Tejas Networks Limited (TEJASNET) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Tejas Networks Q3 FY '21 Earnings Conference Call, hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Santosh Sinha of Axis Capital. Thank you, and over to you, sir.

Thank you, Aisha. Good evening, everyone. On behalf of Axis Capital, I welcome all the participants to the conference call. Today, we have with us Mr. Sanjay Nayak, CEO and Managing Director; Mr. Arnob Roy, COO and Whole-time Director; Mr. Venkatesh Gadiyar, CFO of the company; and Dr. Kumar N. Sivarajan, CTO of the company. They will start with the overview of company's performance for Q3 and then we can switch over to Q&A. Thank you, and over to you, sir.

Thank you, Santosh. Welcome, everybody, to the earnings call. This is Sanjay Nayak, along with my colleagues. We had uploaded the earnings call presentation on our website. So I hope you had a chance to download that. I will be following the sequence from that earnings call. So I'm on Slide #1, which is the Q3 financial update. So in terms of key updates, the net revenues for the quarter was INR 129.1 crores, which was a year-on-year growth of 51.2%. We had a PAT of INR 9.2 crores versus a loss of INR 112 crores in the corresponding period last year. Our cash flows -- operating cash flows have improved, and we generated INR 55 crores for this quarter. And our cash and cash equivalents also increased INR 36 crores from September 30 to December 31 and has reached INR 335 crores. In terms of new bookings and orders in hand, it increased by INR 73 crores to INR 672 crores, which is the all-time high order book that we've had. In terms of the sales update, on -- let me go through the 3 segments. India Government. So at a macro level, a lot of things have happened from the Indian government side. And there are a lot of sectoral policy decisions which have been made. Notably, the one talking about the mandatory use of secured telecom equipment by all operators, including the private operators; the production-linked incentive scheme, PLI scheme, for telecom manufacturing equipment and our equipment are covered; and of course, the overall preference to Make in India. And all of these things are expected to favorably help our business. On the critical infrastructure segment of the Indian Government part, we again have good order inflow, and we continue to have a lot of tender wins. And as I mentioned in the earlier calls, this is almost becoming a run rate business for us. And the payments from BSNL have restarted. They were stuck for a long time. We received a small amount in the December quarter. And then subsequently, in the last couple of weeks, we again received some more payments. And we believe that going forward, it may not come in one shot, but on a continual basis, we should be able to see improvements on that as well. On the India Private side, we have won a new Metro WDM rate contract from a Tier 1 operator. This is a multiyear situation, where we will now become a major part of their metro expansion where a lot of bandwidth is exploring. Secondly, we continue to win a lot more of the fiber-to-the-home applications based on our GPON technology. And again, there are 2 equipments, the OLT, which is the head-end, and ONT, which is the customer prem equipment. And that success we've been seeing across telcos as well as ISPs. On the International side, we are seeing strong orders inflows from Africa and Southeast Asia. North America, unfortunately, has been disappointing and slow this financial year. We had also announced in the last week of December, a $13 million order for our award-wining converged access product, which also has a wireless 4G element into it, for a customer in Southeast Asia. And if I look at a 9-month aggregate, because we look at really on an aggregate basis for our revenue profiling, the International revenue grew 26.9% year-on-year on the revenue side and of course, the booking has grown much faster. We also have 5 new International customer wins during the quarter. And we are also now starting to increase sales investment, except that we have to hire local people because of all the travel restrictions so that we can have more coverage in the regions. So some of the offers have been made and a lot of people should be expected to join in this quarter. One other significant development I just wanted to call out on the supply chain side, so as you would have been reading the newspapers, there is a global shortage of semiconductor components, namely the wafers, which are used for making the final chips that go into our product. So there has been a shortage. So as a result, some of our suppliers have indicated that the lead times have increased, some of them are also planning to do a little bit of a price increase. So while for Q4, we seem to be almost okay. But for first half of next year, we are closely watching the supply situation from the semiconductor side. But that is something that is an evolving development that we thought should be brought to everybody's attention. So if you look at it from a summary perspective, when we started the financial year, we had 3 key objectives for our business. #1 was really regain the business momentum, particularly for the run rate customers and the International. And I think we have made good progress over the 9 months. #2 was return to profitability. And I think at the end of this quarter, both on a 9-month basis as well as individual quarterly basis, now we have had 2 consecutive quarters of profitability and on a 9-month basis, we are profitable. And the third was to improve our cash position, which we have again continued to improve every single quarter during the financial year. And we hope that in all of these 3 dimensions, we'll continue to have more progress as the year progresses, which is Q4, which historically always has been our largest quarter, and we expect Q4 to be a large quarter this year as well. I would now hand it over to Venkatesh, our CFO, to talk about the financials into a little bit more detail, and then I'll come back on the sales side as well.

Yes. Thank you, Sanjay. Good evening, everyone. This is a financial update. Net revenues for Q3 was INR 129.1 crores, year-on-year growth of 51.2 percentage. And EBITDA of INR 1.6 crores, year-on-year growth of 107.7 percentage. PBT and PAT of INR 9.2 crores for Q3, and EPS of INR 0.99 for Q3. Similarly, for 9 months ended, our net revenue was INR 313.3 crores. We saw a year-on-year decline of 4.2 percentage. EBITDA was INR 14.2 crores, and PBT and PAT of INR 4 crores for the 9 months ended and resulted into the EPS of INR 0.43 for a 9 monthly basis. Next, key financial indicators. Our cash flow from operations was -- for Q2 improved to -- in Q3 from INR 45 crores to INR 55 crores with cash flow from operations was INR 55 crores in Q3. And our net worth moved from INR 1,082 crores to INR 1,094 crores in Q3. Inventory had decreased from INR 233 crores to INR 229 crores, a decline of INR 4 crores in this quarter. However, on a 9 monthly basis, we saw a decline of INR 24 crores in the inventory, and we continue to see this consume the lots of inventories in Q4 as well as in the future quarter as well. Coming to the trade receivable, on absolute terms, decreased from INR 425 crores to INR 402 crores. And compared to 9 months, it was decreased by INR 54 crores. On the BSNL front, we have collected INR 29.5 crores for 9 months. And particularly in Q3, we have collected INR 11.1 crores. Post our Q3 results, we have collected additional of INR 11 crores. As of March 31 -- 31st of December, BSNL outstanding was INR 165 crores, taken away the INR 70 -- around INR 70 crores of retention, net to be collected is INR 95 crores. And as a result of improvements in the -- reduction in the inventory and the improvements in the trade receivable collections, our working capital has been decreased by INR 43 crores in Q3. However, for the entire 9 months, our working capital has been reduced by INR 80 crores. As a result of all these things, our cash has been improved by INR 36 crores in this quarter. And for 9 months, we have increased our cash and cash equivalent by INR 55 crores. Now as the cash has been -- cash as of December 31 was INR 335 crores, we continue to be a debt free company, and we expect further improvement of the cash position in the coming quarters as well. Yes, Sanjay.

Thanks, Venkatesh. I'm now onto the next slide, which is the revenue distribution by segment. On the left-hand side, you can see the pie chart, which is for the full year FY '20, the distribution of INR 380 crores of revenues. And on the right-hand side, you see the pie chart, which is the 9 months distribution of the same revenues under the 3 buckets. So if you see from an overall perspective, we had done INR 126 crores of revenues for the full year last year in International, which has -- and whereas in 9 months, we've already done INR 118 crores. On top of that, we have a fairly large backlog of International orders. So we expect a strong Q4 for International going forward for this year. On the India Government side, we have done INR 58 crores last year. This year, we have already done INR 42 crores. And here, again, we have a lot of backlog of critical infrastructure business for Q4, which, again, should result into a healthy growth of revenues for Q4. As far as India Private is concerned, we did INR 195 crores last year. We have done INR 153 crores as of Q3. And again, we expect that may not be this year, but this year, we've already gotten a lot of new customer wins but the actual result of those wins into a run rate business from India Private will be really seen more in the next financial year. This kind of gives you a breakup of how our revenues are improving. And really, the International as well as the India Private plus Critical Infrastructure, these are almost, I would say, a strong run rate business. And on a year-on-year basis, we not only have a good growth, but we see a good visibility going forward as well. In terms of -- one more comment I just wanted to make on that slide was that out of the order book that we have, around 20% to 25% -- of INR 672 crores, around 20% to 25% of that will get executed in Q4, and the rest will be for next and the subsequent years as well. A little bit more deep dive into the 2 segments, the India and the International. So as I mentioned, on the India business, the macro side of things are very favorable. The larger umbrella of Atmanirbhar Bharat and telecom being a critical infrastructure, where the active electronics, which is the equipment that we make, are becoming very, very important for the country. The whole slew of policies which are coming together and the fact that everybody has to buy equipment from trusted sources is really creating a tailwind for our business where we being a leading Indian company and with a lot of relationships with the operators of so many years, we believe there's a good opportunity for us to get larger market share and win new applications from their side. I also talked about the fiber-to-the-home broadband application there, around 3 million GPON customers, which is what India has today, is expected to go to 100 million over the next 3 to 4 years, which will be around close to 50% of the households in the country having affordability to get broadband connection. So there's a large market opportunity, and we have a good role to play. The announcement of BharatNet to go to 650,000 villages, which is expansion of different phases of BharatNet is something which has started to happen. And PM had announced that in the next 1,000 days, he would like to get this done. There's, of course, the PM Wani program where 100 million WiFi access points would be done. A lot of the infrastructure of utility companies is also getting modernized. So there's a good amount of CapEx growth even from the government sector in the next few years. The BSNL 4G expansion tenders, I'm sure a lot of news has been around that. That's happening. So that will not only have an impact on wireless equipment, which is the 4G equipment, but also for the transmission equipment because you'll need to backhaul all the data. So there's a whole bunch of business around that. And of course, we don't expect 5G rollouts to start in any meaningful pay in the near term, but definitely, operators are preparing to fiberize their towers and have a network, the metro and the broadband network to backhaul of the 5G as the rollout starts to happen next year onwards. Specifically on the government side, in BSNL, we won a tender for BharatNet expansion in 2 states where there was not enough coverage as a part of the 650,000 village program. So we should be getting the order in this current quarter. This is not counted in the backlog that I had mentioned earlier. And of course, for the 4G tender, there's a strong push from the government to create an Indian ecosystem. We have built our own 4G radio equipment, which is called RAN. And of course, historically, optical transport, we have been very strong. So we will be partnering with other system integrators to find a way to get into those tenders as well. Clearly, still, there's a long way to go in terms of that actualizing into business because of different steps, which have been defined by the operator. But at least this is directionally something which is looking interesting. On the Critical Infrastructure, I said across utilities, defense, video surveillance, smart cities, a lot of networking projects of PSUs and government, we have been working with system integrators, and we see a lot of business coming from that segment as well. And on the Private side, we are rolling out a lot of FTTH networks. Actually, while there's a lot of demand, the actual rollout of the network on the ground has been slow. Despite the operators wanted to roll out a lot more, the actual progress on the ground has been slow, partly because of COVID, partly because of just the logistics challenges to roll out last mile network. But it is starting to get pace. Similarly, a lot of the ISPs, who have last mile access in the form of either cable MSOs or others, are also starting to accelerate. So I would say, next financial year, we should see a more positive impact of these rollouts on our business because we've been selected, but the actualization to business has taken longer than we expected. New application win for WDM for metro capacity expansion for a large Tier 1 operator, this is a very significant business opportunity for us because all the bandwidth, which comes from either home broadband our mobile backhaul, either 4G or 5G, will all get into the metro network. So there's a significant capacity expansion there. Because of the trusted source and many other things that are becoming important, a lot of the operators are really diversifying their supplier base, and we are getting a very good opportunity to become mainline supplier for them. And I think in this quarter, we would start to see some traction from that. And again, for the next few years, we should see good business opportunity out of that. So net-net, we think that in India Private segment, we should increase our market share in the next financial year because of the wins that we've had now in this financial year, and the time it takes to be integrated in their rollout plan. Next slide, please. Now I am on the International side. So again, the macro trend this year has been very interesting. As you would have realized that because of COVID, the travel from India or travel outside any particular country for anybody in the world has been extremely challenging. So the investments which we have made, the sales investments which we have made in different countries over last year have actually started to pan out well for us. So our incumbency in existing accounts and new customers in the countries where we are there or new application wins with the existing customers, in Africa, Malaysia, Mexico and the Middle East, is actually panning out. And that is the reason for us to get a much stronger business, larger order sizes from existing customers going forward. Second trend, which we are seeing is that there's an opportunity for replacement or expansion in the wake of all the geopolitical developments, and many operators in the world are specifically coming out with RFPs to build up what they call clean networks and diversifying their supplier base away from a particular country. Coming back to the third bullet is that in many continents like Africa and even in some parts of Asia and others, the wholesale bandwidth consumption has dramatically increased because of web scale companies like Google, Facebook, Microsoft setting up data centers in those markets, which are very severely underserved markets. We are seeing a bandwidth explosion in those markets. And we have been suppliers to the large wholesale bandwidth carriers in Africa, for example, and that's giving us good traction. And if I were to look at FTTH, the home broadband segment across regions, ex-China because we don't do China. But if you look at India, Asia, Europe, U.S., on an average, depending on which geography you are, you could be having anywhere from 3% to 5% penetration like in India to maybe a maximum of 20% or 25% in some parts of Europe. But there's still a huge amount of opportunity for expansion. And in this segment of the business, because the competitiveness of our product portfolio and the wins in India, we see good traction for our products. So coming back to the specific geographies, Africa and Middle East has been performing extremely well this year. Not only are we getting larger orders, but we're also at deals which have not yet closed but should expect to close in Q4 with large customer, larger deals, and clearly, WDM, which is used for the wholesale bandwidth provider as well as the converged access solution for the FTTH and other last mile deployment are our products that have seen a lot of traction. South and Southeast Asia, again, has been a region where we've been there for a while, and we have good traction. We won this large order that we announced in Q3 and December. And again, this is an initial order. And depending on how things go and in their expansion plan, there could be opportunities for repeating business from the same customer. And of course, many of the customers where we've been winning business in the past in different countries, even though we could not travel, but we could actually get a lot more business based on existing relationships plus existing local sources, local field force that we have. North America has been slow. And I don't think Q4 will be anything great either. The real reason seems to be there's a lot of incumbency and inertia in North America. And the COVID, when we thought we would pick up the pace, the customers really did not want to change and get a new vendor in. And as a result, a lot of our plans have really got into a back-burner and a slowdown. We see a lot more openness for people going forward. So we expect that in next financial year, North America should pick up. But clearly, this has been something which has not been a happy situation for us, but that's something which we are looking at. Europe, we started in around November, we had a Head of Sales for Europe. We are looking at countries like U.K. and Italy, which are again very severely underpenetrated in terms of FTTS deployment. We started our engagements with customers. A lot of the customers find us quite interesting. Of course, there's a process, which has to be followed before in terms of trial testing and all that before you can win business. But at least we seem to be having an opportunity to address those customers based on the last 2 or 3 months of experience. So overall, I would say, International has been a satisfactory progress this year. We wish we could have more travel, and we could have doubled up more new countries, but we really work within the limitations and try to make sure that we do the best that we can from the existing geographies where we have coverage. And that has been a very solid progress during the year. Just to recap from a product angle, where are we winning and what do we do? So there are really 3 segments. One is as I said, the home and office broadband segment, where our TJ1400 family of ultra-converged broadband equipment, which is GPON, Ethernet as well as LTE on the same product platform is a very good success story. So it is integrating all the FTTS technology, Ethernet technology, LTE, et cetera, et cetera. The second segment -- so that's on the access side. The second segment is in the metro side, which is the metro capacity expansion and the wholesale bandwidth. This is where the TJ1600 family is really doing extremely well. Many places, we are now Tier 1 accounts, which basically means from a competitiveness of technology from 100-gig, 200-gig, 400-gig and 600-gig, we are pretty much state of the art, and we have no reason that if we get a fair shot at the table with any operator, whether in India or outside, we are able to get success. And then the third aspect is network modernization and the critical infrastructure. This is where a lot of elements of our TJ1400 ultra-converge as well as the new TJ1400P family, which is the Ethernet Switching family, which is a derivative of the same comes into the picture. So a lot of our critical infrastructure, video surveillance, smart cities, utilities use that. So these are the, again, different technologies go in. And just to recap, again, we continue to invest in R&D. We believe that our strategy of not blinking and continuing our sustained investment has paid off because our products have become far more competitive, our addressable market like the network modernization and critical infrastructure was an adjacent market, which we started off about 1 year, 1.5 years back, and that started to become a good run rate business. And we continue to be among the top 3 R&D spenders in the country, among listed companies, with more than half our workforce in R&D as well. And a lot of that is being rewarded in the form of global award and recognition that we've talked about before. Just to give you a size of it, I would not dwell too much on it, but just to put a scale of what is the opportunity available both worldwide as well as in India, among the 3 segments that I talked about earlier. So really, the global GPON market. And by the way, all the 3 data, we have removed the China market sizing out because we do not address China and don't have any plans to address that market. So really, the GPON market is going from about $4.4 billion per year to about $5.8 billion in 2024. Really, macro factor being that a lot more people are working from home. There's a new normal in terms of how businesses and people will work. And that clearly means that GPON or -- I mean, GPON, by the way, is a generic term for GPON or NGPON, which means next-generation PON, which is 10 gigabits of capacity, which is state of the art. And again, we have the products for that as well. Although in India still GPON is being deployed. This is coming as one of the most cost-effective options, both for home, small businesses as well as backhaul from 4G or 5G network. So I think this is an area where we've invested heavily. And we are -- we believe we are extremely competitive. And I already talked about the India opportunity on that segment. On the metro and long-haul WDM segment, telcos are basically augmenting the capacities because more bandwidth, more data is flowing into the network, whether from home, whether from base stations of 4G or 5G or from web scale data centers. And that's why they have to go from 100-gig to 200-gig to 400-gig and really go to terabits of capacity. And so those are the areas, again, we have invested very significantly. There's another technology called OTN, which is a low latency technology, which is also one of the elements of 5G, where we have a very competitive portfolio of products. And the last part is, in India, for example, once our fiberization increases, both for 5G as well as for the home broadband, all of that extra data is going to go to the metro so you'll have to have capacity increases in the metro. And the fact that I announced earlier that we have won with a Tier 1 operator in India, their metro portion, is a good sign for us. [indiscernible] segment again is a market which doesn't move very fast to new technology. So there are still a lot of legacy technologies that have to be modernized. And our software-defined hardware product architecture allows them to do very easily. So traditional utilities like oil, gas, railways, surveillance, all of those stuff uses a lot of this equipment of networking and communication. And again, we are doing quite well there because not only just for the utility segment, but there's a lot of high-definition video surveillance, public safety and all that stuff comes into picture where you need some kind of Internet switches, et cetera. And again, our product portfolio is doing quite well in that. So in India, the utility segment is going from about $110 million to about $360 million over the next 6 years. The metro is going to go from $480 million to about $630 million and GPON is going to go from about $400 million to around $900 million over the next few years. So I think there's a largest market opportunity available for us. We have to take step by step. And if you win the accounts this year, we get success and get an entry. Hopefully, we will be able to increase our market share as the time goes by. There's a last slide, and then we'll go to questions. So just to quickly summarize. In Q3, we have continued to improve our quarterly revenue as well as profitability. Our new business win momentum is very good. And as I said, the order book has increased from INR 599 crores to INR 672 crores. International is going strong. We saw good growth in the 9 months, and we expect, by the time we finish 12 months, this year-on-year growth number will be significantly higher. In India Private, which is a run rate base, we do believe that based on our new application wins, both in metro as well as in FTTS, we should be able to get a larger market share of the operators. And these are all long-term contracts. So once we are into those accounts, as long as they keep spending, we should be able to get good business traction. The Government of India's sectoral policies for telecom equipment and all the decisions which have come in the last few months are very positive, good tailwinds for us. And importantly enough, we want to make sure that we are diligent on cash. We are doing everything we can to improve our collection and improve our cash position. And as a result, we have again, in this quarter, improved our cash position by around INR 36 crores to INR 335 crores. And we have no debt in the company. So from an execution ability, we have the resources available with us. We have good products. Clearly, there's a good global market opportunity as well as in India. And our objective, as we started the financial year, was to take a step-by-step approach and continue to head in the right direction. And again, I would say at the end of 9 months, we feel that we made satisfactory progress, and we expect that we will continue on the same traction in Q4 onwards. So this is really where I would pause, and we can now leave it to questions, please.

[Operator Instructions] The first question is from the line of Mukul Garg from Motilal Oswal Financial Services.

Sanjay, first question was on the semi shortage, which you highlighted. What kind of -- what type of an impact can we see in FY '22 on business? We have seen a much more aggressive impact on some of the other industries because of the shortage. And how much do we have in our inventory right now given that it continues to remain at elevated levels?

So first of all, it's a little bit difficult to call at this stage because unlike the other industries, telecom chips have been the higher value chips. And in fact, that's where a lot of the production had shifted. So we do see some increase in lead times. We have been working with our suppliers because we work very closely with them in terms of giving them our forecast and looking and making sure that the inventory is booked. So the fact that we actually have a decent stock up inventory in some of it, we've also got the stock of components which we had proactively taken steps even in Q3, we believe that so far, I would not -- except for highlighting the fact that there is a possible impact, we don't have any data at this point in time to specifically say that we will not be able to execute on our FY '22 plan. So right now, it's just alert we have received from some of our suppliers. And we have been in the planning and we have placed orders. So as of now, there is no quantifiable number that I can throw. But we are managing the situation okay so far is what I would say.

And have you built in some buffer on the gross margin side from the increased cost? Or will you be able to pass on this cost to your customers?

It's a bit difficult to say because a lot of this information is just flowing in. It's like till December, we didn't have any alerts from any of our suppliers. But in the last 2 weeks, at least -- by the way, we have just seen from 2 suppliers at this stage. One supplier had told us long time back, which -- with whom we are already covered. Only one chip supplier at this point in time is one who has basically raised an alert in terms of longer lead times. So I would say it's difficult to, again, say whether we'll be able to pass the price increase to the customers or not. Clearly, getting cost reductions will be more difficult from the suppliers because you have a lead time plus cost. Usually, we get a decent amount of cost reduction because of our volumes. But at this stage, again, I would say, a bit too early to call. We are clearly looking at the situation closely. But again, the way I see things is that our costing and our margins are more determined by the percentage of International business versus India business. So if our International business continues to improve next year on an absolute basis, we believe that we will have a little bit more margin flexibility to hopefully navigate some of the specific challenges, if at all, they appear from the chip side.

Understood. The second question was on the Q4 revenue calculation. Now you highlighted that 20% to 25% of your order book will get executed in Q4, which indicates INR 150-plus crores revenues coming in from order book. Now what share of business should we bake in? What is usually order book portion versus intra-quarter business? Or should we assume that this is a quarter which is dominated more from public sector space and hence will not follow normal seasonality?

So as you rightly picked up that there's a pretty decent order book thing which will get executed in Q4 to begin with. But then we have a lot of run rate customers whom we don't count in order book because those orders, we just have to have the physical purchase order in our hand when we look at 30th, but we do have their forecast. So I would expect that on top of the order book customers, we should have a reasonable amount of the run rate customers will also plug in. Exactly how much comes in is again a function of as the quarter progresses. We don't specifically give a guidance on a zero number, but I did want to directionally kind of give a sense that from the order book, there will be a reasonable amount of conversion for Q4. And secondly, Q4, historically, if you -- except the last year if you take out, has been a significantly larger quarter compared to the previous quarters. And basis what we are seeing today, there is a good chance that this could be a largest Q4 as well.

Fair enough. One clarification, which I wanted. There was an article today where ITI has highlighted that they're partnering with you on the BSNL 4G trials, and you will be kind of working with them on technology in the cRAN side. So a, what type of partnership will this be -- will they be manufacturing the equipment? Or will you be manufacturing the equipment? And more from the technology side, while you have cRAN, do you also have vRAN or Open RAN capability?

So first of all, I would not want to comment on any news articles because we did not say anything someone else did. What I did say earlier in my presentation is that we have developed our own 4G RAN, and we will be partnering with other system integrators. ITI, of course, has a reserved quota, so that's an interesting situation. Our product is in compliance with what BSNL is wanting, which is a traditional architecture. But if you know of our company's fundamental architectural philosophy of a hardware defined software architecture, we do believe we have the capabilities to upgrade to new architectures like ORAN and all that as time goes by. To also clarify, we have not developed the core or the EPC for the large mobile networks that are being talked about, where there would be a partnership with other ecosystem players.

Understood. I think that's all from my side. Just a suggestion, given that you are talking about the addressable market in GPON and optics, it would be useful if you can start breaking out the revenues for apples-to-apples comparison.

The next question is from the line of Divya Jain from ICICI Prudential Mutual Fund.

Sir, I just wanted to understand. You have stated some market size opportunities for each of the segments. If you could just elaborate, what is your aspirational market share which you would want to gain out of these opportunities, that would be like helpful?

Aspirations are, of course, very high, but we are still quite a bit away from the aspirations in the sense where we are today. I think what happens is while we have called out the total market size worldwide, and we also called out the India market size, so I think it is more, I would say, possible for us to have a better handle on the India market share. And which I said is based on the wins, we have a seat at the table to increase our market share. At this point in time, it may be a bit premature to specifically say what market share we're going to gain. On the global basis, it becomes a little bit more trickier. Because while the, let's say, just take up case of GPON market being $5.8 billion per annum and, say, 24 -- or let's even $4.4 billion today. But that is assuming that we are present in every country in the world where they are doing this deployments. So as a result, what happens is we are only present in fewer geographies. So as an outcome of that, our market share is kind of determined by those geographies. The only point of highlighting those numbers from my angle was that over the next 4 or 5 years, which is the horizon that we painted, as we increase our international presence, as we have more sales coverage in different geographies, the opportunity is available to us. The second point which I wanted to make, which was on the technology slide, is that from a product competitiveness, we feel very confident that winning in India, for example, on GPON, against the best global competition on technology and price and being selected by all the major operators, or winning in India in metro WDM on 100-gig, 200-gig, 400-gig, which is against the best in the world, gives us confidence that we have competitive products. If you are able to get to the right markets and have the right credibility there, that opportunity will start converting. So I would say that it's a little bit difficult for us to put a percentage figure to the market share. As we start seeing more traction in these geographies, we will have a better sense of it.

Okay. That was helpful. And sir, in case of the latest orders which we had, which was a big one, how many such orders or what would be the -- on quantum of further orders like these, we could -- what was the nature of that order I would want to understand? And how many of such can be possible in future?

So basically, like these kind of orders are for, let's say, they would cover X number of cities or regions on Phase 1. And after Phase 1 gets successfully deployed, they would expand it to another phase, for example. So those are the kind of things which we expect to happen. I think this Phase 1 will get executed during the current calendar year. And if all things go well and they get their budget in place, there could be opportunities opening up in future as well because there's a lot more coverage that they need to do for the products that they've bought from us.

Okay. And just the last one from my side is -- sir, with the cash on the balance sheet and, I mean, inventory, do you feel that you'll have a disproportionate gain in the near term because the other players might be struggling on the liquidity front there?

I wouldn't say disproportionate gain, but I actually look at it this way that we don't have any handicap. To be honest, when we started the year in April, and our cash position was what it was, there was a lot of concern, including ourselves that I don't know how COVID is going to pan out and do we have enough cash to write through a rough storm in case one came through. Luckily, no rough storm came through for our business because telecom is one of the sectors which has done well during the COVID times. But more importantly, it gives us the strength to be able to execute larger orders. It gives us a strength to our suppliers to say that they're doing business with a healthy company. And also from our customers' perspective, by the way when they look at our balance sheet, then they look at that this is a profitable company, this is executing well, they have competitive products, they have a comfort that 5 years from today, we'll still be around, which may not be the case for relatively larger companies whose balance sheet may be stressed. So I would say it's more of a comfort factor for being able to take more proactive investment calls whether in R&D or for International sales investment, that is coming from the strength of our cash rather than any particular thing. We definitely do not want to use our cash to finance our customer network. So we are still desisting from giving any long-term credit or anything of that kind because I don't think that's something which we want to even encourage. In fact, our focus has been to reduce our DSOs and improve our collections, get into shorter cash-to-conversion cycle, although there's a lot of temptation from customers wanting to give us more business if we give them longer lead times, but that comes with its inner interest, which we think is not a prudent thing to do at these times.

[Operator Instructions] Next question is from the line of Sunny Gosar from MK Ventures.

Congratulations on a good set of numbers in challenging times. Sir, I have a couple of questions. First one is I would like to understand that if I look at your gross margins over the last couple of quarters, apparently, Q3 is one of the lowest gross margin quarters. What would be the reason for that? And is it because of the product mix or the customer mix? And what -- how should we look at gross margins going forward?

So Venkatesh can answer this question, he's looking out that data. But I think we don't really -- on a quarter-on-quarter basis, you are right because of the customer mix, for example, in Q3, the percentage of India customer was slightly higher compared to India customer percentage in Q2, let's say, or Q1. Q1 was International was 53%. So of course, Q1 margin was the highest. So as I mentioned in the context of a reply to the earlier question that as our International business goes, our margins go higher. So in a particular quarter, if the percentage of India business is higher, the margin may slightly go up and down. We really look -- we model our business and we look at the margins on an annualized basis. In fact, we look at our business on more on an annualized basis. That's why I gave all the 9-month comparisons. So I expect that by -- I don't see any reason that we should have any significantly dip in the margin or increase in the margin so long as we maintain our revenue profile. So typically, I mean, last year, I think we did 60% India, 40% International, something like that. And I think by the time we finish the year, we should be in a similar ratio. And if that happens, then our margins should be similar compared to last year. It could be a few points up and down, but I wouldn't say anything significant there.

Sure. That's helpful. So just to conclude on this, is it safe to assume that our gross margin should be in that range of 48% to 52% broadly? If I look at the last few years, that's been broadly the range. And should that be sustainable going forward?

Yes. I think our margin should be in the, yes, similar range. Yes.

Yes. Right, right. Next question that I want to understand is, basically, how much is your receivable cycle? Because if I look at your receivables as on December, it is about INR 402 crores. If I take out the INR 170 crores from BSNL, so the residual is about INR 227 crores. And if I add up the last 2 quarters of revenue, it's about INR 244 crores. So basically, it turned out to be that we have not received money for the last 6-month sales. Or apart from BSNL also, are there some other receivables which have not yet come through from the past?

So I think we mentioned in one of the earlier calls that there are slight delays because of the COVID pandemic in certain geographies. These are old customers, but things didn't exactly happening. So there was a slight delays on those. On a steady state, I think our receivable cycle over a period of time once we get to the right amount of revenues was around 145 days or so. If you look at our financials a couple of years back, I think we had got -- our steady-state cycle for receivable was 145 days. I think we should be able to reach that, of course, not in the near quarter. But in a few quarters from now, we should be able to hit that thing, definitely. And plus if the BSNL collections, which have again started to move, get cleaned out, we should be able to restore back to our 145-day kind of a receivable cycle.

Yes. But that 145 days would be a blended between government less private, right? If you could help me understand basically your credit terms in the private sector, basically -- International or the India Private sector? Because as I understand your mix may shift higher towards those segments. So shouldn't the receivable days be lower if I take the overall BSNL out? On a steady-state basis, if BSNL is completely out at some point in time, then how much should our receivable cycle be?

Yes. I mean, so what happens is each geography and each customer is not like -- there's no -- unfortunately, there's no standard thing. International, typically, we have the best payment terms, I would say. Followed by certain India Private customers, I would not say all. We have very good payment cycles. Within Government, we have also started to do one other thing, which I had mentioned earlier, that the Critical Infrastructure business, we are minimizing our direct interface with government. So we are kind of doing it through system integrators from whom we are able to collect faster irrespective of when they collect from their customers, which is the Government customers. So we are also going through that change. So the way to think of it is that the blend will change. And from our point of view, we just want to make sure that steady state, no matter which way the blend goes, we try to keep a bounded working capital cycle in terms of both the receivables, payables as well as the inventory in hand. So that our working capital cycle doesn't keep increasing as the revenues keep increasing. So that's the way we are managing. In case we give a slightly higher payment to a customer, for example, in International or even a specific customer in India, we typically would then prorate or bake in some cost of interest, assuming that the receivable is secured. So I would say receivables will go through a lot of churn in the next 2 quarters or so once the older BSNL and all the older other stuff start getting -- coming to normal state. But our target is to get back to our 145-day receivable cycle on a completely blended basis across Government, India, International customers in a few quarters from now.

All right. Then I have one last question. If you could help us understand basically how much would be the bid pipeline in terms of your pending bid? Or some visibility in terms of how should we look at -- so you've guided for Q4 broadly with about 20%, 25% of the order book getting executed in Q4. But if I have to look at from a slightly more medium-term perspective, so if you could give some visibility or some color in terms of how should we look at your revenue build up over the next 1 or 2 years?

So the challenge we have in our business is that the order book in one sense is a function of what is unexecuted just at the end of the quarter. And we just report that as a number. The good part is that a lot of our run rate business, when I mentioned, for example, win with a Tier 1 operator in India for a metro expansion, the order book for those things could be 0. Because they get -- they place the order and within 8 weeks or 10 weeks, they take the deliveries unlike -- unless it is on a quarter boundary. So actually, a lot of our orders actually come from customers where we don't actually have an order book, but we have a forecast from them in terms of their build-out plans, their CapEx plans, et cetera. And that continues to evolve as we model, let's say, for example, when we get to the next financial year. So at this stage, it is very difficult for us to give future guidance in terms of the -- what numbers will be next year. But what we definitely report is the order book in hand; we report the customer wins; we also report which is the nature of the customer win, is it a one-off win or is it a run rate win. And with that, I think as we get better visibility, in the best possible way, we try to share with all of you guys without giving a specific numbers because that's something which is a little bit challenging in our business.

Right. Right. I understand that. Just a small follow-up on this. If I have to look at your future business mix, what would that be? Or what do you aspire it to be between say India Government versus India Private versus International? And how do you see this evolving over the next couple of years?

So our -- see, what is in our control, if I were to say, is the run rate business, which is India Private and International, which is clocking at around 85%, if I'm not mistaken, this year -- 87% this year. So that's the part which we control because we can win Private accounts, we can win more International business and all that. The Government business is more like if the tender comes -- a lot of tenders come in a particular year, we have a lot of business. If the tenders don't come, we don't have a business. In fact, one of the big reasons for our disappointing performance last year was the India Government business and the -- didn't happen much because of no tenders and the India Private had other issues. So we're really trying to make sure that our baseline business of run rate is solid and secured and is growing on a healthy basis on a year-on-year basis. On top of that, the Government business will happen when it happens. We are very careful about making sure that we do the right things to secure that business. And -- so that number will change. But directionally, we had mentioned earlier that we want International business to grow quite healthily year-on-year. By the time we finish Q4, we will see good progress on that on an absolute basis. Secondly, I also believe that we want India and International to be 50-50 in the medium term. We are at about 60-40, 60 India, 40 International, but that's also a function of some of the larger Government business can come and skew the mix. So the way to think of it is independently, International sales should increase on an absolute basis year-on-year. Independently, India Private should increase. And the Government business depending on the -- by the way, Critical Infrastructure, hopefully, should increase year-on-year because that's becoming almost run rate. And the other business from BSNL and BharatNet and all that will be more opportunistic as and when it happens.

[Operator Instructions] The next question is from the line of Dixit Doshi from Whitestone Financial Advisors.

Sir, if you can provide us with the breakup of the order book between Private, Government and International?

So I think we provide the breakup of the order book between International and India. So I think around 77% is India and around 23% is International.

Okay. And sir, is this BSNL dues that we get, are we going to get any interest on it? Or it will be just the receivable that we'll get?

Okay. Good question. So technically from BSNL, we will get the principle. But then there are other, what should I say, government-appointed agencies who was supposed to ensure that a delayed interest is paid to you as well. So needless to say, we will be -- our first objective is to collect the principal from BSNL and then whatever other remedial measures the Government of India has provided to any company like us, we are MSME this year. So we would be using those remedial measures as well.

Okay. And sir, in previous call, you had mentioned that we're expecting some orders from top 2 private telecom companies. And you said, to some extent, the orders will come in Q3 and more orders can come in Q4. So how is the visibility now? Do you...

Yes. So Q3, Q3 -- so the FTTS deployment, as I mentioned earlier, has been slow. So some orders have come, but not the expected volumes, which I think will be run rate. So I would imagine that the FTTS deployment orders would really be in the next financial year. Some have started to come, but I would not say at the level at which we expect them to be. So that would be next financial year. But the newer application that we are winning, we continue to get initial orders. We've got some initial orders last quarter for some new applications. And hopefully, we get more orders this quarter. So I would say that at this stage, the focus was really to secure the new application win, and we understand that the actual order is a function of our equipment getting integrated in their operations, billing and all the other service-related software ecosystem, which usually takes some time and has taken more time because of all the other issues in the last 6 months. But we are designed in and the forecast we are getting from them in terms of what they would like to deploy and what they would like to get from us looks quite interesting to us. But those numbers, I would say, would start showing up in next year. That is what I had mentioned earlier that India Private this quarter and that this year has been more winning and getting to a reasonable base and next year would be the year to increase the market share.

Okay. And sir, one of the previous speaker pointed out that out of the receivables, INR 165 crores is the receivable due from the public sector companies and balance sales that we have done in the last 2 quarters. So out of the receivable, INR 220 crores is -- are the type of receivables, which we have not received since last 6 months. So -- but in the note, we have mentioned that more than 180 days trade receivables are INR 166 crores, out of which INR 125 crores is from BSNL. So that leaves only INR 40 crores, which is due for more than 180 days. So...

Yes. what happens is -- so I think that's the math you've already done, which is that it is not that the same receivable continues to not get collected. So we have payment terms. So the money keeps coming according to the payment terms. Something which has not been collected within the 180-day window gets reported. So it's not that the same thing is not coming from the same customers. We continue to get the collections going. And only I would say, there could be specific customers like BSNL that you mentioned, which could be -- which was due earlier and is due now, but many others keep coming in and at the end of the quarter -- by the way, there's also a question of many of the receivables are not due. So it is not that everything is due because there are the payment terms, say, of X number of days and the payment may not even be due, but it does show us a total receivable on our books. So I just want to make sure that the total receivable consist of amount which is due and amount which is not due. And only the amounts which are more than 180 days is what is reported separately.

We take the last question from Mukul Garg from Motilal Oswal Financial Services.

Thanks for taking my follow-up question. Just wanted to dig a little bit into the gross margin profile this quarter. You -- this quarter run rate on top line was close to INR 550 crores. But still, you saw a big dip in on the gross margin, and you barely were profitable on the EBIT side. So is this something which is happening because of some cost pressure coming in in equipment purchase? Or what was the reason for the dip in gross margin?

I would not attribute -- I did not see anything particular during the quarter. I mean it's just gross margins are down by 80 basis points or something like that Venkatesh, right, compared to last quarter? So I would say just a product/customer mix. I would not read anything significant into the dip into the gross margins for the current quarter.

Thank you. Due to time constraints, that was the last question. I would now like to hand the conference over to the management for closing comments.

So thank you, everybody. I think the questions were very good. And I hope, in addition to what we had presented, you would have got a better insight through the Q&A session. So thank you for your time, and we appreciate your interest in Tejas. And we look forward to continuing to meet our performance goals and show improved performance on the next quarter as well. So thank you, and have a good night.

Thank you. On behalf of Axis Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.