Tejas Networks Ltd

NSE:TEJASNET

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Tejas Networks' Q4 FY '23 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note, this conference is being recorded. I now hand the conference over to Mr. Bhupendra Tiwary from ICICI Securities. Thank you, and over to you, sir.

[Bhupendra Tiwary, analyst]

Thank you, Davin. First of all, hello, good evening, everyone. So really sorry for the delay, but we'll just begin. So on behalf of ICICI Securities, we welcome you to the Q4 FY '23 Results Conference Call of Tejas Networks. And from the management, we have Mr. Sanjay Nayak, who is CEO and MD; Mr. Anand Athreya, who's CEO and MD Designate; Mr. Arnob Roy, who is COO and Whole Time Director; Mr. Venkatesh Gadiyar, who's the CFO; and Dr. Kumar N. Sivarajan, who is the CTO. So without much ado, I'll hand over to Sanjay for the opening remarks, post which we'll take up the Q&A. Over to you, Sanjay.

[Sanjay Nayak, executive]

Thank you, Bhupendra, and welcome to Tejas Networks earning call. Good evening, everybody. We have updated our presentation that I'm going to walk through on our website. I hope you had a chance to download that because I will be walking through that.

So first of all, just a quick update on the first slide in terms of the key updates for Q4. So for Q4, our net revenues were INR 299 crores. And for the whole year, it was INR 920 crores which was an increase of 67% for the full year and 136% on a quarter-on-quarter basis for Q4 and as we mentioned in our press release, this is the highest ever revenue that the company has. So I think we had a fairly strong year.

In terms of profitability, we had a loss after tax of INR 11 crores for the quarter and INR 36 crores for the whole year. I'll give a little bit of commentary about what the thought process in terms of investments and go-forward plan is a little bit later in the presentation. This is on a consolidated basis. On a stand-alone basis, Tejas is profitable even on the whole year basis as well.

Our cash and cash equivalents at INR 1,306 crores, and we again have no debt. And order book at the end of Q4 is, again, at an all-time high of INR 1,934 crores.

In terms of key highlights of the business, on the Wireline Business, which is our optical products -- optical transmission products that are our new products, historical products, as I would say. We've seen to -- we've continued to see a very strong business momentum, a lot of new wins which is pretty much all our order book at this point in time is of our Wireline Business.

Recently, you would have seen an announcement that we won a pan-India router tender for around INR 696 crores against all the top global companies who make routing products. So I think this was a very good win for us because it gives us a lot of scale in terms of that kind of a product line as well.

On the Wireless Business, the 4G projects, many of you are aware of the stuff that we've been working for a large project in India. We are well positioned from a preparedness angle as well as from all the technology as well as the proof of concepts and all those other things. And there was a requirement to initially ship 200 sites, which is more than 600 radios for a few cities in North India, which we successfully completed in the month of March. So that basically gave us a way to prime our supply chain and all the other processes and systems so that we are well geared as the volume scale up with the large order that we are expecting.

From a supply chain angle, which has been a challenge for a lot of the companies around the world because of the semiconductor component shortage. Again, I mentioned in the earlier calls earlier in the year that we were making some structural changes in terms of our internal processes and systems to basically better handle the challenges that the supply chain was presented to us. And again, I'm saying that we've made a lot of progress during the year, which resulted in 4 consecutive quarters of Q-on-Q and Y-on-Y growth.

In addition, we have been doing a lot of work over the last 6 to 9 months in terms of expanding our manufacturing capacity so that we should be able to not only execute the large backlog of orders that we have, and we hope to win new orders even on optical as the year passes by, but also the large wireless order that we are expecting.

In line with that and in our own strategy still continues to be the same, which is we're having an asset-light model for manufacturing, and we have signed up 4 new EMS partners so that we have enough manufacturing capacity available once we are able to get the components in play and we have again taken inventory actions to ensure that all the long-lead components which are going to be required are ordered so that we can make these supplies as required by the customer in time.

So overall, I would say the preparedness from a supply chain angle with respect to internal process systems, external EMS partners and taking longer inventory actions gives us a lot of confidence that as the year progresses and as the orders start flowing in. In addition, we will be able to scale up and continue to meet the supply, while still maintaining a basic DNA of having an asset-light model of manufacturing.

From an investment perspective, we have continued to hire a lot in R&D and supply chain and also the field support, which is going to be required for large rollouts of the things that we are looking at and with the larger volume of business that we have. So our headcount during the financial year increased to 1,305 people, which is a 41% year-on-year growth.

One other thing I wanted to highlight, which we kind of mentioned in our results is that this is the first year in which we have -- as you are aware, we had a design linked PLI incentive for which our application was approved for a total of INR 750 crores of investment. We had a certain commitment to invest in terms of capital investment for year 1, which we have made. There's a certain minimum revenue that we are supposed to get, which we believe we have done. So we'll be looking at all of those assets and filing for declaring the PLI benefits. It could potentially be in the tune of INR 32 crores or so which since we have not yet filed the application, we have not recognized that profit in terms of that incentive in our FY '23 financials.

In terms of a few other things which I think are interesting and important for the company. We were -- as a company, we were given the Telecom Person of the Year award by Voice & Data Magazine, which is the leading telecom journal in the country for development and commercialization of indigenous 4G telecom stack, and it was conferred upon us along with TSC, C-Dot and BSNL. So this is, again, a proud moment for the country because what Tejas has been doing in terms of building end-to-end telecom product stack, whether it's from optical to fiber access in terms of GPON and now 4G and 5G is something that really is giving us a lot of confidence, both as a company and as a country that we are ready to scale up and become a global player in the telecom OEM space.

We also received a few more awards in terms of Most Value Vendor partner from ELCITA, Bengaluru and others. During the quarter, 18 patents were granted, so the total grant is up to 217. And with this status in Saankhya, we have now filed cumulative around 445 global patents.

Coming to the next slide, in terms of a few key corporate updates, certainly from the first one, which I believe many of you would have read the press release towards the end of March. I had made an announcement to voluntarily step down and take retirement from the company by the next AGM and although it might -- to some of you, it might sound as a sudden decision, I just want to give you confidence that this was something that I had been planning for about a year. The whole process of what the whole objective was that we made a long-term strategic plan for the company. We made sure that what needs to be done over the next 3 to 5 years to take the company to, I mean, the top global OEMs in the world. And my objective was to make sure that before I announce my retirement and step down, the company should be in a very, very strong footing, and our foundation should be rock solid.

As you can see, we have had the best ever year in terms of booking revenues, and the foundation today is ready that we can scale up on an exponential basis in terms of the revenue opportunities that are coming up. From a personal commitment and many of you know me and have seen me update, I've been working very intensely and with a lot of passion for 23 years from founding the company to where it is today. And it was difficult for me to make the commitment for another 5 years and say that this will be an intensity with which I carry on. So in that sense, this was a very good time to start transitioning. And I'm very happy that the vision and the execution that we have will be continued. And that is really where the whole thought process came together. I'm also happy to introduce Anand Athreya, who is with me here, who is the CEO and MD designate, who joined us early April. We've been working together on the transition and he's really picking up a lot of the stuff.

Anand actually comes with a very strong industry background. He was in the U.S. for many years. And in Juniper Networks, which is one of the best companies in our industry in terms of technology, he worked for 18 years, as Executive VP and Chief Development Officer in Juniper U.S. So the best part is that from Anand brings in a lot of global experience and having done things from the U.S. side, the DNA of Tejas in terms of people like Arnob, Kumar, Gadiyar, are all my co-founders and the rest of the team. We have a very strong DNA from how to build a company from India and get to the state that we have. But I think it's a great combination to put together and I feel very comfortable that going forward, there will be a lot of continuity of vision in execution and the company is in a very good hand. And probably this is a good time for me to say that, yes, things are looking good, we have a lot of momentum and the transition can be plan effectively.

Maybe I'll ask Anand to say a few words from his side from -- because he's not been on the earnings call before. So Anand, over to you.

[Anand Athreya, executive]

Thanks, Sanjay. Good evening. So I'm very excited to join Tejas. I think we are at -- as Sanjay mentioned, we are at an inflection point where the company has come a long way over 23 years and with solid footing. There's a lot of growth opportunity. I'm excited to be part of that journey to ensure that we build a world-class OEM equipment company, both telecom and networking in all of India. So looking forward to working with you guys in the coming quarters and years. Thank you.

[Sanjay Nayak, executive]

Thank you, Anand. A couple of other updates from a corporate angle. Ms. Alice Vaidyan, who was the earlier Managing Director of GIC of India, really has a lot of rich experience, she has joined us as an independent director post the retirement of Leela Ponappa, who is retired earlier in this quarter.

And also from a rating perspective, ICRA has reconfirmed our -- reaffirmed our long-term and short-term rating to A+ and A1+, respectively, as on March 31. So -- and we have enough INR 559 crores of banking [indiscernible] that made available.

Going to the next slide, I'm going to request Venkatesh Gadiyar to just walk us through a couple of slides, I might add in a few comments after he gives a brief summary of the numbers from the growth angle and so on.

[Venkatesh Gadiyar, executive]

Thank you, Sanjay. Good evening, everyone. We are in the slide Q4 FY '23 financial update. We have been growing on the revenues competitively for the last 4 quarters. Q4 revenues were INR 299 crores, a year-on-year increase of 136 percentage. And we had a loss of -- EBIT loss of INR 43.7 crores and a PBT loss of INR 27 crores and a PAT loss of INR 11.5 crores for the quarter. And the EPS of minus INR 0.70.

And for the year ended, the revenues were INR 919.6 crores, which we saw a growth of -- year-on-year growth of 67 percentage and EBIT loss of INR 108 crores and a PBT loss of INR 43 crores and a PAT loss of INR 36 crores and an EPS of negative INR 2.46. And while we are on the PAT loss for a consolidated basis, on a stand-alone basis, Tejas had a revenue of INR 869 crores and had a profit of -- a profit after tax of INR 3 crores in FY '23.

And the revenues of -- in the INR 919 crore of revenues for the FY '23, around INR 50 crores, the revenue came from Saankhya. Similarly, EBIT and PBT of INR 34 crores, which came -- the loss of INR 34 crores, which came from the Saankhya. Similarly, PAT of INR 23 crores -- PAT loss of INR 23 crores includes from Saankhya and also the EBIT, PBT and PAT of FY '23 includes the amortization cost of around INR 13 crores which is as per the purchase price allocation, which we have done on the acquisition of the Saankhya Labs towards the evaluation of the technology assets that we have acquired.

[Sanjay Nayak, executive]

Just one comment I wanted to add to what Venkatesh just mentioned is that on an overall year basis, and we have been [indiscernible] well is that our gross margin as a percentage did see a dip compared to what our historical numbers were and what it was in the previous years. And the reason for that, as we recounted earlier was that the input cost, which is the semiconductor component cost had increased quite significantly. And since some of our contracts are fixed price contracts, and we did not have a ability and which is what was coming out of our backlog. We do not have the ability to reprice those contracts. And hence, our margin pressure was there because the [ cost ], the prices on the other side was fixed.

The second reason, again, for a GM percentage reduction was that while on an overall basis, our international business was almost flat year-on-year, and as we have earlier mentioned, the margins internationally are significantly higher than the margins in India. And since the international business as a percentage of total did not increase in the same ratio that the overall business increased, that again contributed to a slight reduction in the margins.

The third point is that at the beginning of the year itself, we had made a plan that we were going to be using FY '23 as a year of investment and the sandbox we are working with is to invest as much as possible while being at least nominally profitable so that we could actually make investment for the long-term growth, which is what we will be seeing in the coming years. And so we invested a lot in R&D, a lot more in terms of supply chain, lot more in terms of sales or support and all the other functions.

So some of those things also came into place. And from an internal discipline perspective, we believe that you are able to accomplish those objectives. And as Venkatesh said that on a consol basis, we did have losses coming from the Saankhya acquisition and some of them are based because of noncash charge on the account of RSUs that we granted them as a part of the merger process.

So again, all I wanted to say is that there was a gross margin pressure on the optical business or the wireline business going forward. We believe that we should be able to come back to the gross margin that we used to do historically. We have done a lot of efforts within the company in terms of cost reduction and renegotiations of prices and we made a lot of progress on that. So hence, I think going forward, I think we should be able to see a positive margin trend during FY '24 on the optical business. I'll make a commentary about the wireless business separately.

[Venkatesh Gadiyar, executive]

Yes. Thank you, Sanjay. On the balance sheet front and the cash flow front, we had -- for Q4 '23, our cash outflow from operations was about INR 133 crores and the inventories went up to INR 647 crores from INR 494 crores as we had to secure some of the long-lead companies in anticipation of some expected orders that are required for a faster delivery. Hence, we have increased our inventory and trade receivables has gone slightly up from INR 500 crores to INR 518 crores. We had collected about INR 287 crores during Q4. And the net working capital has been increased to INR 944 crores. And the cash and cash equivalent has gone up from INR 1,221 crores of the last quarter to INR 1,306 crores and this is -- this also taken into the account where we have received the investment of INR 300 crores from Panatone towards the final subscription of Series-B Warrants during the quarter.

And with this healthy cash position of INR 1,306 crores, we are now confident to execute the larger order and to scale up business in going forward.

[Sanjay Nayak, executive]

Thanks, Venkatesh, for running through the numbers. I'm again coming back to the slide FY '23 sales update. This is a chart we've been using, and I'm sure some of you are familiar with this. So the chart on the left-hand side is the breakup of our business from the 3 categories, which is India government, India Private and International and the chart on the right-hand side is the corresponding numbers for FY '23.

As you also know that we count the India Private and International as a run rate business. So on an absolute basis, the run rate business, of course, has increased quite a bit. But from a percentage in FY '22, it was 83% whereas in FY '24 -- sorry, FY '22, it was 83%, in FY '23, it is 74%.

Within the segments, India government was 26% of total and had a year-on-year growth of 158.2%. India private was 50% of the total and again, had a very healthy year-on-year growth of 79.3%. International was 24% of the total and year-on-year was only 8.5%.

If you recall in the earlier conversations during the year, we had also mentioned that International business for the year will be soft. The reason for that was twofold. Number one was there was intense focus from a delivery and execution angle and many other things within the stuff that we are seeing within India because there is a very large set of opportunities opening up. And the second challenge for us is that when we win new customers internationally, they had expectations in terms of shorter delivery times. And given the inventory situation, we are not in a position to be able to commit that. So winning customers are not being able to deliver would not have been a good strategy. So hence, I think, consciously, we had a little bit of a diluted focus internationally. And I'll, of course, talk about what the game plan for FY '24 is.

So net-net, overall business to healthily, each segment grew, deepen. At the end of the year, we have INR 1,934 crores of backlog out of India, INR 1,734 crores and international is around INR 200 crores. From the backlog that we have, we believe around 70% of the backlog would be executable for FY '24.

And again, just to clarify, this backlog does not contain any of the larger wireless deals that 4G deals that we are currently working on.

In terms of go forward, how should we look at FY '24, we will continue to see very large growth opportunities in India, both with our optical products as well as the 4G and 5G products. This will give us 2 benefits. It will really help us expand our business volumes. So we'll finally be getting economies of scale, which are of the global size and second benefit will be that in the wireless area where we haven't had large footprints anywhere in the world, this gives us an opportunity to have a large anchor customer, around which I think the kind of interest which we are getting from other global players or global customers have been very high. So people are looking at our ability to execute this project well, which will open up a lot of those in the Western markets that we talked about earlier.

On the optical side, which are, I would say, reasonably mature products, we will increase our international focus this year. And we believe with the supply chain situation getting better than what it was last year, we do expect that on an absolute basis, international revenues for the wireline business will grow quite healthily in FY '24, which again will be good. But on an overall percentage of business, assuming that the India business will be growing much, much faster, the percentage of international as a percentage of total will be lower, while on the absolute basis will be higher.

A little bit on the gross margin commentary for what we expect next year. So I would say that on a percentage basis, the gross margin next year would continue to be lower than our average in the many past years. Optical -- the wireless -- wireline margin will be almost back to what it was before. Wireless margin for the initial period of time, because we are going from low volumes to high volumes in the first year, we would see that margin will be reasonable, but not very high. So on an overall basis, the percentage GM will be lower, but that will be more than compensated by the much higher volume of business that we expect in FY '24. So which will again result in improvement in both EBITDA as well as PAT from the current year to the next year level in a meaningful way.

So going to the next slide, this is again almost the same slide that you've seen in the past in terms of our product portfolio, where we have a very, very rich portfolio of products from optical transmission to FTTH, which is GPON and broadband access. And now we have, of course, got the 4G and 5G base stations. So one other thing which I just wanted to call out, which you would have seen in the center piece of the whole thing, center set of products is that the carrier routing products, which was not something that we were shipping in large scale, is something that we have started to do quite well. So this opens up another front for us in terms of being able to address a slightly higher percentage of the CapEx which is the transport CapEx, whether it is in terms of optical transport or packet transport or package routing for the service provider market that we should be able to get. And the synergy that we had announced essentially gives us that good scale in terms of taking the product, not just for one customer, but too many new customers in a larger volume.

I would not go into the details of that, but just the comprehensiveness of our product portfolio gives us some confidence that many of these products are now reaching a maturity, which are of global quality, global scale in terms of technology. And now we're going to start taking those products to optical and the wireline products for global markets, where the wireless product for this fiscal year will be focused more on the Indian side. And the monthly, week maturity, we'll start engaging with customers later part of this fiscal year to be able to create a larger revenue and pipeline for the next fiscal year.

Coming back to my last slide, after which we'll, of course, open it up for question and answer, which is a key takeaway slide. I'm sure there's a lot of information we've passed. But if I were to kind of quickly summarize, we really closed FY '23 with the highest ever revenues and highest ever order book and bookings with 4 quarters of consecutive growth in terms of Q-on-Q and Y-on-Y. So the supply chain management issues, while I would not say, are 100% behind us, but are under reasonable amount of control, there are still odd components, which have long lead problems, which we are continuing to monitor.

What directionally is very clear is that as the year progresses, the supply chain issues will be behind us and will boil down to our ability to win a lot of business and then execute it well. With a healthy order book of INR 1,934 crores and the good visibility of new order pipeline, both in wireless, which will be of large size and optical, we expect to significantly accelerate our revenue growth in FY '24 and beyond.

We have scaled up our manufacturing capacity in our well geared to execute large orders. So I don't think that's going to be an issue as long as we are able to get the orders, and we are able to secure the components for which you have taken action. The manufacturing quality and scale is not going to be a challenge.

And we are a technology-driven company. We always want to be ahead of the curve. We have -- in the traditional wireline products, we are state-of-the-art in almost everything that we do. In the wireless products, we've been catching up very, very fast, and we want to make sure that in a short period of time, that is another area where we step up to the plate. And correspondingly, we have to increase our investments in R&D, supply chain, field support and so on and so forth, basically to ensure that all the plans that we have are executed well.

And as Venkatesh mentioned from our cash position, we have a healthy cash position. We have looked at the cash flow planning for executing other orders to the suppliers in terms of the right kind of payment terms and so on. And we are confident that without stressing our working capital in any undue way, we have the ability and wherewithal to execute and scale up the company to quite a large size business. And that's something gives us a good amount of confidence in terms of the strength and the foundation that we have and the exciting future that lies ahead of us.

So that's really where I would stop, and we will then maybe take questions. And if you can also address whom the question is for, we'll direct it to the right person. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Vimal Gohil from Alchemy Capital Management Private Limited. Please go ahead.

[Vimal Gohil, analyst]

Sanjay, thank you so much, and best wishes for all your future endeavors. It has been a pleasure interacting with you and just take this opportunity to welcome Mr. Anand Athreya and also wishing him all the very best for your new role. So my first question was on margin. You said that the gross margins for FY '24 would be lower as compared to what we have achieved for FY '23. But on the operating side, with all the investments that we have made for FY '23, would you expect some kind of opportunity, because we are also expecting very, very large ramp-up in revenues. So do you expect some of the gross margin pressure to be offset in operating margins? And separately, what is the steady state margin after all the challenges in the wireless segment that you're seeing after all the challenges our metric, what is the steady state margin that you see, gross margins you see in the longer run for the business. I have a few follow-up questions.

[Sanjay Nayak, executive]

First of all, thank you, Vimal. Thank you for your kind words, and I appreciate that. In terms of -- the basic question is that in terms of gross margin in next fiscal year compared to this fiscal year. So clearly, what I said is that the volume advantage that we'll get -- volume scale will more than compensate on an EBITDA and PAT basis, for the percentage reduction in gross margin. And again, if I look at the gross margin percentage that we had this year, next year, as I said, on an optical, if I were to say what I meant is that if I look at the historical gross margin, we were at much higher level when we are doing wireline business, which would be probably around '18, '19, '17, '18 period that we were there. So I think at that stage, the gross margin that we had were around 38% to 45%, which is net of revenues and cost of material and manufacturing costs.

For the optical business, which is the business that we are also scaling up quite significantly, as you would have seen this year and in the outlook for next year. We expect to reach almost similar to those levels at least in the second half of next year and definitely in the following financial year, in the next fiscal year -- second half of this fiscal year and in the next year. The wireless business, which is the one which we are starting off, will have a relatively lower percentage of gross margins, but the volume economics would be such large that at the EBITDA level, I don't think there should be any dilution on that.

So in that sense, I would say that if I were to look at the blended gross margins of the company, what it was this year, the likely chance at the last -- this year -- I mean in the last fiscal year, there is a likely chance that this fiscal year, we should be a similar level, a little bit up and down. When we look at the next fiscal year, which is FY '25, clearly, the optical margins would already be up there in terms of what was our historical average. And on the wireline margin, we will continue to see improvements as the initial volumes get replaced by steady-state larger volumes.

[Vimal Gohil, analyst]

Right. Sir, on the revenue front, you have booked almost INR 2,000 crores worth of orders. Now given the fact that the order tenure is roughly 1 year, do you -- would you expect that the company would reach a similar run rate of about INR 2,000 crores to INR 2,200 crores in the next year? Would it be a fair assessment?

[Sanjay Nayak, executive]

So I think we should look at our business under 2 buckets. One is the optical and the wireline business, which is the -- what I would say, has been the product that we've been working for so many years. So the revenue this year, which is FY '23 revenue was almost all of it was the wireline revenues, right? And the new business that we have won is almost of the current wireline products. So that business itself is literally, if you see growing [ 60% ] this year, backlog is really accelerating, and we also feel that, that part of the business will continue to do well. And of course, there is opportunities to also scale that up on an international basis, which we did not have much attraction last year.

On top of this, we will have the 4G and 5G wireless business, which has not yet started to play in. And as many of you are aware, we are working on some large deals in India, which we believe should are around the corner. And once they come in, that would be a completely different revenue stream in terms of a much larger side. So the 2 together, I think, give us a benefit where in the near term, the wireline business will have almost steady state gross margin level.

Wireless business will give us volume but with a slightly lower margin. The blended thing will still give us a very healthy outlook in terms of improving our EBITDA as well as profitability.

[Vimal Gohil, analyst]

Understood. If I may, one question for Mr. Anand Athreya. Sir, what really sound you -- what is it that attracted you towards the Indian telecom equipment industry? And how is it that you plan to differentiate Tejas Networks vis-a-vis very, very large global players, which are currently operating as your peers?

[Anand Athreya, executive]

Thanks, Vimal. So I think what attracted me to Tejas, Tejas has been trailblazing for so many years. And as I said before, I think we are at an inflection point. This is India's decade, if not it's India century. So I think there is tremendous growth opportunity to make stuff out of India for the world.

And that's what exactly me to come back and join Tejas. I built the Juniper Networks India facility to be a world-class center so I think we can repeat a lot of that, take all the great work that Sanjay and team have done to a global level. So that's what gives me the excitement to come here.

[Operator]

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

[Mukul Garg, analyst]

First of all, Sanjay, thank you so much for your untiring effort for the last 23 years. I really miss our frequent chats on the telecom equipment space. And at the same time, Anand, welcome, congratulations for taking over. Looking forward to interacting with you going forward and learning a lot about how to kind of take the company forward.

Two questions from my side. First question, I just want to get some sense from either of you in terms of the win from BSNL on the pan-India router side. Sanjay, while you mentioned a lot of areas were FY '24, I got a feeling that this is still, as of now, only BSNL type of thing, which you guys are seeing for this year. How should we look at this given that this will kind of open up almost in your segment for you in terms of opportunity and replicability at more private or global level.

And second question for Anand. Anand, as things sense right now, where are the -- which are the key areas within Tejas, which you would tap into first in terms of low hanging fruit to change the company or take it forward? And how do you see opportunities for the company kind of develop over the next 3 to 5 years?

[Sanjay Nayak, executive]

So let me answer the first one, and then I'll ask Anand to answer the second one. So really, if you see the one thing which has worked well for Tejas over the years and actually for most companies of our kind in the world, no matter where you located, is that you develop pieces of new technology or enhance your products with new capabilities, and you need to get one large anchor customer to kind of take your really good product, which is at low volumes into a matured product, which can be built at high volume at scale and then, of course, it reduces the cost, it allows you to spend more money in R&D to compute the feature set to a complete angle.

So that is the recipe, you see, we followed for many products like FTTH, our first customer was BharatNet and then we, of course, replicated the structures across many others.

Same thing for wireless, we believe that we'll have one large anchor customer and replicate the success once we mature and build the technology. In that sense, clearly, when I mentioned earlier, that if you look at the transport part of the business, and by the way just to give you the sense of scale, the optical transport and FTTH together as a segment worldwide is almost the same size as 4G and 5G base station size.

So I think we have products in that area, which are quite mature, but the nature of what goes into transport continues to evolve. So for example, earlier it used to be only TDM kind of stuff, then we had packet and we have WDM, now there's packet and WDM, then there's a lot of routing technology, which is coming in because what is moving around is in packet. I think it was important for us to complement all of those technologies into our products -- rather include all the technology to our products which we have.

So in that sense, the clear -- the direction and the strategy is that you scale the product, you make it very, very feature-rich and not just for one customer, but for all the customers. I mean as a product company, we definitely could not make product for 1 company. We kind of had already doing -- selling this in lower volumes in smaller operators. But once we've got a large sized deal, it really helps us scale up and go after much, much larger customers around the world.

For the second part, in terms of low-hanging fruits and stuff that, Anand, you can focus on, although you have just been in the company for 3 years -- 3 months -- 3 weeks now -- take a step.

[Anand Athreya, executive]

Sure. Sure. Thanks, Sanjay. So Mukul, my first focus is to ensure that we deliver on the optical business. It is very stable and then we have enough orders to fulfill to ensure that supply chain and manufacturing is all aligned to deliver. That's number one. The second is to ensure that we deliver on the wireless. So there's 4G and 5G.

So that's been my initial focus. Then working with Sanjay and think here on how do we evolve strategy. So there's a lot of discussions happening. And I think it's not going to be disruptive, but it's going to be evolutionary to make this into a global telecom and networking company.

[Operator]

The next question is from the line of [ V Suresh from Gurram Financial ].

[Unknown Analyst]

Welcome to our new CEO. Sir, is it clear?

[Sanjay Nayak, executive]

Yes. We can hear you well, yes.

[Unknown Analyst]

Sir, one question -- small question. Sir, your marketing in exhibitions conducting in new sales, wifi products, optical products and go for another company, I see in the Twitter, Valiant Communications, is cyber security product. This product is Tejas or Valiant. How to revenue sharing that product sir?

[Sanjay Nayak, executive]

So we do use some of, Valiant, for example, as a partner in some of the power sector, kind of a thing where they take some of our products and complete the solution and vice versa. In that sense, I think -- we try to work with adjacent players in case solution is required. And that's the context in which happened. But from our perspective, we don't rebrand anybody's products. We always sell our own products. And at times, in the past as well, we have had some of the global players take our products. And we are OEM suppliers to them.

[Unknown Analyst]

That product sales, you get revenue, sir, sharing -- any sharing revenue?

[Sanjay Nayak, executive]

No. I think if we sell our products, they just -- anybody else for that matter, could just be a reseller. And so I don't think there's any revenue share perspective. I mean we own all the products that we have. And sometimes it could be a reseller relationship, sometimes it could be a channel, sometimes it could be co-selling. That's where usually it works out.

[Unknown Analyst]

That company, Saankhya type of -- your subsidiary or not. You are not any -- you are -- future merger with the company?

[Sanjay Nayak, executive]

Saankhya Labs is a subsidiary of Tejas. We own around 65% of the company, and the remaining 35%, our intent is to complete ownership of 100% of Saankhya Labs and that would be done through a merger process that we have triggered. We expect in the next few quarters, the merger process to get over.

So operationally, we are working extremely closely with Saankhya already. But from a legal entity perspective, the 65% ownership will go to 100% ownership as a part of the merger process, which goes through the NCLT and the usual approval cycles.

[Unknown Analyst]

Any small stake in Valiant, sir, you are having -- Tejas is having?

[Sanjay Nayak, executive]

No, we don't have any such stake.

[Unknown Analyst]

In the future, we can take that products in future and acquiring that brand?

[Sanjay Nayak, executive]

Yes. I mean we've -- I mean if we do anything ever, we will definitely inform everybody. But at this stage, we are not doing anything like that. I mean we're really focused on developing our own products and we have a fairly significant focus in terms of the opportunities at hand, which is what we are laser-focused to execute. So in that sense, from our perspective, we have a lot in our plate and we need to make sure that we do a good job fulfilling that.

[Unknown Analyst]

That product is a channel partner company. Our products -- actually, you are -- any further, you are big order coming.

[Sanjay Nayak, executive]

Suresh, just in the spirit of other people on the call may have a question, what I request you that off-line, you can work through Santosh, and we can address a lot of your questions. I'm giving some opportunities for others to also ask the question.

[Operator]

We have the next question from the line of [ Vivek Namasivayam ] an Individual Investor.

[Unknown Attendee]

The question is around the private -- or the corporate market in India. You're making a lot of strides in the government side, but on the private, do you think there will be a similar impact on account of some of the large projects that you're working on in the private sector and thereby see holistic growth for the company.

[Sanjay Nayak, executive]

No, good question, first of all. We -- if you see our numbers, I think the private grew quite healthily last year from around 50 -- almost close to 80%. So if I were to look at, again, I would divide the problem into 2. For the optical products and the FTTH products, we do see good momentum already in the private sector. Clearly, we can do better. I think some of the supply chain issues held us back because many of these are run rate customers and only after you complete the previous order that you kind of get the next order.

I would say that on the existing wireline, which is optical and FTTH products, we will continue to see good traction in the private accounts in India. The wireless products, which is the new product that is coming out in terms of scale, our initial focus will be to kind of get maybe one anchor customer. But we are very confident that as the product reaches the right amount of maturity in terms of supply chain, processes, systems, technology and so on, we will be able to have opportunities with private players in India -- at least a few private players in India, I wouldn't say all of them for the wireless portion specifically where they are closely watching what we are doing. We haven't had the opportunity to get into deeper engagements just because of our focus today.

But as the year progresses, maybe Q3, Q4 of the year -- almost like Q4 of the year, we think there could be engagement within private operators and eventually, we have good reasons to believe that even on the wireless side, we should start getting some breaks into private operators because they are closely watching all the stuff that we're doing.

[Operator]

The next question is from the line of [ Hiren Kumar Thakorlal Desai ], an Individual Investor.

[Unknown Attendee]

Yes. So first of all, I would like to give a big thanks to Sanjay, who has navigated it for 23 years and I have seen him from [indiscernible]. And I wish him well for the future. And welcome to Anand. One of the question is just a clarification. Last quarter, there was an announcement of we being L1 in one of the BSNL telecom project. I just want to get a clarification whether that is saying as this INR 696 crores router order that you announced or is it different?

[Sanjay Nayak, executive]

Thanks, Hiren. First of all thanks for your kind words, good to talk to you again. Yes, it is the same order. Last quarter, since we have not physically got the order in our hand, but we were declared L1. It was not appropriate for us to specifically call out the customer. But as soon as we got the order, we did announce. Yes, it is the same order, which is the backhaul order for the BSNL Pan-India rollout, yes.

[Unknown Attendee]

The second thing is, I mean, we have been getting the ports about the 4G being deployed in few location. So is there anything which is sort of holding up the final order. I'm sure you will announce once you get it.

[Sanjay Nayak, executive]

Yes. All these things are way it works. I think we have done everything from our side that needed to be done in terms of techno-commercial, even now demonstrating adequate capacity to produce and time and deliver and roll out, et cetera, et cetera. But given the scale size of these things, they do take their time and their own process. We believe those things should come to a fruition soon. And I'm reading the same newspapers that you do. And I believe things should happen sooner than later.

[Operator]

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

[Vimal Gohil, analyst]

Yes, sir, just one clarification. This is -- in conjunction with the previous question on the BSNL order. So as per press, this is supposed to be a INR 26,000 crore order. So would my assumption be correct if I say that this INR 696 crores is for a period of 1 or 1.5 years because if you look at the tenure of order, it is an order for about 10-odd years. So of course, our project will go on for about 2, 2.5 years or maybe 3 years at least until we sort of supply almost all of the equipment. So this INR 696 crores will be for the next 1 or 1.5 years, right? Or is it...

[Sanjay Nayak, executive]

Yes. No, let me clarify. There's a little bit of a confusion which might [indiscernible]. So the INR 696 crore order is for our optical products, which is the wireline product, which if you want to thing from a simplistic angle. This is the stuff we've been doing for the last many, many years, right, except it's, of course, new technology and all of that stuff. So this is an order which will get executed pretty much in almost in this fiscal year and some of residue might go into a quarter of next fiscal year, but almost, let's say, in the next 12 months. But this is one stuff, which is different.

The other order that you mentioned some numbers and all that, which is for the 4G, which is for the wireless rollout, which is a Pan-India rollout. Even that project, a significant part will be rolled out in the next '24. First, these are 2 different products. So the one which I talked about is a different project. It's a separate deal, it's over. The next one will be the 4G rollout, which will be the pan-India rollout. That would, again, once the order comes has to be complicated within a period of 2 years.

In that sense, the revenue intensity that will grow for the company starting from this fiscal year and next fiscal year, and which is what I alluded to when I mentioned earlier on that I see significant revenue momentum for the next 2 fiscal years, which is this and next year already in place.

So in that sense, a large part of the wireless rollout will also be completed between this and next fiscal year. And that is why I overemphasized in terms of our preparedness of manufacturing capacity, rollout, technology, supply chain, cash flows because for a company which is just going to have a potentially exponential growth this and next year, we needed to be ready on our accounts. So these are just 2 different projects and the time line for execution will be much shorter than what we are thinking.

The AMC portion, which is maintenance and support contracts will run over for many years include -- what you said is for 10 years, but the majority of the supply will be completed in the -- for the first order in this year itself, which is the wireless order -- a wireline order, and the wireless order also will be completed over a period of 24 months.

[Vimal Gohil, analyst]

Understood, sir. So these are 2 separate orders, the one which you have reported in your press release and the one which has been spoken in the media are 2 separate ones.

[Sanjay Nayak, executive]

Absolutely. Absolutely.

[Operator]

We have the next question from the line of [ Narasimha Murthy from Cloud Orange Systems ].

[Unknown Analyst]

My question is what the status of BSNL receivables because in one of the interviews, sometime back, you said it would be materialized in the current financial year 2023.

[Sanjay Nayak, executive]

So we have received a significant amount of receivables from BSNL, Venkatesh can dig out the numbers. But -- so many of the stuff from older products, which was stuck in receivables has actually come during the year. And actually, the receivable from BSNL reduced quite a bit during the year. So in that sense, whatever we had told earlier has actually happened.

Some of the ECL provisioning, which has been reversed, is on account of the collection that we have made during the fiscal year. During the year, I would say, lot of the older collections have come in. There's still some residual left, but we are very confident that, that will come in as well. And again, I think on an overall life cycle basis for the company, our collection track record has been extremely good and we've hardly had situations where we haven't collected from the customers.

So even though the BSNL thing, it did take a little bit longer than what we would have ideally liked it to be, but a lot of that correction is coming.

[Operator]

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

[Unknown Attendee]

So my first question is around the margin. So in the call previously, it was told that one of the major reasons why we posted loss was because a few of our contracts were basically fixed contracts, as in the price of input materials went up, but we were not able to pass it on to the customer. So I just want to know the major orders which we are winning now, what kind of contracts is it having? Is it a fixed contract or will it be variables?

[Sanjay Nayak, executive]

So the good news is that a lot of the business that -- once we saw the trend of costs increasing during FY '22 and FY '23, we, of course, any new bid which we put in or any new rate contracts that we signed with the customer was already incorporating the increased costs. In that sense, a lot of the new business that we have won already accounts for the appropriate increase in the component costs.

So the confidence that we mentioned that -- so that's one part. The second part was that we also have done a lot of work using our larger buying power, if I were to say, based on the projected volume of business that we see in the next couple of years, to go back to many of our suppliers and renegotiate the pricing to a much more competitive level than we ever got before.

So the combination of those 2 things, which is all the new bids were done at a price where we were comfortable with the margins and being able to do significant cost reduction in our products to be able to recover the margins that we potentially lost because of cost increases. Give the confidence that at least in the optical and the wireline business starting from Q2 onwards, which would almost be back to our healthy margin that we were there before.

As far as the wireless business, again, is concerned, when we bid and the price that we have closed with the large order already accounted for the current costs. In that sense, we are quite aware of the cost and even in the wider stock, but we are also cognizant of the exchange rates that has happened, and we have factored all of that into account, pricing the bid. And this is which we have confidence again that the volumes will be more than compensating with the -- in terms of the percentage gross margins. So that on the overall basis, I think the EBITDA impact will continue to show healthy on a year-on-year basis.

[Unknown Attendee]

Okay. I have one last question. So out of this, the order book of INR 1,900-odd crores there is -- does the BSNL -- I mean, does the Tejas- TCS implementation -- joint implementation for BSNL 4G, is that also accounted or is that...

[Sanjay Nayak, executive]

No, no, no. So right now, what we count in order book is stuff that you've already received in our books. So this is not stuff that -- so this is not a tender on and all that. There was a very small portion of about 200 sites, which we had done through a consortium or partner. But that's almost insignificant in the total value of the order.

So the order book that we report always is physical POs that we have got, not tenders that we have won or will be likely to win or rate contracts that continue to give us new business.

[Operator]

The next question is from the line of Naveen Bothra from Subh Labh Research.

[Naveen Bothra, analyst]

Anand, sir, welcome you to Tejas and being CEO Designate. Sanjay ji, we'll miss you very much since you founded the company, and we have lot of emotions with you. Wish you all the very well. Sir, my question is from the Saankhya side. I would like to have a couple of questions regarding the merger integration status if you can say that -- because we are not hearing much on this side. If you can briefly tell us what is the current status?

And from the second, the offerings of Saankhya side, what are the status response we are getting on the D2M side. We are presently doing in India as well as in international markets regarding D2M and ATSC 3.0 technology. If you can talk about the status of all the Saankhya product, it will be helpful, sir.

[Sanjay Nayak, executive]

Thank you, Naveen. First of all, nice talk to you again. In terms of the merger status of Saankhya, we've got all the approvals from the stock exchanges, and we have filed it with SEBI. And I think as soon as we get all the clearances, we will take into NCLT. So I would say, over the next few quarters, likely maybe by the end of this fiscal year or thereabouts, the merger process for the remaining 35% share to be completed.

Coming back to the second question in terms of the focus of Saankhya and how that business progressing including D2M, you rightly said that there are 3 segments which -- so I just wanted to call out that a lot of the 5G efforts in terms of the radio work, which was happening in Saankhya, that team, we have already transferred to Tejas as on 1st October and in fact part of the Tejas financials already include the additional cost of that deal, which is what I mentioned in terms of increasing the -- a lot of the cost for this fiscal year.

The second thing is the broadcast business, which is D2M is one part in India and in U.S., there are other opportunities that are working on. So the broadcast aspect of 5G, which is a lot of very interesting applications, there is a lot of traction happening. And this financial year, we believe that we should start seeing meaningful revenues from that part of the business of Saankhya as well.

Secondly, you also talked about the chip business of Saankhya. So I think Saankhya has applied for the chip development project, which is going on in the company as a part of the semiconductor, DLI scheme and [ CDDL ] scheme so that we can also get the support from there. So the broadcast part of the business is going to get into a reasonable revenue stream in this fiscal year. There's satellite, which is SATCOM business, which is also was smallish last year, but we see some very interesting large opportunities in terms of the satellite IoT product that they have, which should be getting into larger volumes this year.

The chip development would be in development effort from an R&D perspective this year and it will be some time in terms of -- when it gets into production in terms of the external revenues, et cetera. That I would say, would be the status of the things in Saankhya. We are excited about all the good work happening there. And of course, it was important to realign the resources as well as the directions in the best interest of the combined companies, which is what we have essentially done.

Moderator, since we are almost to the end of the hour, we can take maybe last 1 or 2 questions.

[Operator]

We will take the last question from the line of [ Godwin S. Fernandes ] from [ Hira Placements ].

[Unknown Analyst]

Sir, I was slipping into the presentation, your employee count has gone dramatically high. I just wanted to know what makes you to hire these much of employees on a year to year, whether you're finding any difficulty for this technology or if you can kindly put up the thought process behind such huge recruitments are being made?

[Sanjay Nayak, executive]

So first of all, [ Godwin ], I must tell you that as a product company today, we are focusing on many different technologies, on the optical transmission technology, on the FTTH technology and now in the 4G and 5G base stations. And if you look at relatively speaking, and there's a lot of efficiency of execution and how we do things in a very clever way within Tejas. The corresponding global competitors of ours possibly at 10x our size, if not more.

The reason we are able to do a lot more with lot less is because of the way we have defined our architecture in terms of software-defined hardware architecture where everything is on an incremental basis. We are able to do a lot of design reuse. We're able to really use the same thing in many, many different forms and shapes. So I think in that sense, the headcount increase, in my mind, is something that will continue to grow and accelerate because if we're going to be aspiring to become one of the top global OEMs, we have to become a top tier in terms of R&D, in terms of new technology investments and so on.

In that sense, I think, the hiring will continue, and we will really continue to scale up that. The second part, which I think partly you ask was also that how do we get such people and so as a product company, I think we have full streams. We have set up for the entry level or junior level 0 to 2, 3 years. We have set up something called Tejas Academy, which is think of it as a boot camp for taking extremely bright people, who may or may not have the exact direct relevant exposure into the things we do. But over a period of 3 to 6 months, we give them through a boot camp, which make sure that when they come out of Tejas Academy, which is the in-house academy, they can really be very productive directly on the project.

And in the middle senior level, I think with the kind of aspiration we have, the kind of success we are seeing, I'm actually very happy to see some of our global competitors are also quite commending the work that Tejas has been able to do in developing new products, get things to scale, get things to global levels in such a short period of time. So we do see there's a lot of, I would say, interest from -- in the mid and senior level talent working at least in India, in many of our competitors companies to potentially find a way that we can engage.

So overall, I would say, we are seeing a very interesting funnel of new talent coming into the company. We have the -- now with the revenue scaling up and profitability scaling up, we have the slack available to invest the right amount of dollars or rupees into the R&D effort so that as a technology company, not only should we increase revenues and profitability in the near term, but also invest to make sure that on a long-term basis, we are really coming out tops in whatever things we do. In that sense, I think manpower is our most important asset, and we'll continue to grow in that.

[Operator]

I would now like to hand the conference over to the management for closing comments. Over to you, sir.

[Sanjay Nayak, executive]

Thank you again. I think we had a very interesting set of questions, and we all summarized it in terms of where the company is today. We have come a long way in the last 23 years. The companies that in every dimension, I think we have really scaled very good level.

The foundation, I believe, is rock solid. We are very well geared up in terms of the exciting opportunities that lie ahead of us. There's a lot of continuity in terms of the team as well as the thought process and the aspirations. And -- I mean I'm very happy and confident that as I look forward to my retirement, the company is in the best possible shape and we really do look forward to a very, very exciting times ahead. And again, I want to thank all of you with whom I have interacted many, many times and we look forward to continued success for our company. And thank you again, and thank you very much.

[Operator]

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