Tejas Networks Limited (TEJASNET) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q1 FY '22 Earnings Conference Call of Tejas Network hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. [Indiscernible] from ICICI Securities Limited. Thank you, and over to you, sir.

Good evening, everyone. On behalf of ICICI Securities, we welcome you to Q1 FY '22 Results Conference Call of Tejas Networks Limited. From the management, we have Mr. Sanjay Nayak, who's CEO and Managing Director; Mr. Arnob Roy, who's COO and Whole-time Director; Mr. Venkatesh Gadiyar, CFO; and Dr. Kumar N. Sivarajan, who's Chief Technology Officer. So we'll begin with [ an overview ] from the management for which we will have the question-and-answer session. So [ without further ado ], I'll hand over to the management. Over to you, Sanjay. Thank you.

Thank you, [ Rupendra ], and good evening, everybody. This is Sanjay Nayak, and thank you for joining the earnings call. So we had uploaded our earnings presentation on our website. I hope you had a chance to download it or look at it because we would be following the flow from that presentation. So I'm on the first slide, which talks about the Q1 FY '22 updates. On the financial side, our net revenues were INR 144.3 crores, which was a year-on-year increase of 86% corresponding to last year. Our PBT was INR 8.3 crores versus a loss of INR 9.8 crores last year. We actually had a fairly good bookings. And our order book has increased to INR 701 crores. And the majority of the new orders actually came from India Private as well as International. Our cash and cash equivalents decreased to INR 312 crores, and Venkatesh would explain in a short while on that side. In terms of the sales update, the India Government business was slow, as I mentioned earlier, and even in terms of new bookings. So while we have won a whole bunch of tenders, those orders have not yet happened. And on the execution side, because of the COVID restrictions in Q1 in large parts of India, some of those projects haven't executed as yet. We're also participating with our new product, which is the 4G base station for BSNL tender. And we are at the proof-of-concept stage where we are being contended by multiple system integration partners who would be using our base stations and radio products for the entire solution. That trial has started and will be lasting for the next 12 months. On the India Private side, we've seen a fairly strong revenue growth, 101% year-on-year. And in addition, the order book was also fairly healthy in terms of the new orders that we got from the India Private segment. A lot of this was really based on the new application wins that we won last fiscal year, both on the GPON products, which is Fiber-to-the-Home, as well as the backbone capacity expansion based on the DWDM and OTN products, which are used in the metro networks for all the Tier 1 operators. On the International side, we continue on the growth momentum that we had last year. And again, we had 82% year-on-year growth. And on an overall basis, International was 52% of our total revenues, which is a good thing because last year, on an annualized basis, International was 40% of total. We also got 6 new customer wins: 2 in Asia, 2 in Africa and 2 in America. On the supply chain side, I'm sure a lot of you have been reading about the global shortage and constraints in the semiconductor industry. We got an early indication at the beginning of this calendar year. And we've been managing the challenges of this current situation by placing advance component orders with all our critical suppliers who have long lead times and are making sure that we can secure our next quarter requirement. Of course, this did require a little bit of committing additional cash, which is part of the reason for our working capital to be higher and the cash positions to be lower. And secondly, there have also been a little bit of price or cost increases by certain suppliers. But luckily for us because the International business was more than half of our revenues, we were able to absorb most of those cost increases because of higher realization internationally. And as a result, our gross margins are almost being at a steady state level. So that's kind of the quick summary of the health of the business. I would now request Venkatesh to go through the next few slides on finance, and then I'll come back and give a deeper commentary on the sales in the business on an overall basis.

Thank you, Sanjay. Good evening, everyone. We are on the financial update slide. Before I begin on the -- commenting on this, I would like to inform you that Q1 of FY '21 was an exception due to COVID-19, and that year-on-year comparison should be viewed accordingly. The net revenues for the quarter Q1 FY '22 was INR 144.3 crores. We saw a year-on-year increase of 86.4 percentage. In this quarter, we had just a breakeven in terms of our EBIT, saw a INR 1.2 crores of EBIT for the quarter. On a PBT level, we had INR 8.3 crores of PBT. And on a PAT basis, we have INR 7.6 crores. And the EPS was -- basic EPS was INR 0.81 per share. Next slide. There are our key financial indicators. We had a net cash outflow of -- from operating cash flow for INR 32 crores. And our net worth has been increased to INR 1,146 crores. Inventory was decreased to INR 201 crore by means of a decrease on a quarter-on-quarter basis by INR 13 crores. While our focus is to consume the inventory on a quarter-on-quarter basis, however, due to the global semiconductor shortage, we are stocking up on our long lead components to avoid any supply chain disruption. That is one of the reasons we had to make the payment to some of the vendors sometime in advance or we have to make the payments on time to secure our inventory on time. Second thing on -- trade receivable has increased to INR 447 crores. We saw an increase of INR 33 crores on our last quarter. And 2 things: one is the delayed payments from our few customers due to the COVID lockdown; and second one, the payments received from BSNL was continuously a challenging one, and it was coming in a slow pace. During the quarter, we had collected about INR 15 crores from BSNL. And we do expect to collect something more in the coming quarters. And on our working capital, the working capital was increased by INR 55 crores in this quarter, primarily due to higher payments to the component supplies, coupled with the delayed collections from the few customers, which has resulted in the higher capital -- higher working capital. And we do expect to normalize the working capital over the next few quarters. Of course, the combination of both the delayed payment and the higher payments to the vendor has resulted in the cash outflow -- has resulted in INR 52 crores of decrease in the cash and cash equivalents. As of June 30, our cash position was around INR 312 crores. And we are continuing to be a debt-free company. And we have a strong balance sheet, which can support of the future growth -- of our future growth. Now I will hand over to Sanjay.

Thank you, Venkatesh, for giving the financial update. I'm on the next slide in terms of revenues by segment. So the chart on the left-hand side is our annualized revenues by the 3 categories that we track, which is India Government, India Private and International. And on the chart on the right-hand side is the corresponding numbers for Q1 of this year. So as you can see that India Private contributed almost 52% of our total revenues. International contributed -- sorry, International contributed around 52% of the total revenue. India Private contributed around 35%, and India Government was 13% of total. So if you really see out of the whole scenario, the run rate business was really 87% of total in Q1. And on an annualized basis, if I were to look at the corresponding quarter last year, it's around 89.3% growth. The India Government business was slow, as I mentioned earlier, because the project execution -- although we have lots of orders, the project execution on the ground was definitely impacted by the COVID situation. In terms of the new orders that we got in Q1, a majority of them, around 95% of the new orders that we got in Q1 were from private and international, and only 5% came from the government. Although we have won a whole bunch of government tenders where we are L1, those orders should come in terms of purchase orders to us during the current quarter. So overall, I could say that we had targeted to make our run rate business a lot more robust and a lot more predictable. And we are continuing to head in that direction. And the Indian Government business will, of course, be lumpy in nature. And as and when the tenders come and we continue to get the orders, we should be able to execute that effectively as well. Going down a little bit further in terms of the situation in India. So let me start off with the Government again on an overall basis. So on one thing, which is a new product that we have been -- that we've not spoken earlier, is the 4G wireless radio access network, which is commonly called base station. So we have been investing in that technology for the last many years, and that product is being positioned as a part of a fully Indian solution where all aspects of the solution, hardware, software, et cetera, from access to the core are Indian. For the BSNL's 4G tender and the proof-of-concept testing is underway. So 2 system integration partners have bid our products in that tender for more than -- the total value of the tender is going to be fairly large. Second item, you would have read in the newspapers even today morning that government has approved additional budget of INR 19,000-plus crores for extending BharatNet to villages as a part of the BharatNet Phase 3 program under a public-private partnership program. The global bids for that have been, I think, released -- the global tender has been released today. Again, we believe we should have a significant play as and when these things come to an execution stage. And these would be executed by telecom operators or other service providers who would potentially be then executing this project and then buying the equipment of the kind that we do. The third is that in addition to the wireless portion, which is the 4G network of BSNL, they also have to correspondingly upgrade their optical backbone and the access network, which is the wireline products that we have. And there will be fairly large value tenders also coming during the second half of this year to backfill the need for building higher-capacity networks or the wireless networks of BSNL. So all of that together, there's a fairly large set of business available from BSNL. Of course, all of that would be under the Make in India program and all of those things. Second bullet I want to talk about is the -- all the initiatives that this is put to Atmanirbhar Bharat and how they affect our company. So we have submitted the performance-linked incentive application, the PLI application, for telecom and networking equipment category, as was required by end of June. They would be short selecting the companies and announcing them some time in the month of August. We do believe that our application meets the required requirements, and we will look forward to how that pans out in terms of approval. The second regulation which has come into place on 15th of June where Government of India has mandated that only secured telecom equipment can be deployed in any network whether public or private or cable or ISP or any kind. And so one -- every company has to apply under the National Security Secretariat. We already applied for our products. And we believe that our products should be approved as secured telecom products, whereas products from certain countries probably will not be getting that green signal. On the critical infrastructure segment, this is a part of our business, which is lots of tenders and it's almost a run rate business. So there's been, again, like in previous quarters, lots of tender wins in Q1, and we should be expecting orders from that. In addition, Railtel and Powergrid do have a few large tenders that are on the anvil, which should be tendered in Q2 or Q3. And again, since they are under the Make in India program and these are our customers -- we are long-standing customers for them for many, many different years, we believe that if you take the entire India Government as a funnel, there's a lot of business opportunities which are available to us, which, as the year progresses, will cook, some of it will be executed this financial year, and a lot of that, given where we are, could be for next financial year. In terms of the India Private, this has been a sector that we've been very happy about in terms of the progress that we've been making over the last few quarters. So in the previous quarters, we've been announcing different application wins such as Fiber-to-the-Home for metro capacity expansion, and all of these is Tier 1 operators and as a part of their mainline network requirements. So we are very happy to say that some of that has started to flow in the form of business. So the metro capacity expansion projects have started to give us good order inflow as well as revenues in the first segment, and this is for both 4G expansion as well as for inter-stations of 5G in the future. The Fiber-to-the-Home rollout, which is another set of applications where we have been selected by all the major operators, that has still been slow in terms of our own revenues and our own integration into their systems. But we do expect that we are at the tail end of that process now. And starting from second half, we should start seeing increased order flow from the FTTX and the GPON applications from the 2 major operators that we have. There's another business that we have started in this quarter that -- which I think I mentioned in the earlier earnings call, that a lot of the Fiber-to-the-Home rollout for home broadband is being given by smaller ISPs. And there are more than 100 such ISPs in the country. We can call them Tier 2 or Tier 3 ISPs, which are local operators. Some of them are cable operators who are morphing into Internet service providers. But they also are now buying GPON equipment to give it to their customers. So we are attacking that market, which is about as big as the other 2 telcos. If you take the whole market in India, it will be divided between the 2 large telcos who are taking around 65%, and maybe around 30% of the market would be with the smaller guys. So we are targeting those as well using a channel approach. So rather than going to each and every one of them directly, we are appointing distribution channels, system integrators who are local state-wise and region-wise specialists in these kind of things. And we have set -- the first set of distributors have been signed. They have started to give us initial orders, and we do expect that this part will also become almost a run rate business going forward, and it can be a fairly good business for us. So overall, I would say that India Private possibly could be one of the fastest-growing segment among the 3 segments of our business during the year. Coming back to the next slide on the International. Again, we have 4 regions that we are focusing on. Africa and Middle East region is the one which did extremely well last year. And it is continuing to do well this year. The -- it's the indication of new order flows and the revenues for quarter 1 is an indicator. And we continue to see a lot more repeat business from our existing Tier 1 customers who are large operators for WDM products, which are 100 gig, 200 gig and so on, high-capacity backbone network. So we are doing extremely well there. And basically, what's happening in Africa is that all the needed carriers are upgrading their network capacities to address to the higher bandwidth demand from web-scale companies, the big guys who are setting up large data centers in Africa and also for the impending 5G rollout. And clearly, because of the geopolitical concerns, they are diversifying their customer base, and there's a requirement for many of them, especially if the end customer is a U.S. company, to give them bandwidth on trusted equipment. So overall, I would say Africa continuing to do very well, and we expect this year will be a good year for Africa as well. South and Southeast Asia, again, this has been a territory that we have been operating for a while and we had good success last year. We again feel that Fixed Wireless Access, one large network we have done last year, and Fiber-to-the-Home product for broadband rollout is again the application where we are doing well. And we continue to see good traction from this region, and we expect, again, decent growth this year in this segment as well. Americas was a region that did not deliver us the results last year. However, we have been continuing to focus. We've been investing into the region, and we have a direct sales force team working there. I'm happy to say that we start to -- starting to see that region turning the corner. So we started to get some good orders initially. We've also seen some success -- initial success, I would say, not last as of yet. In terms of Fiber-to-the-Home rollout, in rural carriers who are using the very large amount of U.S. government funding available for rural broadband rollout. It's tens of billions of dollars of funding which is available, and we have started to get a little bit of success in that market. Mexico, again, was not performing last year, but this year, we have started to see good business momentum picking up. And overall, I expect that in terms of the revenue impact, Americas should see a decent revenue contribution during the second half of the year. Europe and CIS countries, we started late last year in terms of hiring some local salespeople, both in Europe as well as in Russia. So they have started to do a good amount of branding and positioning of the company's products among multiple operators. So I would still say that we are in a business development mode, although we have responded to a lot of RFPs, and there are pretty decent sales engagement primarily again for Fiber-to-the-Home and DWDM products. So I would again expect that Europe and CIS meaningfully should start contributing in the second half of the year. So overall, if I were to look at the International, we had good growth in the last financial year. And if Q1 is an indication of the set of things, we expect to continue on a similar growth momentum during the current year as well. Of course, with a larger revenue base, the numbers will get moderated to some extent, but at least from a growth and directional angle, we do see positive signs on the International side as well. The next slide is just a recap of the applications where we are winning just to make sure that everything that I said comes into the right context. So on the access side, now we have 2 sets of products. One is the wireline products, which is the GPON and the carrier Ethernet and those kind of products. In that same category with the launch of our LTE base stations, which is the 4G product, which will, in future, be upgraded to 5G as well, we're also now doing a wireless broadband play in that segment of the business. And that basically opens up a relatively large market opportunity for us as well. The BSNL tender is one large such opportunity that we are working on, and we're going to be closely monitoring how that proof of concept and everything else goes. On the metro side, which is the capacity expansion on 100 gig, 200 gig, 400 gig, 600 gig, and this is pretty much state-of-the-art in terms of the speeds compared to anybody else in the world. We are, again, very happy to say that this has been the growth driver in Q1, both within India as well as outside of India, in terms of private operators and large carriers who are now trusting our products in expanding their metros. And if you know, metro expansion is really the big area for a lot of the growth, especially when any more bandwidth hungry applications are coming. And with 5G coming in and driving a lot more bandwidth, the metro networks have to be very high capacity and robust, and we are well designed into that segment of the business, especially with the WDM as well as the OTN technology. And OTN technology, again, just for simplifying it for many of you, is the low latency technology, which means for 5G, you need low latency networks, networks that have -- which do not have a lag in the network. And we really are, I would say, having a very, very strong portfolio on the OTN products, which is, again, winning in many, many Tier 1 customers, both in India and outside. The last part is really the critical infrastructure, which is the switches, routers as well as the transport and other elements that companies like rail, oil, power gas, smart cities, surveillance in all of those things need. And that, again, is another segment where we have been doing quite well. Of course, the last segment is more security-sensitive. So there are many Make in India and security-sensitive tenders where we do get a significant benefit as an Indian company. Overall, we continue to focus on R&D. If you see our investments on an absolute basis last year, a year before, even this year, we continue to believe that that's only important for us to make sure that our products stay competitive. And we are relevant to our customers because of the best technology rather than just being there because of our incumbency. So we are generally continuing to get ahead in the game in many of the technology areas, not just for India but for any other markets in the world. I'm coming now to the last slide, just summarizing, and then we'll open it up more for questions and answers. So really, in summary, I would say we are on track. So last year was a good growth year, but we must acknowledge that we are not yet there in terms of where our revenues were, say, 2 years back or 3 years back. And our first target is to reach in that direction. And I would say, we are heading in the right direction with that with solid financial performance in Q1. We have good revenue growth from run rate customers, which is very important asset because the previous cycle of our growth was built on a lot of government business, which is good business, which will, of course, take when it comes, but our foundation of the run rate customers now is rock solid. And we feel that that's the direction which makes the company a little bit more predictable in terms of financial outcomes. The new order inflows continues to be good. So while we had good growth in terms of revenue, I think we have actually got a better growth in terms of order growth as well as new customer wins. So we actually are optimistic about this year continue to be winning a lot more business exist -- on existing customers and of course, from the new customers as well. Our focus on International business is yielding positive results. So if you see over the last 4, 5, 6 quarters, continually now we have built up a good base for International. In fact, this quarter, International was more than 52% -- around 52% of total, which gives us a sense of geographical diversification, so that we don't again get into a situation where overdependence on India poses a little bit of a turbulence in our numbers. And of course, in India, which is going to be one of the most hotly contested in the large growth market for all the reasons I described earlier, we do see opportunities and clear opportunities to increase our market share. And sooner or later, our increased market share will start showing up in different reports, et cetera. And component challenges from a semiconductor industry has been a challenge for everybody. The only thing we have been able to do is monitor the situation closely, make early enough investment, secure components, even if it means take a little bit more, but make sure that our supply chain continues to run smoothly. We have done okay job in Q1, I would say. It's not as good as we would like to, but I'm pretty sure that Q2, Q3, Q4, we should be able to do better than that. And as Venkatesh mentioned earlier, although our cash position did decrease to some extent, but we still have a very healthy balance sheet. And with the receivables and the other things that he said will get normalized in a couple of quarters, we should again be in a fairly healthy cash-generating situation. So overall, I would say, Q1 has been a good start. We seem to be on track. And as the year progresses, we'll be happy to share more details about our progress with all of you. So at this point, I am paused, and maybe we can open it up for questions for -- from all the listeners.

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

Sanjay, I would probably start with the last comment which you made about doing a focus in Q1 and expecting better in Q2 to Q4. So just a bit of a clarification around the Q1, can you quantify the impact of the lockdown and chip shortage on both revenues and margins and the impact of advance payments on working capital?

So I would say that internally, we always have a baseline and upside number that we would like to do. So of course, we hit the baseline number. There definitely could have been -- so if you see the order book that we started the year was around INR 679 crores, so we had enough orders to execute both in Q1, Q2 and so on. So it was really a function of 3 things, actually. One was a component supply chain disruption. And by the way, despite the best planning, any company in the world would always have some last-minute surprises, and so did we. So we could have done more revenues, but that was one issue. The second issue, by the way, related was also the fact that some of the inventory that we had, some of the customers could not come to Bangalore for doing the final acceptance and testing because until around the 20th of June, there was a lockdown in Bangalore. And because of all the travel restrictions, there were certain amounts of things that can't happen. So we won't really exactly quantify how much more we could have done because we really don't look at things on a quarter basis. So on an annualized basis, we believe that any turbulence from Q1 will get normalized as the year progresses. So in that sense, yes, we could have done a lot more, but it's really irrelevant at this stage because we are looking at the order book, which is starting with Q2. And I must mention maybe just that might also clarify some of the things that out of the INR 701 crores of order book that we have, around 50% of that we expect to renew in the remaining 3 quarters of the year, which gives you a decent sense of things that we can ship if we have all the things in our hands today. So that's one point. Coming back to what's the impact on margins and working capital. I think, yes, there have been cost increases on certain components, not just for us but for everybody in the world. There was a price to secure this component by paying a certain amount of fees, which we pay like anybody else in the world. But despite that, I think the fact that we've been able to hold on to our gross margins are almost around plus/minus 100 basis points of what we usually do, gives us comfort that there will always be a little bit of a quarterly turbulent in terms of any particular customer India versus International or come in a tactical increase in component pricing. But on an overall blended basis, we feel comfortable that in Q1 and for the whole rest of the year, we should be able to hold our margins at the normal level that we have been able to do in the past.

Great. And in terms of, again, coming to margins this quarter, the impairment of the D&A was the highest percent of revenue after FY '20 when it comes to impairment. How should we see this going forward? Will it remain in this current quarter run rate? Or should it get back to what we saw in FY '21? And finally, if you can just kind of clarify on the PLI side, so what capital commitment would you be making given that they have this requirement of at least INR 100 crore investment?

So let me start with the last question first because there's a whole stack of questions. I'd do the last one first. So the PLI requirement for the category that we are eligible for was a minimum of INR 100 crores. So all I can tell you that, of course, our application is for more than INR 100 crore, and this is over a 5-year period. Because it's a confidential piece of document with the government, it's not appropriate to give the exact number. But since we are eligible under a certain category, that threshold of that was INR 100 crores and maybe, of course, across the INR 100 crores. Coming back to the second question that you had about the -- on the gross profit. I think we are -- as I said, we are almost at a steady-state level. If you see on even last 2, 3 years basis or any quarterly basis, we are at about plus/minus 100 basis points of where we are. If you take it net of manpower and all the material costs, we are at around 40% gross profit. And I think we are around the same number this year. So I don't think materially anything has changed. So as we said in the past, the combination of International to India blend, a particular kind of early customer versus late customer and of course, a little bit of a near-term turbulence in terms of component pricing, we have been able to integrate it together without any material decrease to our gross margins.

Sanjay, it was around depreciation, maybe Venkatesh can highlight why [Indiscernible].

Depreciation, I don't think we have anything -- at this point, is there any unusual depreciation?

No, no, no. This time, the depreciation also on account of the normal capitalization of what we do in terms of our tangible assets and intangible assets with respect to the product development. There is no impairment, anything that has been done this time.

Yes, there is no employment at all.

Nothing. It's basically -- compared to last quarter, it went up by INR 2 crores with respect to depreciation and amortization costs.

The next question is from the line of Ashwini Agarwal from Ashmore Investment Management.

Congratulations. I think the numbers look quite respectable given all the challenges you faced on the lockdown and on execution of orders in India as well as overseas. So my question is that -- one is the receivables profile of government orders. So from your opening remarks, obviously, you have a very, very big play coming up in engaging the government, both on the 4G side as well as various other programs relating to Railtel and so on and Powergrid and so on. So I just wanted to understand that. Does it worry you that if your revenue skew again goes back from current 17% Government to, whatever, 30%, 40%, Government 1.5 years from now, your receivables will again [ brought on that ]? Or is there any protection that you're seeing in the tenders you're participating and which protects you against delayed payments? I mean how do you think about the receivables challenge?

Certainly. No, thanks, Ashwini. So first of all, let me also clarify one thing that, actually speaking, other than the BSNL, one particular project, which is the think BharatNet Phase 1, 2, whatever, we got stuck as payments from receivables from Government. We have not had any challenges in terms of receivables being out of whack from a Government point of view. So coming back to your answer, Railtel, Powergrid, all these guys are actually -- we are long-standing customer, and we've never had any payment issues with any of them. So in that sense, I don't see any worry that our working capital or receivables go up. Even on BSNL, by the way, except for this particular tranche of payments where we are stuck up with, we have done business with them 15 years before probably INR 3,000 crores, INR 4,000 crores of cumulative revenue. And probably less than 1% or 2% of receivables we have not received from BSNL during that period of time. So we almost collect everything and almost on time. So I would say that BSNL particular is the only one which we have to worry about because of they are -- if they have a fairly large capital outlay, there has to be a backup available to them for them to be able to pay. The only thing I can mention, which I said in my commentary is that we do have -- for the very large projects, we have a few system integrators ahead of us, who will be bidding our product. In that sense, technically, our customers will not be BSNL. Our customers will be those system integrators. As far as Powergrid and Railtel and [indiscernible] are concerned, it's -- we absolutely have no issues in terms of collection. My sense is that if -- and this is what Venkatesh mentioned, that in about 2 quarters from now, including BSNL where we hope we should be able to make more progress with some of the new developments there, we think that our working capital should come to more of a normalized basis, and the receivables will also come down. So in that sense, I'm not too concerned because even if you see the BharatNet Phase 3 will be under the PPP program. So our customer, again, will not be government. It could be a telco. It could be a large, passive infrastructure company will building that network; or a system integrator of repute who we've been doing business with. So technically speaking, we will be insulated from a lot of that. So I would not worry about it. The other thing which I would want to make sure is that the way we are building the business this time around is to make sure that the Government business should be upside. It can be on top of what our baseline business is, which is the run rate business, and we would, of course, welcome it. But that should not become the basis for all our expenses and investments. So that is definitely something we'll continue to monitor very closely.

So the other -- that's really helpful. The other question I had was that when you look at your order book, you mentioned that 50% of this order book you expect to execute over the next 3 quarters, and you roughly received INR 200 crores worth of new orders, give or take, in Q1. In many other businesses -- and pardon my ignorance on this, many other businesses, we see that people like yourselves, they're able to build order book which provides visibility over 6 or 8 quarters or even 12 quarters. I mean is that something that you -- that is reasonable to aspire for? Or in your business, that doesn't really happen and it's pretty much cook and eat all the time?

Yes. So actually speaking, it's a good point you raised, and maybe this is a good time to kind of give you clarity on that. So the way our business is the most repeatable business that we get, which is the recurring business we get from existing customers, which we call run rate customer, typically, the order book always stays for at most 1 quarter. Or it's on the quarter boundary, really the order came late in the quarter, will not ship in that quarter, and it will literally go out. So for example, International customers, the revenue, whatever is the backlog in hand, maybe 90% of that in the next few quarters. India Private, probably we do 80% of that in the next 1 or 2 quarters. It's only the Government business, which is the project kind of business, which gives you all the backlog. So actually speaking, in a sense, as long as -- so the only thing which is 6, 8 quarters worth of stuff is the Government business for us because that's the only thing -- and this is of the project kind where you have to do some system integration, digging, laying a fiber or then putting electronics and running the end-to-end network. Those are the kind of things which give you a large backlog. But in a sense, I would say, I would be happier to have a backlog that gets consumed on a recurring basis because the stickiness of those customers, the longevity of those customers is much higher than the one-off tenders, which will give you a large backlog, which you see for 6 to 8 quarters. So in that sense, it doesn't bother us at all of not having a large backlog in that sense. So really, a big chunk of a backlog, which continues to stay for 6 to 8 quarters is really only the government business. Everything else really literally gets consumed. We work on forecast, by the way, from many of our private customers and international customers, where we could potentially give us an order in the first week of the quarter, and the order is actually executed by the end of the quarter. So there will be no backlog to begin with and no backlog to end with. And those are actually the best customers that we have. The nature of our business is that just having a very large backlog that doesn't necessarily mean much, whereas rate contracts with run rate customers where we're getting recurring revenues means a lot more. So I think that is the reason that I was highlighting in my commentary earlier that 87% or 88% of our revenues basically come from run rate or existing customers. That's actually a sign of a healthier business for us.

No, no, it's very helpful. And last, for Venkatesh, probably, how much is the amount, which is still outstanding with BSNL?

Yes. Currently, during this quarter, we had collected about INR 15 crores from the BSNL. After that, the outstanding amount was INR 120 crores, of which about INR 70 crores is the retention.

So what you need to receive over and above is about INR 50 crores?

About INR 50 crores, yes, which is already due, we should have collected, yes. And we do have time to collect this -- the outstanding in 1 or 2 quarters or so.

The next question is from the line of Pratik Kedia from Kedia Securities Pvt. Ltd.

Just in regards to our association with TCS, it looks like a path-breaking opportunity for the company of our size. But just want to know what is the opportunity size. What -- how big is this opportunity? And what -- how would this convert into revenues, and also, as we are also seeing more associations and alliances with other companies like Tech Mahindra or these kind of companies, please?

So good question. So as I mentioned, the BSNL 4G tender that -- for which we have filled out an expression of interest. And as we said, it's publicly disclosed by BSNL that the couple of system integrated partners who have been taking our technology and bidding, one of them is TCS and the other is ITI. So these are the 2 people who have taken Tejas patios in a wireless technology and have put in the expression of interest for which the proof-of-concept process has started. So yes, our objective again was that for very large projects, we would prefer to work with a system integrator like we did in the case of the Army project or even some of the state BharatNet project. Coming back to the size of the opportunity, a Pan-India network of BSNL for which they plan to do this tender is going to be a very large opportunity. They have, I think, this expression of interest is for, I think, 57,000 base station sites, which could mean INR 8,000 crore, INR 10,000 crores worth of order to the system integrator. Of course -- and one would be maybe some traction of that because it will be split between multiple parties. So I think it's a fairly large opportunity. But the way we see things is that it's a step-by-step approach. We had to have a product which is world-class, which with the specification that we have to go through the plan process, which has started. The only thing we feel proud about it is our 100% indigenous Indian solution with all the technology available within the country. On a longer-term basis, that gives more comfort to the government. And of course, as the process progresses, we would get a better visibility of how the whole thing will pan out. But at this stage, we are really taking it one step at a time. And yes, it is a larger opportunity, but we have to play it as it comes.

Great. Great. And just one thing more. In regards like we are already working with Jio as well. Are we also exploring business with some cable and broadband companies like Hathway or GT -- or GTPL Hathway or other companies? Do we see an opportunity here as well?

Absolutely. So in fact, one other thing which you -- which I mentioned earlier is for the Fiber-to-the-Home like the larger telcos definitely have their own plants. But then there are all the smaller ISPs, not just the ones that you mentioned. But in, let's say, a small city in Madhya Pradesh will have a local ISP or a local cable operator who serves 10,000, 20,000 customers, and there are many, many such people. So we are -- and by the way, when you add all of those up together, they actually end up becoming a fairly large consumer of FTTX products and some of the switches that we have. So that is one area which we never looked at seriously in the past. And starting, as I mentioned in my commentary, in the last quarter, we have started to appoint some distributors, and we started to get some initial orders. So that's an interesting business, which is opening up. I mean, of course, it's a slightly different method of selling than we have been used to because we are used to selling to a few customers with a very high degree of technology. Here, we are going to go through a channel sales, if you were to think of. But it's just looking like an interesting opportunity, and we will continue to invest. We have hired a focus team to do that. And in the Q1, they have made pretty decent progress for us to have a view that this looks like an interesting business to pursue. So yes, we are going after not just the names that you mentioned, but even a lot more smaller operators that spread across the country, but in an indirect way through the channel to program that we talked about.

The next question is from the line of Sanket Bihani from Kedia Securities Pvt. Ltd.

So I just wanted to ask with regards to the satcom, do we see any opportunity for our products like OneWeb is investing in a big way in India? So do our products fit in those category? And...

No, we do not address that space. So our space is -- traditionally, our space has been on wireline, which is wherever optical fiber goes, our products go in terms of the high-speed backbone or now home broadband. In addition, now we have launched the wireless products, which is more like the base station that you receive your cellphone signals from. We have not yet gone to the satellite. It's a different technology, slightly different market segment. So our sources have been mostly on the wireline and wireless, and satellite is not a segment that we address.

So are we looking forward to do any R&D on these kind of products and try to address this market? Or it is completely out of a [Indiscernible]?

I think we -- if you see our hands are already quite full in terms of technology with the product that we have and the focus areas we have. I, of course, did not put it into these slides because we have discussed this in the previous earnings calls. I mean just the wireline products that we do today, which we have products today, which we can address, is almost like $9 billion, $10 billion worth of opportunity. On top of that, now you start opening up the wireless opportunity, that adds up a significantly large number. So I think the addressable market with the product that we have is already huge, not just in India but outside of India. So our first challenge is with the product where we have -- where we already have that huge amount of R&D over the last 5, 10, 15 years, we want to maximize our sales impact and really become a much bigger player in terms of market share in both segments. Once we have come to a situation where we feel that we have more growth opportunities, then we would think of investing into new areas because any time you invest in new areas, it will be 2 or 3 years of R&D lead time before you can get your products in a competitive-enough form to compete with the best in the world, and then you have to start building business. So I would say we have -- with the product portfolio we have, we are quite -- it's a very large [ stem ]. Our objective is to play in those spaces, make ourselves more competitive and also sell a lot more of them, not just in India but outside.

The next question is from the line of Sangam Iyer from Consilium Investment Management.

Congratulations on a good set of numbers. Am I audible?

Yes, yes. Thank you, Sangam.

I just wanted to understand, given that you made 2 comments initially. One was the fact that the incremental quarter should be better than what we have executed in Q1. Now given the challenges that we have seen in Q1 with regards to lockdown, what is the situation with regards to the inventory going forward that gives us the comfort for the coming quarters? My background be -- when we look at the countries in Southeast Asia from where the components do come in, there is lockdown that's imposed in certain areas. So is there an issue that's there that you can foresee in the near term? Or do you think that given the inventory that you would have currently sufficient for the next couple of quarters or so without much of a problem? How would you address the situation there?

Yes. It's a good question, Sangam. So the reason for our optimism in terms of the subsequent quarters being better stems from 2 fundamental assumptions. Number one, the order book and executable [ fees ] for these customers are actually demanding a lot more equipment from us sooner is pretty decent. I mean if you look at the order book at hand and the run rate orders which are coming in, so that seems like a base covered, which means we have enough business that we will get. Then the second part comes back to what you said, which is that do we have enough components and what's happening in Southeast Asia and there have been some lockdowns. So primarily, the shortage of components in the world is semiconductors. And that primarily -- TSMC in Taiwan is one of the foundries, Samsung in Korea and a couple of others. So I think from the way we see things is that our component suppliers are all -- almost all of them are U.S.-sourced companies who have been having long-term contracts with all of these guys. What happened and the reason for a little bit of a hiccup was that in January, February, suddenly, because of the component problem that amplified in the world, component supply has immediately shifted from a lead time of, say, 12 to 16 weeks to 40 to 52 weeks, okay? So that's first transition happened in the month of January, February, around that time. So even though we took corrective actions immediately then with that in mind, of course, all the pull-ins or all the distortions in the supply chain are not easy to cover within a 4-month period, as you can understand. But as the year progresses, we have been able to now secure those components, and we have delivery plans from those suppliers. We have reached out actually to the global top management of most of our key chip suppliers. And we seem to get a disproportionate attention compared to our size because we are the leading company in India. So if any chip vendor long term wants to play in India, we are their best vehicle. So as a result, we have been able to secure what is being commonly called as allocation from their existing stock based on our stature in the Indian industry and the kind of customer profile and the growth profile that the company has. So combination of all of those things based on the plans that we are seeing from our suppliers, we have a reasonable amount of comfort that upcoming quarters will be good. The only downside is that there can always be a situation where the 15 days of -- the last 15 days of any particular quarter, certainly, there's a lot now, the airlines are not lifting material. And that's something which is hard to, of course, anticipate. We will, of course, not leave everything for the last, but I would say, barring those kind of situations, we are trying our best to manage the supply chain fluctuation, but this is a continual and ongoing process. If you talk to my supply chain head, he will always say that all -- every day is a new challenge. But so far, we've been able to manage and placed enough orders enough in time, and the lead times and the dates we are getting from our suppliers seem to be reasonable in terms of what we want to achieve.

Great. That's wonderful. Secondly, on the order book, how much of an impact has this lockdown or the delays be in terms of the conversion of the funnel into order book? Because after 2, 3 quarters of strong INR 190 crores, INR 200 crores of orders that we had, at least 2 quarters of INR 200-plus crores and even Q1 last year was INR 190-odd crores, we are at INR 156 crores. But it's good per se, but when I look at the track record of run rate that we had achieved of INR 200 crores as a benchmark, was there any...

Hello?

Ladies and gentlemen, we seem to have lost the line of the current participant.

Yes. So maybe I can just answer Sangam's question for other purposes. So actually, if I come the orders which came in the first week of this month, we've already again crossed INR 200 crores order book. So in that sense, I don't see any slowdown in terms of the new order inflow, except that sometimes things don't happen exactly at the end of the quarter. So I would, at a macro level, feel that the order inflow continues to be in line with what we have seen in the past. And the only impact, of which I mentioned earlier, is that the tender wins, the government orders, of course, because almost 2, 2.5 months of last quarter, most of the government offices in India were closed or working with very low capacity. So those order conversions got affected. But if I were to kind of again say just the slip out by a week or so, I mean, we are in the same order run rate that we had during the previous few quarters. So I don't see any cause of concern there. Maybe Sangam hasn't joined and we can take the next question.

The next question is from the line of Abhishek Basumallick from Intelsense Capital.

I have a couple of questions. First one is, can you please talk a little bit on this wide opportunity? I mean we understand that Huawei had about 36% market share compared to around 15% that you had. And how would that change now, if it is going to change? And what are you expecting in the near future?

Let me just understand. Is it -- who has 56% market share?

36%. Huawei used to have that 36% market share.

Huawei. Okay, okay, okay. So your question is that Huawei, the Chinese company's had a certain market share in India. And going forward, given the new government regulations, what would be the impact of their market share going away on potentially our market share. Is that your question?

Yes. I mean how would it help us?

Absolutely. That's a good question. So in fact, as you would have heard, I mentioned in the context of Atmanirbhar Bharat, one of the new rules, which has come into play with effect on 15th of June, which is just a few weeks back, is that any equipment that any operator deploys in India has to be from a trusted source and from a country that India has a green signal. So many of those vendors from certain countries may not get their certification product asset sources. And operator will be replacing -- not replacing, but any augmentation of capacities of that kind of -- that market share will go to someone else. That is partly the reason that we mentioned earlier when I gave the commentary that we expect our market share in India to improve was partly because someone is going to fill up the hole that will be created. Some of it could be us. Some of it could be incumbent vendors from U.S. or Europe. But that's something which is likely to happen. We definitely feel that we do have a good shot at improving our market share. How much we improve, how far we improve is all going to be something that we'll have to see as quarters progress. Because even though market shares are determined on a broad basis, but it really gets determined on every customer, every application. And so unless you won that application and then the customer has tested your products, there's a lead time, there's a delay between how long you get selected and then the orders start flowing in. So we have gone through that process for certain things last year, and that's starting to show up in results this year. I mentioned some other things we'll start to see more impact in the second half. But it looks like a good opportunity for us, and we will closely monitor it.

Okay. And my second question is maybe slightly long, but you won orders for FTTH and backbone capacity expansion. What is the revenue -- roughly revenue potential for this? And will any of these revenues coming in, I mean, this quarter?

So yes, so the revenues are already coming in. So for the metro capacity expansion, the part of the uptick on India Private is partly because of those orders of metro capacity expansion that we won last year. And it will not be a onetime thing. It will be like a sustained basis quarter-on-quarter for next several years, we hope. So that's the way the metro capacity expansion would work. As far as the FTTX opportunity is concerned, the home broadband opportunity or enterprise broadband opportunity, while we have been selected by 2 operators, the actual orders in terms of -- it's a long process of getting integrated in their networks and testing, et cetera. That process is almost to the tail end of the process. So we expect that the revenue impact of those things would only happen in the second half of the year. So in that sense, we've got some benefit of the wins of last year in the numbers and the booking and the thing so far, and we hope to get more of it in the second half of the year. Coming back to your question about how large opportunity, opportunity is very large. I think in -- if you see the FTTX penetration in India and if you look at the numbers that every operator has been projecting, I think anywhere between 5 million to 10 million subscribers is what -- per year is what is aspiration of at least the top 2 operators in the country. And that translates to a multi-hundred crore opportunity for us on a -- for the product that we are designed in every year. So I think -- but to get to that rate and all that, as I said, will start from second half, and it will be a ramp-up as -- and you'll see how the ramp-up actually happens. But it's a fairly large opportunity. And similarly, metro capacity expansion is, again, a fairly large opportunity. India buys a few hundred million dollars worth of optical equipment for that application. And of course, now we are entering into a market share gain in that. And as time goes by, we should see some uptick there as well. But these are both large opportunities. But since we are just nascently starting to get market share, that will take some time. But we are seeing good traction. Our products are getting good acceptance with the customer. They are working well. And hence, the order inflow is accelerating.

So do you see this business doubling over, say, the next 2 to 3 years?

So the broadband opportunity exists. Definitely, the opportunity exists.

And just, if I may squeeze in 1 more question. In December 2020, I think you had announced a $13 million order from Southeast Asia for UCB TJ1400 product. I believe that was supposed to be executed in 12 months. So just wanted to understand where we are with that, if you booked any revenues from it and how things are doing on that point.

Very, very good question. And we did the revenue part of that in Q4. We have revenued part of that in Q1. A significant part of the material has already been dispatched. There's a whole bunch of services around to turn up the network. It was a combination of -- the UCB product is a combination of wireline and wireless. So whatever we are going to -- for example, the trial and testing that we're going to be doing with BSNL, same equipment was shipped there as well. It's turned up. It's live. It's carrying a huge amount of data and traffic. I think a significant number of sites have already been turned up. And I think over the next 1 or 2 quarters, the remaining network will be turned up as well. So I think we have -- that network is progressing well. We actually expect to get repeat orders from that customer in the second half of the year, and that's something which I can say about that project.

The next question is from the line of Ashwini Agarwal from Ashmore Investment Management.

So I just wanted to focus a little bit on the long-term aspirations in the European and U.S. markets for yourself. The sense I have, and I could be wrong, is that in asset at least you're dealing with all the large network operators, and in India, you're dealing with the 2 big ones who are very well-known entities globally. So is that helping you kind of start conversations with the big telecom carriers in the U.S. and Europe? And in your opinion, how long is this sales cycle? Or is this business is something which is too esoteric and very difficult to break into?

So good question, first of all. So let me break the problem into 2. Do we have the right products for addressing the Tier 1 operators in those countries? And the second part is, do we have the right sales, market access or the right way of doing things to be able to track those accounts, and how long those take? The real problem is that those operators have very strong incumbent suppliers. Just to give you a sense, if you take a Tier 1 operator in the U.S., any of our competitors who do business with them, and they do about $0.5 billion of revenues from one of them alone, okay? For example, so our kind of products, right? They would have like 300, 400 salespeople, support people just supporting that account. They would have probably a couple of hundred people in R&D just doing those little bits and pieces in every last level of detail that those guys need. So I think rather than -- and given where we are in the size of our company and growth aspiration, et cetera, we felt that it is not a good time for us to go and address those guys because of the -- and by the way, even from the day 0 of engagement that you start with any of those large Tier 1s, it could be anywhere between 12 to 18 months or 24 months before you get the first dollar. And you would be required to probably spend $5 million, $10 million just to even get into the lab, do the price and all that. So we have started to engage with some of them in a smaller way. But what we feel is a more practical strategy for us is that like in India, I was telling that there's this small ISP market and there's this large market. In the U.S., if you even take the top 3, 4 guys, the remaining Tier 2s and Tier 3s in the U.S. is a very large market opportunity. And that does not require 12 to 18 months of time. That does not require us to have 400 people, R&D and sales team to manage that. So we are going after that market. We have fairly sweet spot product for that market. We're starting to see initial success, except U.S. is a very large country with maybe 500 such Tier 2, Tier 3 operators. Even if you put a Tier 3, 5 sales, 5 presales and 5 support people, you can only cover so many of those. So one has to pick and choose the battle. So we are taking a little bit of a more conservative approach in these 2 countries to say, let's go pick the low-hanging fruits first, get a brand name done, get a, what should I say, a foot on the ground done. And then as we get more size in that market, we will have more resources. We'll pick into the right opportunities to engage with these large guys. But once you get in, of course, things will look good. We are heading in that direction. And as I said, it's a conscious strategy to play into the sweet spots of what we have and not get into a trap of very long investments and very heavy investment factors for many years.

And is this similar to what you know and asking to understand the large deal with the Tier 1 suppliers but with smaller networks internal [ are there instead of ]?

Whereas in other countries like Africa and all, we are in the Tier 1s. Africa, we are in Tier 1s. Asia, we are in Tier 1s. So other markets, we are the -- I mean, actually, incumbents in some of the very large guys. And we are the guys who are displacing everybody. We are playing a market share gain in those markets, where they know as -- in fact, it's respective in a reference game. Some of the most prestigious customers who are pumping bandwidth into Africa, the best-known brands that you know of in the world, many times, lots and lots of our equipment is going into their data centers or their sites. And they are asking, "Who is this company?" And then -- and because of the credibility that we are earning and the kind of network performance we are getting, we are getting reference deals that some other competitor/operator of those guys come here and say, "Hey, it looks like these guys are doing a good job. And why don't you put that equipment?" So I think Africa and all those places, we already crossed that hurdle. U.S. and Europe, just because where we started the investment and where we are in the maturity cycle, it will be some time before we get into very large deals. Having said that, there's enough other business to be picked up, which we are essentially targeting to make some meaningful contribution starting from the second half of this year.

Okay. And just a question on pricing and margins. When you talk about the small ISP providers in Tier 2, Tier 3 cities in India or you speak about the small last mile broadband service providers in rural America, on a profitability basis, because these would be harder to access and probably costly to access, next to you, are you able to protect your margins for this business?

Absolutely. In fact, exactly for the reason that we've said, because these are larger -- smaller operators and the big guys don't give them enough attention, the margins -- the gross margins are much higher than what you get from a Tier 1 operator who will squeeze the head out of you for everything, right? So the gross margin is not much, even the sales cost. But these are 2 very different problems. The one that you mentioned in India is very different than the one you mentioned in America. In the American market, if we go through a distributor, then we go to some of the larger rurals and larger state carriers, there -- we don't have any margin issues. Net of sales costs, I think, were fine. In India, since you mentioned the Tier 2, Tier 3 small operators are small operators, we -- again, I don't see -- the price they get for the same equipment is much higher than what a Tier 1 operator would do because Tier 1 operator is buying large volumes of equipment, and they have a lot more bargaining power. Whereas a small ISP in a small city in India doesn't really have that. And in fact, for the small guys in India, we actually collect money in advance. It's more like a cash and carry business. We send it to the distributor. He pays us cash, DD, and then we give him an extra amount of equipment. In America, it's 30 days net. So I think cash flows are better, margins are better. Since there are lots of these little guys, so you can actually establish a pretty decent run rate. So that's basically what we are targeting.

The next question is from the line of Sangam Iyer from Consilium Investment Management.

My call was dropped off earlier. So just to understand, given the kind of bullish sentiment in terms of both order bookings and the prequalification exams, et cetera, how soon do you think that we can go back to the INR 200 crores per quarter run rate?

Well, we want it soonest, like I said. So now we are heading in the right direction. And I feel that we really don't focus quarter-on-quarter. We are making sure that the health of the business, the fundamentals are strong. And that's why we are explaining the second level of details behind the numbers and all...

I completely understand. Why I ask this question is primarily because when we look at the -- in order bookings that we have been getting over the last 2 quarters, barring Q2 last year and even if we adjust that one anomaly because of lockdowns or some delays in this quarter, we are almost closer to that INR 190 crore, INR 200 crore run rate that we are talking. So ideally, that should actually provide the base for the run rate on a quarterly basis to move up steadily towards that benchmark of INR 200 crore per quarter. So I was just trying to understand [ there are ] some anomalies or something like the duration increase of orders. But still, how should one look at this? So that's what I was [ asking about ].

No, I guess, you have triangulated all the things correctly. So our order inflow is clocking at the level that you mentioned, barring a small hiccup here and there in terms of quarterly top. We -- our target is to get to that kind of 100 sooner than later. We want it soonest. But of course, we'll have to continue to make sure that we keep executing and keep our heads down. And we also believe that we need to get to that number because our expense structure are -- basic size of the company at least requires a certain minimum amount of revenue. We are getting there almost, I would say. And the more important part is the quality of revenues more than just these numbers, which is why the run rate business and the diversification between in India and international mix. And so overall, all I can say is, yes, exactly what you're saying is what we want to do, and we want to do it sooner than later. And hopefully, we will come again in a few quarters and then share what we have achieved.

Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand the conference over to the management for closing comments.

Thank you, everybody. I think we had a fairly engaging set of questions, and we hope we answered all the questions to the best that we could. And as I summarized just a minute back, I think we believe that we are on track, and things are moving in the right direction. And we continue to look forward to the remaining quarters of the year and build a very good foundation for business for solid growth over the years. So thank you very much, and appreciate your patience and confidence in all of us. Thank you.

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