Tejas Networks Limited (TEJASNET.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Tejas Networks Limited Q3 FY '26 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit Mishra from ICICI Securities. Thank you, and over to you, sir.

Thank you, Sagar. Good evening, everyone. Thank you for joining on the Q3 FY '26 Results Conference Call of Tejas Networks Limited. We have the management of Tejas Networks on this call represented by Mr. Arnob Roy, Executive Director and CEO; Mr. Sumit Dhingra, CFO; Dr. Kumar N. Sivarajan, CTO; and Mr. Sanjay Malik, Chief Strategy and Business Officer. I would like to invite Mr. Arnob Roy to initiate with opening remarks post which we will have a Q&A session. Thank you, and over to you, sir.

Thank you. Welcome, everyone, to our quarterly earnings call. In Q3, we had a revenue of INR 307 crores, and the quarter was -- revenue was driven largely by the sale of wireline products to India private operators and to international customers. We have multiple trials ongoing for our wireless products, both in India and in international markets. Many of them started in Q2 and many of them have progressed to the commercial negotiation stage and are expected to close in the coming months. Before we go to an extended commentary on the quarter, I would like to hand you over to our CFO, Sumit, to walk you through the details of our financial numbers.

Good evening, everyone. Wish you all a very happy New Year. Our results for the quarter 3 FY '26 were revenue of INR 307 crores compared to INR 262 crores of revenue in the previous quarter, which is a growth of about 17%. Profit after tax for the quarter was negative INR 197 crores. And order book at the end of the quarter stood at INR 1,329 crores compared to INR 1,200 crores in the previous quarter. Revenue broadly comprises from Indian customers about 85% and international about 15%. The order book is predominantly Indian as of now, with about 90% from the Indian customers. The profitability for the quarter, the EBIT for the quarter was INR 239 crores negative compared to INR 394 crores of negative EBIT in the previous quarter. I think expenses for this quarter mainly include provisions for past service costs related to gratuity and compensated absences on account of the new labor code that was notified recently and warranty expenses, of course, INR 24 crores based on potential fault rate, repair requirements and warranty claims. A bit on the balance sheet side. Our inventory for the quarter broadly was at a similar level as compared to the previous quarter at INR 2,363 crores. Trade receivables at the end of the quarter were INR 3,284 crores versus INR 4,026 crores in quarter 2. Our net debt of the -- for the -- at the end of the quarter was INR 3,349 crores versus INR 3,738 crores in quarter 2. This has come down mainly due to lower working capital, which gets partly offset by the CapEx during the quarter. And the gross debt stood at INR 3,885 crores. I think with this, I'll hand it over to Arnob to take it forward.

Yes. Thanks, Sumit. So over some of the key updates for the quarter as far as our -- for our wireless business. While we have not closed some of the deals as of yet, but we are seeing an increased number of international engagements for our 4G, 5G RAN equipment, including multiple ongoing POCs, which many of them have moved to the commercial negotiation stage. And as I mentioned, that we expect some of them to close over the next few months. We have been selected as a 5G RAN supplier on a section of the Delhi Mumbai railway corridor for a pilot on the Kavach project that you are all familiar with, which has to do with -- it is a network for enhancing the safety of our railway operations. There are multiple wins for our private 5G deployments in India for applications in ports and mines. And finally, for the big -- the BSNL 4G add-on PO for the 18,000 sites that we have been working on for quite some time. We have a delay in the receipt of this PO. And from what we know, from what we hear is that those are still in the works and the expansion order will come to us at the appropriate time for BSNL. For our Wireless business, as I said, the quarter was driven largely by shipments for our wireless -- Wireline products. We won additional packages for BharatNet and we have become one of the largest suppliers of IP/MPLS routers by the number of packages, and we won the maximum number of packages that have been announced so far. We received expansion orders from leading private telcos in India for both our WDM as well as our GPON equipment. And then a couple of significant international wins have been winning off WDM backbone network for the buildout order from a broadband ISP in Africa and network transformation project for our MPLS-TP products for a power sector company in Southeast Asia. Another significant one was the first win in a sovereign data center networking application in India for our switching products. This is the first time we won a networking application inside the data center, where most of our data center business has been through the interconnect. So from that point of view, we look at it as a significant first win. Now the other updates for the quarter is that our converged broadband product won the Excellence Award for the most innovative product in the conference in a trade show in Dubai. We received INR 85 crores as PLI incentives for Q4 and cumulatively INR 397 crores of PLI. We filed 26 patents in Q3. Cumulatively, we have filed 613 global patents of which 370 have been granted. In summary, our long-term outlook remains positive. There are strong drivers for our business caused by rapid transitions, technology transitions as well as the deman,d, the data growth, which is driven largely -- a lot of it is driven by AI applications, which are driving a massive growth in traffic in the networks. There's a lot of -- we see a lot of expansion of 4G networks and new deployments of 5G networks in emerging markets and which are driving most of our engagements and POCs that I referred to. The investments in AI data centers are driving huge connectivity requirements, which are driving business for our optical products. We see increased traction of our new products in India and in international markets. The wireless products are starting to lead our international engagements in Europe, Latin America and Africa. We are seeing increasing adoption of our wireline products in private telcos in India. And apart from our direct engagements, we are also increasing -- we are seeing increasing engagements with international customers for our wireless products through partnerships with NEC and Rakuten and strategic wins in Europe, Africa and Asia for our Optical products gives us a good momentum for expanding our international business. So with that summary, I'd like to open the floor for questions.

[Operator Instructions] Our first question comes from the line of Rajakumar Vaidyanathan from RK Invest.

Sir, my question is, what is the path to profitability because you have been reporting significant losses for the last 2 quarters. And even if I see your last 5-year bottom line numbers, you're still not made money in the last -- cumulatively. So what is the path to profitability, if you could just elaborate on that?

Yes. I think -- as you can see from our financials over the year, we've made significant investments in growing our business, right -- right from investments in our products in R&D and developing -- expanding our portfolio with a large set of wireless products, right? So all of that investment as well as our investments in supply chain and sales have been with the intent and with the expectation and the anticipation of growth of our business internationally. And the path to -- and we expect our business to scale, as you know, last couple of years, a lot of focus has gone into developing the product and execution of the BSNL 4G project. And with that, we have scaled up our systems and processes in our country -- in our company. So what we expect is on the back of the new -- the products that have come and the success that we've had. It's like this is the kind of the time when we are kind of, I would say, refreshing our overall business in terms of with our new set of products going to international market and the path to profitability will be when that business really scales up, both internationally as well as in India led by our wireless products as well as our wireline products and getting to the business size and to the critical business size, which would be able to support the investments that we have made in our business. So that is really the path. I mean, just growing our business and we see the opportunity for doing that over a period of time, right? I mean, it hasn't happened as fast as we would all expect. But that was a period of execution of this large project, and it's like kind of, I would say, replanning our business for the next few years.

Yes. Sir, if you could also indicate a timeline, what -- is it like 2 years, 3 years? When do you think you will reach a positive bottom line? Because what we want to know is in the last 5 years, you have not made any positive bottom line cumulatively. So are you still in an investment phase or the investment phase is over and now the focus is on improving the profitability. So where exactly Tejas is standing?

Yes. So see, we are in a business. We are in the technology business. So continued investments never stops, right? I mean the technology is a treadmill and it keeps on evolving. So we cannot stop our continued investments in R&D. I mean the growth in investments will be, of course, be tempered based on the business that we realize. But we are not going to reduce our investments over here because of the nature of business that we are in. But I think when we talk about when we'll achieve that business growth, I think that's going to happen over a period of time. I think all efforts and investments in growing the business are happening. And it will be a period of time, but we -- all of us are keen to get to that stage as quickly as we can. And we believe all of that will happen. So that's the reason why we continue to invest and focus on what we are doing.

Okay. I think -- yes. So the second question with regards to your inventory and the orders in hand, I mean, your inventory is almost twice the amount of orders in hand. So I just want to know what is the idea behind holding so much of inventory? And also, if you can also comment on when do you think that the debtors will be brought to the normal zone?

Yes. So as we have spoken earlier, a lot of this inventory has actually been procured for executing on the BSNL 4G add-on order, right, for which our partner, TCS has received an APO and they've also communicated the LOI to us for that project. And so a lot of this procurement really happened for that. That's why we are sitting on this large inventory. But we know since we know that this order is going to come, as you can see in so many announcements from BSNL as well as the Ministry, so we have to hold on to the inventory with the interest of being able to execute on this project as quickly as we can once we receive the PO. So this inventory will deplete very rapidly once we start -- once we receive the PO and start executing on that project.

Yes. So the worry is you have a very long cycle because you're holding inventory for so many quarters. And then after that, you bill and then the government takes their own time to pay you. So you have a very long working capital cycle. So I mean, by design, I mean Tejas is not currently the way you guys are executing it. I mean the shareholders will never see a return in the near future. That's how it's been -- I mean, that's all what I -- as an investor, I can make out. So correct me if I'm wrong.

I think the current inventory, obviously, as we mentioned, is in context of the additional order, which does not -- expected order does not get reflected in the order book. And while this was expected, I think there have been delays in sort of getting the purchase orders. And hence, this has led to the accumulation of this inventory. If you see the years prior over the last year or the last few quarters, there was a corresponding execution that was going on for the BSNL project and hence the inventory levels continue to be high. Now to your point on whether the working capital cycles or the inventory cycles are -- yes, they're currently high for this specific reason. I think as Arnob earlier pointed out, I think it is important from various point of view that we have a increased share from private and international customers, where the overall working capital cycle may be better and that would lead to improvement in working capital in general. And I think we're also taking steps to continue to improve on the working capital or the inventory management, in particular, to get this done. So it's a focus area for us as well, and we continue to work on this.

Okay, sir. But I think it's a big concern. I mean I'm not sure whether you are articulating it...

Mr. Rajakumar, for any follow-up questions, maybe we request...

No, I'm not asking a follow-up question. It's just a comment. So let me just give me one minute. I will just complete. Sir, the concern is this is kind of happening for many quarters. And I don't know what model Tejas has because this model has to earn money for the shareholders at the end of the day and you are executing such a big project and still the bottom line is bleeding, and that is really concern. So I hope the shareholders are also taken into consideration, their interests are also taken into consideration when you execute such big projects. That's my comments. Thank you so much for the opportunity.

[Operator Instructions] Our next question comes from the line of Pranav Kshatriya from Emkay.

I have a couple of questions. Firstly, you talked about in the first quarter of this financial year that you would sort of be looking to reach where you were in FY '24 and that is what you would be looking to reach. So that number, and if I compare 9-month number, I think there is a fair bit of gaps. So how should one look at it? I understand that Tejas Network business tend to be very lumpy. But do you think it should be possible to reach that kind of level in this year or that can possibly reach next year? That's my first question. Second question is that there is a good increase in the number of patents filed. And I would like to know a little bit more about in which area are these patent more -- are these patent more on the wireless product side or more on the wireline product side. So those are my 2 questions.

Yes. So I'll take the first question and the second part, I'll hand it over to our CTO, Dr. Kumar Sivarajan. So FY '24 levels this year, as you can see, our expectation was the execution for this year was the execution of the add-on project from BSNL. And while that happens, that we build on our international business for wireless. I think what happened -- since that order got delayed, and we have built the inventory for it. So that's the reason why you would see that we have not been able to reach the level of FY '24 yet. And in this year, I don't think we'll be able to execute the project also because when the add-on order comes, it takes time to build and ship and all this kind of things. So this project, whenever that comes is going to be executed in the next financial year. So that delay has really affected our business this year and the transition that our business is going through in terms of really transitioning to a lot more of the Indian private telco as well as the international operators, I think that thing is going well and we expect to see -- and the only thing that this takes time. So that's the reason why we are seeing a longer period of time for closing on all those opportunities. But on the positive side, we see all those opportunities through our engagements, and we see we are in a market which is growing. The customer demand, network build-outs, capacity build-outs. I mean, all of that, I mean, we are in a globally growing market, including India. So we do see the opportunity of getting to that growth level at some point of time. And I think we have -- from an investment point of view and the business point of view, we are kind of there for leveraging every opportunity that comes our way. So that's the first part. And regarding the patents, I'd like Dr. Kumar to take over.

So while we file patents in both wireline and wireless areas, the majority of patents are related to 5G advanced and 6G technologies. Specifically, even within that field, these are what are called standards-related patents. So we closely follow the upcoming standards in 3GPP for 5G advanced and 6G currently, like Release 19 is being discussed in 3GPP. And in anticipation of what's going to get standardized, we filed patent applications. So the majority of these patents are in that category. It's mostly 5G advanced and 6G related patents that are being filed.

Sure. This is useful. I just have one follow-up on the first part of the question. So how would you put the performance of Tejas Networks for ex of that BSNL contract? Because I understand that, that was one of the main thing, which is getting delayed. But overall, if you look at whatever plan you had laid out for FY '25 for non-BSNL part of the business, especially given there is a strong rollout which is happening on the data center where your products could be useful. How do you see that panning out for this year and also going forward?

Yes. So apart from, I would say, the BSNL project, which we are planning to execute this year. The other part, there were other 2 major initiatives or major targets for the business. One was growing our wireline business to the Indian private telcos as well as internationally. So that transition is happening well. We are seeing our -- all the -- a lot of the business growth this year, whatever the business that we had this year has been driven by mainly our wireline products. And we see good adoption of that and good growth of that. So that part of the business is going very well. The other part of the plan was during the year, get a lot more get ready for a lot more international business, especially for wireless by getting into the trials and POCs and all those kind of things and get to some business closures during the year or early next year because this is a long cycle, and we are a new player in this market. So even that part of the thing, I would say, is going very well because also, if you see, based on the credibility of our performance in BSNL, that's where we've got a lot of international partnerships going, right, with NEC and Rakuten and so on. So those opportunities came to us because of the credibility we built over there. So yes, I understand that the BSNL project last year was a huge sharp spike in our business, resulting in a lot of revenue and required a lot of investment from us that gave us the platform to really mature our products, build new products and go to the -- take it to the international market. So that part of the story has played out pretty well. I think we are quite satisfied with that. The part that has not played out to expectation was the expansion and all those kind of things about BSNL, which is going to happen. We know that's going to happen. That's why we have all the inventory. And also that is a part that got a bit delayed, and that's kind of showing in our financials. But once we get past that phase, I think we expect the rest of the business plan to play out as we were hoping to do and we are planning to do. So it is just that the transition phase has been taking a longer period of time than we expected.

Your next question comes from the line of Karan Raja from 54 Ventures.

Thank you for the update. I noticed that it's been about 3 quarters since Mr. Anand Athreya resigned from his post as CEO. So I wanted to understand if there is any urgency in filling that CEO spot and what we can expect from the Board and coming out of the resolution with regard to that?

Yes. I think the Board is working actively on the -- on appointing a CEO going forward. And so that's what the Board is working on. And I think at some point of time soon, there will be a CEO appointment for the company. But independent of that, I think our business goes on as planned and our regular business operations are not really affected without the filling of that position. So I think board will take its time, and we'll -- is on the project and will be appointing a CEO at some point of time.

Can we expect that in this financial year? Or is this something that would be in the next financial year?

Yes, it's not in my place to answer that question right now. But obviously, as you can understand, that there would be an active project -- active work going on in filling this position. So I'm not aware of the exact timeline.

Understood. The second question that I had was with regard to the delay in the 4G expansion. Obviously, just a couple of calls we have -- so did know that this delay. Is this delay attributed to budget constraints at the customer side? Is there something with the system integrators or something to do with TCS. If you can give us some color on what this delay is attributed to because, obviously, answering the previous question, you did mention it was a big disappointment for you all as well that this order has not come into execution in this financial year. So what exactly is this delay attributed to?

Yes, it is mainly to do with the operational readiness of BSNL for rolling out the network. They also have to be prepared with their sites -- with site readiness and all those kind of things. So that's what is basically holding up the rollout of this project. And as you know, in multiple forums, both BSNL management as well as the DoT or the Ministry has commented that the expansion is going to happen, that's going to happen very soon kind of a thing. So the only reason right now is the readiness of BSNL to take the equipment and deploy it in the network.

Understood. So is it safe to assume that there is no issue with our products or any integration efforts by the system integrators, which is TCS?

Yes. Those are not the constraints in this project.

Understood. I think one other question that I had because we have spoken about some of the other wins. The private 5G across mines and some other locations and also the data center opportunity. Can you please share some light on the market opportunity in these 2, what is our right to win there? And what kind of market share are we hoping to achieve in the next maybe 3 years.

Yes. So it's hard to answer the market share kind of thing. But we see these new application wins are something very encouraging because we're seeing a lot of this private 5G wins for deployments in mines and ports and some campuses and all those kind of things. So -- and having a few set of reference wins in India can help us in marketing and selling this globally as well. So our right to win is the product set that we have. As you know, our current BSNL product is a 4G upgradable to 5G. So both our review as well as radios are software and hardware upgradable to 5G services. So it's basically the same set of products which are getting deployed for 5G applications because the bands in which they are getting deployed are same or similar to what we have right now. So with small adaptations, we are able to meet those bands in which the private 5G rollouts are happening. So that's one part of it. I talked about the data center application also. As you know, we have our enterprise switching portfolio of products and which we have scaled up a lot to larger products for data center switching as well. And even though that was not an initial target segment, but now with our new set of products and into data center opportunities opening up, we saw a good reference win for the networking inside a data center. While the interconnect or data centers, that's the market we have been -- we are playing all along and our optical products have a very strong play in that kind of applications. This is the first time we have been inside the data center with our switching products, and that's a very encouraging sign for us. So we are going to try to replicate this win, this solution in many of the -- in as many applications that we can -- that are accessible to us.

Understood, Mr. Roy, but I will have to push the envelope here because obviously, internally, you all would have certain targets that you all would want to hit with private 5G and with data centers. So if you can share some light as to what even the estimates are because, obviously, you all have had a few deployments, you all would know how many such accounts can be achieve in a given year. So something that gives us at least the direction in which the company is going or what we are chasing, where we are fighting at least something that gives us a sense of what are the internal metrics based on which we can judge sales?

So as I said, we don't have any specific target in terms of how many wins and all those kind of things. And in most of our -- every product line that we have, right? I mean we go by the engagement that we have, the customer opportunity that we see. And where we find opportunities and how we can pitch our products and solutions. And we set targets more from overall business growth and business win kind of a thing, not specific to any particular application, right? And these are new markets that we're getting into. I mean as you know, our wireless play has been mainly in the macro area for mobile operators, and that's where the larger deals are the private 5G applications are many in number, each of them are relatively small deployment. That is because you can understand the territory or the area over which it is deployed, those are fairly small, right? So the larger deals are, of course, for the macro, but the good thing is that with this, this opens up a new application for us, right, the private 5G space. So from the point of view, it gives us a mileage credibility and visibility in this case. So that's probably the largest benefit. And as I said, as of now, we don't have any target. We say that we have to achieve this kind of numbers for using this particular application or the other one. I mean these are initial wins. And that's the reason why we'd like to kind of share it with you all saying that these are new applications because on an ongoing basis, the standard applications of mobility or FWA for wireless or for broadband or data center interconnect or metro aggregation, those are the standard applications, which are ongoing and which are driving our business. We thought that these are new significant events that have happened that can open up opportunities. But right now, at this time, we don't have the opportunity to really size up and set targets in this area.

I understand. I would hope that over the next perhaps a couple of quarters once there's more clarity on this. We do have something more concrete. Obviously, a big risk factor for our company is the heavy dependence on a single anchor customer and that anchor customer being a government sector undertaking. So obviously, I would expect that in a couple of quarters when we have a little more experience in these realms, we would have more realistic targets or expectations of our market.

Our next question comes from the line of Pratap Maliwal from Mount Intra Finance.

I just had a question regarding the BharatNet order that we called out that we've won about 7 out of the 12 packages announced so far. And I believe the company's notification said that it's -- we'll be deploying over 50,000-plus routers. So I just wanted to understand what would be the approximate order size of the BharatNet cumulatively? And over what duration do we see this being implemented?

Sorry, what was the last sentence?

Duration of which will be implemented over the overall...

Yes. So okay. So this particular order is for Phase III, BharatNet Phase III and for all the routing products, I would say implementation period is over next 2 years -- Yes, order size, I think it's again because it is multiple circles coming from multiple SIs. So it's a large order size but difficult to give the numbers.

I understand the point. So, but see if we called out that we'll be deploying over 50,000 plus routers, and I mean you know that at what rate we'll be supplying. Surely, you'll have some idea. So if you can just give us some ballpark figure, not an exact figure, but just some ballpark idea of where the order size could be, so that we have more clarity on how much business is we can actually expect to come in, how the order book can build up.

Yes. So actually, there are a few of this, which we have received orders and then a few which are in the negotiations still. But I think from -- because we are working with multiple SIs, it is not from one particular person. So yes, I'm sorry that it would be difficult to share the numbers there on the deal size. Normally, we don't do customer-wise deal size announcements.

Okay. So does that order book currently involve any -- sorry, orders from BharatNet?

Yes. The current order book, which was shared by our CFO Sumit, that includes BharatNet orders also.

And we expect a significant ramp up? Or is it like we've got the initial orders and we expect a large ramp up? Or just some color around that, even if it's purely qualitative just so we can understand the direction?

Okay. So we got the orders for about 7 circles as we -- or 7 packages, as we mentioned, and a few more are still expected.