Tejas Networks: Financial Performance Analysis

The telecom sector is hot! Infosys just bagged an order worth ₹13,317 crore from Liberty Global, and the three major telecom operators in India are planning to increase their workforce by 25% in the financial year 2024. What about Tejas Networks, though? This unknown business has just received an order from Tata Consultancy Services for ₹7,492 crore, which is little more than half of their market value!

Before you decide to buy based on this good news that could increase the share price, 

However, I would advise doing your own research, getting a sense of the market, and reading the company's financial statements before you make any decisions. You won't be in a position to decide whether or not to invest in Tejas Networks until after that.

Too much work? Okay, reading this article will lessen the amount of work you have to do by half because I've covered all you need to know.

Let's start by understanding the sector's potential and the bigger picture.

About the Industry

In India, there are more cell phones than there are public restrooms. I'm not joking! In 2021, there were over 15 billion cell phones and just 74,000 public washrooms. Every day, more people are using OTT and engaging in online shopping, leading to the need for more data. There are more than 1.1 billion wireless subscribers in India, which is expected to rise. By 2028, India will have 700 million 5G subscriptions, making it the 5G region with the fastest growth rates in the world, according to Ericsson.

Although this is fantastic news for the telecom sector, it also highlights the need for more qualified people. India would require over 22 million skilled workers by 2025 to work in 5G-focused industries like Internet of Things (IOT), Artificial Intelligence (AI), robotics, and cloud computing. By investing ₹84,587 crore to the Department of Telecommunications in the Union Budget 2022–23, the government is attempting to fix this shortage.

The average monthly data traffic for smartphones is predicted to increase from 26 GB in 2022 to approximately 62 GB in 2028, growing at a compound annual growth rate (CAGR) of 16%.

Given that the telecom sector has a lot of room for expansion, let's shift our focus back to our company, Tejas Networks and know about it in a little more detail.

About the Tejas Networks Company

Tejas Networks is part of one of the largest conglomerates in India, the Tata Group. It was established in 2000 and became public in 2017. The company designs develops and manufactures networking tools for telecom operators, internet service providers, and government organisations. Simply put, it plays an important role in making our modern world of communication possible. 

The company has customers in over 75 countries.

Thanks to Tejas Networks, people can interact with each other and share information quickly and effectively. They create products that allow data to move across these networks, allowing us to perform a variety of tasks like browsing the web, sending messages, and making calls. 

The business offers more than 40 products, and applications of these products can help with 5G-ready networks, Home/Office Broadband, Metro/Core Transport, Enterprise Services, and Critical Infrastructure.

Shareholding Pattern of Tejas Networks

The company has 55.97% of its shares held by promoters, 10.91% by FIIs, and 3.89% by DIIs. This leaves 29.21% of the shares available to trade for the public, which is considered to be a high free float. Take a look at the image below for better understanding.

Competitive Advantage

• The company has over 445 global patents and 330 silicon intellectual property rights, and telecom operators throughout the world use its products.
   
• It has asset-light manufacturing with cost-efficient India-based research and development and low operating cost, which delivers superior financial performance.

This simply means that the company does not hold many physical assets, such as buildings and machinery. As a result, the business has smaller capital expenditures and is better able to respond to market fluctuations.

Also, Tejas Networks performs its research and development in India because labour expenses are low here. This aids the business in reducing R&D expenditures.

• In addition to its strong R&D focus, the company also has a cost-efficient manufacturing operation in India. In terms of pricing, this gives the business a competitive advantage.
   
• Tejas Networks has the support of the Tata Group and is a well-funded business. Tejas bought the majority of Saankhya Labs, an Indian semiconductor and wireless communication business, in March 2022. In April 2022, Tata Sons, through its subsidiary Panatone Finvest Limited, increased its stake in Tejas Networks to 52.45%. As a result, the business has access to a huge pool of resources as well as expertise that helps it stay one step ahead of the competition. 
• It has a diversified portfolio focused on fast-growing technology segments.

Things to Consider:

This section includes both the positive and negative crucial financial information regarding the business that one should be aware of.

• Positive: Tejas Networks' net revenue grew by 49% year-over-year in Q1 FY24, which is a strong indication of the company's growth momentum.

View the graph below to get a sense of the company's revenue and profit/loss over the previous three fiscal years.

• Positive: Tejas Networks has a healthy cash and equivalents balance of ₹943 crore, which gives it a strong financial foundation.
   
• Negative: Tejas Networks reported a loss of ₹26 crore in Q1 FY24. The company needs to focus on improving its profitability in order to sustain its growth. 
   
• Positive: The company is debt-free.
   
• Negative: The company has maintained a poor Dividend Payout ratio of 0% for the last 3 years.
   
• Negative: The Return on Equity (ROE) and Return on Capital Employed (ROCE)  have been poor at -0.95% and -2.06% respectively for the past 3 years.

Order Book

• Positive: Tejas Networks has a healthy order book of ₹1,909 crore, which is a sign of the company's strong pipeline of future revenue.
   
• Negative: The wireline market is mature with little room for expansion, and a sizable chunk of Tejas Networks' order book is in that sector. The company needs to concentrate on diversifying its order book into the wireless area, which is more growth-oriented.

The table displays the significant headings and amounts for the first quarters of 2023 and 2024.

Compared to Q1 2023, the loss has grown. The cash and cash equivalent has also gone down. The size of the order book has grown by 65% Year on Year, which is a positive development.

Projects and Expansion of Tejas Networks

• Positive: Tejas Networks successfully commissioned a pilot network of 200 sites for BSNL's 4G network in Punjab. 
  
  In another recent news, Tejas Networks has signed a master contract for the delivery, support, and annual maintenance of its Radio Access Network (the RAN) equipment for BSNL's Pan-India 4G/5G network, which covers roughly 1,00,000 locations. The order will be executed during the calendar years 2023 and 2024.
   
• Negative: The company is having trouble ramping up bulk supplies for the 4G network of BSNL. The cause of this is a component shortage, which the business is attempting to resolve.
   
• Positive: The hiring of Sembian Venkatesan as Chief Supply Officer by Tejas Networks would help to boost capacity for expected huge shipment volumes as he is a man with over 27 years of experience in Operations and Supply Chain Management. This is a wise decision that will enable the business to fulfill rising demand.
   
• Negative: Many of the company’s patents have not yet been used commercially. The business should concentrate on generating revenue from its intellectual property because this was a missed opportunity.
   
• Positive: With a healthy order book and huge wireless business potential, the company anticipates significantly accelerating quarterly revenue growth. This presents a positive outlook and is a sign of the company's confidence in its future.
   
• Negative: The company is focused on balancing profitability and revenue growth. This could indicate that in order to increase its profitability, the business will have to let go of some growth.
   
• Positive: Tejas Networks is working towards becoming cash flow positive on an operating level. This is a significant objective that will help the business in long-term sustainability.

My Vishesh Tippani

I have high hopes for Tejas Networks. I believe the business is well-positioned, has a solid financial base, and has a promising future. The 5G revolution is coming, and Tejas Networks has the potential to capitalize on it. They are supported by one of India's most reputable businesses, Tata Sons, and have the largest rural broadband optical fibre network in the world.

Of course, Tejas Networks has certain difficulties to overcome. They need to diversify their order book and increase profitability. Let's see if they can handle the job. The business is run by a solid management team with a successful track record. Personally, I'd like to buy these shares🧐…Never mind, I just realised that I'm broke. 

Jokes aside, I believe that this stock has the potential to provide significant profits in the years to come. But don't believe me when I say it. Make your own decisions based on your own research. Click here for help.

The Bottom Line

The business is risky, but it also has a lot of potential. Tejas Networks might not be the ideal choice for you if you're seeking a secure investment, but it is worth paying further attention to if you're looking for a business with growth potential. Even though the company has a few advantages, it has to face tough competition from well-known rivals in the fiercely competitive telecom sector.

The business is still very small and lacks the financial resources that its well-known competitors have. If Tejas Networks can clean up its act, we could have a David and Goliath moment, with this telecom underdog becoming the new source of "connecting people"!

*Disclaimer: The stocks and companies discussed above aren't a recommendation from Insider by Finology and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.