming on the Board of STL. These announcements are all in timed to plan for 2 board members who are retiring at the end of this quarter. And Ankit Agarwal has stepped in place for Pratik, who has stepped down and resigned from the company. So the Board will, at the end of March, continue to have 8 members and with 4 being on the independent -- nonexecutive independent directors. So overall, in summary, what I can say is that 2020 has clearly brought in a new decade of digital network creation. All these new networks will be converged, will be virtualized, will be open compute enabled at the edge. We have built in technology solutions as well as scaler capabilities for execution for these new networks. And we are current -- clearly creating both capabilities and capacities on -- at optical and at the wireless as well as on the system integration end and a very strong focus in deep key customer engagement and offering solutions-based model for these customers. And post that, I would now hand over to Mihir to discuss the financials for the quarter.

Sure. Thank you, Anand, and a very good evening to everybody. As I walk through and talk through our financial performance, I think at the outset, I'm very happy to share with you that our financial performance is showing the momentum that the business is picking up over the last few quarters and as it will over the next few as well. So let me start right at the top. Our participation funnel is growing, as you see on the right-hand side chart from an open participation funnel of about INR 12,000 crores in Q2 of this fiscal. We are now at INR 13,800 crore at the end of quarter 3 of this fiscal, clearly indicating an increasing set of opportunities for us and we believe that that's a deliberate strategy, parts of which Anand mentioned and a couple of pointers on that I will talk about later on as well. Translating the participation funnel is indeed the order book. Our order book has been healthy. While it is stable at INR 10,700 crore, we are excited that it can [indiscernible] across of our order book has been INR 1,500 crore in this fiscal itself, about INR 5,500 crore in the next fiscal and INR 3,800-odd crore in the remaining years. It -- our order book is also quite diversified across customer segments. And we are building an O&M order book, as you see on the right side, bottom chart, which will yield us significant revenues a couple of years down the line, FY '23 onwards. Translating further the order book into revenues. Our revenue mix has been very balanced across geographies and customer segments. But I'd like to talk about the key order wins that are listed on the left side of the chart for you. I think that shows the customer confidence that we are able to gain and all the strategic initiatives that have taken gets a good validation. So we -- I'll talk about the 3. I think we've bagged a 5-year multimillion-dollar deal for 5G RAN systems, which cuts across supply warranty maintenance. Then there is a significant order of an Opticonn Solution for a leading telecom player in Europe. And most importantly, there is an IBR cable, which is an industry-first 6,900-plus fibers for a leading hyperscale company that we have won and even started to deliver there. So as we look at these numbers, all that translates into talking about the 3 key metrics of the P&L. Our revenue has continued to grow quarter-on-quarter as expected. Our revenue for quarter 3 of this fiscal stands at INR 1,314 crore. EBITDA for this quarter stands at INR 238 crore and the PAT at INR 87 crore. So as expected, we did grow sequentially. We have spoken about that. And we did grow on an annual basis as well. Q3 of this year versus Q3 of last year grew at 9%. And of course, sequentially, Q3 grew 13% on revenues versus Q2 of this fiscal. This is done on the back of capacity utilizations, which have been at an all-time high for us, and we expect that to increase further. Our on-ground execution continues to improve on a quarter-on-quarter basis. So as we had spoken about earlier, we believe we will continue in Q4 to grow on a Q-on-Q basis. At the same time, again, like we had discussed earlier, our H2 for the financial year ending March '21 will -- is expected to be better than not just the H1 of this fiscal, but even H2 of previous year. So clearly, we believe that the momentum that the underlying business is showing is clearly evident from the financials. For your perusal and benefit, we've put an abridged financial version in this chart here. So while you may look at it, I think I want to, at a macro level, share with you that -- you'd agree that we have seen an unprecedented decade of digital network creation. And we believe that STL has unique capabilities to be the digital network integrator of significance in this play. To -- and why we believe so is because while we're continuing to show the results, what we do, kind of underlying levers in terms of our capabilities and a few other areas that we keep expanding. So the capability side, as you're aware, as Anand mentioned just earlier, we've added capabilities in the optical interconnect side. Of course, our access solution capability is building and some of the wins that I spoke about earlier is what I'd like to believe is an early success of these capabilities that we see. Even on the optical fiber cable side, again, referring to what Anand had mentioned, the industry volumes have grown in the second half of calendar 2020 versus the previous year, same period, but STL grew even faster. In fact, we recorded an all-time high. And as we scale up our capacity to 33 million, we shall continue to have increasing volumes. So we -- overall, I think with our capability building, with our capacity increases and with the environment continuing to invest in network creations, we believe we are well poised to participate and win in this area. So with this, we come to the end of our opening commentary, and we can move to the Q&A.

Sure. Thanks, Mihit. [Operator Instructions] We will take the question from the line of Mr. Pranav Kshatriya.

I got 2 questions. Firstly, can you give some commentary? I mean we saw that in H2, the demand for the fiber has come back, but how is the demand and supply environment is matching on the OF and OFC side? And this is particularly important considering you are at an all-time high utilization level. So on relative basis, we are seeing margins and the top line to be much lower than what you used to do in the -- historically. So from that perspective, we want to get a sense on the pricing, how it is for OF, OFC and how is the supplies coming. And given that China has also started to ramp up, so how should we see the OF, OFC pricing currently? And if you just give us some indication on what are the current realization, that will be great. I'll come for the second question afterwards, after this.

Sure. Sure, Pranav. So perhaps what we are seeing clearly is that the demand-supply gap, which had been there, is decreasing, and that is more evident from the lead times that we are seeing getting tightened in markets like U.S., North America, Europe, et cetera. There hasn't been any significant change or shift in the -- on the pricing front. And as we have been maintaining continuously and then that our pricing typically has been sort of more mandated by long-term annualized sort of contracts. So either way, our pricing has not significantly moved in the current quarter also. And I think a quarter or 2 of the strengthening of demand is not going to make a major shift in terms of the pricing. What you spoke about the margin front, as we said, the margin front is a reflection of this -- the mix for our business, which is now getting towards that right between what we do more and more towards cables, fiber and the cable proportion is increasing as well as services. And this is closer to what we have been maintaining and guiding, that it will be closer to that 18% to 20% range. Plus, the fact that we are now increasing our investments also on the wireless side, which is now starting to become significant for it to start, and we are passing it through full P&L effect.

Okay. My second question is around the investment which you have done, the acquisition, what you have done. So this acquisition got concluded yesterday is when you have the press release came. So the consolidation of the revenue will start from now on or it will start from the start of the quarter? And second bookkeeping question would be, how much -- there's a fall in depreciation for the quarter. What is the reason for that?

Mihir, do you want to take both of these?

Yes, it is. So we are -- for the first question on the Optotec consolidation, there is an effective date. We are looking at the technicalities, but if the difference will be about 7, 8 days, whether we are able to do it from yesterday or at the beginning of the quarter. It'll be in the first week of the quarter if -- so it's a difference between those 2 dates and the difference will not be significant. Of course, we would want to do it from sooner, but that's something that's a technicality. On the depreciation side, there are -- there are 2 reasons why the depreciation dropped. One is depreciation includes amortization or other included amortization till last quarter for the Elitecore business that we had acquired. The goodwill of that was being depreciated and it got fully amortized last quarter. So therefore, this quarter did not have that amount. And second, last quarter also had, as we had disclosed in our notes, an extra quarter's financials for Metallurgica MBB Italian acquisition that we had. And the amortization line, depreciation line had some amount of that as well. So this is the underlying -- current quarter is the underlying depreciation without those 2 elements, and that's the reason for the drop.

Just -- should we be assuming this as a run rate depreciation and whatever CapEx you do that gets added in accordingly, depreciation moves as a...

Absolutely, yes. This is the base number now. Without -- this is an ongoing number. And I rightly said, as we add CapEx, that will get added to whatever extent it does.

We'll take the next question from the line of Tejas Sheth from Nippon Life.

Tejas, it looks like your microphone is muted.

Can you hear me now?

Yes, we can hear you. Yes, Tejas, we can hear you.

Yes, yes, yes. Dr. Agarwal, just on the new client addition over last couple of years, if you can just throw some light there. And whatever acquisitions which we have done, how are the new clients taking it as a solution from our side? Has there been a ramp-up on those ends, where the solution pickup has really taken off in last -- maybe last 1 year or 2?

Absolutely. So Tejas, this has been a conscious shift for us in terms of both that you're speaking about, about the shift towards solutions and creating this combined offering for STL, which becomes a sustaining and long-term contract. So some of the highlights that Mihir talked about in the financials, we are now having pretty strong multiyear sort of engagements with our customers for these solutions in both Europe and something starting off in North America as well. We are not at liberty to disclose the name of those clients as these -- but clearly, as we are moving forward, we are moving towards solutions, and we are moving more and more towards both Europe and North America, and you'll see that reflecting in terms of our revenue mix, in terms of our order book mix as we move forward.

Okay, okay. And typically, at the start of the year, whatever order book we have, we execute 50% to 60% of that. So just to reach our target of around, let's say, INR 10,000 crore of revenue, would we need order book of around INR 18,000 crore to INR 20,000 crore to really make it that annual run rate? Would that be a right understanding?

Would be in that range or could be slightly lesser also because, right now, we have almost 25% of the current order book is AMC, which is more long term and which starts generating revenue post FY '23 in a significant way. We believe this AMC percentage won't be as strong as we move forward in terms of 25% of the total order book. So -- but in terms of ballpark, you are right, it would be -- it would have to be in the order of INR 16,000 crores to INR 18,000 crores for us to execute INR 10,000 crore.

Okay. And just last, on the product offering side, with the recent acquisition, now where do we stand? And are there any gaps? Do you still want to fill in towards being an integrated solution provider?

In terms of product offerings, I think we are -- especially on the optical side, we have largely completed the capability piece. So we are now fully end-to-end capable, and we can offer a complete solution. And on the wireless front, as I mentioned, we are doing it a mix of what we are developing internally and with a lot of ecosystem partnerships. So that's how the focus will continue as we move forward to offer the solutions for our customers.

Okay. So we don't envisage any meaningful or large acquisitions coming in over the next couple of years. Consider our debt also -- I mean, it connects, but what would be your thought on that?

No. So Tejas, debt, as we had mentioned, that up to almost like September of this year, there will be more focus towards whatever the debt investments that we have done, the current Optotec, the cabling expansion that we are doing. Post September of this year, a lot of the cash that gets generated would go towards retiring the debt that we have. So that's the focus, and we continue to apply our mind and focus towards that target of debt equity to reach 0.5 now.

We will take the next question from the line of Neerav Dalal from Maybank.

I had a couple of questions. One, you spoke about wireless products becoming -- starting to become material from second half of FY '22. Just wanted to understand, what gives you the confidence? Is it that you have showcased your products for multiple customers and you are expecting orders coming from there? A little more detail on that. And related to this, in your target of INR 10,000 crores of revenue, how do you see this wireless piece playing out?

Sure. Yes, both very relevant questions, Neerav. We clearly have now contracts with customers, which are milestone-based. So the onus is on us -- for us to do these field and lab trials for certain of these products that we talked about. And that's what gives us good confidence that by H2 of this year and we should have revenues coming in from the wireless side as well. And this has been faster than what we anticipated in terms of taking a concept to almost contracting phase. In terms of the focus to -- in terms of the INR 10,000 crores, how much it would be, I do not foresee that being more than 4% to 5% of that revenue. So this wireless piece is currently a portfolio buildup, and it is not contingent -- the growth plans that we have put in are not contingent upon the wireless revenue significantly.

Okay. Got that. And the other question was on the margins. We've seen -- last quarter and in this quarter, we've seen margins remaining flat. If one were to look at how the revenues have panned out, revenues from telcos has been flat, but you've seen the other 2 business is showing a pickup. So going ahead, would we remain in this 18% to 20% band? Or when do you see our band moving up from this level?

So Neerav, currently, we believe we would be in largely this band only with multiple things happening focused towards solutions focused towards services, continuing investments that are going through our P&L largely, especially on the wireless side. So this issue will sort of be there until we start some of these investments starting to generate returns and creating its own revenue model. But for the next few quarters, the range will continue to be where we have guided earlier.

We'll now have the next question from the line of Mukul Garg from Motilal Oswal.

Anand, just wanted to again focus on the wireless solutions piece. You mentioned that you will have some investments which will go into this. So if you can quantify what investment is needed incrementally on building up your product portfolio. What sort of a medium to long-term revenue growth and margin expectation you have from your open-end hardware piece? And another question which kind of correlate with this is there is obviously a PLS scheme on telecom hardware, which is in the -- which is just coming up. Do you expect any benefit from that in your portfolio margins? And is there an opportunity to kind of build up a bigger piece by acquiring small partners in India?

Mukul, all very relevant questions. I think we are a bit early for answering each of them in a very exacting manner. But clearly, earlier this year -- or in 2020, we did this investment in ASOCS that was about -- close to about INR 70 crores. We are continuing to invest in our wireless portfolio about -- annually this year would be close to about INR 70 crores to INR 80 crores of that kind of -- in building the software piece and the hardware piece of that. We intend to do a lot of this through a lot of ecosystem. Whether we would utilize the PLI benefit or not is currently not envisaged in that manner because we are focusing more on the product, the design and looking at the ecosystem capability, both in India as well as Southeast Asia in terms of leveraging this forward. Our focus is that interface of both hardware and software. So what -- with ASOCS, we get the [ CODU ] software. We combine our open RAN hardware that we get from some of the partners, and we create a full end-to-end solution. So that's the piece that we are investing a lot of our money and focus into. And as I said, right now, the visibility for that is in the first phase of the order of INR 400 crores to INR 500 crores maybe by FY '23 or so. And as we keep getting more clarity, we'll provide you more color, but that's what we are moving forward.

Understood. Anand, the second question was on -- I think this is the first time we are hearing you guys speak of -- you mentioned North America in quite a few of the slides and comments. Should we assume that this means that you guys are finally aggressively expanding into the North America, especially American market on the product side? Or is this more a kind of outcome of acquisitions in Europe, which you have done? Any clarity and plans going forward would be helpful.

Mukul, we had mentioned in the previous few parts that we've been investing in small way in America since 2018 or so. And we had said that in calendar year '21, we will start reporting as well as tracking that more closely. And it is in accordance with that itself that like Europe is now becoming close to 26%, 27% of our revenues. And next phase of focus and growth for us will come from these 2 segments, North America as a geography and cloud as a market segment or data center of the market.

Got it. And if I can squeeze 2 clarifications in. First, you highlighted the 5G RAN win, if you can share some key aspect of this deal win. Is this based on your proprietary technology in the Open RAN space? Or are you partnering with someone for supplying this? And if you can give the breakup of revenues between product and software and services.

Right now, Mukul, as I said, it's something which is in work, and we can't disclose a whole lot about it because it has these phases of development moving into field trials and then deployment. Bulk of this is the product deal for us, and we are partnering with somebody for the interoperability on the software and the services end. So -- and as I said, this confidence that the second half of FY '22, this will generate into revenue has provided all the requisite milestones between us, our partners as well as the customers flow in the order that we are looking at. As we get again more color and clarity every quarter, we'll provide you more details on the wireless and Open RAN side.

Sure. And the revenue breakup?

Revenue breakup for this one is a product deal for us and the -- combined with our partner on software and services will go through their books.

No. Sorry, I was asking about the revenue breakup between software and -- between product and services for this quarter.

For this quarter, the product and services. This -- I mean, as we've been mentioning, Mukul, this has been merging. I think the numbers are -- maybe Mihir can correct, but it is -- Mihir, do you want to take this?

Yes. Sorry, sorry. Yes, I think -- so Mukul, I think we've been saying that it is pretty much half and half in some quarters, 45/55 in one direction or the other, and that pattern remains. We don't kind of break it out very, very specifically both numbers. But to answer [indiscernible] half and this quarter also kind of one being slightly below the other.

We will take the next question from the line of Alok Apte from HDFC Bank.

Am I audible?

Yes.

Yes.

So I have a couple of things I'd like to understand. In your India business, you have a large couple of deals, which we're executing for the public sector, which is MahaNet and the Telangana digitalization. So in that context, where are we on this deal completion? Is your INR 10,000 crore order book include a significant chunk of the unexecuted part of this deal? That is number one. Second and since we are dealing with the public sector over here, have you at all in the last 8 to 9 months through the entire COVID pandemic, and going forward, seen a stretching of your working capital cycles on account of any delays in receivables from these entities? And how do you see that going forward? And the last question I have would be on your exports versus domestic. With your development of Opticonn and the entire 5G, which is globally picking up, are we seeing a shift away from being a predominantly domestic player versus now becoming more of a half and half exports to domestic kind of a profile?

Sure. Alok, I'll first take the question about, as we showcased in our presentation, MahaNet, the first part of MahaNet was the most significant in terms of our contract. So that one is almost 92%, 93% completed. The extension that we have, which is almost 35% complete, is a smaller part of the contract. And Telangana or T-Fiber has just started off in the Q3 of this year. So any significant milestones in terms of payment and structure hasn't really come. Overall, as we had mentioned at the end of Q2, there have been stretching of finances that we had seen from the government sector due to the pandemic. There was a lot of focus that went there. But we have seen of late Q3 and now that pressure is reducing right now. And money for key projects because these -- all these projects are -- the funding is already available in -- with the USO fund, and those funding is now clearly coming and moving forward. In terms of what you mentioned about exports, domestic, India and sort of more global revenue, you're absolutely right. So we are seeing this inching more and more the India percentage, which used to be, for us, 68%, 69% has now come to about 63%, 37% and over a period of few years, while we'll continue to grow our presence in India, but relative growth outside India would be faster. So the percentage, I don't have an exact number, but it would kind of start moving more and more towards what you mentioned. So 63%, 37% would keep decreasing maybe towards half and half over the next few years.

Probably the last thing I'd like to squeeze in is I'm not sure you've given this update in the last quarter, but there was a large sort of an excise dispute that is pending settlement. Is that over and done with or is there...

Yes, that was done, Alok, actually last year itself. So if you see the Q3 corresponding in FY '20, that's where we had a onetime expense, which was all settled. So it's been a year of settlement now.

We'll have the next question from the line of Alok Deora from Yes Securities.

Am I audible?

Yes.

Yes. And my question was answered in a way. Just if you could elaborate. So the margins currently are close to 17% to 18%, and our share of services is around 50% in the overall portfolio. So how do we see the margins improving towards the 20% mark? Because I believe the services would be at least 50% or slightly more going forward as well, which is a lower margin segment as compared to fiber. And even the capacity, which we are increasing, it's more in the cable side, which is, again, the lower margin as compared to fiber. So just wanted to understand how we would be able to scale up towards a 20% or higher than that over the longer-term period.

Alok, we believe that as the scale starts coming for us, so structurally, we are looking at the gross margins of the businesses, and we are looking at the fixed expenses below the gross margin. So structurally, we believe that as the revenues start growing up the growth, the fixed cost is not going to grow in clear same pace as the revenues that's going up. That would be one contributor if we continue to maintain that 50%, 50%. The other would be as more and more we start doing solution sales, it should -- and value-added product sales, it should move up the numbers. But the focus that we are putting in a lot in terms of the development and R&D investment over the next few quarters, that would become a significant part of the fixed cost that we are putting in. And that's why we are not currently guiding anything 20% or above. We are saying this would be a range where the focus for us would be to maintain our numbers in this range. As we keep increasing the revenue, you have seen the revenues moving quarter on quarter by about 10%, 12%, which is increasing. Our clear focus is that the fixed expenses don't increase in that kind of outage as well.

Sure. And also in your presentation, you have mentioned that the order book flow as to how -- when the execution would come, in what period, so you have also given for Q4. So that's around, I believe, around INR 1,500-odd crores. So does that mean that at least INR 1,500 crore revenues will come through in Q4? And FY '22, there is another revenue number, which is -- or the execution which should come through. So at least that number can come by. That is number one. And also, in this quarter, have you seen any loss of revenues because of there have been selected lockdown in Europe. So has there been any, say, certain amount of revenue which we have not got, which we could have gotten the ideal scenario.

Yes. So both these are true. So the way we have panned these out are the contractual numbers that is as per our contract that we have to deliver. So pending any unforeseen circumstances, that should be the number that we should deliver. In terms of the impact, I think there was some small impact, not very significant, about INR 30 crores, INR 35 crores of additional deliveries could have happened if there was no shutdown in Europe for the second time.

And that could continue in fourth quarter as well.

Again, difficult to say right now, and that's why we've put in that contractually we can deliver INR 1,500 crores provided there are no untoward circumstances.

Due to paucity of time, we'll take one last question from the line of [ Depesh ] from Hem Securities.

Yes. Anand, one small question from my side. What are we expecting the key accounts, which we have going with Sandeep? What is the revenue share from those accounts?

The key accounts, clearly, the focus, [ Depesh ], that for 21 key accounts that we have generate about 82%, 83% of the revenues. And that's why our focus is in both ways in creating a larger addressable market of their wallets and a deeper penetration of their wallets. And moving forward, that's what's going to be our focus. But for the 21 key accounts, the revenue is close to about 82%, 83%.

Okay. Some of these are domestic or all are export oriented?

About 4 of them are domestic, 7 -- the rest are export.

Sure. So with this, we come to the end of Q&A session, and I now hand it over back to Dr. Anand Agarwal for closing remarks.

I'd just like to thank everyone for attending this call and continuing to show great interest in our company, and we really get excited with this participation. And I really hope you were able to address and clarify all your queries and comments. For any further questions, discussions, you can see to contact our Investor Relations team, which includes myself and Mihir, and we really look forward to continuing the conversation with you in the future. Thank you, and good evening.

Yes. Thank you. Viraj, you can close the call, please.