Tejas Networks Ltd (BOM:540595) Q3 FY25 Earnings Call Highlights: Strong Revenue Growth and ...

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Fri, Jan 24, 2025, 12:02 AM 4 min read

Net Revenue: INR 2,642 crores, significant growth over FY24, flat quarter-over-quarter.
Profit After Tax (PAT): INR 160 crores for Q3 FY25.
Order Book: INR 1,681 crores at the end of Q3 FY25.
EBIT: INR 260 crores for Q3 FY25.
Profit Before Tax (PBT): INR 411 crores for Q3 FY25.
Operating Revenue: INR 2,497 crores, with additional PLI incentive of INR 145 crores.
Inventory Levels: INR 3,127 crores, marginal decrease from the previous quarter.
Credit Receivables: INR 4,730 crores, increase noted due to recent revenue growth.
Cash Collection: INR 2,000 crores collected during the quarter.
Borrowings: INR 3,157 crores, primarily for working capital purposes.
Cash Position: INR 643 crores at the end of the quarter.
India Government Business Revenue: 3% of total revenue, with a year-over-year decline of 4%.
International Business Revenue: 3% of total revenue, indicating a small share of overall business.
Closing Backlog: INR 2,681 crores.

Warning! GuruFocus has detected 5 Warning Signs with BOM:540595.

Release Date: January 23, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Tejas Networks Ltd (BOM:540595) reported significant revenue growth with net revenues of INR2,642 crores, marking a substantial increase over the previous fiscal year.
The company successfully completed supplies for 27,000 sites in the quarter, contributing to a total of over 86,000 sites delivered for BSNL's 4G and 5G networks.
Tejas Networks Ltd (BOM:540595) signed a three-year contract with Vodafone Idea for supplying equipment for their Pan-India 4G and 5G networks, following extensive testing and qualification.
The company has been selected as a broadband equipment supplier for state-led last-mile connectivity projects in Tamil Nadu, marking a significant win.
Tejas Networks Ltd (BOM:540595) expanded its office and manufacturing facilities in Bangalore, doubling its floor space capacity for R&D and manufacturing, and set up a center of excellence for wireless communications.

Negative Points

The company's margins were lower than the previous quarter due to a change in product mix, provisions for old inventory, and higher depreciation for certain R&D equipment.
Inventory levels remain high at INR3,127 crores, primarily due to ongoing project execution and procurement for high lead-time items.
Credit receivables increased to INR4,730 crores, reflecting the high revenue levels over the last few quarters, with collections yet to catch up.
The international business remains a small percentage of overall revenue, with longer cycles for business conversion into revenue.
The company faces challenges in converting proof of concepts into actual orders, with significant opportunities expected to convert in Q4 and Q1 of FY26.

Q & A Highlights

Q: Can you explain the impact of product mix changes on gross margins and provide an update on the business pipeline excluding the BSNL deal? A: The change in product mix affects margins as different products and configurations have varying margins. The BSNL project, being our first wireless project, had slightly lower margins. As our international business grows, we expect margins to improve. Regarding the business pipeline, we have ongoing contracts like the Vodafone Idea deal and are targeting significant opportunities such as BSNL's 4G network expansion and 5G upgrade, which we aim to close soon. Our headcount at the end of December was over 2,350, with 60% in R&D.

Q: How are the 86,000 BSNL sites performing, and are they meeting expectations? A: BSNL has reported that over 65,000 sites are live and performing well, meeting expected parameters. The equipment underwent extensive testing during the POC phase, ensuring it meets performance standards. The POC was conducted across multiple sites in Chandigarh, confirming the equipment's reliability and performance.

Q: What is the company's strategy for international orders, and how do you compete with major players like Cisco and Nokia? A: Our equipment offers unique architectural advantages, such as integrating transport functionality with the baseband unit, reducing network deployment costs. This provides a significant cost advantage in terms of total cost of ownership and operational savings. The differentiation lies in the product architecture and the applications it serves, rather than just component costs.

Q: Can you provide insights into the regulatory environment and lead times in North America and LatAm? A: Regulatory compliance involves meeting performance, safety, and radiation standards, which we ensure through certifications like FCC and UL. Tariffs are speculative at this point. Lead times involve technical discussions, lab testing, and field deployment, which can be lengthy but lead to long-term supply cycles once selected.

Q: What are the prospects for the BEAD program and the R and replace initiative in the US? A: We are addressing these opportunities with local partners, focusing on broadband rollout and network modernization. The rip and replace initiative aligns with network expansion, and our unique circuit emulation technology offers significant advantages for modernizing legacy networks. These initiatives present substantial opportunities in North America.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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