Tejas Networks Limited (TEJASNET) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Tejas Networks Q2 FY '22 Earnings Conference Call hosted by Edelweiss Securities Limited. [Operator Instructions] I now hand the conference over to Mr. Pranav Kshatriya from Edelweiss Securities. Thank you, and over to you, sir.

Thank you, Faizan. Good evening, everyone. On behalf of Edelweiss, let me welcome you to the Tejas Networks Q2 FY '22 earnings call. We have with us senior management of Tejas Networks headed by Mr. Sanjay Nayak, Chief Executive Officer and Managing Director; Mr. Arnob Roy, Chief Operating Officer and full-time Director; Mr. Venkatesh Gadiyar, Chief Financial Officer; and Dr. Kumar N. Sivarajan, Chief Technology Officer. Without further ado, I'll hand over the call to Mr. Sanjay Nayak to start the proceedings. Thank you, and over to you, sir.

Thank you, Pranav. Good evening, everybody. This is Sanjay Nayak. We had uploaded the earnings call presentation on our website. I hope you had a chance to download that because I would be actually running through those slides. So I'm on the first slide, which is Q2 FY '22 key updates. On the financial side, our Q2 net revenues were INR 172.8 crores, which is a year-on-year increase of 62%. Our PBT was INR 3.3 crores versus PBT of INR 4.5 crores for the corresponding period last year. Our Q2 bookings was INR 258 crores, and our order book has increased to INR 783 crores which is around INR 82 crores higher than the last quarter's order book. We also, during the quarter, received strategic investment of INR 837.5 crores from m Panatone Finvest Limited towards preferential allotment of shares and warrants. And consequently, our cash and cash equivalent has increased to INR 1,195 crores. And just to remind you that this investment from Panatone is a subsidiary of Tata Sons, and INR 837.5 crores is out of the INR 1,850 crores, which is the combination of a primary plus warrants that they would be eventually investing. I'm also happy to inform that we have made a PLI application for telecom manufacturing, which has been approved by the Department of Telecom, Government of India, and the benefit of that scheme would start accruing from the current financial year. On the sales side, let me go through the 3 segments that we track. On the India government side, as some of you might have been tracking. We are participating in BSNL's proof-of-concept for the 4G tender, which is for a national rollout of a 4G network via system integration partner who will be using our radio products or what is loosely called the base station products, I'll talk a little bit in more details about that product later in the presentation. So the POC is on and subsequent to the POC -- the success of the POC, we will be qualified to get different portions of the network rollout of BSNL. We also won multiple tenders in the Critical Infrastructure segment, which is including safe city, video surveillance and of course, projects in the utilities like power and rail and so on. In terms of revenues, our contribution from India government was 13% of total for Q2. On the India private sector, which has been doing quite well for us, it was 46% of our Q2 revenues. And on an year-on-year basis, if I look at half yearly as an aggregate because that's a better way to track, we grew around 47% on a half-to-half compared to the corresponding period last year. And I believe that by the time we finish this year, India private possibly will be the fastest-growing segment of our business this year. We've been getting good business from the telcos, which is the operators for both DWDM, which is the backbone product as well as the GPON products, which is fiber-to-the-home product. And also, we started to work with a lot of system integrators who have been securing business for us both in the GPON segment as well as for the switches, which is the Ethernet switches that we produce, which are used, for example, for video surveillance and city -- safe city kind of projects as well. International, again, was 41% of our Q2 revenues. And if I take half year as an aggregate, we had an 89% year-on-year growth. And again, we believe that international will continue to grow as it has been doing in -- for the first half or for the rest of the year as well. I'm also happy to say that we signed a new global OEM customer would be taking our products and selling it in different parts of the world. And in addition, we also had 5 new customer wins across multiple geographies. Within international, again, like last year, Africa has been doing extremely well, and the order inflow as well as the revenue pipeline that we see looks very healthy for international as well. In terms of supply chain, which is, of course, a topic that impacts lots of industries. There clearly is a global shortage of semiconductor components, and many of the suppliers have increased the lead times from 40 weeks to 60 weeks and so on. And many of them have also increased prices in terms of the component prices, and there's a whole chain reaction happening in the industry, which started from semiconductor foundries to chip supplies, et cetera. From what we hear from our component suppliers, earlier estimate was that by end of this calendar year, the semiconductor shortage would come under control. But the way things look like the shortage in this supply demand imbalance is likely to continue in the second half of next calendar year as well. So we will have to take more advanced inventory actions for securing components to ensure that our supply chain continues to be operating healthily. But on a broad basis, there's also a little bit of volatility in the sense that the supplier commitments in terms of what they are supposed to deliver are also not being honored at times. And hence, a little bit of volatility comes in the way of revenues as well as margins for us and which has reflected in our Q2 performance as well. Going to the next slide, which is just a pictorial view of the revenue by segment compared to FY '21 on the left-hand side, as you see 40% came from international, around 17% came from India government and 43% came from India Private. Correspondingly, for the first half as an aggregate, a 46% came from international, 41% from India Private and around 13% from the government business. And within government, critical infrastructure is slightly higher than the BSNL and BBNL revenues. So if I were to kind of see the run rate business, which is the combination of India private India plus international, contributed to around 87% of our total during the first half, which is a 67% year-on-year growth for the 2 segments combined for the rest of the year. For the India government business for the rest of the year, while we have won a lot of tenders in orders, the revenue outlook is not that great, whereas there's still a whole bunch of large tenders, which are in the offing, of course, from BSNL as well as from railways, power and others. So we believe that those tenders win some things that we could potentially put into bookings this year and will immediately go into revenue during the next year. Going to the next slide, which is the financial update slide. Since I've already gone through the Q2 numbers, I just want to kind of quickly summarize the first half numbers. So for the first half, our net revenues were INR 317 crores, which is a 72% year-on-year increase. EBIT was INR 1.3 crores. PBT is INR 11.7 crores, PAT is INR 11.2 crores and EPS is INR 1.17 crores. And if you look at the trailing 12 months, the corresponding number, the INR 647 crores of revenues and INR 5.72 in EPS. So basically, the way I see things is that we always have a seasonality between the first half and the second half, with second half being significantly stronger than the first half, and we expect to see a similar trend in the current financial year as well. And especially given that we have a pretty strong -- probably the highest ever order book that we have, we are comfortable that our second half should be a strong half for us as well. Going to the next slide, which is key financial indicators. If you see cash flow from operations in Q2 was INR 67 crores. Inventories are at INR 226 crores. Trade receivables are INR 414 crores. Net working capital came down to INR 481 crores, and cash and cash equivalents are INR 1,195 crores. On the inventory side, we had a slight increase of around INR 25 crores. This was primarily because we have been taking a longer action for inventories. And there would be, again, as I said, volatility in the inventory levels during the next few quarters. Trade receivables actually came down on an absolute basis to INR 414 crores, and we collected INR 221 crores during Q2. Although the payments from BSNL continue to come in, but they are coming in at a slow pace. But we do believe in the next 2 quarters, we should see a slightly better collection from BSNL as well. Working capital correspondingly has reduced by INR 24 crores, primarily because of cash flow from operations, which have also improved. And again, I feel that over the next few quarters, we'll continue to see more normalization on the working capital side. Cash position, of course, improved to INR 1,195 crores primarily because of INR 837.5 crores from Panatone Limited as well as from the cash flow from operations that have added in. So net-net, as in the past, we've also -- we continue to be a debt-free company. And from a balance sheet perspective, we are quite healthy. I'll now go into the next 2 slides. First slide is just to give you a sense of all the products that we have today. And then I also wanted to kind of highlight what's the new product that we are doing and what is the stuff that we are doing for the 4G and potentially for 5G in the future so that we all have a good sense of the way our product portfolio is expanding. If you see the picture that is there in the next slide, which is titled expanding product portfolio, wireline plus wireless. So, so far in this first many years of our company, our primary focus was on products, which are on optical fiber. So we had products in the access side, which is the Fiber-to-the-Home or GPON or N-GPON technology. After that, we come to the transmission part where we had a technologies like packet transport and so on. And then when you come to the core, you had a technology like DWDM, which is a very high-capacity backbone network. So what you've also seen now on the access side. So our wireline portfolio was optical transmission broadband access as well as secured ethernet switches. What we are adding now in terms of major revenue potential in future is the wireless product. And on 4G technology, which is the LTE technology, which is also used for 5G, we have built a radio access network, which was loosely called the base stations, which will give both fixed as well as mobile broadband services. Our initial version of the product was for fixed broadband, which was something which we have been getting revenues internationally. And over the last couple of years, we have enhanced that product to also support our full-fledged mobile broadband. So our 4G product today is similar to any other 4G product in the market, a 4G base station or radios as they call it, so that we can offer all kind of services, whether it's mobile, fixed, on voice as well as video as well as data. And the good part, as you can see from the picture, we have a platform of approach to our products. So the smaller chassis, the box that you see is a product in which all kind of access technologies have been built in. So earlier, it was GPON and Ethernet. And in the same product, we have been able to upgrade and our base station is essentially nothing but 1 additional card into the chassis that you see on the left-hand side. And the core products are based, which are the larger capacity based on the 1,600 platform, and which is currently being used for DWDM metro as well as for long-haul applications. Going to the next slide is a little bit more detailed on the product because since this is the first time we are discussing about our mobile broadband product as well, I just thought it might be illustrative to kind of exactly give a sense of exactly what do we do? So the things that we do is -- so in the mobile infrastructure, there are 2 parts, 1 is called the base stations, which you can see which is a part of the tower. So on the top of the tower, you have a remote radio head and at the basement of the tower, we have something which is called the baseband unit. So these 2 together are loosely called base stations. So the data from the base station are the voice and the video or whatever kind of data from the base stations goes over a transport network, which is a cloud of 4G backhaul which is what we have been doing in the past and goes and connects to what is called the evolved packet core, which is usually a data center on which a certain kind of software is running. So what we have been developing. In the past, we used to do the cloud, which is the transport cloud, as you saw. But now we have enhanced our product and we are also doing the base station part, which includes the radio, which goes on the top of the tower as well as the baseband unit. And the good part for us is our baseband and radio are 4G today and upgradable to 5G in future, just by insertion of new hardware and software. And it is a high-capacity product. So there are 2 categories of base stations. One is called small cells or femtocells, which is for very low capacity, low number of users, and the other is called macrocells, which is what we typically use in the -- all the mobile networks in India today. So we have actually built the macrocells. And whatever I'm just describing is actually going in trials with BSNL network in Chandigarh as well as in Ambala. There are multiple bands, which is frequency band, which is 900, 1,800 2,100, 2,500 bands, and we support all those brands, both in the TDD as well as the FDD spectrum. And similarly, the radio, the RRH that you are seeing on top have different power capacity, so you can have 10 watt, 20 watt and 40 watts, and we support all of that as well. So in that sense, our base stations that we have developed are very competitive and globally state-of-the-art and also upgradable to 5G from a future perspective. And the good part is all of this is a part of our ultra-converged broadband or the UCB family that we have been shipping for more than 5 or 6 years in terms of our basic product platform. So this just gives you a sense of what we do. So typically now, once these kind of networks get deployed, we could basically connect any mobile phone or anything that you connect today onto a network that is built on our product. So now with this, you can see that we are doing pretty much end-to-end products from access, which is fiber-based access like FTTX wireless access, which could be 4G or 5G, then we do the transportation function and then we go to the port. So I think this is where we are coming in. Just to clarify, the EPC, the port for the BSNL network is not of Tejas, it is of another company with the front-end system integrator is offering as a part of the entire end-to-end solution. I'll go to the next slide. which is just to again summarize the strategic partnership that we have with Tata Group. So really the coming together of Tata and Tejas in that sense, brings in all the capabilities that we have built in terms of our R&D, in terms of our product ownership, IPR as well as a track record of building globally competitive products, which have been deployed in more than 75 countries and very, very large volumes. And then Tata coming in as a part of a strategic investment. They bring in the global branding, the trust, the deep relationships in terms of sales with Tier 1 customers the balance sheet strength to invest aggressively in R&D in terms of building the state-of-the-art technologies and so on. And of course, the ability to execute large deals and their focus on the entire value chain of electronics from end to end. And these 2 together provide us with an opportunity to build a global top-tier telecom equipment OEMs from India. At this point in time, the open offer from the Tata Group and Panatone investment is active. I think it's probably going to get over in a short period of time. And once that open offer process is over, we would then be able to discuss more clearly and find out all the synergies. And I expect over the next few weeks, we will come out and share our strategy in terms of how all of us together are going to work and how we take advantage of the great opportunity that lies ahead of us. So I will be sharing the details of that aspect of our engagement in a future engagement with you all. Today, I just wanted to focus more on our Q2 results and the business in general. On the last slide, just a quick summarize before we take questions. So as you can see, we have continued to see a very strong inflow of new orders. And as I said, order book has increased and it's at an all-time high of INR 783 crores, and we've been continuing to be building up over the next few last quarters. Revenue growth from run rate customers, which is India private and international have been very healthy. We do see challenges in the global semiconductor supply chain, which will impact our revenues and margins. It has impacted to certain levels and I do see volatility continuing over the next few quarters as well. On our end, we are, of course, taking advanced inventory actions and procurement actions. But at the same time, there is no answer if the supply chain has some turbulence, and we will definitely be impacted by it as well. We see promising outlook for our wireless radio access network, the RAN product, the 4G LTE that I talked about, which will be updated in future to 5G. And it definitely increases our addressable market to -- quite a bit. In India alone, there are large opportunities, which are ahead of us. And we believe that these anchor customers will potentially provide us a good foundation basis which we can start selling them in international markets with a stronger sales partnership that we have available to us today. And of course, with the strategic investment from Panatone Finvest, which is a Tata Sons subsidiary, we believe we are very well positioned to invest and accelerate into different programs and make sure that we can grow and become a much larger company in a short period of time. That is where I would stop. Thank you for bearing with me, and we can now open the floor for questions.

[Operator Instructions] The first question is from the line of Pranav Kshatriya from Edelweiss Securities.

First question is a little more broader picture on how one should see the evolution of Tejas given it is under now new promoters. And this is especially from the context of -- if you look at the telecom equipment industry, this is a notoriously long sales cycle industry. And one really needs to put in a lot of effort in terms of the investment, IP, et cetera, to really scale up in this industry. So how should we see the investment going forward into this space in terms of the number of people acquiring IP, organic, inorganic, et cetera? So that's my first question. Secondly, you talked about in a fair bit of detail on this wireless RAN solution, what has been rolled out by Tejas. Just wanted to take -- understand one part. If you look at the new ecosystem, which is emerging, which talks of virtualization of the RAN, in which most of the people are considering virtualization of the BBU. Now how should one see if we are going to move to a more virtualized RANs, is that -- how -- what is the play for the new system, which you have rolled out? So these are my two questions.

Thanks, Pranav. Let me start with the first question. So the way to think of how our future will scale up. So we really have 2 different dimensions in which things will happen. Number one, that for optical as well as the broadband access products, we already have the products which are globally competitive, which we are selling quite well in India, quite well in a few other markets. And we just need to find ways to reach out and access a much larger customer base with that. And so that would be, let me call it, the sales expansion and leveraging that we would do in the next 12 to 18 months in terms of stepping up to the plate with what we already have from a technology angle. So that's one part of it. The second part of it is on the R&D side. R&D side, we have a pretty rich portfolio of products on the wireline side. We have started to step up the investments on the wireless side, and we have the 4G product, which is currently today, based on the same technology as the 5G, which is LTE. And we are investing into that to make sure that the anchor customer that we are working with today in India we can basically increase that. And because there's still a lot of 4G deployments happening in the world. So that's one part. The second part -- so we will be investing into more R&D in terms of 4G as well as for 5G. Some of it will be organic, some of it will be inorganic, and we will be basically putting together all the resources that we think we need to have to accelerate all of those programs, which is what I kind of alluded to earlier in my conversation. Coming back to the second question, which is kind of related to the last part of my answer earlier, is that in the 5G ecosystem, there are 2 kinds of architecture, if I were to say or 2 kind of use cases, which are emerging. One is called 5G NSA, which is non-standalone, which basically means exactly the product that we are -- that I showed in the pictures today, which is basically a 4G anchor and then you add a 5G upgrade card and you add the 5G radio, which means the radio is work in the 5G band. And all of that still works out of the same baseband unit. So the 5G NSA architecture is what we already have in the current product. So that's one part of it. A significant part of the investment in the world today are actually happening in the 5G NSA portion. The second architecture, which is evolving is exactly what you said, which is the open VAN and virtualized architecture where the radios would be still there, but then you would virtualize a significant part of the baseband and then we, of course, will virtualize the core at 100%. So we are looking at ways in which we -- either as a combination of in-house R&D that we are doing and a combination of interesting inorganic options that may be available. We would be looking at what's a good way for us to compete in a 5G or an architecture as well. So I would say that, that is a part of the stuff that we would be strategizing and coming out with a plan, which I would be sharing in the next few weeks. But clearly, we would be expanding our focus in addition to from wireline to wireless as well because we do see large opportunities in the home markets, large anchor customers in our home market. and using which we can leverage with the new sales and the strategic relationship that we have on a global basis as well.

The next question is from the line of Mukul Garg from Motilal Oswal.

Sanjay, two questions from my side. First, on the usual semi component shortage. What was the impact on revenue and cost for you. It looks like you have a very meaningful cost impact this quarter. And also, you were talking about -- you have been talking about securing component supply, but clearly, there was some supplier backing off this quarter as you highlighted. How should we see it from the inventory buildup which you are doing? And what is the confidence on the ability to deliver the orders which you already have in hand for the second half?

Okay. It's a good question. So let me start off with the first one. So what has been the cost impact. So as you can see, around 240 to 250 basis points cost impact was there in this last Q2, which has adversely impacted us because many of the suppliers either we had to buy the missing components in spot or we had to pay expedite fees and stuff like that. So I think that was a concrete impact that we had in this quarter. To quantify exactly how much we, of course, wanted to do. We have a lot of orders in hand. The good news is the order that has been postponed. We've not lost any orders. Actually, on the contrary, we could have won a lot more business than we actually did. If we actually had good control on inventory in terms of availability of components so that we could have committed to a delivery time that the customer wanted. So we could have one more business which we could not because we did not have the assurance of inventory availability. So that's the second part. The third thing in your question is that how is our coverage for the rest of the financial year to be able to meet our revenue targets. So we had actually been even earlier in this year, we had been taking inventory actions. We have been putting in all the orders. If I look at the integrated view of Q3 plus Q4, and see that for what our target revenues are, do we have enough inventory coverage and do we have enough components coming in within the time period that we need I feel reasonably comfortable that, that is indeed true. Of course, as I said, there could always be a little bit of volatility because of pushouts or de-commits or things of that nature. But barring that, I would say, for the rest of the financial year, since we had taken early inventory calls an inventory actions, we feel comfortable that we should be able to meet our revenue plan for this year. In fact, as we talk, we are already taking inventory actions for next financial year, Q2, Q3, Q4. So I think that just gives you a sense of advanced planning that we have to do now.

Sure. And just a clarification on the earlier part of the question. Is the new inventory, which is coming in, going to be even more impactful on your margins given that things progressively have been getting worsened and the visibility on normalization is going down. So should we expect a meaningful impact on profitability, at least in the near term, next 1 to 2 quarters. And a separate question was, you earlier mentioned that on the 5G say rent side, you will be looking at inorganic opportunities? Or will that be a partnership opportunity?

So let me answer the first question first. So coming back to a margin impact, we already had a 250 basis points margin impact in Q2. So with larger volumes in Q3 and Q4, I think the margin would be hovering around the current levels. There is your progressively, costs have been increasing in the supply chain. So for us, it's a question of balancing 2 or 3 things. One is if our blend of our customers, for example, some of the international customers, we get better margins. So a combination of what is the business blend between International and India. Combination between products, they have different margins and products which are running in high volumes, you have better margins. So I think a combination of all of that will eventually determine the impact on the margins. They will definitely -- as we saw in Q2, there will be some impact on the margins. And we are continuing to evaluate that in terms of what we can absorb, what we need to even discuss with our customers. So for example, some of the new bids or new contracts that we are signing we are able to negotiate the right kind of price structure. Some of the existing ones, it may be relatively difficult, but some of the customers are open to securing supplies, even if it means paying a small amount of additional cost. So I think all of those combinations are kind of playing their role together and it's very hard to exactly pinpoint how much the margin will be impacted, except that it will be impacted and Q2 is some indication that we saw. Q3, Q4, we'll have to kind of wait and watch how things happen. But some suppliers have increased some are still holding on. Some have said, okay, I might increase from January. So there is a little bit of a, I would say, uncertainty on that aspect as of now. Coming to your second question about the 5G SA option. Will it be organic? Or will it be inorganic? Or will it be partnerships. It will be a combination. So a lot of the technology that we are developing for 4G, by the way, first of all, the base LTE technology is same lot of the software would be reusable. A lot of the radio technology that we have built over the last few years. We just have to build radios in different bands, but there will be FBD radios or things of that kind of the same different capacities. That is there a lot of reuse of what we have. We would definitely be looking at partnerships. We'll definitely be also looking at inorganic options because they can give us a way to accelerate our programs. So I think all of that would be something that we are actively working on. And as I said, over the next few weeks, we will be sharing a lot of clarity around all those issues.

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

I just wanted to check with you regarding this -- the bad debt provisioning that we did. Is this the last final assessment in terms of the bad debt requirement provision requirement there? Or what is it exactly catering to can you explain because I couldn't understand the notes there.

I didn't get your question. Can you please repeat?

There was this bad debt provisioning of INR 5 crore-odd that was there in the P&L, if I'm not wrong.

Okay. So there is a ECL, there's an estimated credit loss provisioning of INR 5 crores. This is more like -- Venkatesh, maybe can explain.

Yes. So this is more of a provisioning what we have done for the uncollected portion. As and when we collect the money, right, it will get reversed. See, basically...

Is this for the international business? Or how is it?

It's across.

No, it is across. It's a model, right? It's a completely a model. Within that model, in this quarter, something would have moved to 1 of the bucket, larger bucket. If that collection doesn't come, then that as per the ECL model, we have to make a provisioning, right? That provisioning of INR 5 crores hit, which we have taken it in this current quarter. And as and when we collect the money, then we will get the reversal out of that. It is only a provisioning part. To simplify across we have a model that from any customer if there's a payment delay beyond a certain threshold, we put a provision for that in that particular quarter when the payment was supposed to come and hasn't come. And as and when in the future, it does come, the same is eventually reversed. So it's an ECL model that we have been following by the way. This has been in place for last several quarters [Indiscernible].

Correct. Correct. No. But last couple of quarters, I saw INR 1 crore and then INR 5 crores. So that's why I was just wondering whether it's...

Yes. Yes. Yes. Maybe some customer might have fallen into the bucket. So we just put it there. But if it comes to the Q3, Q4, it gets reversed essentially.

Got it. Got it. And sir, secondly, in terms of the revenue growth trajectory that you spoke about that second half will be much stronger than first half. Could you throw some more light in terms of the backlog that's expected to get executed in the second half now given that the durations are also increasing a little bit on the order book that we received. So how should one look at the whole -- the execution.

So out of the order book of around INR 783 crores that we had at the beginning of the year -- beginning of this quarter, sorry, as on October 1. And again, I should clarify that the order book is physical purchase orders in hand. It does not count the run rate business for which orders keep coming with any amount of frequency, which is a big chunk of our revenues as well. So around 45% of the order book would be executed in the current financial year. And on top of that, we, of course, have 100 customers whose orders will come for whom we have planned inventory because we've already forecasted the same. And basis which I mentioned that first half to second half ratio is around 40-60. So I think we feel that the way things are going, there's a lot of business there. It's just a question of executing with the supply chain support over the next 2 quarters.

Got it. So as a follow-up on Mukul's question on the inventory types that we have currently, you indicated that you have visibility for the inventory to supply and meet the demand. So would it be fair to assume that it's sufficient enough to meet the 60% or 40-60 ratio that you are alluding here.

So let me put it this way. We have placed all the orders well in time for securing that amount of inventory. Having said that, that alone is not sufficient in these days because inventories still should come on time and there should be no de-commits and there should be no delays and so on and so forth. So I think barring those kind of things which our supply chain teams, of course, tracking. We believe that we have the right coverage for inventory for securing those kind of revenues during the year.

Got it. Lastly, given that it's -- ours is a pure product company here, as we grow and I know as we expand on the execution part, when should 1 look at the operating leverage kicking in from us. for us. I mean I understand now because of the supply shortage constraints, the operating leverage is not visible immediately because a lot of this goes into your cost escalation part. But having said that, ideally seeking by [indiscernible] is a normalized situation, what kind of operating leverage can one visualize here from daily [ business ] not [indiscernible].

Yes, if you see based on the current cost structure, we need to be around INR 200 crores per quarter, around INR 800 crores per year kind of revenue to get to the baseline that we were a few years back in terms of operating performance, of course, our cost structures have gone up. And it's likely that as we increase our investment in R&D as well as, with some aspect of sales, the cost structure may further go up. So realistically, what's going to happen is all of that has to kind of get compensated with a higher revenue base going forward. And we would, of course, be judicious in making sure that as we are investing into additional cost, there should be a pipeline that we are building for increasing additional revenues. So I think we're -- as a product company, we are not that far away in terms of hitting that cost point that the operating leverage point. And it's a question of -- and plus, I think, especially with some of the stuff that we're doing in wireless, the deal sizes start becoming large. And even if you are able to secure a part of 1 of those deals, we could get a significant revenue pickup because some of these things could be required as early as next financial year in terms of revenues and supplies. And hence, as I said, the operating leverage could start kicking in. Of course, this financial year is just going to be continually incrementally scaling up. But going forward, I think we should be able to start seeing higher numbers, which will give us the operating leverage.

Got it. Got it. And a final question before I join back the queue. In terms of the order book -- order backlog that we have, can you give us a breakup between India government, international and the private?

So I don't have the exact breakup in front of me. But typically, I would say between India private and international, which is what I would call is the run rate business, that would be around close to 45% or so and 55% would be India government, somewhere in that ballpark.

The next question is from the line of Madhu Babu from Canara HSBC.

Yes. Sir, on the steady state, how should we see the working capital cycle inventory, debtor, and payable days in the business? And within the subsegment, how do you see that spanning out in [indiscernible]?

Yes. So by the way, in terms of -- as we have seen in the past, I think our DSOs at a steady state should be around 135 to 145 days. Our payables, we have been able to manage around 90 days. And if I look at inventory, usually, it has been around 80 to 90 days. So I think on a steady state, we believe that in the past, we were able to get to around 130 to 140 days of working capital, and we should be able to get to that normalization in the next few quarters. Current quarter is definitely, as I said, is not there. I think although we have made a lot more progress in the current quarter. But I would suggest that it will take a couple of quarters before things start normalizing.

Okay. And going forward on the Indian government, especially, how do you see -- I mean as we're here expecting -- where you're [ betting ] on the BSNL and not in the future contracts?

So the Indian government we basically see 3 big business segments emerging in terms of the revenue possibilities one, let's call it the critical infrastructure, which is railways, power, oil and gas, defense, smart cities, all of that stuff. So that's lots of tenders anywhere between a few crores to INR 50 crores to INR 100 crores, right? And there are lots of those happening, and they're all covered under Make in India. They are a good margin business for us. We've been doing extremely well in that segment. So that's one part of it. The second part of it is that if you look at BSNL and BBNL, the BharatNet, let's call it, the department of telecom-related projects, which could be either BharatNet or it could be BSNL. That's the other bucket there. And BharatNet, for example, there is a large outlay for the next phase of BharatNet from INR 19,000 crores has been put aside. The execution model of that is getting fine-tuned, but the technology products that we have will significantly be used in that. So that's another large bucket of revenues, which can potentially happen over the next few years. And then the third one is the BSNL themselves. BSNL the operator. So BSNL, the operator will require 2 kinds of equipment. If I were to talk to you 1 year back, we would only be addressing 1 kind of that equipment, which is the backbone equipment, the optical transport, which is DWDM, for which tenders are on. And they have to enhance their backbone capacity for 4G and 5G from access to core to long haul to everything. So that's 1 part of the business that we execute that itself will be quite significant because they have not upgraded their backbone capacities for the last many years for a variety of reasons. And if they're going to build a 4G or 5G network without upgraded backbone, they cannot really have a viable network there. So that's one set of business which is coming, which is what we have been historically working on. With more recently, they have also said, okay, they're going to need 4G base stations, which are potentially upgradable to 5G in future. And that is another very large project, the total outlay for around 60 -- 57,000 to 60,000 base stations is anywhere between INR 10,000 crores or so. So I think that would be another project part of their business that we are currently working on. We have a proof of concept going on as a truly Indian ecosystem, which is being trialed in Chandigarh and Ambala. We believe we are going through the process as required. And once that is successful, we will have a large shot at that entire base station rollout that they would require. And that's something which would be a very large business. But the execution time lines could be quite short, it could be over the next 12 to 24 months, if I were to put a time line range. So within that period of time, you have to deploy a fairly large network, and that's where a large system integrator is being in front of us and leading the deal would come to help us because you would be the equipment supplier for the radio access or the base station portion core is being supplied by someone else. So I think these are 3 different distinct government opportunities. As I mentioned earlier, in terms of the backlog, there's a lot of backlog of business we have won from government, which will be executed in the time line that the projects are continuing. On top of that, there will be more tenders happening in the rest of this calendar year, fiscal year, which will again become orders to be executed in the next year and then all these large opportunities that I talked about. So I would say there's a pretty large pipeline of government business, some of it has no cash flow challenges, no payment issues, no nothing. Some of it is, of course, a little bit more trickier than the others. But if I look at the whole bucket and basket of business is very large, all of the government business is mandated by the 2 different -- 2 important clauses, rather regulatory clauses. One of them is Make in India, for all government procurement and all the products that we make are covered under that. So any buyer has to buy Indian products if they are available. And second is that there is a regulation mandate for all telecom products, which is private or in government network have to come from trusted telecom sources. And there's a whole process of -- given the trusted source accord, which I'm sure we will be getting at some point in time. So within those 2 clauses, all the government procurement has to happen, which potentially as a part of the larger AatmaNirbhar story gives a benefit to companies like ourselves, who design and manufacture their entire products within the country and have entire control of the IPR within the country.

The next question is from the line of [ Aman Dinesh Kumar Maduresha from Augmenta Research. ]

So actually, I had 2 to 3 questions. So the first one was regarding, can you give please give more color on the allowance for credit loss? So my out was regarding what we could expect there? What could be the year end run rate, like what would be the portion of the receivables, which would go into the doubtful area according to you? And also, out of this, what is the outstanding amount from BSNL and some other players as well?

Okay. So I'll let Venkatesh answer that question.

Yes. See, as I mentioned in the call earlier, it's not that the run rate of -- we make some provision out of it. It's an ECL model, expected credit loss model, wherein some of the collections get slipped out to the next quarter and next half year, right? Then according to that model, we had to provide certain percentage of the provision. We need to make the provision. In this quarter, some collections have got slipped out. That's the reason we had provided that INR 5 crores, which cut across lots of customers. It's not as specific to 1 customer, right? So that is how the allowances for credit loss we have been paring. As far as the BSNL is concerned, the old BSNL outstanding as of September 30 is around INR 100 crores, INR 102 crores, of which we have already collected around INR 32 crores in the first half, which is INR 15 crores and INR 17 crores in Q1 and Q2.

Okay, okay. And do we expect that the remaining would be collected in timely, like there would be no write-off from that thing?

Yes. The collections were a bit slow, but hopefully, we should be able to collect this -- the balance in -- maybe in the next 2 quarters or so.

So that was just in terms of the provisioning versus write-off, if you look at historically for the last several years, the total write-off, which is bad debt, which we have now collected and written off is very, very small, less than a percentage of our revenues. We do provide for provisions, which get reversed as and when they're collected. So typically, what we have seen is that we see delays sometimes in our collection, which is why we provide the estimated credit loss. But the possibility of a receivable going bad has been so far a very, very small, in lifetime in our company has been around 1.2% or something like that, which is what we have actually written off.

Okay. Okay. And I had a couple of questions more. Like given that you recently Tata acquired a stake in the company, I just wanted to understand, like Tata Sons company, like TCS and Tata Sons, would they work as an integrator for the company like TCS will provide the software and Tejas the hardware, like how would the things be going forward, right?

So first of all, all the companies are independent companies, I'm sure they would be working on within the regulatory framework of whatever is the related party transactions, around [indiscernible] pricing, all that stuff. Having said that, those are all things which we are working out. Clearly, we are working with TCS in the BSNL project as is publicly known. Tata Communications is a long-standing customer of Tejas for more than 15 years. And a lot of their networks are provided -- equipment is provided by us. There are many other group companies within the Tata groups who have a requirement to procure telecommunication equipment of the kinds that we produce. And we definitely believe that we have very competitive products. And we are already doing business with most of them, and we will potentially be looking at ways to enhance our reach through them. So I would say that the objective of the strategic partnership is that there's a lot of customer connect. There's a lot of relationships. There are a lot of global solutioning, which needs to get done. And if we have a competitive product and a good solution that we can put together, definitely, those are the things which we would like to leverage with the strength of the group.

[Operator Instructions] The next question is from the line of [ Harshil Shourya from Pragya Equities. ]

So I just wanted to know what would be the plan for the next couple of years? Where do you see the company going forward? I think it must be asked earlier, but I just joined, that's why.

So one thing I mentioned on this one is that the strategic plan for the company post the investment from Tata Sons since the open offer is still on and it will be over in the next few weeks, we would be coming out and sharing some of those ideas after that. So in that sense, since the long-term strategic plan is something that I would like to have a focused discussion on that is something we'll be sharing over the next few weeks. And just because of where the current open offer situation and the regulatory things are. So we would be sharing that over the next few weeks, but not today.

Okay. So there would be another conference call for that again?

Yes, we'll find the right way to communicate in our strategy going forward because the whole purpose is that definitely will not be doing incremental stuff from where we are today. We would be looking at how to take advantage of all the synergies that we envisage and how to accelerate all things, what are the kind of investments, what are the kind of opportunities, what are the kind of synergies we expect to see. So all of those questions, as I said, in the next few weeks, we'll be answering, yes.

The next question is from the line of Udit from Catamaran.

Sir, can you please give us an idea on the products that you're planning to manufacture through the PLI scheme? And secondly, since previously, we were outsourcing all our manufacturing activities, so how will this work now?

That's a good question, first of all. So let me answer the first part. So all the products that we today design and manufacture are covered by the PLI scheme, which is our FTTX products, which is GPON family, both the head and equipment and the customer prem equipment, the transmission products as well as the 4G and 5G product that we are working on. So everything that we do is covered in the PLI. So that's the good news. Second thing you have is that how will we benefit from the PLI scheme because a large part of our manufacturing is outsourced. So the way the PLI scheme is designed and the way we have put in our application investment it does not warrant us to change our business model. So we will continue to outsource a part of our manufacturing to contract manufacturers, and the final assembly and test would be done within our premises. And for the part of the investment that are required from the PLI threshold, we believe we should be able to meet those investments in the normal course of our business because of the way we do our manufacturing. So we will continue with the current model itself, but we should be able to take advantage of the PLI scheme as it has being designed today because of the investments that we'll make in the capital. For example, test equipment, prototypes. These are all allowed under the PLI schemes and some of those things which were -- or expansion of the factory premises, which we'll anyway need to do for larger volumes, but those will all be, as I said, incremental investments in the normal course of business for us, and we should be able to take advantage of those through the PLI scheme.

Okay. And given that like most of the -- as you rightly mentioned, like most of the core manufacturing will be outsourced. So roughly INR 100 crores of investment could generate how much of yearly revenue, annual revenue?

So, luckily for us, we should be able to generate a very, very high amount, thousands of crores of E&D revenues even with the investment that we are doing because a significant part of the capital-intensive manufacturing is outsourced. And with whatever asset-light model of investment that we have for manufacturing, which we will be making the investments over the 100 -- So INR 100 crores is the threshold, which was there, I think our application is around INR 115 crores or INR 120 crores, something like that over a 4-year period. So I think we should be able to meet on annual thresholds. And once we can do that, whatever revenues we do, the incremental revenues from the base year would qualify us for the PLI incentive subject to us having met the minimum threshold of investment which we will [ need ]. So luckily, the revenues can be very large and the investment don't need to be.

Thank you. Ladies and gentlemen, we will take the last question from the line of Nakshita Mehta from Credent Assets.

So my question is, one, on the product additions that you're doing. Can you throw some light on what is that going to do for 5G? And how is that going to play out the entire 5G scheme?

So as I put into the pictorial slide in my presentation. So there are 2 elements of 5G that we will be potentially addressing. One element, we already do it today, which is the backhaul or the -- when we carry the signals from 5G network onto the fiber and everywhere else, those products we already have today as a part of our optical as well as the fiber access products. So that's one thing, which is how we are addressing the 5G. The second aspect of 5G is the radio access network, which is the base station part of 5G. So currently, we have 4G, which is what is in the field and shipping. The same platform is upgradable to 5G with incremental software and hardware. And that is what would allow us to also build a 5G radio network. So between those 2 elements, we would be addressing both the large investment opportunities that the capital investment opportunities that will be opening up in 5G.

Okay. So by when can we expect these things? As you said, that you just need some sort of a part to activate the 5G, yes, right to upgrade it to 5G. So by when can we expect this to come into play? Is there any time line?

Yes. So I think the product road maps are in place, at least for Indian market, for the spectrum auctions have to happen and then the -- for 5G and then the rollouts will start. So my sense is that only sometime in the second half of next year or later part of second half of next year, there would be some rollout activity on 5G. And our intent is that at least the transport part for 5G would be used for that. In fact, if you read one of the press releases we had done with the customer in India. Part of the equipment we are supplying for them is for 5G actually for the 5G capacity augmentation in metros and part of the access and the edge network. So that would come into play. The radio access part of 5G would be slightly longer-term thing because it's on the road map. So those things I would only be able to share once we have more concrete rollout plans from our side on the product development. But the fiber side, I think we're already there.

All right. All right. Sir, my last question is regarding the Tata liaison. So you said that you will be using that out. I mean, this synergy is that you'll be -- you can have more access to customers. So what kind of customers are you looking at? Are you looking at any global customers? Are you only looking at local?

So definitely, all customers, global as well as local. The global part is going to be quite exciting for us because one of the challenges which Tejas had in the past was that while we did well in India, we had decent structures internationally. We were never able to get into very large networks in the Tier 1 markets like U.S., Europe, Australia, New Zealand, Japan and so on and so forth. Because to get to those customers, you needed to have a strong presence, strong brand, you needed to be having deep relationships. So we do expect that the synergies from the group companies in terms of having access to those customers, having working relationships with thing, because telecom is a segment which has been a quite prominent vertical for all the companies in India who are working with global customers in the IT services or system integration space. So I'm pretty sure we'll be able to leverage those synergies internationally. Even in India, if you look at some of the very large projects like the BSNL one that we are talking about, we may not have wanted to do it on our own because of the nature of the size, if it's a 10,000 project, we may not want to go on our own because there's a lot of elements which are coming into play for that. So even in India, very large deals, we can potentially work with system integration front and [Indiscernible], and that's where a lot of the synergies will come. So yes, customer acquisition globally in the large-scale market as well as in India would be something that we definitely look forward to.

Just a follow-up on this, is there any investment being made by Tata? Or is it just an -- strategic partnership?

No, no. In fact, as I -- as I mentioned in the things, we have already received -- so there's a commitment of INR 1,850 crore of investment in the company, out of which INR 837.5 crores has already been paid. The balance will be in the form of warrants, which will get converted. The first warrant converts in 9 months, second one is 18 months from the date, 11 months and 18 months. And so yes, so there's a very sizable amount of cash which has been infused in the company already and is available in the form of convertible warrants. So there'll be cash investment. And of course, the strategic alignment is clearly something that we [ live ] with. It's both. Absolutely.

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Pranav Kshatriya for closing comments.

Thank you, everyone, for participating in the call. I'll hand over the call to Mr. Sanjay Nayak for the final remarks. Thank you.

Thank you, Pranav, and it's been good interchanging ideas and addressing your questions. As I said, the good part is that business inflow is very good. Order book is continuing to increase. So the demand for the equipment is good. We do have some challenges on the supply side because of the semiconductor situation. We have taken adequate action. So that's going well. The last part is, of course, the strategic alignment with the Tata Group. We will start to play out all the synergies and all the plans that we have, and we'll be sharing with you in the future calls. And then the last part is the advancement in our technology in terms of introduction of the new wireless products is quite exciting for us because we do see a lot more opportunities and markets opening for us, both in India and outside. And all of those mean that as management team and the company, we are quite excited about the opportunities and the possibilities to scale the company and to much, much larger size over the next few years. So that's really where I would stop, and thank you.

Thank you. Ladies and gentlemen, on behalf of Edelweiss Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.