Tejas Networks Ltd

NSE:TEJASNET

Earnings Call Analysis

Company Deals with Margin Dynamics and Growth

The company acknowledged lower margins in the wireless segment compared to wireline but expects aggregate compensation due to the project's magnitude. Revenues increased to INR 560 crores with a consequent rise in receivables, expected to be addressed in the coming months. Tejas is preparing for the BharatNet project, with the government currently finalizing specifications, indicating a significant opportunity in the latter half of the financial year. Inventory days increased from 150 to 213, with an inventory build-up of roughly INR 2,000 crores due to a product mix within the wireline segment and slightly lower xPON revenues. Future quarters are expected to see normalized margins as project profitability improves and high-margin components are shipped.

Revenue Growth and Challenges Met with Optimism

The highlighted quarter witnessed the company achieving impressive revenue growth, with a total of INR 560 crores, which pushed the nine-month revenue in FY '24 to surpass that of the entire previous fiscal year. The growth is driven by robust business traction in both wireless and wireline divisions, with significant shipments for the BSNL 4G RAN project, and additional purchase orders totaling INR 107 crores for network build-outs. Saankhya Labs, a subsidiary, also received a notable INR 96 crores provisional purchase order, further bolstering the company's revenue prospects.

Expanding Into Niche Applications and International Markets

The company has ventured into specialized applications such as vehicle tracking systems to enhance safety and navigation for fishermen, showcasing its ability to address varied and strategic market needs. This success has potential for replication in other countries and applications, promising further growth. Moreover, the company's growth is not confined to domestic boundaries, with a strong closing backlog of INR 9,000 crores, including INR 221 crores from international markets.

Strategic Orders and Technological Advancements

In a bid to bolster network capacity, the company has received add-on orders for pan-India deployments, reflecting the critical role its technology plays in enhancing existing infrastructure. The deployment of over 15,000 routers for BSNL's 4G backhaul network and the commissioning of a high-capacity metropolitan network in the U.S. serve as testaments to the advancements in the company's technology and its growing international footprint.

Financial Health Amidst Contrasting Figures

While a surge in revenue indicates vigorous business activities, the quarter closed with a loss of INR 45 crores, signaling potential areas of concern or investment. The order book remains robust, yet the bottom line reflects the challenges of scaling operations and R&D investments. Fundamentals like a net worth of INR 3,000 crores and cash equivalents of INR 559 crores instill confidence, whereas a trade receivables figure standing at INR 855 crores requires careful working capital management, a detail investors would monitor closely.

Recognition and Growth Opportunities

The recognition of the company's pioneering technology through awards and the grant of 31 new patents suggest innovation at its core, potentially strengthening its market position. Gartner's recognition and multiple product awards indicate the company's standing in the optical transport market and its comprehensive solution offerings.

Future Roadmap and Product Portfolio

The impending merger with Saankhya Labs, which is poised for its next step, signifies strategic corporate developments poised to enhance value. The company's diverse wireline and wireless portfolio, capable of building end-to-end networks for operators and managed by a single network management system, positions the company well for seizing opportunities within high-growth sectors on a global scale.

Understanding Margins and Financial Leverage

Creating a narrative of resilience, the company has acknowledged the impact of lower-margin components on its quarterly results, with expectations of compensation through higher-margin deliveries in subsequent quarters. Adopting an integrated approach to financial planning, the company seems to be on a trajectory aimed at optimizing margins and managing growth sustainably.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Tejas Networks Limited Q3 FY '24 earnings call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashvik Jain from ICICI Securities Limited. Thank you, and over to you, sir.

[Ashvik Jain]

Thank you. Thank you. Good evening, everyone. Thank you for joining on Tejas Networks Limited Q3 FY '24 Results Conference Call. We have Tejas Networks' management on call represented by Mr. Anand Athreya, Chief Executive Officer and Managing Director; Mr. Arnob Roy, Chief Operating Officer and Whole-Time Director; Mr. Sumit Dhingra, Chief Financial Officer; and Dr. Kumar N. Sivarajan, Chief Technological Officer.

I would like to invite Mr. Anand to initiate with opening remarks, post to which we will have a Q&A session. Over to you, sir.

[Anand Athreya, executive]

Thank you. Good evening. Welcome to the FY '24 Q3 earnings call. This is Anand Athreya, CEO and MD of Tejas Networks. And I have here Arnob Roy, COO; Sumit Dhingra, our CFO; and Dr. Kumar Sivarajan, our CTO, is on the call.

I'm just happy to inform you that we had a very strong revenue growth this quarter of INR 560 crores. And the last 9-month revenue in FY '24 exceeded the entire FY '23 revenue. And we have a strong order book of INR 9,028 crores. We had a loss of INR 45 crores in this quarter. And we continue to focus on execution and also investment to set Tejas for good growth in the coming quarters.

Thank you. I'll now hand it over to my colleague Arnob to go over the details for this call.

[Arnob Roy, executive]

Thanks, Anand. So in the next few minutes, I give you a color of the business that we had in Q3. And after that, our CFO, Sumit, will walk you through the details in the financials.

So first of all, we continue to see good business traction, both for our wireless business as well as in our wireline business. So for our wireless, I think the big thing is that we have continued to ramp up our BSNL 4G RAN shipments, just like several thousand have been shipped. And the -- in the combination of radios in Band 1 and Band 28 for single-band and dual-band radios.

As a continuing part of this project, we received additional purchase orders of -- order of INR 107 crores for additional signs as part of this -- the network build-out for BSNL 4G.

And we have -- another important highlight has been, our subsidiary Saankhya Labs, received INR 96 crores provisional purchase order from National Space India Limited from Department of Space for the deployment of 2-way Satcom transponders for communication and support system on marine fishing vehicles.

So this is a very niche application. And this is part of the vehicle tracking system solution that Saankhya has. And this particular solution, this particular application is for enhancing the safety and security of fishermen deployed to our -- operating [indiscernible] office, providing navigation assistance and weather alarms and [indiscernible] alarm [indiscernible]. Very strategic project and -- which will have many other applications, both land-based as well as marine application. And we will look forward to seeing how we can replicate this success in other countries as well as in other applications as well.

So we also continue to see strong traction for our wireline business after successfully deploying 150-plus channels, WDM channels under the [indiscernible] channels of alien-wave network lighting up several thousand kilometers of fiber on an existing WDM infrastructure. We received an add-on order for a pan-India deployment of a similar size. So this is a very unique application that our WDM equipment will be served, where given an existing optical infrastructure that an operator has built, and he wants to add capacity onto that by adding additional data channels. We provide the technology which can do it on any foreign infrastructure in the sense that infrastructure [indiscernible] any other operators in the network.

So for the BSNL 4G network for the radio network, we also started supplying the backhaul equipment of IP/MPLS routers which, remember, we had announced this as a project in several -- of hundred crores for deploying more than 15,000 routers. This will enable the backhaul network of the BSNL 4G nationwide network.

A few highlights also are, successfully commissioning a high-capacity metro network in the U.S. for video production and distribution applications. This is using our state-of-the-art WDM process equipment of 600 gigabits per channel capacity. This is going to be a good, focused [indiscernible] network for us and the application is for a no-latency network for the solution of video.

We also executed a commercial contract for supply of optical networking backbone equipment for a leading government telco in Africa. This is the initial order. And with the success of this, we expect to see future build-outs in the network as well.

Our -- we also continue to see success in the utility sector. I mean as you know, our utility business in India is very strong, especially for the modernization of utility networks in India. And we could replicate the same success for a leading power utility in Southeast Asia, where these older TDM based network is getting upgraded with PTN and ours that IP/MPLS 3G technology. So the same project that we've done in India, we've been able to replicate in other countries as well.

And on the same token, in a power utility company in India, we've commissioned a high-capacity national and optical backbone, including the access portion of the network using a combination of our PTL as well as our high-capacity WDM network.

So from a revenue perspective, in the 9 months of 2024, around 55% of our business has been for India Private. And let me also tell you at this point that our BSNL 4G radio order, we consider as part of India Private because our direct customer is TCS, and that's how we categorize our revenues.

The International has been 15% of our business uptil now, and the Government has been the rest. We have a strong closing background -- backlog of INR 9,000 crores out of which international INR 221 crores. So in all aspects, it has been a very good quarter for us, especially compared with our business, our revenues in FY '23.

I'll now hand over to Sumit to walk us through the financial update.

[Sumit Dhingra, executive]

Thanks, Arnob. Good evening, everyone. Our consolidated revenue for the quarter -- quarter 3 of FY '24 was INR 560 crores, which is more than double the revenue we reported in the same quarter previous year. As compared to the previous quarter, that is quarter 2, we've grown at a 41% growth rate.

EBIT for the quarter was negative INR 56 crores, and PAT was negative INR 45 crores. On a 9-month basis, we had aggregate revenue of INR 1,144 crores, which is a growth of 84% over the previous year. We continue to make our investments to ramp up the R&D team and our operations, which are essential to deliver the growth potential that the company has going forward.

Moving to some other financial details. We have a net worth of INR 3,000 crores as of December 23, inventory of INR 2,683 crores. The inventory has grown as compared to the previous quarter. This is mainly to secure long-lead items that we require for meeting our delivery time lines for some of the larger projects that we are executing.

Trade receivables stand at INR 855 crores. We had cash and cash equivalents of about INR 559 crores at the end of the quarter with borrowings of INR 274 crores. This is eventually for funding the working capital requirements that the company has at this point in time.

With this, I'll hand it over to Arnob to take this.

[Arnob Roy, executive]

So a few other updates from a corporate standpoint is that in this quarter, we received several awards and recognition as were granted 31 patents for Tejas and its subsidiaries during Q3 FY '24 and our total patents grew to 313.

An important recognition was a recognition by Gartner as a representative vendor in its Market Guide for Optical Transport Systems. So basically, a leading global analyst will be tracking our business and also kind of using our business to attract the global market for optical transport.

In one of the events that happened in Q3 which is Network X in Paris, which was the [ erstwhile ] Broadband World Forum. Our FTTH solution won the award for the leading PON-based Smart City solution for an application, partly the application that we have built in India.

I think the Indian Mobile Congress in New Delhi this year, our 1,600 optical and packet transmission product was [ selected as the ] Best Indian IPR of the Year in Telecom.

From the corporate update perspective, from a Saankhya Labs merger, that's in progress. And we have made good progress over here. And the next upcoming event over here is the Equity Shareholders and Unsecured Creditors Meetings that's going to be held in early February as per the direction of the NCLT. So this is in the next step in the merger process.

So before I hand it over for questions, just wanted to refresh all our investors in terms of our products. And as you know, we have a very comprehensive wireline and wireless environment portfolio, both comprising of 4G, 5G radio and baseband units, our multi-gigabit fiber broadband access, our converged access and edge solutions and also our high-capacity WDM [indiscernible] backbone network.

And above -- on top of that, we have added our switching and routing portfolio. So in -- altogether, these products can build complete end-to-end network for any operators. And now the unique selling point is that also it is managed with a single network management system.

Next one. And using this technology, some of the key applications that we serve is 4G, 5G data mobile network as well as the backhaul network -- fiber based backhaul network, services for wholesale and enterprise data between critical infrastructure for power, gas and utilities and for home and business broadband. All of these sectors are showing high growth globally. And we are in markets and products and applications where we see -- where we go to good growth in the upcoming future.

So thank you. So with that backdrop, I'd like to hand it over for the Q&A.

[Operator]

[Operator Instructions] The first question is from the line of Santosh Sinha from Emkay Global.

[Santosh Sinha, analyst]

My first question is regarding this margin. You have seen a low margin for this company. So what kind of margins we can expect for the BSNL project and other government projects that the company is executing?

And the second is regarding the trade receivable, increase in trade receivable. What has caused this? And what kind of change you see -- a working capital increase we can see from the execution of this BSNL project?

[Sumit Dhingra, executive]

So on the margin front, while we don't give any guidance on the project-specific margins, what we've also stated in the past is that wireless segment, to begin with may have slightly lower margins compared to the wireline segment. But given the order of magnitude of the project and the opportunity, it would, on an aggregate basis, compensate for the lower margin percentage.

And on the working capital, could you please repeat the question? I didn't get the first part.

[Santosh Sinha, analyst]

So there has been a marked increase in the trade receivable. So what actually has caused this?

[Sumit Dhingra, executive]

Trade receivables, yes. So as you would see, our revenue for the quarter was INR 560 crores. That's a reasonable accretion in revenue compared to the previous quarter. And a part of this is what has contributed to growth in receivables, and we are expecting these to be realized over a period of next few months.

[Santosh Sinha, analyst]

Okay. My next question is regarding the BharatNet project. So any idea, any color in terms of bringing this project execution? Will actually BharatNet 3 will start and what kind of opportunity that can create for Tejas?

[Arnob Roy, executive]

Yes. So I will take this one. So the BharatNet project is currently under definition. I think project authorities [indiscernible] are actually working through, and DOT are working towards finalizing the aspects of the project in terms of its scope and the exact technologies and the specifications of the equipment that will be procured for this project.

And this -- the technology and the products are pretty much accessible and addressable by Tejas. And we look forward to significant success of this project as well because we have the products and the technology that are -- that is being called for in this particular project. So this is going to be a very exciting opportunity for us going forward.

So in terms of time line, right now, from what we know, is that specs are getting finalized. The government is in conversations with all parties regarding finalizing the specs and it should -- the tenders should get rolled out in the next few months and targeting towards maybe the later half of the financial year.

[Santosh Sinha, analyst]

My last question -- last 2 questions. One is whether there are other POs that are expected with respect to BSNL project, like maintenance projects or other projects that are expected with respect to BSNL project from TCS or ITI?

[Arnob Roy, executive]

See, so the BSNL project for the 4G RAN, as you know, that will be for the first 100,000 sites. So there will be additional sites for additional coverage across the country. So that is expected to come. That's one part.

And second part is that the tender also calls for a 5G upgrade of 40,000 sites. So that part of the business has not yet come to us. I think that will happen subsequently after the initial network gets deployed. So this tender also has a scope for additional business for us as part of this project.

After the network is deployed and after the warranty period, of course, the services are involved for many years. That will come later on.

[Operator]

The next question is from the line of Vimal Jamnadas Gohil from Alchemy Capital Management.

[Vimal Gohil, analyst]

Sir, my first question is again on the cost front. If I were to look at the raw material cost, the sequential growth in raw material cost has been higher as compared to the revenue. Is it mainly because of the increase in the wireless business? Or are we still sort of -- the problem of increased component prices for us is still not completely behind? That's question number one.

The second question is on working capital. So if I were to see, starting this year FY '24, in date, we have had incremental inventory of roughly INR 2,000 crores. And just to take forward Santosh's question here, if I were to look at our working capital days, right now, we are operating at around 213 days versus our working capital (sic) [ inventory days ] was down considerably last quarter at about 150 days.

I mean when I -- sorry, our inventory days were down by almost 150 days. Now it is at 213. So if you can highlight for this incremental inventory of INR 2,000 crores, the timeline of realization of revenues, which you can help us a bit.

[Sumit Dhingra, executive]

Okay. So maybe I can take the margin question first and request Arnob to supplement that. I think the increase in raw material costs this quarter is actually more on the account of factors, multiple factors, I would say.

One is essentially the product mix within the wireline segment, which is -- which essentially tended towards slightly lower margin products during this quarter as compared to the previous quarters. That essentially is one of the key factors where you would see why the material costs as a percentage of revenues gone up.

Also as -- from a contribution standpoint, if you see this quarter, [ xPON's ] revenues were slightly lower than the previous quarter, which had an incremental impact on the material cost as a percentage of revenue. These are the key aspects as to why our material cost looks a bit higher.

As we go along, I think we would expect the project profitability for wireline business also to kick in and some of these things to normalize over the next quarter. Arnob, you want to add anything here?

[Arnob Roy, executive]

Yes. So just to add to this, in terms of margin profile, you can see when we ship equipment for our network, there are different components of the network where we come at different margins, right, where the blended margin is, of course, what it is that [indiscernible] company.

But for example, in the network, the access part of the network, where it has [indiscernible] equipment and lower capacity, lower cost devices, they have -- usually have lower margin, but as we move deeper into the network and go to the higher capacity elements. That's where the cost and the margins are also much higher.

So what happens there, in the network typically it's a blend of all of these things that go on. And that's what the blended margin comes to our -- the margins that we are aware of.

So in this -- what happens is that quarter-by-quarter based on the blend of shipment that happens, there is a small amount of margin movement. Some order margin movement that also happens is on the blend of shipments, right?

So I think in this particular quarter, perhaps based on what we have shipped out during the quarter, it has gone more towards the lower-margin components, which will basically compensated in the next quarter by the other part of the network that we want to ship. So it's like a one-off temporary phenomenon in terms of -- that's why you see the higher cost to our revenue.

[Vimal Gohil, analyst]

And sir, on the working capital, incremental inventory?

[Sumit Dhingra, executive]

Yes. So on the working capital front, I think, see, we are in the middle of executing the large projects particularly on the -- both on the wireline and the wireless side. Now as we've mentioned in the past as well, in order to manage the lead time for some of the key components and to be ready for execution, we've been taking inventory actions for specific situations, specific components. And that has sort of getting reflected in the inventory number that you see.

The point to note also is that while -- if you look at it from the base of current revenue, I think it may throw up a picture where you were referring to, let's say, 200 days, et cetera. But given the phase that the company is in and where it is evolving from the current revenue levels to executing INR 9,000 crores worth of order book over the next few quarters, I think the increase in inventory has to be looked at in context of that number, right?

And as we go forward, this INR 2,600 crores worth of inventory is essentially to be predominantly used for some of these large projects, which will get executed over the next few months.

And hence, this increase in inventory has, let's say, days of order book, if one were to look at it that way, maybe a better metric to look at as -- instead of days of revenue or the historical data in the context of where the company is right now.

[Vimal Gohil, analyst]

Understood. And sir, just one follow-up on the margin part, as you explained. So if I understand it correctly, there are some components in the wireline side, which happens to be, by the way, are better margin business. But there are certain components within that also which are probably like maybe a pass-through or have lower margins, which are higher in terms of mix this quarter, which is causing a lower gross margin. Is that understanding correct, sir?

[Arnob Roy, executive]

That's correct. That's correct. The network always is a blend of equipment as it shows the entire equipment, where I talked about lower-cost access equipment customer payments as the margins are lower and the aggregation and the core has higher cost and higher margins.

Another example is in the WDM network. The traffic of carrying equipment at the endpoint, they have a -- which is actually pumped in -- actually hundreds of gigabits and terabits [indiscernible]. They have the higher cost and higher margin, whereas the transmission change with optical component, they have a lower margin.

So as a -- when we ship a network, it's a blend of this is what gives us the overall margin. And in the quarter, the blend has been one part of it. And we should -- the other component of the network, the blended margin for that particular network or that particular shipment will come back to [indiscernible].

[Vimal Gohil, analyst]

So this -- that shipment is expected -- so the higher capacity shipment where our margins are higher is expected to kick in from Q4?

[Arnob Roy, executive]

Yes, yes. That's part of -- this is part of the same project. So part of it gets executed in Q3. Part of it will get executed in Q4. So that's how it's going to happen.

[Operator]

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

[Sangameswar Iyer, analyst]

Sorry to harp on the working capital again. The receivables that we saw shooting up significantly in this quarter, was it primarily due to shipments more happening towards the latter half of the quarter? Or is this the new norm in terms of the receivables for the -- for this execution of this project? Just want to understand that first.

[Sumit Dhingra, executive]

See, if it's -- It's related to the revenue that got shipped during the quarter. And we will collect this based as per the payment terms and as per the collection cycle as we go along over the next few months, not specifically limited only towards the end of the quarter.

[Sangameswar Iyer, analyst]

Okay. Because for an incremental INR 560-odd crores of revenue generated, our receivables went up INR 370 crores. So that's why I was just trying to understand what's the kind of payment term for this particular project. Because the project is large, and this could actually stretch the balance sheet incrementally, given that our cash -- net cash balance has also come down to INR 200-odd crores. So that's why I was just trying to understand how to look at the incremental cash flow that would come in based on the execution of the project.

[Arnob Roy, executive]

So I think while -- as Sumit explained, it's nothing to do with the [indiscernible] profile. But usually, during the quarter, the shipments all built up so that as the quarter progresses and towards the end -- like any other business, the following shipment increases over the weeks [indiscernible] toward end of the quarter. So from that point of view, yes. I mean larger one is happened in the first 6 month and towards the [indiscernible] that. But I don't think most of this is connected to the time that this shipment happens.

[Sangameswar Iyer, analyst]

Got it. And secondly, on the margin front, I understand that we have product mixes that can alter margin on a quarter-on-quarter basis. So on an annualized basis, when you look at the mix of order backlog that we have and the mixing towards more wireless, should one be assume -- should one be looking at 20% to 30% as a base case -- stable gross margin? Or is that something too early to predict for now?

[Arnob Roy, executive]

What was the number you mentioned, with margin?

[Sangameswar Iyer, analyst]

Around 30% gross margin. Is that something which would be more stabilized, given the kind of mix that we have between wireline and wireless in the order backlog?

[Arnob Roy, executive]

See we don't give any guidance on margins, right? But as you've seen our blended margins in the past, and directionally, that's where we'll be at as our business continues.

[Operator]

The next question is from the line of Saloni Jain from Nirmal Bang.

[Unknown Analyst]

This is Manish [indiscernible] from Nirmal Bang. I have a question on our export opportunities. So how we are seeing the traction over there. And secondly, the investment which we are making on R&D side. So how long this will continue because in the presentation, you said that loss because of the R&D investment. So the investments in R&D, how long it will continue at this pace?

[Arnob Roy, executive]

So as far as exports are concerned, I think we have a focus in growing our export business, because of which we continue to invest in international territories, in our direct sales force as well as signing up with partners in different territories.

So our goal is to increase our international business substantially. But as you know, we started the process in [indiscernible] couple quarters. And it will take some time to really -- there's a [ restriction ] period to winning initial deals and getting a foot fit in different countries and building on top of that. So it is going to take some time before we see large projects internationally, which we are replicating what we have in India. But I think the investment and the focus is certainly over there.

As far as R&D investments are concerned, I think R&D investments are going to happen for some time because there's a lot of products and a lot of technology as well as project commitments that we have upcoming. So we will continue to invest. But at the same time, I would say that as our business grows, as we keep delivering on the large backlog that we have.

I mean that business will certainly start offsetting the investments that we are seeing uptil now [indiscernible]. But yes, investments will continue to happen for some more time. So we see a large opportunity going forward, it has to be a global company with world-class products. So we still have some time in terms of [indiscernible].

[Operator]

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

[Mukul Garg, analyst]

Couple of questions from my end. First, to Anand. Anand, I was just trying to understand the revenue you guys have recognized for international business this quarter, it seems a bit low compared to -- and especially when during the prepared remarks, you guys have mentioned that you guys implemented a couple of kind of solutions in the U.S. and in Africa.

So can you just help understand, is this more about having mismatch between the kind of revenue recognition and implementation? Or is there something else which is going on for the international revenues to kind of show such a large dip in this quarter?

[Anand Athreya, executive]

So yes, it is actually a timing mismatch. We have -- we are making the necessary investments to build the team out. I'm sure you know this. So it takes time for that to materialize.

There's a lot of activity and proof of concepts and customer interest that's happening in Americas, in particular. So we hope that we will start bearing fruit in the coming quarters.

[Mukul Garg, analyst]

Understood. So do you expect the international revenues to kind of see a meaningful ramp-up from here because this growth -- I mean getting the number right, it's only INR 9 crores of international revenue?

[Arnob Roy, executive]

No, no, no, I don't think so. I don't think that's correct. We don't give the split obviously, but that's not correct. And as Anand mentioned, yes, there's a timing gap because we ship in 1 quarter, project implementation happens in another quarter. So whatever we're reporting in terms of product implementation is something that got shipped earlier. Whatever we're shipping right now will get implemented next quarter and so on.

So whatever I think, to our point of view, yes, as Sumit mentioned, that proportionately, it was long but not what we're indicating. And our focus is growth over there. There's already a backlog of international, that you see, all of us want to really grow that business.

[Mukul Garg, analyst]

Understood. The second question was, I mean, a follow-up to one -- what earlier participants have kind of also alluded to, and this is like for both Anand and Sumit. You guys currently are sitting on about INR 500-odd crore of net cash. Your working capital is something around INR 1,300 crores. You still have INR 8,000-plus crore of domestic, predominantly public sector, execution to do.

Is there a risk of requirement of additional fund raise maybe in the coming years to fulfill the requirements? Or do you think the payment timelines will be comfortable enough for you to convert this into cash and not require incremental money for working capital?

And I would also want to throw in, if this would not leave any flexibility for potential inorganic scaling up for Tejas. So if you can just help us understand, is this something which might require incremental funding?

[Sumit Dhingra, executive]

So for -- see, currently, we don't envisage any equity funding requirement. Like you rightly mentioned, the increase in working capital requirements are there, and they're expected to be there for the next few months as we execute these large contracts.

But these are generally going to be a short-term funding arrangement, short-term facilities that we would intend to look at as compared to longer sources of capital like equity or [ NDS ]. Also, as we go along, we expect to continue our focus on collections, and that should help us in managing this working capital as we go along.

Also from the point of view of investments in particular, I think the way we see it, currently, the business should be able to meet its future growth aspirations based on the current expectations out of the business. We don't expect any incremental equity right now in the immediate [ trying to be quiet ].

[Mukul Garg, analyst]

Understood. And then final one for Arnob. Arnob, you mentioned about, again, the impact of the products, which kind of got expensed out this quarter. But if I look back at the history of the business, we have never had this high kind of equipment or raw material cost in our business even though we have previously had cases or instances where we shift towards the product profiles, which were relatively lower profits.

Is this something which is partially also on account of these deliveries which you are making on BSNL and go -- our gross margins should remain below where we have historically seen going forward as well? Or am I reading too much into this?

[Arnob Roy, executive]

Yes, yes, yes. I think you're reading a little bit too much into this. I think the reason you're seeing it now and didn't see it, first of all, because our overall business for wireline has also gone up, right?

So if you see if the overall business has increased, then the proportion of the low-margin component of the network and the high margin of the component of the network will have also gone up, right? And it just happened that it's more of a timing issue that in this quarter, a lot more of the low-margin component got shipped, and the other component gets shipped subsequently.

So it is -- and I hope that answered that question that while -- yes, on a smaller revenue base, you saw the effect of the blended margin of the network. On a larger base, we are seeing the effect of only the lower-margin part. I mean not the only, I would say, predominantly it became the lower-margin part. So that's about it. I think it's nothing more than that.

[Operator]

The next question is from the line of Hiren Kumar Thakurlaal Desai, an individual investor.

[Unknown Attendee]

I have 2 questions, one of them is again related to the margin. So our gross margin has been declining as pretty much everybody has mentioned. I mean do we see the sort of bottom around this place? Or now see the significant chunk of the business will be dominated by BSNL supplies 4G? So I mean does this have anything to do with this margin profile? Are we around the bottom? I'm not asking for any guidance or number.

[Arnob Roy, executive]

So yes. So as -- Hiren, as Sumit explained, so there are 2 parts of the business. One is the wireline and the wireless part. So the wireline business, you basically know what our overall company gross margins are, and that is done in the past. So there is no change to that, except that [indiscernible] talked about the blend of margin that happen [indiscernible] for existing products.

The wireless, products that we have the margins -- slightly lower margin. That was something we've talked about in the past but [indiscernible] offset by the higher volume of the business, right? So that's about it. And there is nothing in terms of overall -- I mean that's the overall story about the margin.

There are 2 components, one where there is a margin projection, and we continue with -- or we don't see any impact overall to that on the wireline side. And wireless, at least for this project, with the large volume, will have slightly lower margins and -- but will get offset by the higher-volume business.

[Unknown Attendee]

The second part is about the currency movement. So now especially the wireless part, wireless sales I assume, contracts or sales or whatever is in rupees versus most of the components in dollars. Is the company doing something?

[Arnob Roy, executive]

Hiren, we lost you, could you repeat that question, please? We lost the first part.

[Unknown Attendee]

Yes, yes. The question is, again, the next few quarters, the revenue profile will be dominated by BSNL 4G business. And I'm assuming that -- you can correct me if I'm wrong, I'm assuming that our revenue will be in rupees [indiscernible] contractual value, but the raw material is in dollars, right, for the components. So are we doing something to protect margins in that aspect?

[Arnob Roy, executive]

Yes, yes. So basically, to our ForEx management and I'll let Sumit answer that question.

[Sumit Dhingra, executive]

So I could only partly hear. I think what you're saying is, while our revenues are going to be in rupees, our procurement is in dollars. And how are we -- so from a ForEx management point of view, I think we actively hedge our exposure through various instruments. We continue to monitor the currency risk or the currency exposure that we have. And we suitably hedge our short- to medium-term exposures in particular as we go down.

[Arnob Roy, executive]

I'd also like to add that especially for our BSNL radio products, we've done a significant amount of localization of the components that go into the product, a lot of the costly portions which are there. I mean not the electronic components, but there are many other components that go into the radio design.

And we have significantly localized that. And a lot of our partners are manufacturing in India or we have original Indian manufacturers who are -- who will [indiscernible]. So I think while there is a significant dollar component, it is not as dominating as we would expect because of the amount of localization that we have done in the product.

[Operator]

The next question is from the line of Mohid Ansari from Hyderabad Investment Forum.

[Unknown Analyst]

Yes. My question is with regard to 4G technology or the BSNL that we have developed. There are a lot of questions in the market with regards to how effective or how developed the technology is.

Recently, the BSNL Telecom employee union has written to the minister -- telecom minister that our technology is not up to the mark, and that is causing delay in rollout of 4G by BSNL. Similar questions were raised by the opposition in the parliament also that BSNL technology which the government is promoting is subpar and not up to the mark.

So there is a lot of questions regarding our efficacy of our technology that we have developed. Can you explain in detail? Means are you up to the mark? How is it compared? How are we performing vis-a-vis our competitors?

Some explanation is needed on this issue because as investors, we are having a lot of concerns on this particular point. Everybody seems to be blaming Tejas only.

[Arnob Roy, executive]

Yes. So what I'd like to add, and I also ask Kumar to add to this. So this technology has gone through extensive trials, okay? It's like a more than a year of trials that happened over a large sales bid in the north, okay, in Punjab. And these [indiscernible] submitted after pretty heavy proof of concept, free trials, quite a lot of -- amount of traffic running on the network.

So from a technology point of view, I don't think there is any concern. I think I've only just recently heard about -- I think there are some -- I mean there were -- from whatever we have seen in terms of network build-out kind of thing, I think whatever I have heard is in terms of the phase of the network build-out more than the actual technology itself.

And this technology has been tried and tested. And compared with even the world-class, the leading foreign vendors in terms of performance and robustness, has been tried and tested. And only after that have we -- have the tender -- have the contracts been awarded to the [ commercial ].

So there is no issue with respect to that. I think the project rollout is where I think they're concerning in terms of getting the network built out in time so that they can grow their business around it. So whatever I've seen and thanks to you guys.

[Unknown Analyst]

Yes, I have a follow-up question also. We are supposed to get an order from supply of equipment from ITI. Only TCS, that we using purchase order? Why has the ITI not come? Which we are supposed to be the ones who are supplying equipment for both ITI and TCS. Can you give some clarification on that?

[Arnob Roy, executive]

So we had discussed earlier also that the ITI order is coming through TCS. So whatever is 100,000-plus site orders that we are working on. That includes the ITI component also.

[Operator]

The next question is from the line of Sachin Jain, an individual investor.

[Unknown Attendee]

My question is more on your international side. Can you offer me some qualitative comments on business development effort on international side? Basically, what kind of traction you are getting over there?

Or can you also highlight in terms of how our product, particularly wireless, getting perceived in international market? Where are we in a business development journey? Or when can you expect some significant event in those markets?

And why I'm asking because once, in next 18 or 24 months, you are done with BSNL or some part of BharatNet probably it's a traction in international markets which will keep our revenue momentum on. And so that's the context.

[Arnob Roy, executive]

I think very, very valid questions. And we are also being cognizant of that. And a lot of investment is happening as to -- not only from a direct investment from our side in terms of investing in presence of sales teams and support teams and all those kind of things. But we're also using our partnership with the TATA Group companies, TCS and product communication at [indiscernible] and all this kind of thing and using those channels and partnerships as well to get access to customers across the globe.

So we have seen initial traction. There have been ways that we have worked together with them, and there are many other customers that have got connected to interactions and all, where we have been able to access.

So we are also, apart from our direct business development, I mean, leveraging the brand and the relationships of the group as well, right? Except that this -- in this business, any business development, any significant results take time.

So while we are focusing on the smaller network opportunities where we can get in quickly and do our business. We're also working with good companies as well as -- actually for the larger opportunities in Tier 1 operators across the globe. So the focus is there, and we hope to see results sometime down the line.

I mean we are just conscious of the fact that these things take time and effort. And once we have significant breakthrough, [indiscernible] market. The replicating them in the areas becomes that much easier and [indiscernible].

[Unknown Attendee]

So in your initial discussion with customers, can you give some qualitative input in terms of how we're getting perceived in those markets post we are doing this BSNL order bid? And I understand this business development takes time. But internally, when you guys are thinking, how far we must be from a good win, a sizable win? Just need your qualitative inputs.

[Anand Athreya, executive]

So maybe I can take this. So as Arnob said, this is going to take time, that's number one. The thing is, I think we have to get to a point where there is a reasonable size rollout in BSNL because, I mean, everybody is watching.

We are doing it for the first time here. So I think when that happens, then I think people will be more interested in doing proof-of-concept trials and all other good stuff.

So again, our focus is going to be twofold. One is developing countries, and there are lots of them in Africa, in Southeast Asia and other places, but also in developed countries, where there are rip-and-replace programs where we can -- definitely we'll have an opportunity to participate. But I think net takeaway is everybody is going to be watching this. And when we pull this off, then I think the doors will open up.

[Operator]

The next question is from the line of Sohan Joshi, an individual investor.

[Unknown Attendee]

Am I audible?

[Operator]

Yes, you're audible.

[Unknown Attendee]

Just one question. When we'll be able to monetize our Renesas strategic partnership? I mean are we going to -- are we looking at the revenue after the BSNL project is executed? And what will be approximately R&D spend? Is the R&D spend currently which is getting reflected -- is of the Renesas partnership? Or it will get recognized in the P&L from the subsequent quarters?

[Arnob Roy, executive]

Which partnership what you're referring to?

[Unknown Attendee]

Renesas, Renesas.

[Arnob Roy, executive]

Renesas, all right. No, I don't think anything over here is reflective of any partnership with Renesas. No, it's not. I mean the -- all the technology partnership like we have with many other people for innovating technology and core development and stuff like that. But [indiscernible] are not connected to our partnership with Renesas.

[Operator]

The next question is from the line of Ranjit, an individual investor.

[Unknown Attendee]

I have a question about this margin blend and product mix. So the question is, do we have a strategic business product plan for enhancing the margin mix?

And the second part of the question is, are the low-margin products are necessity for winning higher-margin business? And if so, is there any plan to partner with a third party so that the company focuses on -- more on the higher margin? That's my question.

[Anand Athreya, executive]

So let me take a stab at this. So a couple of things. As a OEM company, we will always constantly look at our products to see how we can make it faster, better, cheaper. And there are many ways to do it with alternate design, with working with our suppliers. So that is a work -- always, it's a constant work in progress. So that's number one.

Then in order to win deals like this, it is always good to have a complete portfolio where it makes sense. And also, we are definitely open. And where if it does not make cost sense for us to build it own and we can partner, outsource it from someone. We will definitely look at it all the time.

So it's actually a combination of all of these 3. And finally, once you have a complete portfolio, then it increases the chances of winning a deal. And also, it also helps in how we can structure the deal.

[Unknown Attendee]

So in terms of the business wins, we -- the plan for the business, is there any conscious effort in controlling this mix of low and high margin?

[Arnob Roy, executive]

Any deal, any network that we supply for, we have a mix of low margin and high margin as I said, right? So we have all aspects of the portfolio. So that's when we ship all of the products in a network, the blended margin is what you see usually in all those kind of thing, right?

So it's not a question of that we ship low-margin products, and we are looking for high-margin products. I mean we have the entire portfolio, which is a combination of margin profile of low margin, of the lower-cost products and higher margin for the higher-cost products.

[Operator]

We have no further questions, sir. I would now like to hand the conference over to Mr. Anand Athreya for closing comments. Over to you, sir.

[Anand Athreya, executive]

Thank you. So as I said in my opening statement, we had a strong revenue growth quarter, and Tejas will continue to focus on investment and execution because I think we have a job to deliver. We have large opportunities and commitment to our customers, and we will continue to focus on execution.

And I'm really happy with the progress that's been made on wireless in terms of -- as Arnob said in the beginning, the Band 1, the Band 28 and the dual-band radios, they're all actually looking good and well. So I think that gives us a lot more confidence and optimism that they're ready to take off, right? And the optical products also are getting delivered.

So the last couple of quarters, we've been focusing on building all of this and delivering with volume and scale. So I think that stage is being set. And you will start to see the effects of that in the coming quarters, right?

And last but not the least, supply chain always used to be a problem. Now I think it's in reasonably good state. There are some long lead items, but I think it's more predictable and in more control than its ever been since I'm here.

With that, I would like to close this call. Thank you very much.

[Operator]

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

[Anand Athreya, executive]

Thank you very much. Bye-bye.