Tejas Networks Ltd

NSE:TEJASNET

Earnings Call Analysis

Tejas Networks Achieves Record Quarter

Tejas Networks reports its best quarter ever with an 80% year-over-year revenue increase to INR 396 crores. Supply chain issues are now under control, and they've started shipping 4G equipment to BSNL. The company's backlog has grown due to R&D expansion, facility additions, and higher manufacturing infrastructure spending to support upcoming shipments. They also secured an INR 750 crore mobilization advance from TCS. The company saw a robust increase in bookings across all product lines, including strategic wins in Italy and the U.S. However, an EPS of minus INR 0.74 was reported, with a net worth of INR 3,007 crores, and an improved cash position of INR 1,371 crores by the quarter's end.

Record-High Quarterly Revenue and Improved Financials Amidst Scale-Up

The company significantly boosted its revenue in Q2, hitting the highest-ever mark with consolidated revenues of INR 396 crores, marking an impressive 80% increase over the previous year. As a result of escalated sales, they managed to surpass the breakeven point at the EBITDA level. However, the consolidated EBIT exhibited a loss of INR 29 crores, due to investments in R&D and team expansion to support future growth. The quarter closed with a consolidated loss after tax at INR 13 crores and an Earnings Per Share (EPS) of minus INR 0.74, reflecting the expenses outweighing the robust revenue performance.

Strengthened Cash Position and Efficient Capital Management

The quarter also saw a considerable improvement in cash flow, hitting a record with positive cash flow from operations reaching INR 532 crores. Additionally, net working capital dipped significantly due to an advance collection from Tata Consultancy Services. This fiscal management fostered a notable reduction in trade receivables and allowed the cash and cash equivalent position to enhance substantially to INR 1,371 crores by the end of Q2.

Supply Chain Challenges and Expected Recovery

Supply chain challenges persisted, incurring expedite fees similar to Q1, which hampered product margins. Furthermore, an Expected Credit Loss (ECL) provision was made due to delayed payments from specific customers, anticipated to be recovered in the subsequent quarters.

Intellectual Property as a Strategic Asset

The company's intellectual property (IP) is critical, embedded deeply within their core products. The executives highlighted the IP's role in product convergence that leads to efficient design and improved margins. Although not currently focusing on monetizing IP through licensing, the IP significantly enhances product efficiency and cost-reduction, mainly by reusing across multiple products. Furthermore, a prospective expansion on the IP front is expected with Saankhya Labs developing homegrown chipsets, which will embolden the company's competitive edge.

Anticipated Reduction in Expedite Fees and Stabilization of Fixed Costs

Looking forward, as the supply chain disruptions are mitigated, the company anticipates a decrease in expedite fees over the upcoming quarters. Executives are optimistic that the variability that previously impacted costs is being reined in, which should also aid in increasing product margins. Fixed costs are expected to stabilize once the current phase of growth investments slows down, aligning with execution capacities.

Outlook and Strategy for Growth

With various prospects, such as the government's BharatNet Phase-III, on the horizon, management appears confident in leveraging their current successes to expand both in India and internationally. The company's strong domestic portfolio and increasing international visibility could fuel its growth trajectory, particularly as it begins transitioning from 4G to 5G solutions and technologies.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to Q2 FY '24 Earnings Conference Call of Tejas Networks Limited hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjesh Jain from ICICI Securities. Thank you, and over to you.

[Sanjesh Jain, analyst]

Thank you [indiscernible]. Good evening, everyone. Thank you for joining on Tejas Networks Limited Q2 FY '24 Results Conference Call.

We have Tejas Networks management on the call, represented by Mr. Anand Athreya, Chief Executive Officer and Managing Director; Mr. Arnob Roy, Chief Operating Officer and Whole-time Director; Mr. Venkatesh Gadiyar, Chief Financial Officer; Dr. Kumar Sivarajan, Chief Technology Officer. I would like to invite Mr. Anand to initiate with opening remarks. Post which, we'll have a Q&A section. Over to you, sir.

[Anand Athreya, executive]

Thank you. Guys, good evening and good day. This is Anand Athreya. So this is about Q2 FY '24 results. I'm happy to report that we've had the best quarter ever in Tejas history with a revenue of INR 396 crores and with a year-over-year growth of 80%. And we have had the largest backlog of INR 9,271 crores and a healthy bookings.

Also, I want to say in the last earnings call, we talked about supply chain management issues. I'm happy to say that those things are also under control. And we have also begun to ship the 4G wireless equipment to BSNL starting Q2. Okay. Now I'll hand it over to my colleague Arnob Roy go through a slide deck. Arnob?

[Arnob Roy, executive]

Yes. Thanks, Anand. So just to add some color to what Anand has said. We had our highest quarterly revenue till date. And however, even with this growth, we had a backlog and it was a combination of the increasing investments that we have made in scaling up our R&D teams, we added new facilities to adjust the growing....

[Operator]

I'm sorry to interrupt, sir, you're sounding distant.

[Arnob Roy, executive]

Is this better?

[Operator]

Yes sir.

[Arnob Roy, executive]

So just to add some color to Anand's introduction, we had the highest of our quarterly revenue till date. However, we had a backlog because we -- as we continue to invest in growing our R&D teams, we also added new facilities in Bangalore and also increased our manufacturing infrastructure significantly to address the large upcoming shipments, not only in BSNL 4G wireless, but for the other business growth that we are seeing.

In addition, we have some expenditure in terms of expedite fees for pulling in delayed components for critical customer shipments. So combination of that led to a small backlog for us in the quarter. We also at the highest -- we also have the highest ever order booked till date and we have not only the BSNL 4G wireless purchase order from TCS, but also due to strong order booking for wireline business -- for wireline products across all the product lines.

For the wireless business, of course, one of the highlights was winning the large PO from TCS for supplying the 4G 5G RAN equipment for BSNL. We also received a mobilization advance of INR 750 crores from TCS for executing on the order.

On the wireless business side, as I said, we had a strong business growth and bookings growth across all product lines. However, a few highlights, the first one was as our recent press release about FibreConnect in Italy, launching their broadband services in Italy using a complete portfolio of Tejas wireline products. This is kind of a showcase network for us, which uses all of our access technologies, our metro aggregation and the long-haul technologies like [indiscernible] built using a single vender using our products and technologies across all the applications that we have, managed by a single network management system.

We were also selected as a GPON vendor for OLT and ONT by 2 leading regional ISPs in India. And thirdly, another strategic win was the selection for the backbone network of a leading media and entertainment company in the U.S.

In terms of awards, this was a very prestigious award that we won, which is a company of -- Public Company of the Year, the 2023 Leading Lights award by Light Reading, which is the most respected industry publication based in the U.S. And in this category for our deep technology expertise, our strong balance sheet and a long-term investment outlook and deep customer relationships.

So this has been a very strong endorsement by a global media company, global publication and recognition of our strategy, our technology, our innovation and our long-term place in our business.

Also happy to note that we've got 15 more patents granted and which brings us -- brings our patent count to 282.

I'll now hand it over to Gadiyar to walk us through the details of our financial numbers.

[Venkatesh Gadiyar, executive]

Yes. Thank you, Arnob. Good evening, everyone. And during the current quarter, Q2, we have improved on the supply chain in our deliveries and then the catch-up of the Q1 chart fall on revenue. Currently, we have scaled up and ready to handle the larger volume as we grow from this quarter onwards.

As mentioned by Arnob earlier, this was the highest ever quarterly revenue done till date. Q2 consolidated revenues were INR 396 crores and saw a year-on-year increase of growth of 80 percentage. Now with the increased revenue and the contribution thereon we are slightly above the breakeven at EBITDA level during the quarter. However, our consolidated EBIT loss was INR 29 crores on account of the investments that we have done in the R&D and the team and additional lease facilities to accommodate our future growth and the increasing manufacturing infrastructure spend to address the large shipments to handle going forward.

Including the other income, net of finance costs, the consolidated loss before tax was INR 18 crores for the quarter Q2. The consolidated loss after tax was INR 13 crores for Q2. Our EPS for Q2 was minus INR 0.74 and also, during Q2, our subsidiary, Saankhya Labs made their profit of -- after tax of INR 5.19 crores. And coming to the half yearly number, for the half year in that our consolidated revenues were INR 584 crores. And for year-on-year growth of 69 percentage and the consolidated PAT loss of INR 39 crores for the half year ended.

Next slide. During the Q2, our net worth was INR 3,007 crores. During the quarter, the inventory levels have increased to INR 1,401 crores, primarily on account of securing the long-lead companies for expediting the delivery of several critical large orders, we expect to get this converted into the finished goods and get those ships in the coming quarters.

Despite of increase in the revenues during the quarter, our trade receivables for Q2 was down to INR 487 crores from INR 501 crores in the previous quarter. And collections during Q2 was -- we did the highest ever -- highest quarterly collection ever we have done, we have collected about INR 452 crores during the quarter Q2.

During Q2, our net working capital was INR 671 crores and significantly decreased by INR 527 crores during the quarter, primarily on account of the mobilization advance of INR 750 crores collected from -- received from Tata Consultancy Services for the supply towards 4G supplies.

As a result of this, we had a positive cash flow from operations of INR 532 crores for Q2, which is again the health ever quarterly cash flow from operations. And finally, with this our cash and cash equivalent position at the end of the Q2 was improved to INR 1,371 crores.

So net-net, as a summary, during Q2 or we had seen improved performance on account of the financial performance as well as the financial position as well and as a strategy, we will continue to focus on all these things going forward as well.

With this, I'll hand over to Arnob once again.

[Arnob Roy, executive]

Next slide please. This is a little bit more color on the revenues that we shipped during the first half as compared to last year. If you see the profile of business, the split between India government, India private and international pretty much remains the same as before. And where the India private was almost 50% of our revenues and the rest was kind of close by in terms of India government was 29% and international was 23%. And the closing backlog was INR 9,271 crores where India obviously dominated because of the wireless purchasing orders received, the INR 9,000 crores of India and INR 234 crores of international.

I would like to highlight over here is that while in this quarter, in the wireless shipments, revenue has been a relatively smaller portion of our revenue, and it has been largely wireless revenues that are happening because we shipped around 1,000 sites initially and got our manufacturing engine ramped up in this quarter. We are -- for our BSNL 4G business, that revenue since our direct customer is TCS, we will be categorizing that business, that revenue in India private, and we historically do this because whenever we ship to private system integrators, where we do not look at what their end customer is, whether it's sometimes just the government, sometimes just private operators, sometimes it's international. So we look at -- we categorize that business as a private -- India private business and when we sell to system integrators.

So going forward, as our BSNL wireless shipments go up, you will actually see the India private sector starting to dominate in this pie chart.

Next slide. Yes. This is just a recap, refresh of our portfolio, as we've seen on the right-hand side, we had this historically a very strong wireline portfolio, and we added the wireless portfolio of 4G, 5G and the satellite broadcast and the satellite and also 5G broadcast as well. So our products address a pretty large market, wireless market is going from $45 billion to $50 billion over a few years. And even the wireline market trend is going to go to around $33 billion.

So as you can see, as a combination, we are addressing a fairly large global market. And also by having this wide breadth of portfolio we are able to address many, many applications. I mean, not only starting with 4G/5G mobility services to mobile backhaul applications, to wholesale services, to utilities, to critical infrastructure, enterprise services. So given the wide range of applications that we actually are able to service using a combination of our products, a lot of the addressable market becomes open to us.

And as you've also seen, we are now starting to win larger applications where a combination, a large combination of these products are used for building this network.

And I also want to add that we are continuing to add and evolve and refresh and upgrade and innovate on all the products and technologies in all of the segments because all of them are growth segments for us.

The next slide, please. Now I come to a brief corporate upgrade. Mr. Venkatesh Gadiyar, who's our CFO, has resigned from Tejas after more than 10 years, to attend to his personal commitments and also pursue other interest. And we wish to place some record, Gadiyar has been valuable contributions to the company, and we are grateful to him for all the contribution to the company, which has brought us this far. And going forward, Mr. Sumit Dhingra will take over as CFO from 1st December.

Sumit currently works as Assistant Vice President and the Group CFO's office at Tata Sons and he has led multiple strategic, business planning, capital deployment and investments or co-initiatives across the Group companies. He comes with a wide variety of experience across wide variety of companies across the Group, and he brings us rich experience on finance management into the company going forward. So Sumit has done his MBA from IIM Calcutta and Bachelor of Engineering in Computer Science from Delhi Institute of Technology.

So I'll now hand it over to Anand for summarizing our quarterly performance with key messages.

[Anand Athreya, executive]

Thanks, Arnob. First, I want to thank Mr. Gadiyar for his tremendous contributions for the last 10 years, Tejas is immensely grateful to what you've done for Tejas and we wish you nothing but the best in your future endeavors and in your personal life. Thank you.

Having said that, I would like to welcome Mr. Sumit Dhingra as our next CFO. He's going to be joining us in the coming months. So again, he's also very experienced, and I'm pleased to welcome him to Tejas as our next CFO.

Having said that, one of the key takeaway is the business is good. We have a lot of opportunity. The backlog is good with a healthy backlog of INR 9,271 crores, which will help us accelerate our revenue growth in the coming quarters. We are seeing increasing adoption and we also have growth across all of our product lines, both in wireline and wireless. And we definitely continue to make significant investments in R&D and manufacturing operations as we scale up our business. And we are -- a lot of things are coming under control, which means we have a lot of opportunity to execute consistently in the coming quarters.

With this, we will open up for Q&A. Thank you.

[Operator]

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] Ladies and gentlemen, we will wait for a moment while the question queue assembles.

We have a first question from the line of Vimal Jamnadas Gohil from Alchemy Capital Management.

[Vimal Gohil, analyst]

Thank you for the opportunity and hearty congratulations on a very strong quarter. And I would like to take this opportunity also to wish the best to Mr. Venkatesh Gadiyar. Thank you so much sir.

Sir my question, firstly, if you could just quantify the expediting cost that took place in this quarter for our supply and the expected credit losses of roughly INR 8 crores. How is this expected to pan out? And what was the reason for the same? That's question number one.

And secondly, sir, if you can just highlight what's the progress been on the international fees? As we have won a couple of very large orders, if you could just highlight the time line of the execution that would be great.

[Venkatesh Gadiyar, executive]

Yes. On the expedite fee, more or less, it was in line with Q1, right? It's a combination of expedite fees in the sense the component costs are going up and all these things, right? It's more or less in the quantum or in the nature of Q1 only, we have incurred a similar kind of expedite fees.

And secondly, coming back to the ECL, right? It is particularly related to 2 particular customers, wherein the payments have got delayed. And we do expect to get this other payments during Q3 and Q4 of this financial year. And that ECL, which has come as a provision expected to get better results in next 1 or 2 quarters. And it's a temporary in nature, and it's not a kind of a write-off kind of [indiscernible] particularly the payments have been delayed. Hence, the provision has been made.

[Arnob Roy, executive]

And this is Arnob. Just to add to the question on international orders. So the international orders are typically to be fulfilled in the next quarter within 16 to 20 weeks. And that is the time line for doing that. And I also wanted to mention that these are very strategic orders. They are where you mentioned that large international orders, yes, they are relatively large point of view, from a price point of view, but not as large as other that you're looking at. But we are -- we consider them very strategic because as we focus on growing our international business significantly going forward, these deals and these applications serve as very important references to us -- for us in those -- in the markets that we are targeting. .

[Vimal Gohil, analyst]

Right, sir. Sir, just one clarification on the expediting cost of supply of components, when do we see normalization? At what scale are our component suppliers comfortable for? At what point will we be sitting at the same level as in terms of negotiations, in terms of being at a -- having an upper hand in business negotiating wise with our suppliers? I know we are not -- I mean, as and when we scale, but I just want to know what exactly that scale? Is there a number that you're looking at? At what point will these component challenges normalize or reduce to a significant extent?

[Operator]

Mr. Gohil I'm sorry, please. Mr. Gohil can you please mute line when you're not speaking, there's a lot of background noise on your line. Thank you. Please go ahead, sir.

[Anand Athreya, executive]

Yes. Vimal, so there are 2 components to this. From the supply chain side, there are some components which have very long lead items, still 50 weeks around. And there are some components where it has come down to, let's say, 20 to 26 weeks, right? Now having said that, I would expect this to be on a better control in the coming quarters because we have 2 very large orders where we are required to ship them in the next, I would say, 12 to 18 months, and we're already begin shipment so 1 quarter is done.

So I would say, in the next couple of quarters, we expect this to be under control because, I mean, at that point, we would have planned all of the production and those things will be in place.

[Venkatesh Gadiyar, executive]

Yes, it will do with the supply chain management across the components with widely varying time lines. And as Anand said, in a couple of quarters, we'll be in a much better shape in terms of being able to manage this heavy duty shipment.

[Arnob Roy, executive]

It is not connected to the size of the business they're delivering, it is connected to the managing the variability of lead times of components for our products.

[Operator]

We have a next question from the line of Deep Mehta from Bank of India Mutual Fund.

[Deep Mehta, analyst]

Congratulations for achieving highest ever revenue as well as highest ever order book. Sir, if I have to take a slightly longer-term view, that is 3 years or even 5 years, how should the international part of our business pan out? Both in terms of -- as a percentage or overall revenue as well as if we can talk about actual [indiscernible] that will be very helpful.

[Anand Athreya, executive]

So Deep, as you can see, we have -- while currently, our revenue is skewed towards India, we are fully focused on growing the international business. So our strategy is as follows. India is a growing market, is 1 of the fastest-growing market in telecom, and we don't want to without any opportunity in our -- in this market. So while having said that, we are putting in a lot of investment in growing our international sales teams in bringing international business development, going to trade show, working with partners and so on.

So our focus fully remains in making sure that our international business pipeline becomes very strong in the next 2 quarters. And our ambition is to make sure that the business becomes a significant portion of our overall business. .

[Deep Mehta, analyst]

That is very helpful. If I can just ask 1 more question. What are the key geographies or key components or key technology which we are targeting for going international?

[Arnob Roy, executive]

You asked about the market and the technology. So market point of view, as you know, uptil now, we have been focusing a lot in the emerging markets, Southeast Asia, Middle East, Africa. And a lot of the international markets, we have been working with the OEM partners. But now our focus is to grow direct into those markets in Europe and U.S. and a lot of investment and focus is going on those markets because we are also some of the largest sized telecom markets over there.

In terms of the technology that we are pushing out there, it's really -- all of what we have. As you've seen, there's a large growing market for all our technologies, wireless and wireline. And we serve a lot of a -- pretty wide variety of applications. And all of those applications are applicable to those markets as well. So we are targeting all possible applications that I talked about earlier.

[Operator]

We have a next question from the line of C.A. Kanwaljit Singh from [indiscernible] Investment. Investment.

[Unknown Analyst]

Congratulations for the best top line numbers. But when we will be seeing the profits?

And second, we have completed a project in Italy. Are there any further projects in pipeline or we have bid for some similar contracts as well?

[Anand Athreya, executive]

Yes. So as far as the first question is concerned, as we told you, the PAT loss in this quarter was connected to our forward-looking investments that we have been making in anticipation of larger business growth and also execution on the business in hand. So while we don't give a guidance on the absolute future numbers as well as profitability, I mean -- as you can see, we are in a positive trajectory, right? And we hope to continue that going forward. So as we do more revenues and we shift more, I mean we should see a very positive direction in terms of profitability without having to say any absolute number right now.

Regarding the international business of Italy, as I said, this network in Italy is a very good reference and showcase network for us. Whenever we talk to our customers, we say that, hey, we're going to show you this network, which is built using the good part of about this has been using end-to-end Tejas products, it was access, the metro aggregation and core. So it's difficult to build out using all of our state of the art technology.

So right now, we are -- while there are other customers and business pipelines, which are there, there are combination of small and large and all and as I said, there are multiple applications that we serve. So we are chasing all opportunities across wholesale operators, mobile backhaul, mobility and stuff like that. So that's I think regarding the business internationally, specifically Europe.

[Unknown Analyst]

Sir, there is another question. What would be the strategic fit for Saankhya Labs?

[Anand Athreya, executive]

Yes. So Saankhya, as you know, is very strong in satellite communications and broadcast technology and, of course, in semiconductor design. So we're going to leverage all of their skills. Their business has been also going quite well, and they were independently profitable in this quarter. And so we will continue to focus on the satellite communications as well as the broadcast business. And we have some strategic decision and options regarding the semiconductor design using the skill set that Saankhya has and which we are finalizing and that's the part of the business we're going to focus on as well. But initial focus is developing chips for our own internal products,for our internal consumption right now. But yes, in a nutshell, they are very key part of our business strategy going forward.

[Operator]

[Operator Instructions] We have our next question from the line of [ Agam ] from Raj Trading.

[Unknown Analyst]

Sir, can you build the gross margin for this quarter versus the previous quarter and year out?

[Venkatesh Gadiyar, executive]

Yes. We don't disclose the gross margin number, but has been remaining pretty much the same across the last couple of quarters.

[Unknown Analyst]

And if you can guide through only the gross margin post the execution of this order?

[Venkatesh Gadiyar, executive]

Which order?

[Unknown Analyst]

BSNL purchase order? Only the gross margin sir.

[Venkatesh Gadiyar, executive]

Yes. We don't disclose deal-wise or customer-wise or product-wise margins. It's like blended kind of thing. And the 1 deal in terms of having common components across deals, each and every deal as part of sourcing strategy helps in the margins of all other deals. So we not usually break down details about customer wise or product-wise or PO wise details.

[Operator]

We have our next question from the line of NGN Puranik from ENAM Investments.

[Ngn Puranik, analyst]

Hi, Arnob, congratulations first stage of getting the top line hurdle you have broken, I think getting the operating leverage is more important now from here on. So I want to understand a couple of things. How do you see your deep IP factory working here? Because you have several IP, several people working on it. You yourself are deeply into it. How is that getting leveraged? Because when I see you have a INR 9,000 crores plus order book.

Over time, when the IP is leverage, there is a lot of potential profits and cash flows sitting this INR 9,000 crores. And if you use your IP because you have a huge IP character in your business. So how do you think that will pan out? And also, you must have done a profitability test and liquidity test on this INR 9,000 crore order. So can you give some sense?

[Arnob Roy, executive]

So first of all, thanks, Puranik, for your encouraging words. Yes, I think this pipeline is very important for us and give us a runway for next several many quarters.

So in terms of our IP, the IP that we develop goes into the heart of our products, into our core products. And these IPs also leverage across multiple products. As you know, one of the strengths of our product portfolio is the convergence of products across different applications. And most of the IP that we develop in wireless and wireline and all those things go into designing these products and making them very efficient. So you're right. I think the IP and optimization of IP is what leads to efficient product design and better margins and all those kind of things and makes us -- insert the profitability.

So that was -- the other question was that about -- have we worked out the financials of the deal and something yes. So the answer is -- short answer is yes...

[Ngn Puranik, analyst]

I am not asking you on a single contract. I'm asking you have aggregation of various contracts, public sector India, government India, private sector India, private sector outside everything. So on a blended basis, you must be having a lot of profit cash flow sitting here. So if you can give some sense of that?

[Arnob Roy, executive]

As you know, Puranik, we don't give financial guidance.

[Ngn Puranik, analyst]

I'm not asking for guidance, see the potential. See otherwise, what happens, you're such an IP company. IP is -- you become meaningful when it is monetized. So one day, it has to happen. So you tell me what this, what you're doing? Otherwise, IP is not working at all. You are having several patents, if not -- people are not respecting that when they are not paying for that.

[Arnob Roy, executive]

Okay. Okay. I think I understand your question. Whether to monetizing of the patents, correct?

[Ngn Puranik, analyst]

Yes, absolutely. So that has to come through your product network that you create and sell it because when you can sell -- see because you have an IP character, so you can still compete well, but you still need to get your supply chain, it's most important to this business, right?

[Arnob Roy, executive]

Yes. So, Puranik, as I mentioned, the IP that we develop and that we also patent is all of them are, first of all, used in our products, right? And right now, we are building patents in terms of our innovative ideas and also it's like kind of a defensive portfolio, right? So right now, with the focus of building products and selling and building networks globally, the current focus is not in terms of going into where there are tech and licensed IP or I can get patent money or patent licensing. We're not really focused on that yet because our hands are full in terms of product development and shipments and customer wins and so on. So to be honest, we have not yet started looking at how do I monetize the patents individually...

[Ngn Puranik, analyst]

I think individually, you have to use them into your product. So they are -- where costs come down, your bill of material comes down when there is an IP already utilized. I'm saying from that context.

[Arnob Roy, executive]

Yes, yes, of course. The IP that we develop is bring down our costs in multiple ways. We reuse it across multiple products, right? It brings down our product development cycle and since we also realized it on a similar kind of hardware and so on, we get the benefit of volumes and all those kind of things.

So yes, the IP that we have, as I said, our biggest leverage is in the products that we developed and efficiency and the competitiveness that it brings right now.

[Ngn Puranik, analyst]

What plans you have for Saankhya Labs? Will they be developing homegrown chipset for you, silicons for you over long term? They seem to understand DSP space also well.

[Arnob Roy, executive]

Correct. Correct. Correct. Puranik, so as I mentioned, there are 3 areas. One part is the satellite communication products. We have a very innovative set of products for satellite communication and they are developing applications and bidding into very strategic field using their satellite communication technology.

The other part is broadcast, 5G broadcast technology for multiple applications, distribution-as-a-service, direct to mobile and things like that. That's innovative portfolio they have, where they are addressing multiple opportunities

And the best part is their silicon design skill. So I said for the silicon design skill, we are, first of all, focusing a lot on in terms of what is those skill sets on the devices that they have that we can use in our product to get us competitiveness.

And this connects with your IP question, right? I mean, all the silicon design is actually now the IP that we have. So our first point is leveraging what they have, but also design skills in terms of developing new semiconductors into our products. So that's part of the strategy. We are not yet looking at how do we get into the semiconductor market or building chips and selling it globally...

[Ngn Puranik, analyst]

And I you can take them to the market if it succeeds internally for yourself.

[Arnob Roy, executive]

Correct, correct, correct.

[Ngn Puranik, analyst]

Good. So you're not telling me what that INR 9,000 -- secret sauce sitting in the INR 9,000 crore order book?

[Arnob Roy, executive]

Some other time.

[Ngn Puranik, analyst]

Yes. Excellent. All the very best. And the best wishes to Venkatesh on his future endeavors.

[Operator]

We have a next question from the line of Nitin Gosar from BOI Mutual Funds.

[Nitin Gosar, analyst]

Just taking from the previous participant question. Wanted to understand again on the IP part, at what stage we are in terms of IP utilization, are the IP capabilities that we've developed allowing us to bid for complex projects or the IP capabilities that we have developed are allowing us to bid at a lower price. How should we distinguish between these?

[Arnob Roy, executive]

Okay. So if you look at the IP that we have, that consists of several things. One is the semiconductor IP that we have. Other part is the software IP that we have in terms of software protocols and stuff like that. The other part is the system design IP that we have. So these are all -- so most of the techniques and innovation that we have what has resulted in good patents. And these are the ones that are also used in our products.

So if you look at what does it give us? 3 things. The innovative solutions, which gives us competitiveness against our competitors. It gives us cost benefit by being able to use our internal IP and using it efficiently across multiple products. So these are -- so it makes us more competitive, both from a technology point of view as well as from cost point of view. So that's a nutshell. But the IP that we use go across multiple things like whether it's software, whether it's a semiconductor, whether in software IT, whether in everything, hardware, system design all of it.

[Venkatesh Gadiyar, executive]

And because, if may add. Arnob? Because of the leverage, it also reduces the time to market.

[Nitin Gosar, analyst]

Got it. Got it. And that's what you indicated. The speed is the essence in terms of servicing the market. .

[Arnob Roy, executive]

Yes, absolutely.

[Nitin Gosar, analyst]

And sir, second question is with regard to our cost metric. Keeping in mind now we are in a position to scale up our business. Should we expect the cost metrics, at least the fixed cost part to grow or to stay where it is? How should we look at that aspect?

[Arnob Roy, executive]

Yes. As I said, we have invested ahead of our growth curve, right? So yes, at some point of time, I mean, this fixed cost will stabilize and when we know that we have invested adequately to take care of our growth. It will be stabilized and the business growth will be addressed by what we have. So the investments that we are making in people and infrastructure and manufacturing lines and all those kind of things. I mean they want to scale it to the level we need for executing our business. And then the cost increases will come down significantly.

[Nitin Gosar, analyst]

Got it. And sir, one last bit, I know you are not for the competitive reason in position to delve out on the gross margins. But would it be good enough to understand the current quarter where we are and the gross margins we could be having are the appropriate margins the business would command or there is some kind of one-offs or something?

[Arnob Roy, executive]

Yes. In the sense that, as I said, the gross margin has been very similar across the quarter and if you see 1 of the factors you also mentioned was the expedite fees and all those kind of things, right. So once that part comes under control because of supply chain variability, and that will help us in reducing our product costs and improving our margins.

[Operator]

[Operator Instructions] We have a next question from the line of Arpit Kapoor from Ashmore Investment LLP.

[Arpit Kapoor, analyst]

Thank and congrats on numbers on the top line specifically. Just continuing with Nitin's question, the last one on the gross margin but at least in the near term. So given that a lot of ship shortage, which was fairly impacting in the last 18 months that has "addressed" but given the order book that we have, which we need to execute in the near term, how comfortable are we that we would be in a position to execute the order without, let's say, incurring those extra costs because of the delays in supply chain, which may get addressed, let's say, in the next 3 to 6 months?

[Arnob Roy, executive]

Yes. So first of all, for the large orders, the good thing is that we've already placed our purchase orders, we already kind of unlocked the prices and working towards pulling in the components as per our shipment plans.

As I said -- so if your question was that are we going to continue to pay expedite fees over multiple quarters? We don't expect that. I mean, there will be -- I think that portion of our costs will slowly come down, okay, as we get better in more predictable ordering and our supply chain management. Earlier the whole chip supply situation was so unpredictable and so variable that it hit us badly. We are, as I said, we're towards the tail end of those kind of things. The variability was the factor that hit us the most, while still lead times are long, but as long as they are constant, we are able to plan more effectively, and that's what is happening. So we expect that slowly quarter-by-quarter, we are getting under -- into better control of our supply chain and the expedite costs will progressively come down. .

[Arpit Kapoor, analyst]

Okay. And related to this, is some of the incentives that the government of India had given on the PLI front. So how would that have any impact on the numbers, so let's say, what could you [indiscernible] what would have produced last year and what we would be producing this year and the next? So would part of our business qualify for some of those incentives? And how would you want to account that?

[Arnob Roy, executive]

So yes, I think we have -- as you know, we have been approved for PLI. So, all products that we manufacture and do businesses qualify for PLI incentives. And as of now, we have applied for the PLI incentive of last year and that's currently going through the process.

We took some time to fill in the application because we wanted to go through our internal and external audits and all those kind of things. And then we finally put in the application and waiting for clearance and we will declare or announce it or incorporate it in our results once it is approved.

But yes, PLI is something that we are applying for all products and all shipments that we make.

[Arpit Kapoor, analyst]

Right. And last one, slightly on the medium term. So as Anand stressed on the fact that we also want to build a big [indiscernible] export order book. So how should one look at it on the medium term in terms of the margin profile for the company? So would you want to be someone like some other telecom equipment manufacturers, which have been there listed across other geographies? Or how to look about -- how to look at the margin profile, let's say, 3 years or 5 years down the line? Then the order is much more diversified and not reliant solely on Indian order book?

[Anand Athreya, executive]

Yes. So look, as we begin to grow and we have better purchasing power or bargaining power and also, we have a good mix of both domestic and international government and nongovernment customers. So we will be -- we will definitely see better margins, right? And also, as we do more international business, that split becomes good, then I'm sure we will be comparable to other large OEMs in the world,, and our goal is to strive to get there, right?

Now I think with a complete portfolio and with this delivery, especially with BSNL, I think we will be viewed as a very credible player in the wireless space also in addition to the wireline space. And as we build more, I think we'll be recognized as 1 of the leading OEMs in the world.

[Operator]

We have a next question from the line of Sachin Jain, an individual investor.

[Unknown Attendee]

My question is, once you are done with the BSNL order and roughly executed in 18, 24 months, you're talking about INR 4,000 crores plus kind of top line. And once you are done with this order, are you confident of sustaining this kind of run rate? That is my question.

[Anand Athreya, executive]

Yes. So the answer is, look, I think it's imperative that we deliver successfully and this is a huge win and a lot of things are at stake here. From a lot of companies on the government and BSNL and others. So it's imperative that we stay focused. But my belief is once we execute, then we will also achieve a lot of credibility, which means we expect a lot more companies to trust us to deliver more, and I think opportunities will come. But that's the belief. Now do we have that on hand today? No. But once you -- let's say, you build the temple, people will come. So I think we want to get to that state.

[Arnob Roy, executive]

Also I wanted to add that in terms of business opportunities that we see in front of in India, of course, after the 4G and the 5G upgrade, there are other opportunities coming in 5G from where BSNL themselves are looking at a larger 5G network. There are government investments coming in BharatNet Phase-III, which the government has announced is again a very large part of our deal.

Apart from that, I think all the bandwidth growth -- 5G driven growth in bandwidth in the country and overhaul and upgrading of the backhaul networks, these are all. So all of these are strong opportunities for us in India. I think our leverage is -- the question is that how do we accelerate our international business growth based on these successes and whatever we have done in India, especially with deals like this has given us a huge international visibility as well, right? I mean, because this is one of the -- the largest single 4G network getting built, larger single order wireless orders some people has.

So our brand is getting a lot more recognition elsewhere. So while we have this huge pipeline of India business, to really leverage, our focus is that we leverage our success over here to build a similar kind of pipeline internationally.

[Anand Athreya, executive]

So in a nutshell, opportunities are all visible, it's a question of really winning them, converting them and building success around them.

[Operator]

We have a next question from the line of Aditya Mehta from GK Capital.

[Aditya Mehta, analyst]

Congratulations on a good set of numbers. So sir, can you please share the quantum of expedite fees and investment that we have done in this quarter?

[Arnob Roy, executive]

Yes. So we don't really disclose the specifics of expenses in each of these category, whether the investments or the expedite fees and all those kind of things. And as we mentioned, that had an impact in our product margins and all those kind of things and as the next few quarters get over as our supply chain processes get more and more mature and the supply chain [indiscernible] supply chain stabilizes. I think we expect that to steadily reduce and go away in the future. But unfortunately, we don't quantify what is the intuitive expedite fees.

[Aditya Mehta, analyst]

Okay. And secondly, how much of the order book do we plan to execute in FY '24?

[Arnob Roy, executive]

Wireless, like 50% of wireless roughly, and then wireline is over 24 months. I think this is more of a 24-month pipeline of wireline and wireless that we have.

[Operator]

We have a next question from the line of NGN Puranik from ENAM Investments.

[Ngn Puranik, analyst]

Arnob, I have one follow-on question. What's the feedback on the -- ground level feedback on 4G implementation today from the user.

[Arnob Roy, executive]

I think I'll let Kumar answer the question.

[Kumar Sivarajan, executive]

I think -- I would -- so the customer has not published the details, I would say. That pretty much it is satisfactory. There's many commercial users who are using it. A lot of data is being downloaded but the exact figures since it's customer [indiscernible] customer confidential I would not like to disclose, but yes initial deployments have gone well.

[Arnob Roy, executive]

Yes. And also the fact that the customer has existing wireless networks. So when he compares us, he compares us with the existing deployments as well from other vendors that you had, right?

[Ngn Puranik, analyst]

I was coming to that next question, sir. You answered it. So it compares very well with other vendors on a 4G basis?

[Arnob Roy, executive]

Yes, yes. That is a very [ wide ] and detailed comparison that we go through in terms of our performance.

[Ngn Puranik, analyst]

And how long will the implementation take to complete next 2 year, 3 year, 1? Or how long will that be?

[Arnob Roy, executive]

I would say 18 to 24 months.

[Ngn Puranik, analyst]

18 to 24 months. Arnob, my other question is about from 4G to 5G when you develop, is it an incremental effort? Or is it a long-haul effort to develop your backhaul?

[Anand Athreya, executive]

So there are 2 components to it. There is an incremental effort to upgrade from 4G to 5G, but there is also a new development that has happened for the last couple of years already. So we are going to get ready with even the 5G radios and stuff very, very soon.

[Ngn Puranik, analyst]

Very, very soon. So that doesn't require much capital or people investing.

[Anand Athreya, executive]

I mean Arnob said earlier, the R&D investment is ahead of the ROI.

[Ngn Puranik, analyst]

So when do you see that launch? 5G launch?

[Anand Athreya, executive]

It will happen sometime next year.

[Arnob Roy, executive]

Mid next year, I guess. In various phases because there is -- 1 part of it is a 5G upgrade of the 4G side. And the other part is 5G for the newer bands, right? And then multiple different radios and MIMO and all those kind of things. So there is a wide range of IT products that we will be launching over next year. .

[Ngn Puranik, analyst]

So there are a lot of upgrades from 4G to 5G. So that's again incremental while you're implementing it?

[Arnob Roy, executive]

So a lot of IP was going to leverage, of course, a lot of IP in terms of software, in terms of design, all those kind of things due to 5G. But because of the support of new bands and some new applications, there will be good amount of new development, that's also going to happen, both in hardware as well as software. But a lot of the core technology and development and designs will be used.

[Ngn Puranik, analyst]

And most of these implementations are outsourced? Or

[Arnob Roy, executive]

No, no, everything in-house

[Ngn Puranik, analyst]

In-house. So how many people you added in the last 6 months, 1 year?

[Arnob Roy, executive]

We almost doubled our [ IP ] team and then similar kind of growth in all other manufacturing...

[Ngn Puranik, analyst]

On the implementation team?

[Arnob Roy, executive]

Implementation, you mean, you're talking about field teams?

[Ngn Puranik, analyst]

Yes. The people who implement this at a network level.

[Anand Athreya, executive]

So the primary investment has been in R&D but there has been marginal in support and other functions. But in this particular case, because they're using TCS as SI, they would do the deployment.

[Ngn Puranik, analyst]

So TCS teams will be doing the deployment?

[Anand Athreya, executive]

Yes. In the interest of time, I think we are open for 1 last question, please.

[Operator]

Sir, there are no questions currently.

[Anand Athreya, executive]

Okay. So again, all great questions, and thank you very much, and thanks for your support.

[Operator]

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