Tejas Networks Ltd

NSE:TEJASNET

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Tejas Networks Q1 FY '23 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Sanjay Nayak, MD and CEO. Thank you, and over to you, sir.

[Sanjay Nayak, executive]

Thank you, and good evening, everybody. Welcome to the Tejas Networks Q1 earnings call. We have uploaded our presentation on the website. So I hope you had a chance to download it or at least are able to see because we will be following the presentation slide by slide.

Now on the first slide, which is the key updates for Q1 FY '23. So our net revenues for the quarter were INR 126 crores. We had a PAT loss of INR 7 crores. Cash and cash equivalent at the end of our quarter was INR 1,739 crores. And of course, we do not have any debt at this stage. And our order book at the end of Q1 stands at INR 1,158 crores.

In terms of major things that really determine the quarter, we continue to have challenges in supply chain. So I want to talk a little bit about that. So basically, we could not ship adequate systems in complete form because of imbalanced inventory that was created due to shortage of certain components, despite us having placed adequate purchase orders well in advance to our suppliers. There are challenges in the global industry, and we have been continuing to be impacted by that.

So specifically, what we have done is we've really analyzed all the things which are happening in the supply chain. And based on our assessment of what we need to do differently going forward, we are making changes in our internal processes and IT tools to better understand the current challenges and ensure more predictable delivery.

Essentially, our business model was a very light asset like manufacturing where we gave out all our orders to our contract manufacturers, and they, in turn, used to place the orders for the components and so on and assemble everything and give it back to us. What we found out is that just for us to get much more predictability and control because we are getting last -- too many last minute surprises, now we have updated a system where we can have complete visibility into all the components which have been ordered by our EMS suppliers and what the status of arrivals of those things are and really be able to make much better informed manufacturing decisions. So this fundamental systems and processes upgrade that we have done in the quarter, we expect should start getting better results as we go forward in the rest of the year.

The other impact of supply chain for us has been that component costs have increased continually over the past 2 years. We are able to buffer some of it in terms of new contracts, but many of the deals which were fixed price, for example, tender deals, which were rupee denominated in fixed price in India. We do not have any opportunity to increase the prices to our customers. As a result, our gross margins have definitely been adversely impacted. This is, again, a situation which we feel that towards the later part of this year, should start improving. But as of now, we do have these challenges in the supply chain side.

In terms of overall corporate update, as you would have read in the press release a couple of weeks back, we have inducted 2 new independent directors on our Board. Professor Bhaskar Ramamurthi, who recently was the Director of IIT Madras; and also the person who was -- who is in charge of the 5G lab that was set up at IT Madras has joined our Board and Mr. P R Ramesh, the former Chairman of Deloitte India, has also joined our Board.

The second thing which we have completed as of recently is 63.43% shares of Saankhya Labs has been acquired. And as of July 1, Saankhya Labs has become a subsidiary of Tejas Networks. We already started the integration process between the R&D teams and different other programs. And the impact of all of this would be seen in terms of accelerating our 5G radio program in line with market expectations of renting will be required.

The last thing I wanted to highlight was that in last quarter, the Department of Telecom announced a variant of the PLI scheme which is called design-led manufacturing and that provides an additional 1% incentive on top of what was available, but most importantly, from an investment perspective and especially capital investment perspective, we have allowed R&D manpower costs to be counted. The net effect of all of that is that the amount of capital commitments we can make comfortably to assess -- to get advantage of this new design-led manufacturing scheme will be significantly higher than what we had got approval earlier. And the second thing the Department of Telecom has also allowed us to shift the block of 5 years in which we will get this incentive. So while we were eligible to get incentives in this -- because of our investment in the last financial year, based on our revenue profile, which we think will be increasing over the next 4, 5 years, we have decided not to avail the incentive of last year and we will start the block of 5 years from this year.

So the effect of these 2 would be, I would say, significantly higher PLI incentive that we will get after we are able to get our current application upgraded to larger capital commitment because of R&D manpower resources being allowed. And secondly, higher revenues because of the next 4 to 5 years, we expect that our revenue profile would significantly be on the upswing compared to what it was in the last financial year.

So that's a quick summary of the overall quarter. And again, as I mentioned even in the last quarter, we are not comfortable and excited about the fact that we are continuing to struggle through the supply chain challenges, but we now do believe that combination of advanced ordering, combination of upgrading internal tools processes and just a little bit better support from the component suppliers should allow us to make sure that the rest of the year, we don't see the hiccups that we have seen in Q1 as well.

I'm now on the next slide in terms of the details about the financial update. So as I mentioned, the revenue for Q1 of INR 125.8 crores, which was a year-on-year decline of 12.8% compared to last financial year. EBIT was minus INR 30.7 crores, again, that's a year-on-year decline. PBT was again declined minus -- PBT was negative at minus 12.9. PAT was minus 6.6; and EPS of minus 0.45.

Basically, as you all know, we do not view our business on a quarterly basis. We look at it on an annualized basis. And while Q1, because of the revenue shortfall, correspondingly resulted into a PAT loss. As I mentioned, the 2 other impacts which we have had is the gross margin pressure continued where we could not get improvements in the gross margin. So we are almost at the same level as Q4 of last year. And I expect that only when the year progresses, we could potentially see improvement, but at least that's the situation that we have today.

The other thing I want to mention is on the expense side, especially on the R&D investment side. We have not -- despite the fact that Q1 was not a good quarter in terms of revenue, we have continued to make sure that all the R&D investments which are required will accelerate our wireless product development, in particular, both the 4G program that we are working with BSNL and the 5G program for the overall market doesn't get impacted. So in that sense, the expenses and the commitment to investments on the R&D and manufacturing side continues, and we expect that as the year progresses, the revenues will also catch up with respect to our investment plans.

Continuing on the next slide on the financials. Because of the imbalanced inventory situation, our inventory increased almost by 40 -- around INR 35 crores to INR 40 crores to INR 322 crores because, again, we have imbalanced systems, it means many of the cards have come, but just because some could not come because of specific component shortages, we could not complete the system.

But we do again expect that as the inventories start getting balanced out, the inventory levels should come down. Receivables at INR 298 crores, we collected around INR 141 crores during the quarter. We also collected some money from BSNL, which we had provided for in Q4 of last year during this quarter. Working capital, because of the higher inventory level, primarily increased by INR 47 crores, and the cash position increased to INR 1,739 crores because Panatone investments converted the Series A warrants and invested INR 712.5 crores in the company. So as a result, on the cash side, we are comfortable, and we are making investments in line with that our long-term vision of what we want to achieve. Clearly, in the Q1 because of revenue shortfall, we have inventory increases as well as working capital increases.

Going to the next slide in terms of the sales summary. So we have 2 pie charts. These are all the same formats we have been sharing in the past. So the pie chart on the left-hand side shows the breakup between the 3 segments of the business that we had in last financial year. And the pie chart on the right-hand side shows the investment -- shows the revenue breakup by the customer segment that we track.

So the run rate business, which is India Private plus international, contributed to 80% of our Q1. India government was 20% of Q1, which was a growth compared to last year. In addition, we have won a few large tenders, multi-hundred crore tenders, which are expected to convert into purchase orders in Q2. India Private was 49% of the total revenues. And we did see a year-on-year growth of 21.5%. This is a segment of the business which continues to do well. As you all know that the India Government business is a little bit dependent on the tenders and when we actually execute, but Private continues to do well for us. International was not compared to last -- Q1 of last financial year was down around 48%. Although, as a total, it is almost in line -- a little bit shorter than the overall year average.

In terms of closing backlog, the revenue -- so the orders from India constitutes around INR 986 crores, and the backlog of orders from international is around INR 172 crores.

Going to the next slide. This is just, again, a pictorial view of all the different products and the different segments that we are having our focus on. So on the wireline products which is our steady-state business which has been continuing to grow healthily, we have got the optical transmission, the broadband access as well as the secured Ethernet IP switches which are used for safe cities, smart cities and those applications. So that part of the business, in terms of run rate as well as new order wins, continues to be doing quite well.

The wireless products are the new products, which is constituting of the 4G radio access network or base stations as we usually call them, both for fix as well as mobile. And we have successfully completed the 4G trials with -- 4G proof of concept trials in the BSNL network. The 5G radios and the satellite communication is something that we have acquired from Saankhya Labs and we are integrating all of those as a part of our integrated product portfolio. So a lot of the new investments in terms of R&D is going into the 4G and 5G program on the wireless side, while we'll continue to invest on an incremental basis on the wireline business, which already has a fairly competitive portfolio of products and will continue to grow healthily with business.

So in a sense, wireline business continues to be on a growth and profitable mode, and wireless business at this stage is really in the investment mode. But we do expect that the wireless revenues, especially of the larger client could start hitting our revenue sooner, in which case, both those businesses will be independently growing.

So in summary, I'm on the last slide now, Q1 was a weak quarter because of revenue shortfall, specifically because of the component shortages where we could not balance the inventory and ship, and we have taken corrective actions, which were not originally planned for because the supply chain model in the normal situation we're working well with our EMS doing everything, but we just have to do a little bit more planning in forecasting on our side. And those processes and systems internally have been changed, and we expect to have a better management and lesser surprises from our supply chain going forward.

Order book is healthy. We also have a very strong visibility of new order inflows. And hence, we expect to accelerate our quarterly revenue growth during the rest of the financial year. On an overall year basis, we've still been confident of significant growth compared to last year. With the success of proof of concept for our 4G RAN, we are also well positioned to scale our wireless business and achieve potentially large-sized orders for which commercial discussions are on. We are also making R&D investment as well as scaling up our manufacturing operations.

Again, we will continue to be in the asset-light mode, but whether it's processes, people, systems, tools, test equipment, capabilities, all of that is being done to ensure that as our business scales up significantly in a short period of time, we are ready to actually do manufacturing for those products. We are also continuing to watch the lead times in the industry and taking proactive inventory actions and have coverage for almost next 12 months of revenues in terms of confirmed orders to our suppliers.

We already talked about the constitution of the board which will again continue to make sure that we have a very good set of people to direct us. And from a cash perspective, again, we have a good position so that we can take a long-term view of our business and continue to focus on things that, over the next few years, will ensure that our company grows at a much higher pace than we have done in the past.

I'll pause right now and actually make it more interactive and open up the floor for questions. So we can just start the question-and-answer session now. Thank you.

[Operator]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of [ Hiren Kumar Thakur-Desai ], an individual investor. Please go ahead, sir.

[Unknown Analyst]

I have 2 questions, 1 short term and 1 slightly longer term. The first one is, our order backlog was 1,186 crores, I think, at the end of Q4. It has declined, and the revenue this quarter is INR 125 crores. So have we here seen some order cancellations? Or the order accretion in this quarter has been low? That's the first question. Yes, I'll...

[Sanjay Nayak, executive]

Yes, you want -- Hiren, you want me to answer one by one? Or are you going to put the second question as well first?

[Unknown Analyst]

Yes. The second question is related to the longer term that it has been about a year since Tata invested in Tejas. And I assume that the idea is to grow nonlinearly, right? I mean significantly grow. So what is the concrete plan of utilizing the cash that is less? Because I assume that at around INR 600 crores, INR 700 crores of revenue, kind of we are breakeven and self-sustaining. So this money, what is our plan to sort of increase investment or how to nonlinearly increase our revenue?

[Sanjay Nayak, executive]

Sure, sure. So let me start with the first question. No, we did not have any order cancellation in Q1, except that some of the large orders that we are supposed to get in the form of purchase orders just dropped quarter boundary, so they could not come in. So as such we could have had a much higher Q1. I would say that the order inflow business win continues to be strong. Yes, Q1, specifically was the new order into slightly lower than the revenue that we did, and hence, the backlog decrease. But that's one point. So as far as the year is concerned, we still continue to believe that the new order inflows in the win ratio is very strong, and we do not have any concern on the cancellation side.

The second question that you said, which is correct that Tata has now almost invested for a year. We do have plans to grow nonlinearly. In fact, we have AGM tomorrow, where we have, of course, also sharing some of the thought processes along with the new Chairman. But the point is very simple. We believe that our industry in telecom equipment is an industry of scale. Unless we get into a top-tier category among the global players, we will not have the economies of scale to really be able to play very large. So in that side, we are basically doing 3 things in terms of the broad strategy, which I articulated, I think in one of the earlier earnings call. Number one is to expand the product portfolio. So while in optical and wireline products, we are very strong. We believe that with the wireless 4G and 5G things that we are doing, it expands the market for us because in India, which is a market, we do see large opportunities of this kind which are coming together. And part of the Saankhya Labs acquisition was to make sure that the product completeness side, we have the breadth of portfolio that is required.

A part of that strategy was that OEMs in the world, we have seen a lot of the analysis is something that they start getting a lot of success of large kind in their home markets. And hence, we are thinking that with all the art direction that the government of India is having and the opportunities that we are seeing for the new CapEx cycle in India between 5G and 4G for BSNL and of course, the FTTX, there's a large home market opportunity, which we want to maximize and use that opportunity to get to global scale. So that is the second part of the strategy to really make sure that in the near term, in the next 24 months or so, we really start to -- start getting into large deals in the home market.

And the third part of the strategy was really to use the Tata ecosystem who get into international markets, starting from expanding into geographies where we are, but more importantly, getting into account where we earlier did not have access to working either as a solution partner or using the relationship that exists to get to that. So I would say the strategy is quite clear, except that the execution and the outcome of that strategy, we expect, will be visible to the investors as this and next year progresses. But a lot of those signs of that we hope should be visible in this year itself.

[Unknown Analyst]

Okay. But Sanjay, that still doesn't clearly answer the large amount of cash that we have about how you are going to use.

[Sanjay Nayak, executive]

Yes, yes. So the large amount of cash will be used for 3 purposes. Number one, it will be -- it gives us the cushion to increase investments into R&D. Number two, it gives us an opportunity to scale up our business in much larger play and be able to take longer bets, whether it's in supply chain, whether it's in securing business of large kind or making international sales investment. And number three, it also gives us the ability that as and when you see opportunities to acquire candidates companies, we should be able to do that.

Without having the cash position that we have today, our ability to take any of these 3 long-term calls gets dramatically diminished. And we're working with the -- I mean, we are now Subramanian as our Chairman. So we're working closely with him and trying to implement our long-term vision into actions as we go along.

[Unknown Analyst]

Okay. Just to follow up. Is there anything on the radar in terms of acquisition? I mean if you want to...

[Sanjay Nayak, executive]

I mean, we don't have anything that we can talk about, but the purpose is that the cash is available for both organic as well as inorganic materials.

[Operator]

Next question is from the line of Mr. Sanket from Kedia Securities.

[Sanket Bihani, analyst]

Yes. Just wanted to understand like what gives us confidence that the supply chain pressure will ease out in the coming year or in next couple of years also because the same has been prolonging since last 1 year, and that has been impacting our results quarter after quarter. So how do we make sure we are self-sustainable to profitability?

[Sanjay Nayak, executive]

So first of all, you're absolutely right that we had expected the supply chain issues to have been behind us by now for sure. And unfortunately, they are not. So we basically have been diving deeper into the core issues and really fixing one by one. So at a macro level, if you talk to anybody in the semiconductor industry, it is related to the telecom products of the kind of stuff that we buy. The general concern such that till the end of this year, things are not going to be changing too much. So for example, if you place an order of -- on any component supplier, you may get a 52-week lead time as a committed lead time. So that is the situation that is available from a discussion that we have supplied.

But even for that, to be honest, we had actually taken inventory action with more than 52 weeks of lead time. But why are we still not able to do the revenues that we plan for. And that is really when we figure out that the EMS companies that we have been working with, the way they have been operating and certain kind of things that they've been trying to optimize around did not suit the current situation where the lead times are longer. And it's a very important and crucial for us to get to the second and third level of details of their systems and processes, integrate them into our IT system, and be able to predictably say where exactly which component which is short and which EMS have they placed the order on time, what is the expected arrival date and why we cannot put that in et cetera, et cetera.

So I think the internal processes and systems is something which took us a little bit longer to realize and implement, but I think we have done that as well. So the combination of the 2, I feel that -- which I mentioned earlier that we placed orders for the next 12 months of our requirements, gives us comfort that if you are able to better manage our suppliers essentially, we should be in a fine shape going forward is our understanding.

[Sanket Bihani, analyst]

But do we have the pricing power, as you mentioned in certain orders we are not able to right now pass on the prices as these are domestically [indiscernible]. So going forward also, would we have the pricing power or our margins would be reduced for components?

[Sanjay Nayak, executive]

So I think in the normal situation, there are 2 kinds of businesses that we participate in. One is the tender business where if we had bid in a tender say 2 years back and we have won it and it was awarded to us, let's say, a year back, the pricing power in those deals doesn't exist with us because it's a fixed-price deal, it was a rupee basing, and there's very little we could do to change that.

Any new customer that we are bidding or any new tender we are bidding or any rate contracts with existing customers, including large customers of ours when we are renewing, they understand the situation because all other suppliers are also using the price escalation to pass it on to them. So to those kind of people, we have been able to pass on the price escalation.

Now the question is how much of a large -- how much of the blend of the business will happen between new orders where you increase the price versus old orders where we have the price pressure. The answer is that since we do have a large backlog of last year, some of it -- a lot of it is also up fixed rupee price. At least for a quarter or 2, we will see a little bit of a margin pressure still the situation in the supply chain eases off. And answer to that is that we should have larger revenues to be able to absorb a slightly lower gross margin so that on an overall basis, we can still be achieving profitability.

[Sanket Bihani, analyst]

And with respect to the DLA incentives which you have mentioned about, what can you quantify this? Like what would be the additional benefit to us in the longer term?

[Sanjay Nayak, executive]

So yes. So in the earlier scheme, we had applied for around INR 105 crores of investment, which would have given us up to 3.8 -- 3.8, 3.88x of incentives. We are in the process of upgrading our earlier PLI application to a much larger investment commitment, which would potentially mean much -- I mean, we could get up to 3.8x our capital investment back in the form of incentives. Plus we get an extra percentage of -- so we'll have 2 benefits from the new design and manufacturing scheme. One is we will have a much larger capital commitment because R&D manpower is now allowed without actually having to invest significantly differently than what we would have normally done. And secondly, that larger commitment will give us an opportunity that as the revenue scale much more than what we had originally planned for when we applied last year, we should be able to get the incentive on a larger revenue amount.

And then the third part is that we will get an extra 1 percentage incentive because of our -- we will meet the valuation criteria that has been prescribed in the new DLI scheme for our products. So this is how I think the new scheme will -- or rather new applications will benefit us going forward.

[Operator]

The next question is on the line of Tejas Sheth from Nippon India AMC.

[Tejas Sheth, analyst]

Sanjay, what is the status on the BSNL order now?

[Sanjay Nayak, executive]

Tejas, I think you would have been reading in the newspapers. So the technical aspects of concluding the proof of concept right is going well. So our equipment has been in the field for now quite some time, and things have progressed quite well, and the customer seems to be satisfied with the technical capabilities of the products.

In terms of the commercial, those discussions are on between the front-end system integrator and BSNL and the size of the deal and the price is something that is being worked out. And as soon as those commercials close, which we expect should close in this quarter, we would get better visibility in terms of the timelines of the orders and the delivery timeline that we'll have to give for those orders. But all of that is work in progress. And so far, things are going in the right direction.

[Tejas Sheth, analyst]

And now with the world travel opening up, considering that you've been suffering from getting international order because we have not been able to travel, is there -- we have hired any talent to boost up our international orders?

[Sanjay Nayak, executive]

That's a good point because travel is opening up, and we are seeing things scale up internationally. I mean, we will definitely be making more investments in our international sales from 2 different angles. In certain geographies where we have been directly addressing the market, those geographies are having more investments and we should start seeing the results of that with a time gap of a couple of quarters.

In the U.S. market, we believe that partnership approach with either other group companies or with other OEMs that we have done in the past might be a faster way for us to accelerate. So we will be revamping the U.S. market with that kind of a strategy, again, based on the internal strategy discussions we've been having.

So I would say that international should start ramping up. However, I must also say that I mentioned earlier, that we do see a very large opportunity in the home market in India across customers. And we also want to make sure that we do not miss out on those opportunities to scale our business and if you get to high economies of scale in the shortest possible time.

[Tejas Sheth, analyst]

Okay. But has the ball started rolling on working with the group companies? Or is this something which is just on paper as of now?

[Sanjay Nayak, executive]

No, the ball has started rolling. We have been interacting in terms of different applications, different geographies, some sales models that will work. But I think it will just take a little bit of time to get the first success internationally, but that's something that -- I would say multiple engagement across multiple geographies are on.

[Tejas Sheth, analyst]

Okay. On the product offering side, is there anything which we are looking to achieve over the next, let's say, 12 to 24 months?

[Sanjay Nayak, executive]

Yes. In fact, we are achieve -- we have planned to achieve a lot, by the way. So number one, we want to make sure that a very robust 4G system can be delivered for last scale deployment, not just in India, but in many parts of the world, especially in emerging markets, still don't have a 4G like India doesn't have 4G in many pockets. I think we see that a good opportunity or robust field-proven 4G system is something that will happen in the next 12 months in terms of large-scale deployment.

5G radios that we have been producing and the 5G from RAN solution that we've been producing, again, we believe should be qualified by customers by the end of this calendar year and should be ready for commercial deployment in the next calendar year as well. So these 2 products alone will open up a very large, new addressable market in terms of the wireless side of things, which we really have been just kind of playing on the field just so far. And that is the reason I mentioned that in terms of the R&D investments, we are significantly upgrading that.

The third element in terms of new product deployment would be through the Saankhya acquisition, they have an application of 5G for broadcast applications for people who have a TV spectrum who could use that for broadcast on 5G. So they are, again, working with one of the anchor customers, and we believe that in the next 12 to 18 months, some more application of work cap 5G across larger customer operators around the world can open up.

So I would say there's a lot of huge amount of product development and product capabilities are coming out in the company. Just to put all of this in perspective, we are trying to do in, let's say, 2 years what typically takes 5x or 10x as much more time on a global -- compared to the global competitors against whom we are now competing. So in that sense, these are all very, very complex technologies require a huge amount of steel hardening because they have a direct to the user experience. So for example, if you have a mobile network or your user experience on the network should be no different than you would build a network using any other multinational companies product who have been in this business for [ 20 ] years or maybe longer. Same thing for our fiber to the home products, for example, which continue to be doing quite well in many of the operators in India and abroad.

So net-net, I would say, a significant focus on R&D. A lot of resources are needed. A lot of investment is needed. The supply chain situation even for rapid prototyping is making it difficult to launch products faster than what we would have otherwise done. But all I can say is that a lot of investment is happening in the right direction and things are all coming together in a very satisfactory manner.

[Operator]

Next question is from the line of Sangameshwar Iyer from Consilium.

[Sangameswar Iyer, analyst]

I just want to set with you. Given the slowdown that we are talking about in the semiconductor industry, is that having an impact on the overall fresh order intake that we are seeing because like one of the earlier participant asked, the order inflow during the quarter was actually much lower than what we have been seeing in the past few quarters. So does it have anything to do with a conscious vision to slowly take orders because of the rising input prices? Or could you elaborate a bit more as what's led to the slowdown?

[Sanjay Nayak, executive]

Yes. The first one, as I mentioned to be in answer to that question was that I would not read too much into the order input for Q1. As I said, subsequent to the quarter close alone, we have got significantly large orders in that sense, in my mind, there is no really slowdown in the business momentum in that sense, it's quite healthy.

I don't think -- by the way, on the contrary, the situation is slightly different. If we have been able to ship out all the stuff that we have backlog of, we can definitely have secured a lot more orders. So I would say that we could have accelerated our growth, but we are limited a little bit by the current situation in supply chain. So that's the way I would put it.

[Sangameswar Iyer, analyst]

Secondly, in the past few con calls, we did always mention that we have been trying to get [indiscernible] critical components that will be required and to make sure that shortfalls do not occur. But even Q4 and Q1, we have seen that few critical components we renewed and resulting in us not meeting our internal targets as well in terms of fulfilling customer orders, et cetera. So this new initiative that you spoke about wherein you are trying to integrate the supply chain of the vendors along with yours to make sure that the orders are received on time, or fulfilled on time, how long do you think that this will take in terms of a gestation period before this thing normalizes and you are able to take complete control of the whole chain.

[Sanjay Nayak, executive]

So it's a good question, Sangam. So what we have set -- so there are 2 effects which were really -- which had hurt us, to be honest. The first effect, as you rightly said, that certain specific components are under what is called allocation basis, which means -- and then these are very large companies by the way I'm talking of. So they are only able to get extra amount of components of that kind available from their foundry or semiconductor foundry who is manufacturing that. And the same x amount of components are being "allocated" to different system companies like ourselves, right?

So a, the problem was to get the maximum share of the allocation for those components. And if some of those components go across many products, that is really where the efficiency that I talked about comes. So assume we are able to get 1,000 components allocated, and those 1,000 components got -- are used across 20 different cards that we produce in the company. If you do not do a good job of balancing the use of those 1,000 components, we may -- and we may have, by the way, a requirement of 1,000 components in all of those cards. So we can consume it on 10 cards or we can consume it on 50 different cards or whatever.

So I think what was happening is the optimization. I'm just simplifying the problem for you. [indiscernible] that. The optimization of the scarcely available component on 2 different cards and balancing the inventory was not done being appropriately. So the second part of the problem is what is the new thing that we have sold, I mean, at least in terms of the tools versus in systems now. So we believe that whatever components are available, we'll be able to do a much better job of allocating them internally and getting more systems out of the door.

The first part of it in terms of getting higher portion of components from our suppliers, that's an ongoing discussion even as late as last week when we met some of the suppliers who were visiting India. We have highlighted the importance of them supporting pages, and we hope that going forward, we should get a better allocation of such components. But that's a summary of what has changed. And our assessment is that the results of whatever we have done should start being visible from this quarter onwards in terms of better performance on the earnings side.

[Sangameswar Iyer, analyst]

Okay. As a follow-up, if you were to back test these inner tools and systems that we are putting in place with your vendors currently, what kind of efficiency could you have achieved in the last couple of quarters? Do you think that instead of INR 125 crore run rate, you could have clocked INR 175 crores to INR 200 crores run rate given a better efficient utilization of the tools of the components that were available? I mean I'm just trying to analyze the situation in terms of how much was the shortfall on the internal basis? And how much was it because of the external factors, which affected everybody.

[Sanjay Nayak, executive]

It's hard to quantify that because one is connected to the other. So as time goes by, of course, the aging of the orders of those components and our suppliers is higher. So the chances of them getting fulfilled now is better. Clearly, as I articulated that the allocation of those components within the system for us could be done better. It's a little bit hard to quantify what happened in the past. But what we do know that, as I mentioned at the end of the Q4 call that we actually had coverage for all the orders that we have for the whole year in advance. So we should get those components during the year.

So the only thing which we are focusing on right now is that going forward, as much of efficiency as we can draw into the system should be put in, and we should start seeing tangible output because we do want to make sure that customer orders don't get so late that customers start getting concerned about our ability to deliver, and that is something which we are keeping it a high priority.

[Sangameswar Iyer, analyst]

Got it. And last question from my end. Given that in a lot of your orders are international orders, currency depreciation does kind of offset a little bit in terms of every good cost increase, et cetera. But how much of an escalation in the input costs can be passed through and how much do we have to absorb?

[Sanjay Nayak, executive]

I think it's a dynamic situation because depending on which customers do you ship that quarter and what was the profile of that customer, was it at the new price or at the old price, I think our margins keep changing.

As you rightly picked also that in Q1, our percentage of international was lower, and our backlog of international actually is still very high. So I think, in general, our international margins are better than the Indian margins. So as we decongest those orders, we expect to see improvement at least in the blend of the margin as well.

[Sangameswar Iyer, analyst]

So -- but is there a pass-through available in terms of cost escalation beyond a certain level in all those international orders?

[Sanjay Nayak, executive]

Yes. So the way it works, it's not a direct pass-through. It's more like a competitive situation with that customer. So at any point in time, suppose you increased the price by x percentage or y percentage or whatever, it's for the customer, it's an ongoing -- I mean, discretion with the customer, what is the thing which you can part on to in while still being competitive, and it's always a push and pull. But even with the large customer in India, we had been able to do the price escalation for certain kind of product for sure. And certain others, it was a little bit more difficult.

But it's -- again, I think it's a there's no 1 fixed rule that we can pass x percentage to all the things. I know where you're coming from, like, for example, in auto industry, people are able to say, okay, I'm going to pass exporting price increase on all models of this kind, right?

Unfortunately, our industry is a little bit more fragmented, and it's a mix of products, mix of customers, where are you on the radar stream register competitive situation which comes into play before we -- of course, the intent is to pass as much as we can and to push back as much as we are getting from our suppliers.

But supplier side, I think, to be honest, we have not that much leverage at this stage because if we are able to -- if you have to prioritize between securing components like the high cost versus just trying to stick to our margins, so we are prioritizing getting the components. So we have to pay a little bit of spot premium or whatever we are doing that. But to the customers -- to the maximum we can pass, we are doing it while being competitive.

[Operator]

Next question is from the line of Mukul Garg from Motilal Oswal Financial Services.

[Mukul Garg, analyst]

Sorry if this was asked earlier because I missed some part of the call. But can you just help with the view on the component shortage easing? We have seen some companies, especially in the NAND space, come out and talk about normalization happen at a faster rate. Which part of your component supply chain is still seeing stretch delivery timelines? And what's your view that by when will things go back to a normalized run rate, what it was pre-COVID for you in terms of the supply?

[Sanjay Nayak, executive]

Mukul, if I look at the categories of components where we are having the highest lead time today, surprisingly is not the Class A large cost chips. It is basically power components, for example, clocks, power and things like that, the analog kind of components, which basically, on an average net cost is around a few cents to a couple of dollars, single-digit dollars, right? These are the components which are currently getting the maximum grip in terms of a category of components.

Second one after that is that certain programmable devices of certain, what should I say, nanometer geometry is in a serious short supply because there are only 2 programmable device guys in the world. Both of them outsource their manufacturing to -- there was one on Taiwan and one in Korea. The Korea guy basically use that capacity for their internal. So basically, that capacity got dried up. There was only one in foundry which is manufacturing these programmable devices.

If you talk to anybody in the industry today from the largest one who work with to the has, certain of those devices are under the serious short supply. And actually, because of our programmable architecture, we do have a significant dependency on those kind of steps. So that's the second category.

The third category of chips, I think, which is easing off, the memories are easing off as we see some of the guys who have captive foundries in-house manufacturing for some of the higher value parts. It's easing off because what people are also doing is that the same amount of wafers of a certain technology, which were available, are repurposed to produce chips with higher average selling prices versus chips with lower selling prices.

So those are the categories where we have had the maximum grip. And unfortunately, in our situation, even if you secured 999 components and 1 is missing, you could potentially have imbalanced inventory and not able to ship out.

The overall outlook that we have heard from all the semiconductor supplier is that towards later part of this calendar year, things will start to ease out. So what that means is that if you place an order on a chip supplier today, they may come back to you with a 52 weeks to 70 weeks lead time. But if you're going to play -- and but the chances of that order getting executed in less than 52 weeks to 70 weeks will only be known as the year progresses. It could happen in Q1. It could happen in Q2. But if you're going to place orders in the month of November, December, you possibly will have a lead time coming down to 20 weeks or 26 weeks, which is -- or 16 weeks, which is a normal situation.

So that's how we see the situation where, today, it is still -- everybody knows this is the likely scenario, but nobody is committing. Later part of the year, we will start seeing the commitments of lower lead times and suppliers. And this is across the board, again, as you can see that it's not a Tejas alone problem, but supply chain planning guide from different companies that we've been talking to are facing the same situation.

If I were to kind of summarize something that Tejas could have done better which we did not in the past was really not just relying on the EMS suppliers to do all the detailed supply chain management. We took care of the A-class items, but the B class and C class, the ones which I just mentioned, are the ones which got us into a slower revenue rate. And that is basically probably our global competitors early on and essentially went into NS level of details and try to do a better job of executing than we did.

[Mukul Garg, analyst]

Understood. And so just to take this a step forward, for example, tomorrow, all the power chip scenario or TSMC, Samsung supply constraints are lifted, like things are back to normal, out of the INR 1,100 crores, INR 1,200 crores of order book which you have right now plus the low business, which is there, what are -- what is the current capacity in terms of your own delivery which you can do on a quarterly basis? Is there something which is constrained by a revenue run rate of maybe INR 300 crores or INR 400 crores? Is there a constraint from Tejas side which can put a cap there? And I'm talking about right now.

[Sanjay Nayak, executive]

Absolutely not. For the next 4 quarters, if you can get all the components that we need and all the orders which you have placed come in, we can do all the number that we mentioned without any problems at all. In the -- what we are also doing, which I alluded to in my commentary and I can maybe elaborate a little bit more is that we are expanding our EMS base also in terms of production capacity in anticipation for scaling up our revenue base from significantly larger number than what we are today. So we have all of those things also lined up.

So I would say that today in terms of scaling up our revenues from where we are to much, much, much larger numbers, I don't think there's any bottlenecks. The only bottleneck is availability of components. The EMS capacity is there. The production box build capacity is available. We do not see any internal hindrance from the Tejas perspective. We don't have any cash flow issues in terms of not being able to place large orders. In that sense, the only thing which is holding us back is a balanced list of components that we need to complete the orders.

[Mukul Garg, analyst]

Sure. And 1 final question. This quarter, was there any Tier 1 vendor in U.S. or Europe where you started either trialing out or kind of working your way in given that the supply scenario is limited, so maybe the time can be utilized to forge new relationships?

[Sanjay Nayak, executive]

Nothing major internationally. I mean, we did ship to one of the business that we had won last quarter, so we shipped that to that customer to see that stuff in Europe to hopefully get that network rolled out. But to be honest, no, we did not have any specific opportunity into a Tier 1 internationally where we could divert some of our available material and get a win there.

But the existing accounts which we have, we are continuing to, at least, make sure that their critical deliveries are done. And we don't get into a situation where our lack of deliveries hurts our reputation or growth in the account. I mean, clearly, we can get more business, but we're not losing business because we didn't supply per se.

Maybe since you're at the end of the hour, we can take 1 last question, please.

[Operator]

Sure. The last question will be from the line of Vimal Gohil from Alchemy Capital.

[Vimal Gohil, analyst]

Sir, I have 2 questions. Just firstly, a clarification on Saankhya. Is there -- are the numbers getting reflected in this particular quarter? And what is the contribution yet? That is question number one.

And sir, the second question is that you spoke about a lot of changes in the process and the systems in order to better track our supply chain system. Sir, will this have -- where will this sort of reflect -- will this get reflected more in terms of asset investment or the other balance sheet? Or will this get reflected in our P&L wherein we are -- in terms of investment, which is -- which will pass into the P&L. So these are my 2 questions.

[Sanjay Nayak, executive]

No, certainly. Saankhya Labs, there is no contribution of Saankhya because as of July 1 is when we acquired the 63% stake. So starting from this quarter onwards, we will be seeing -- we'll be consolidating the numbers from Saankhya into our books. So that's part 1 of your question.

Part 2 of your question, what is the impact? And what is the place where you'll see the benefit of the changes in the processing system they're coming. That should be in the top line. We should be able to do a lot more revenue than we have been able to do in the past couple of quarters.

Secondly, we will continue with an asset-light model. So there is no intention for us to change -- put a big factory and produce everything ourselves. What we are doing is because we have to scale up our manufacturing and capacity, we have signed up new OEM partners, new EMS partners who could be producing on behalf of us compared to the current one that we have.

So in that sense, the measure of our internal process system is really the revenue impact that we should be able to see better as we go forward. But definitely, there will be no additional asset buildup.

Also, by the way, I just wanted to clarify, just in case it wasn't clear, that even though we'll be applying for a much higher incentive amount and the investment commitment for the -- under the design-linked PLI scheme, we will not be making any artificial investments in terms of hard CapEx again. So the strategy of manufacturing would still be safe to the asset-light model, except that whatever we are investing in manpower, R&D costs will now be counted towards capital investment, which will give us a bigger envelope in terms of the incremental sales revenues on which we'll get the PLI incentives. In that sense no fundamental came in the business model, except just a better management of the model.

And in fact, it was also a little bit kind of a surprise to us because -- when the lead times in the industry for components was 12 to 16 weeks, our EMS model just works fine. I mean the personal systems were just okay. But as those lead times change, we really did not react to getting into the second and third level details of our EMS in terms of what they're doing with our orders, how are they ordering because if they were waiting for the longest lead time to order because everybody just in time and trying to optimize their inventory, naturally, if you were able to pull in this component, we were not getting the benefit of that. And we are still seeing a lot of slipups on their side or the comments on their side.

So I just feel that some stuff which we did not execute well. We have figured out where we are weak, and we are trying to strengthen those areas. The results of that should start seeing in the coming quarters onwards.

[Vimal Gohil, analyst]

I just have 1 more question, if I may.

[Sanjay Nayak, executive]

Sure. Sure. I mean we have just another minute, so why not.

[Vimal Gohil, analyst]

Yes. So sir, just in terms of risk, what we understand is that the telecom equipment is a pretty sticky business. I mean when we are actually supplying to our customers, then that customer probably stays with us for a fairly long period of time because we have the best knowledge of products, the service aspect is also taken care by taking care of us.

Given the fact that we have been taking this supply component shortage and delivery challenges, are we risking losing market share to peers who have direct control of manufacturing in their hands? And if that is the case, then how are we going to sort of recoup the lost market share because the customers one state selects a vendor tends to be sticky in our investment. Correct me if I'm wrong.

[Sanjay Nayak, executive]

No, no. The first part is absolutely right, that ours is a very sticky business. So in that sense, as I mentioned earlier that you've not lost any accounts and not lost any order in that sense. Coming back to your second part that compared to competitors who are doing this in-house manufacturing, I don't think we have any competitors globally now, except if I take the Chinese out who do in-house manufacturing. So even all our global competitors follow almost the same model as us, which is outsourced to EMS companies for doing manufacturing, et cetera, et cetera.

What they could have done, which is a possibility, is that they manage the supply chain through their EMS much better than what we did, a, because of their volume buying power; b, maybe they have got this learning experience in some previous cycles of component shortages, which we are getting for the first time here. So in that sense, they may have done a better job of executing.

However, when we look at new wins and new supplies from even our global competitors, their lead time commitment for unforecasted orders is no different than ours. So in that sense, I wouldn't say that we are losing any ground to someone and he has occupied the land, and we don't have an opportunity to get the land back. The more likely scenario is that we had a certain market share in an account which we would have in a normal force increased because we always increase market share in that account. Because of the supply chain shortages, maybe we have started the same market share that we were before.

We are -- so what we are trying to do in this scenario is that we are winning new applications in the same customer. So for example, let's say, operator in India was deploying us in x and y part of the network. We are saying, hey, why not in the z part of the network and that process of qualification, getting selected could be a 6-month cycle, and we are completing all of those cycles to win new applications into existing accounts. So by the time the supply chain situation eases up, we can have another portion of their market share, which we are otherwise not getting.

So I would say we've not lost anything. We've been holding tight. Probably we have not gained market share, which we could have, but this is something which we just have to deal with given where we are.

[Operator]

Thank you. Due to time constraints, we have reached the end of question-and-answer session. I would now like to hand the conference over to Mr. Sanjay Nayak for closing comments.

[Sanjay Nayak, executive]

Thank you, everybody. First of all, we had a good set of questions, and I'm hoping that we were able to give you a better view of our business. Clearly, I mean, we have been going through the supply chain challenges for quite some time. And it's not very good that we again had a quarter which was not to the level that we had internally planned for. But having said that, we understand what the challenges are, what issues are and we are working to the best of our abilities to fix those. And we hope to see good results active from the supply chain side in the coming quarters.

The second thing I want to highlight is the R&D investment, especially on the wireless side that we've been making. We are very confident of the output of those investments turning in the form of potentially large orders. And we believe that those things will also start showing in the results as the year progresses.

And then the last part I want to kind of mention, which is in the context of the question someone asked right at the beginning that as a part of the Tata Group Company, we have a fairly good idea of what the strategy of the company is and what are the actions we need to take. We have started to execute on that. And we should see results coming out, but the vision and ambition is very large and part of the whole partnership has started to essentially accelerate that, and we are confident that we are making the progress in the right direction.

So that's how I would summarize where we are today. And thank you again for being patient in terms of hearing our challenges, and look forward to better outcomes from whatever we are doing in the times to come. Thank you.

[Operator]

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