Tejas Networks Limited (TEJASNET) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Tejas Networks Q2 FY '27 Earnings Conference Call hosted by Emkay Global Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. [indiscernible], Emkay Global Financial Services Limited. Thank you, and over to you, sir.

Good evening, everyone. I would like to welcome the management and thank them for this opportunity. We have with us today Arnob Roy, Managing Director and Chief Executive Officer; AVS Prasad, Chief Financial Officer; Dr. Kumar N. Sivarajan, Chief Technology Officer; Rita Matria, Chief Operating Officer; and Sanjay Malik, Chief Strategy and Business Officer. I shall now hand over the call to the management for the opening remarks. Over to you, gentlemen.

Thank you. Good evening, and welcome to the Tejas Networks earnings call of Q2. I'd like to start with a summary of the quarter. We ended with a revenue of INR 406 crores as opposed to INR 257 crores on a year-on-year basis. The profit after tax was a loss of INR 207 crores, which was an improvement from minus INR 307 crores of Q2 of FY '26. And order book at the end of the year was at the end of the quarter was INR 2,315 crores. From a revenue, which is compared to Q1, Q1 order book was INR 1,500 crores. From a revenue mix, India was 88% compared to the international revenues of 12%. And from order book mix, 96% of India and 4% of international. And the key reason was because of our order book being -- it was received of the LOI and subsequent POs for 18,000-plus 4G sites for the BSNL 4G network expansion. And that's the reason why the India component of the order book went up substantially. The Q2 revenues were driven by shipments of optical IP and FTTx products to our private operators and system integrators. And we also started the initial shipments of the BSNL expansion order. We also did initial shipments of our end-to-end 5G solution to an international customer in South America. This is a business that we had won last quarter and we started our shipments in this quarter. We filed 26 patients in Q2, taking our global patent filing count to 748. I'll now hand it over to our CFO, to take us through the numbers.

Good evening, everyone. The quarter 2 FY '27 revenue from operations is around INR 406 crores compared to quarter 2 of INR 262 crores in FY '26, an increase of around 55%. The input scale reflects the continued recovery in terms of business performance and at H1 levels compared to INR 459 crores in H1 FY '26, we are at INR 808 crores. This growth represents approximately around 24% year-on-year growth. At the EBITDA level compared to INR 293 crores negative in quarter 2 of FY '26, we are at INR 108 crores in the current quarter. And at the pack level compared to INR 307 crores in quarter 3 FY '26, we are at INR 207 crores. In terms of revenue comparison against quarter 1 FY '27, we are at against INR 402 crores of revenue were at INR 40 crores and EBITDA level come back to the last quarter EBITDA of 99 is around INR 108 crores. In terms of the balance sheet items, the net working capital compared to quarter 1 is lower at INR 4,235 crores. This reduction in terms of working capital significantly is on account of lower trade receivables on account of increased collections and also as a business, we do a [ nonrecourse ] bill discounting and also -- which also has customer advanced settlements, which happens on a regular basis. The reduction is on account of inquiry collections and nonaccrual discounting. In terms of inventory levels, come back to INR 2,358 crores. We are at around INR 2,314 crores. The high levels of inventory, we expect the significant portion of the inventories would be utilized in executing the BSNL 4G order in the coming quarters, for which the deliveries have already started in quarter 2. The net debt position compared to the INR 4,277 in quarter 1, the debt has increased to INR 4,384 crores. This increase is on account of continued investments in terms of CapEx at Tejas as per the plan and also in terms of the increased operational and funding of the increased operational costs.

Yes. Thanks, Prasad. Now for some more commentary on the quarter, a few business updates are as follows: for the wireless business, the most significant thing, as we mentioned, was receiving the LOI for [ 18,695 ] sites for which we have started shipments and the shipment of the end-to-end 5G mobile network. We did [indiscernible] shipments. We also shipped and deployed our 5G core in the network. We initiated multiple POC engagements in North America and Asia Pacific regions, many of them with end-to-end pages solutions, and many of them are in conjunction with partners, providing the complete end to end solution. We also had a few -- one of the interesting things that has also happened is we are engaged with discussions with multiple -- with several Tier 1 mobile network operators for custom 5G radio development with -- in custom bands as a combination of custom brands and also high-power radios in custom brands. So this is one of the interesting new engagements start that has happened based on our -- the radio technology that we have. From a wireline perspective, we continue to increase our market share in the BharatNet and we received an LOI from a new SI partner to supply IP/MPLS outers for upgrading the BharatNet Middle Mile Network in 3 states. We also won a significant order for building an ERP network for a strategic [indiscernible] network for -- it's a pan India network for a government of India customer, for Government of India Enterprise, and we have received the orders subsequently for shipment. We also received POs to supply our GPON PTX products for high-speed broadband access networks from several leading ISPs in India, they are our existing customers who have increase the deployment of broadband connectivity to their customers. We also won a new Tier 1 Pan African telecom operator network in India and we were selected for optical equipment or 400-gig optical equipment for this network. This is, again, a new customer footprint that we have won in that continent. Two other corporate updates. We recently did a lower update, which you can see on the right-hand side of the slide, and we launched our new logo with the Tata endorsement mark at the India Mobile Congress in New Delhi. And this new logo gives us more refined and new field to the company and also reinforced our Tata Group Association, while retaining its familiar visual character. We want the TPC Export Excellence Award in the large enterprise category. We continue to file [indiscernible], as I mentioned, taking it to 748, out of which 266 are connected to standards related for 5G advance and 6G standards-related patents. We also recently inaugurated our next-generation connectivity lab, showcasing advanced research in 5G advance 6G and AI-powered network intelligence. We are also elected to the membership of SDSI governing council. This defines the standards applicable for India. We had a very successful show at IMC recently. And some of the key announcements and demonstrations [indiscernible], we demonstrated a real world application of 6G by showing 6G-sensing technology for drone and vehicle detection, and this was done in partnership with Qualcomm. We showed our [indiscernible] portfolio and capabilities, showcasing our unified mobility stack from radio baseband to core, the [indiscernible] family of products. We showed our hyperscale network solutions for cloud and AI data centers. And we also showed our future ready optical access, transport and routing portfolio scaled for the AI era. During the conference, we participated in several [indiscernible] leadership and other discussions. We had participated in 4 speaking sessions on 6G foundations and road map at the RF 6G symposium. We also participated in the CEO and CTO roundtables with Honorable Ministry of Communications. And we have Tejas has several panelists in the IMC business and technology sessions. So looking forward, some of -- one of the key business drivers in wireless continues to be the expansion of 5G deployment in emerging markets and the 5G rollout which are supposed to continue until 2030. And we continue to get new engagements for POCs and many of them leading to a commercial discussion stage with operators in these emerging markets. The other important factor is driver is the global 5G WA subscriptions, the fixed wireless access are supposed to triple and reach close to 90 million by 2030. The expansion of existing 4G network domestically, and that's as part of the BSNL 4G network expansion that's happening. And AI driving the acceleration of 6G commercialization and which will drive the need for higher capacity massive MIMO radios and AI native baseband and core. Similarly, in wireline, the drivers are the AI data centers driving generational upgrades of the access aggregation and metro backbone networks, high-speed growth of an expansion of high-speed enterprise connectivity, increase in residential broadband connectivity and as the wireless networks expand expanding on the -- and the build-out of the backhaul connectivity for the expanded mobile 5G networks. And there's a continued modernization of utility networks that's happening and which we continue to win as we transition the networks from the older TDM networks to a modern packet-based transport networks. Now I'll let Kumar talk about our key product focus areas going forward.

Thank you, Arnob. We are expanding our 5G radio access network portfolio. When we go international, there are many bands that come up, while India may have only 5 or 6 bands. These are all custom, and we are expanding our radio portfolio to cover all these bands that they go from 700 megahertz to 4.9 gigahertz. We are also developing a compact baseband unit, which is as good as the best in the industry, which will support up to 5 frequency bands in 1 site. So that's essentially on 1 side, a very compact one are you a 2-inch high unit will support all the frequency bands. We are making investments in 5G advanced and 6G. AI [indiscernible] is an area of significant investment for us, all the algorithms within the radio for estimating the channel, for managing the energy consumption, for predicting the mobility of users. All of these, we are moving to AI-based so the performance is better. In IMC 2026 last week, we showed integrated sensing and communication. So essentially, we are using -- we are showing that the 5G radios that we deploy can be used like a radar, so they can sense and detect traffic, drones, cars, moving cars or even [indiscernible] and so on. So that's a demonstration that was well received last week at IFC. Last year, we had shown reconfigurable intelligence services which is a technology that improves [indiscernible] access in 5G. The wireline portfolio, we won the [indiscernible] tender deployed it in the last 2 years, which is based on [indiscernible] and we are now expanding our IPM pillars for routing portfolio to cover higher bit rates so that we can address much bigger networks. In the access latency, low latency is becoming important, especially because of AI-based applications, and we are developing high-capacity, low-latency access platform that 200 gig and beyond. In terms of the backbone, it's both packet-based and optical based backbone at terabits per second speeds, and we are investing in these products as well. Lastly, we already are rolling out AI-based network management solutions. We call it the Tejas observability platform on top. And this is -- this helps our customer, our telecom -- teco customers, optimize their network, predict equipment force reroute or recover from network parts through resilience and also to brand their capacity because we can predict when the traffic will grow and their capacity will start to run out. This is already being deployed by many of our customers today.

Yes. Thank you, Kumar. So similarly, the focus areas of the company as far as business and operations are concerned in the business that we are seeing a lot of success with other technology solution partnerships for getting a lot more international traction. So that is a key focus area for the company that we leverage our existing partnerships and continue to build new partnerships, like technology and solution partnerships with which we can address a lot more customers globally. The other focus area is to expand our market share in private telcos, both in mainly in the wireline space where we are. But also in the next step, we want to work with them for our radio for our wireless technologies and get into a situation where we have to do trials and POCs and all so that we can win business when they get to do their for 5G, 4G or 5G expansion for the next phase of the expansion of their networks. We also have a strategic focus on addressing data center interconnect applications as those build-outs continue to happen and grow. And as the -- especially as the AI data centers start the investments in the AI data center start happening in India. From a finance and operations perspective, we recently won this big BSNL expansion order. And first of all, we have to deliver on the BSNL 4G, [indiscernible] order within the required time line. That's an important focus area for us. And as a result for [indiscernible], I mean, as you know, we have built the inventory for the expansion order, which we are carrying for a while, and we have to achieve significant inventory reduction based on the execution of this order. We'll have an increased focus on collections. I mean a lot of the customer deliveries and commitments have been executed. So there will be a major focus on the customer receivables and achieving quarterly positive EBITDA performance and so the key takeaway for the quarter is that we have a strong growth in order book based on which we have strong business visibility for the next few quarters. Our wireless business is maturing. We are seeing increasing international engagements. The BSNL expansion order is an endorsement of our product scalability and performance. And with the successful increase expansion of the network, the BSNL will see a lot more customers coming into this network and the growth of that business as well. We see a steady growth in wireline business driven a lot, primarily by data center connectivity expansion and residential and enterprise broadband. We are well positioned for AI-driven features with our investments in the next-generation wireless technologies of 5G Advanced and 6G. And with the portfolio of products that we are investing in for building end-to-end high bandwidth, low latency networks which are required for the AI infrastructure. An important thing that's going to happen is the execution of the BSNL expansion order, which will bring down our inventory and gross debt significantly. And we will -- we are also on the path of steadily improving our financial performance, and we have a visible [indiscernible] to profitability in [indiscernible]. So with that, we come to the end of our presentation, and I'd like to open the floor to Q&A.

[Operator Instructions] Our first question comes from the line of Tushar Khurana with [indiscernible].

It's really hard to see how receivables have come down significantly. If you just can comment on how much news we have recovered from BSNL in particular? And how much still view that we have to receive from BSNL and by when do we expect that payment to come in? Because in the last call, I think you had mentioned that we should be getting the payments by the quarter end. That's my first question.

So thanks, Vishal. So I think from BSNL now we have come to the time lines for the milestone deliveries. We have met the milestone delivery requirements. And this is the quarter where we will see a significant amount of collections coming from BSNL, which are connected to the milestones that we have achieved. So I cannot specify the exact number, but it is going to substantially reduce our receivables.

No, that's great to know, sir. And sir, the order book that we have mentioned this time, INR 2,300 crores, does it also include this BSNL order for 1500 we got from BSNL.

Part of it because we have received the LOI for the entire amount. But right now, as and when we get the POs, the purchase orders are connected to the sites and the bands and the circle readiness and the [indiscernible] as we keep on getting the [indiscernible], they come into our order book, and that's what we ship. So all of the 300 is not there in the order book yet. But they will come -- most of it, we expect to come by the end of this quarter.

Okay. I just want to figure out, sir, because last quarter, our order book was. So out of the 2,300 [indiscernible], can we just know what amount has come from outside BSNL?

I don't think I can share the exact details of the order book wins from customers here and there. But all I can say is that all of BSNL 1500 crores that we announced is not in this order book. I mean it's a portion of which a, substantial portion of it and the rest of it has come from non-BSL customers.

Okay. Okay. So there's one question that really baffles me is that we are going international. We are going in all the exposed that are happening globally and participating in all the bids. So are we just question that we are an Indian company and we are trying ourselves globally, and yet we have not been able to tap anything outside BSNL within India. So how do you answer to such questions if you've been asked? And how do you think about it?

Yes. So I think if you look at it by the time we were delivering BSNL, lot of the Indian operators have already built their 4G and 5G networks, right? So to get into those networks, we need to wait for the next phase of expansion until the time we have to get our products and solutions qualified. So in the next expansion phase that's going to happen. But if you look at it, the rest of our -- and when you're talking about BSNL probably referring to only the wireless products because wireless products are deployed widely -- I mean widely in the India private operators. So when the question comes to -- I don't think there is ever an issue of why aren't you deployed in beyond the BSNL's mobile network. As I said, most of the operators have finished their significant phase of the developers. So we are also targeting when they get to the next phase of expansion, we are going to -- we target to be part of that. But more importantly, the traction is coming from markets where there is new 5G deployment happening the new -- need new vendors for doing it because a couple of things that many of these countries don't get the attention or the pricing or the products that they need for their markets. And as a new vendor, we are more suited and more responsive to their needs, right? I mean, because they are not like large Tier 1 pan-country operators. Our initial business is with smaller in emerging market operators, Tier 1, Tier 2 and smaller markets. And the other thing is that we are many, many places we are deploying in partnership with solutions with the other company. I mean, we have mentioned our partnership with NEC, Rakuten, there are other partners that we have signed up and are signing up -- so many of them, we like a joint solution where they have access to the customer. We are providing our radio technology. We are providing some of their [indiscernible] technology and so on, and all, we are providing the core and they are providing part of the network. So this kind of joint solutions is also what is giving us a lot of traction. And this issue doesn't really come up. The fact that we have deployed a network of this scale, which is working successfully and will commercialize and BSNL turning profits and increasing customers. I think it's a very strong testimony to really go and approach our international customers with.

That's great. Sir, just a follow-up on this. So we are running some POC trials in [indiscernible] also, that's what I have been in paper. And since VI is also going to expand further in 5G and more on 4G as well, do we still see a case in future where we might also be a partner to VI and where we can provide our wireless VI to them.

Yes. As I mentioned, with many of the operators without taking specific here, names, I would say that, yes, the fact that we are doing POCs and trials is basically to get to that stage where they qualify for their next phase of expansion. And we've become one of the qualified vendors when they actually start procuring equipment for the next year or expansion. So yes, the trials are actually for that purpose, and the trials will be across multiple bands, all the different bands that they need and they'll qualify they are qualifying our equipment thoroughly before they get to the next level of vendor selection.

Okay. And one last question from my side, then I can join back the queue. So I attended the IMC recently. And one of things I explained to me the DCI stack that we are trying to make. So one part of it is also the GPU vendor onboarding that we need to do in order to complete our stack. So just if you can comment on that. Do we have -- are we in discussion with those CPU vendors also? And where are we in this stage of DCI where we can have the DCI ready and then we can go outside and for for it? And also, if I understand correctly, we are also trying to do some kind of [indiscernible] with the data center for [indiscernible] on a smaller scale for now. So if you can just elaborate on both of these questions. That's my last question.

No. We are -- our approach to this market is not partnership with the GPU vendors. We are partnering with people who are building the entire data center rack, which consists of the compute whether the server base, GPU-based the compute and then providing the networking solutions, right, the interconnectivity of data centers, some of the data center switching elements and so we are working with the system integrators who are building the entire [indiscernible] of thing and not with the direct end customer. And the focus more largely is more on the connectivity between the data centers on the data canter interconnect. And so that's where we are. And as I said, that the approach is not working directly with the GPU vendors or building a company stack with them.

[Operator Instructions] Our next question comes from the line of [indiscernible] Kumar Vidalia with Devesh.

Am I audible?

You are audible, sir. You may proceed.

So on the product line side, I have 3 questions. First is that you mentioned regarding the AI [indiscernible] so I think in annual reports on the last con calls and all, we also have, I think, getting the trial on the coverage side on the [indiscernible]. So if you can provide the insights on that [indiscernible] and second is on the product of the EI DCI. So like in the last 6 to 8 months, are we able to get any orders on those products? And what kind of opportunity in terms if you can provide either in [indiscernible] a quantum we are seeing on the AIDCI products?

So let me -- this is Kumar. Let me answer the [indiscernible]. So we are deployed in drailways, the 5G network, 700 megahertz on a trial section, okay? This is a 700 megahertz communication network. It is not only for [indiscernible]. it potentially be used for [indiscernible], but it is all for the internal communication needs of [indiscernible], okay? So that we had -- we got the PO some time ago, and we have deployed a trial section. And based on the results of the trial, we expect to expand. And regarding the AI, I will ask Arnob.

Yes. So I think for the data center interconnect, yes, we have been connecting -- we've been part of this central interconnect network for -- with our existing products as well as the newer optimized data center product that we have. And this connectivity is -- and not only in India, it has been across many of the countries as well internationally. And so not only the connection between the data centers but also the connectivity from the enterprises data centers as well. So this market has been very important and a focused market for us, and we are indeed winning several business in this area.