Tejas Networks Limited (TEJASNET) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Tejas Networks Limited Q1 FY '27 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit from ICICI Securities Limited. Thank you, and over to you, sir.

Thank you, Anushka. Good morning, everyone. Thank you for joining on the Q1 FY '27 Earnings Conference Call of Tejas Networks Limited. We have the management of Tejas Networks on this call represented by Mr. Arnob Roy, Managing Director and CEO; Mr. AVS Prasad, CFO; Dr. Kumar N. Sivarajan, CTO; and Mr. Sanjay Malik, Chief Strategy and Business Officer. I would now like to invite Mr. Arnob Roy to initiate with opening remarks, post which we will have a Q&A session. Thank you, and over to you, sir.

Thank you. Good morning, everyone, and welcome to our earnings call presentation for Q1. So I'll start with our revenues of Q1, which was INR 402 crores, slight 20% (sic) [ 21% ] growth over Q4. Profit after tax increased slightly and same for order book, which has also saw a small growth. In terms of the revenue mix, it was evenly split between India and international, and we'll add some color to that as we get along. From a closing order book, this quarter, most of our business wins were domestic. That's why India at the end of the quarter, the order book was 93% domestic orders and 7% international. In terms of Q1 highlights, our revenues were driven largely by international shipments of 5G radios and domestic shipments of optical and FTTx products. And this international shipment was to a customer in Europe, and this was one of our first significant customer wins for 5G internationally. And the other highlight was our first commercial end-to-end 5G network deployment win and a commercial win for end-to-end 5G network deployment in South America. And end-to-end basically means it's beyond the radios, it's also the baseband unit and the core. So this represents a complete end-to-end Tejas technology stack for our 5G network deployment. The other highlight was we continued with our patent filings and filed 46 patents in Q1, taking our global count to 722. I'll now hand you over to our CFO, AVS Prasad, for walking you through the financial numbers.

Good morning, everyone. Thanks, Arnob. As indicated, the revenue is around INR 402 crores, a 21% quarter-on-quarter increase compared to quarter 4 of FY '26. At a PBT level, PBT is around negative INR 271 crores compared to INR 281 crores (sic) [ negative INR 281 crores ] in quarter 4. Coming to the balance sheet items in terms of inventory, there is a reduction of inventory from the previous level of INR 2,438 crores to INR 2,358 crores. And as we have been saying earlier, this inventory -- the high levels of inventory are on account of advanced procurements in terms of materials for addressing the add-on orders and preparedness to address the other customer requirements. And at net receivable level, the net receivables after the customer advance adjustments currently stand at INR 2,232 crores compared to INR 1,905 crores, an increase in terms of net receivables resulting in the working capital -- the net working capital increased mainly on account of the net trade receivables increase and also correspondingly increased scheduled payouts. The cash position compared to quarter 4 stands at INR 589 crores compared to INR 505 crores. On the debt side, the net debt increase is mainly, as what I mentioned earlier, in terms of net working capital increase as well as increased payouts, and also the company's focus in terms of continued investments in terms of CapEx. So there's an increase in terms of the borrowings. The gross borrowing stands at INR 4,866 crores and net borrowings at INR 4,277 crores.

Thanks, Prasad. I'll now take you through some more details about our business for Q1 as well as the outlook. So to give you a little bit more color about Q1, one of the highlights was, as I mentioned, the end-to-end 5G network win for an operator in South America. And the supply of 5G massive MIMO radios to a global customer in partnership with NEC. We were also selected by a global Tier 1 telco for a joint R&D project in 5G. And this is something of quite a lot of significance for us because successful execution over here will -- we expect will lead to future increase in our business engagement in terms of product shipments and so on. And lastly, we are still awaiting the expansion order for the BSNL 4G with additional 26,000 sites. And there has been a lot of news items about this recently. And I can only comment that it's in the final stages of conclusion in terms of awarding of the order. There is a discussion with our system integration partners regarding the final [ Ts and Cs ] and so on. And we expect that this thing will materialize very soon, probably in this quarter. So as you can see from the first 3 items, our internal -- the traction -- international traction for our wireless products and technology are increasing, which is a very encouraging sign for us. In terms of wireline, we continue to expand our market share and business with the Tier 1 Indian telcos for optical as well as FTTx products. And we -- for Tier 1 telco, we expanded our FTTx footprint for the pan-India residential broadband rollout. For another -- for 2 other Tier 1s, we expanded. We supplied our optical equipment, 100-gig, 400-gig DWDM equipment for the 5G backhaul networks for the enterprise services network and also for hyperscaler data center connectivity. The utilities continues to be a strong sector for us, and we were selected as a vendor for the communication network modernization of a large power utility. This has been a very successful business for us, and we continue to win newer and newer business as the utilities keep modernizing their networks from the older TDM/SDH network to a more IP-based network. Internationally, our optical products continued to win additional market share, and this was for an existing customer in Africa, a leading wholesale bandwidth provider. And we did a lot of network expansion for him using our state-of-the-art 100-gig, 400-gig coherent DWDM equipment. A few other highlights. Our newer product, which was announced recently, the 1600-D3, the data center interconnect product. It was selected as a global finalist among the top 3 at the prestigious Leading Lights awards for 2026. This is indeed a recognition to be proud of because this is one of the most respected organizations in this field. And the fact that they recognized us among the 2 other global OEMs as one of the most innovative products that were launched. This is a significant -- is actually a significant recognition of our R&D capabilities. We won the Bangalore Chamber of Industry and Commerce award for manufacturing excellence. We signed MoUs with IIT Gandhinagar and Maharashtra IT to catalyze and nurture the local innovation ecosystem for next-generation telecom. We increased our patent filing. We filed 46 new patent applications, taking the account to 722, of which 380 have already been granted and the rest are in the process of analysis and going through the next steps. We also successfully completed the field and lab trials, the demonstration of the D2M or our broadcast radio solution. As far -- and this was also a significant milestone, which was -- we saw a lot of publicity where along with Prasar Bharati and FreeStream, we were engaged in field trial, an extensive field trial for our broadcast equipment. So in terms of the key business drivers for our products today, one of the important trends that we see and that we highlighted was the expansion of 5G deployment in emerging markets. And we expect the 5G rollouts to continue until 2030 and overtaking the 4G deployments at a very rapid pace. Globally, 5G is also going to serve a lot of fixed broadband applications. And those -- the number of subscriptions are set to triple and reach 90 million globally by 2030, and this is going to be an important application of 5G as well, which we will serve. And then the other part of it, I talked about the expansion of existing 4G networks in India and emerging international markets. Of course, the BSNL 4G is one of the key opportunities over here. But apart from that also, we see engagements in a 4G network expansion in several emerging international markets. In the wireline segment, the rapid growth of data centers and connectivity is driving a lot of our business, especially 4G optical. And also, this is also resulting in the last mile increase in the last mile connectivity, both in terms of numbers as well as in terms of bandwidth. So we see the enterprise connectivity bandwidth going up significantly, and that is leading to a lot of our equipment being purchased and deployed in those applications. We see a significant increase in residential broadband complexity, and we have Tier 1 partners in India, which are driving that growth with our FTTx equipment. As the wireless networks are expanding, the backhaul connectivity for those networks, those are also a significant part of our business. And I highlighted the modernization of utility networks from the older TDM technology to IP-based networks, and that's also continues to be one of our key drivers. So looking forward, we see the rapid deployment and global adoption of AI is going to be one of the key drivers for our business. And to walk you through the details of what that really means, I'll hand it over to our CTO, Dr. Kumar Sivarajan.

Thank you, Arnob. So I'll take a few minutes to outline how AI is impacting the network and also what we are doing about it. So all of us are using AI. AI has replaced search. All websites are using chatbots. We are doing a lot of image processing and click videos and everything with AI. So all this has immediately increased the traffic within the Internet. There's a lot more computing being added in data centers, which is, of course, driving the growth of NVIDIA and the like. And the central data centers have significant addition of computing capability for AI training. There's also computing being added at the edge for what is called AI inferencing, okay? So this introduction of AI for pretty much everything that we do today has led to significant growth in the traffic. So AI has increased the traffic by 20x. Immediately, the optical network is being built out, both between data centers. Data centers need to be interconnected with high bandwidth and low latency connections. So the high bandwidth here is tens of terabits and the data centers could be 100 kilometers or even 1,000 kilometers apart. Consistent with that -- please go back to the [indiscernible] -- consistent with that, we also need to increase the bandwidth in the aggregation and metro network, which connects the users to the core. So this is what is happening in the network due to AI. Now if you look at the next slide on what we are doing about it, we are enhancing our portfolio, both wireless and optics. First, those network traffic requirements based on AI. In terms of 6G, I use here broadly on wireless and what the industry is also starting to do because 6G will impact both the wireless and the optical network. So starting from the left, with the introduction of AI, we will need 6G or 5G-Advanced to be able to address the new AI applications. So this could go beyond phones to meta glasses and other devices in the next few years. This is for -- wireless users will access it through the 5G-Advanced or 6G radio access network. But there is also increase in traffic going from homes and businesses. So in homes, we are enhancing our portfolio of PON to go to 50 gig PON from the current 10 gig PON. Businesses will also be served with higher bandwidth in the access. Typically, it's 10, 100 gig today. We'll go to about 800 gig, okay? The same increase in traffic will carry through the rest of the network. So at the core of the network today, we are at mostly 400-gig wavelengths. That will go to 1.2 terabit or even 1.6 terabit wavelengths. The WDM network, which has -- which typically operates on one pair of fibers and adding additional bands, used to operate in this conventional band or C-band. In the last few years, we've added another band, L-band, but by 2030, we also expect to add a third band. So we'll have 3 bands of WDM with 100-plus wavelengths operating at speeds up to 1.6 terabits per second. So this is the future in the next few years. By 2030, I think all of these products will have to be there. And we have a significant investment in R&D across both wireless and wireline to build out this portfolio so we can take advantage and address the products needed to build out this network to substitute AI. So with that, I hand it back to Arnob to conclude this presentation.

Thank you, Kumar. So in summary, some of the key takeaways or the key messages from our business in Q1 is, first of all, growing international traction for our wireless products, our new 5G wins in international regions and multiple other engagements with all operators. Our joint R&D partnership with global Tier 1 telco is also an endorsement of that. And a lot of our credibility is also coming from our network performance in the BSNL 4G network, which is an endorsement of our product scalability and reliability, and that has given us a lot of credibility when we engage with full customers, including the Tier 1 telco that I'm referring to. In terms of wireless -- wireline business has been seeing steady growth and driven by growth in data center connectivity, residential enterprise broadband. And we have a very good incumbency in the Indian private telcos. And as their business grows, we see our business expanding and as well as increasing -- we are increasing market share in those networks as well. And finally, we are well positioned for an AI-driven future. We have a lot of investments in 5G-Advanced and wireless and 6G for our wireless portfolio. And the portfolio of products, also investments for building products, for building this end-to-end high-bandwidth, low latency networks required for AI infrastructure and also user access. So with this, I come to the conclusion of our presentation and open the floor for Q&A.

[Operator Instructions] We take the first question from the line of [ Tushar Khurana from Peace Wealth ].

Sir, my first question is regarding this BSNL receivables that we have. Since we are now in the final stage of getting this order for 26,000 sites, does that mean our receivables situation should also improve and we should start getting the payment from BSNL given that was subject to some acceptance tests that were left? So any comments on that?

I didn't get your last part of the statement. Your receivables and then you added given the add-on order or what is it?

So, sir, there were some acceptance tests that were left for some of the sites after which you were able to get those payments, right?

Correct. Correct. Correct. Acceptance test. Okay. Yes, understood. Yes, that's correct. I think we are -- the expansion orders were also -- one of the parts was also the completing of the acceptance and some of the pending features and all those kinds of things. So those are also in a very advanced stage and coming to a closure. So yes, you're right. We expect a lot of the BSNL receivables to also get cleared during the quarter, as we move along for the expansion project.

That's wonderful, sir. And sir, my second question is regarding the international order wins that we have got on the wireless side for 5G radios and the one with the collaboration with NEC. I just want to understand, these order wins are mainly for the TSPs or enterprises. And if you could quantify also the number of sites that we have begun with.

Yes. So these are all for TSPs. All of them are for TSPs, for mobile network services. And see, I cannot quantify the number of sites because I don't have permission from the customers themselves, kind of a thing. But more importantly, getting this incumbency, getting this reference, network deployments is a really good -- I think, for us, that's probably the most important thing. And as their network deployment happens and expands, I mean, this should lead to not only more business from these existing TSPs, but serve as a really good reference for other customers in those regions.

Great. Great. And sir this NEC, I was reading about this NEC was actually restructuring their 5G RAN business. So does that mean are we going to be exclusive partner for them wherever there is NEC brownfield expansion happening or even, say, greenfield, there we will be the exclusive partner for NEC, where we'll be doing the manufacturing for them? Or how is it really placed for Tejas Networks here?

Yes. So we are their partners for their 5G radios and beyond. So their focus is on the software side for the 5G network, on the vRAN and so on. For the varieties of radios, today's radios as well as the future ones, and in some cases, 4G radios as well, we are their, kind of, you can say, their exclusive partner. I think the preferred partner is probably the right word to use. And because we also have a deep partnership with them for the development and manufacturing of these products. So yes, you can -- with their international deployments, I mean, we should -- our radios are the ones that should actually be going along with their products.

Sir, can you also quantify what is the total market size for them right now? What kind of total business they were doing presently in the 5G RAN side?

Yes, I don't have those numbers with me right now. I don't have those numbers with me right now. And I know they have a significant business in Japan and a significant business in Europe. And we are looking at this partnership of getting market traction in those markets along with them.

We take the next question from the line of [ Janice Chayda from Kempen Family Office ].

I'm audible?

Yes, you are.

Sir, just one question from my side. Now, since in the BSNL there was a performance-linked payment that was there, are there similar conditions in the international orders as well?

No, no. There are no such conditions because, for the international orders, they have -- especially the one in South America and then the other one also, the wins, the purchase orders came after an extensive POC. So our products were already proven in the POC network, after which these orders came. So there is no payment linked to those performances. But it is very important for us to have a really good performance in the network for any expansions and also further businesses, and them providing a good reference network for us.

So what will be the payment cycle type for these supplies that you have made recently? Is it 60 to 90 days or longer?

No, it will be the regular payment cycle that we have for most customers. There is nothing exceptional over here. Or like BSNL, it is not like that. I mean most of them are our standard. It varies between 60 to 90 days, and this is also with the same terms.

We take the next question from the line of [ Raja Kumar from RK Invest ].

Sir, the first question is, I just want to know, what is the path to profitability?

So, of course -- the first part is, of course, increasing our business and market share. As you know, we came off from FY '25 -- a very successful FY '25 and FY '26 was -- results were not as expected because a lot of the deals we were expecting to close at the time didn't materialize. Whereas we kept on investing on R&D for future technology development. So the first path to profitability is, of course, growing our business. And with the momentum that we have and also getting the expansion order, I mean that will give us a lot of tailwind in that direction. Apart from that, so of course, we have to -- as a part of the growth of business, we have to leverage our partnerships with our global OEMs -- partners, right, NEC and others, for growing our international business. And then finally, optimizing our operating expenses in line with our business and cost engineering for improving margins and working capital management to reduce finance costs over time. And as you know, a lot of the inventory build-out that had been made for the expansion order. Now with this coming in, we expect a lot of that to get -- go away, reducing our working capital requirements for the future. We also expect our receivables to come down with the completion of all the acceptances and delivering all the deferred features for BSNL. So overall, I would say, we are in a very positive direction, as you can see from our financial results from Q1 of FY '26 to Q4 to Q1. I mean, the trajectory is positive, both in terms of revenue, PBT, inventory and so on. Maybe not to the scale at which we were expecting, but the positive trajectory is there. And as we continue to go along, we are growing our business. I think on all the parameters that I talked about, revenue, working capital, inventory, receivables, we should see a lot of positive progress on all of that. And I believe we are on the path to profitability.

Okay. So in terms of time line, can we take it as anywhere between 12 to 18 months, we can see a positive bottom line?

I would say there is -- yes, I mean, I would say there is -- our first target will be positive EBITDA and EBIT and then going to PAT profitability as well. And yes it will take some time. 12 to 18 months is a reasonable time to expect.

Sir, just one more question. Just on the receivable, I see that the receivable has moved from INR 1,900 crores to INR 2,232 crores. So it's almost a INR 325 crore movement, and you have done revenues of about INR 400 crores in this quarter. So which means almost whatever your revenue you have done, it's remaining in the AR only. And I know that there is no BSNL order both in this current quarter and the previous quarter. So why we are seeing a sticky collection in even the non-BSNL segment also?

No, we had collections for the non-BSNL segment also. But with this increase in revenue, I think whatever we have shipped, the increased shipments of this quarter have gone into the receivables. That's why -- that's one of the reasons that you're seeing the receivables haven't gone up.

We take the next question from the line of [ Sugandhi ], an individual investor.

We can't hear you, [ Sugandhi ].

A couple of things. If you could give us an idea about the warranty provision, and what is the internal policy that we follow for making these provisions because they have been a recurring item on the P&L for the last couple of quarters. And in terms of what is the origin of these provisions, because they're sizable compared to the kind of business we used to do in the pre-BSNL order era. So just trying to also figure out how to look about profitability from a long-term perspective in terms of -- I understand that the BSNL order is a big proof of concept for our execution in 5G. But in terms of how profitable, the kind of net profit that we make from the order against the kind of provisions that we make. I'm just assuming here, most of them come from our PSU businesses only. So could you give us an idea about that?

Yes. So I think your first question was about warranty costs, and they are usually determined by potential fault rates and repair requirements and anticipated claims during the warranty period, and is driven by our cumulative installed base. So right now, the distortion that you see in this increased warranty provision is because of this large BSNL network that was rolled out. And as you've seen in our financial performance in the past, this was not a very big factor. And in the future, we also don't see this going to happen. And as the product base -- the products stabilizes, which is what is happening, and the field experience matures, we are -- the warranty costs are expected to normalize. So this has been a one-off case because of the large network deployment that has happened, and it is going to stabilize and come down as we get along, right? So we are on the path to that. The other part was -- your question about profitability and all this kind of thing. I kind of answered the question, that driven by revenue growth in international as well as domestic, and then managing of working capital and margin improvements that will come along with the international business and so on. So I think that remains the same. While the BSNL business is there, as you can see, all our efforts and focus is on the private market, the private telco market, both in India as well as international. And during the quarter, we have made significant progress in that direction, especially -- and the heartening thing to note is all our new technology investments in 5G, in optical, in FTTx, all of them are getting traction. And so kind of the vision of what -- how these technologies would evolve and how the market would adopt them is kind of playing out. So that's the positive part. The add-on order is -- would be a really good tailwind for us in terms of cleaning up the inventory that was built, cleaning up the receivables, and really improving our working capital and all significantly. So that's the good part of the add-on order when it comes in. But from all other parameters in terms of new business wins and our international business growth, I think we are on a very positive -- on a positive trajectory, and we hope to continue this going forward.

Sure. Sir, in terms of the add-on orders, the economics would be more or less on the same line as for the initial INR 1 lakh size?

That's correct. That's correct. It's going to be on the same line as that.

If I'm not mistaken, there was some service revenue element which was supposed to last for a longer period. Do we accrue any revenue on account of services provided to BSNL on the existing base today?

Not yet. That's going to start. The AMCs are going to start after site acceptance and the warranty period getting over. It's going to start. So the significant amount of service revenues, the AMC revenues, that has not started yet.

Sorry, what is the time line for that?

It's going to start in the next few quarters.

Sure. Okay. And if you can give us a split of the current quarter's revenues between wireless and wireline?

Yes, I mean -- we don't get into those details in terms of more revenue split. But I can definitely say that there's been a significant amount of wireless business, and that has been also been mostly international, right? So it is a significant part, but I wouldn't like to give any numbers in terms of the wireless, wireline. We don't give that. But we have said that India has been 50% and international 50%, right? So international has been largely wireless and some wireline also for some of our existing customers.

That's encouraging. Sir, any -- and I noticed that you're not giving the order book anymore. I mean that's a number you used to share previously. But if you could just give us...

Yes, we did that, right?. I think I shared the number. So at the end of my first slide, if you see, was INR 1,529 crores, which is a slight increase over Q4, which was INR 1,514 crores. So we did win during the -- new orders during the quarter, which has increased our order book slightly.

Sure, sir. And how much of that would be international?

If you see that's -- I also mentioned at the beginning of the presentation, that most of the new wins during the quarter has been for the domestic kind of thing, apart from the South American 5G network. So that's why the split between current split of India international is like more than 90% -- 92% India and 7% international, and we hope to change that profile going forward.

And I'm assuming there's no element of BSNL order in this at present.

There is no -- no, the new add-on order is not part of this. Whatever in terms of -- whatever the service revenue aims is, and all those kind of things for which we have POs, they would be in the backlog. Those are the products. No product shipment in that as yet. The add-on revenues are not part of the backlog as of yet, the order book.

And the South American order is already included in this?

Yes, that is included in the order book.

So is that, sir, like -- is that like a pilot level of contract? Or are we talking about slightly -- is it a network rollout or just a testing sort of order that we're talking in South America?

Yes.

And is it within a strategy for new...