Fortune Scrip

Published: Apr 15, 2022
Updated: Apr 15, 2022

Riding The Tata Group Stamp

Tejas Networks

This fortnight we have selected a company that was little-known till yesterday, but has now come into the limelight with its acquisition by the Tata group. It is Tejas Networks, which has been taken over by Panatone Finvest, a subsidiary of Tata Sons.

Bengaluru-headquartered Tejas Networks is an optical and data networking products company that designs, develops, manufactures and markets high-performance wireline and wireless networking products to telecommunications service providers, internet service providers, web-scale internet companies, utilities, defence companies and government entities in India as well as in over 75 countries. The company utilises programmable software-defined hardware architecture with a common software code that delivers seamless upgrades of new features and technology standards. Of late, Panatone Finvest, a subsidiary of Tata Sons, has acquired a controlling stake in the company.

The company was floated in 2000 but was not doing so well and was incurring losses at the net level till fiscal 2014-15, when it incurred a loss of Rs 17 crore. Subsequently, it started doing well with the net profit inching up from Rs 28 crore in fiscal 2015-16 to Rs 236 crore in fiscal 2019-20, but the net profit sharply dropped in the Covid-19 year in fiscal 2021.

FINANCIAL SWINGS

During the last 10 years, the company’s sales turnover has expanded from Rs 181 crore in fiscal 2012 to Rs 524 crore in fiscal 2021. However, on the earnings front, its performance was dismal. During fiscal 2012 it had incurred a net loss of Rs 79 crore, which had shot up to Rs 231 crore in fiscal 2020. However, it has turned the corner and earned a net profit of Rs 37 crore in fiscal 2021.

Despite the fact that the past performance of the company is not that encouraging, we have selected Tejas as the Fortune Scrip for this fortnight as the acquisition by the Tata group has totally transformed its shape, size and character, which will lead to powerful prospects and turn it around into a multibagger. Consider:

• The company offers TJ 1400 OLT, a GPON/NGPON-based fibre access for FTTH and FTTB services with various end-user ONT devices, and TJ2100 NONT, a series of advanced GPON/XGS-PON ONT elements designed for optical access networks deployed in FTTH and FTTB formats. The company also provides TJ1400, an ultra-converged broadband designed for cost-otpimised delivery of mobile backhaul, broadband access, enterprise and network modernization, TJ1600, an optical transport platform, TJ1270 MSPP, a multi-service provisioning platform, and TJ1600 products for high-capacity metro and long-distance networks based on cutting-edge DWDVI and OTN technology. The Tata group has big plans for the communications sector where these products will be highly useful. Thus, Tejas will have a ready market for all these products.

• As the Tata group required a sizeable quantity of semi-conductor products for group companies like Tata Elxsy, Tata Chemicals and Tata Motors, Tejas has acquired Saankhya Labs, Bangalore which has developed a wide-range system and semi-conductor product for cellular wireless, broadcast radios and satellite communication ground terminals, which are deployed by customers in India as well as in international markets. With a rich IPR portfolio and 73 international patents (41 granted and 32 filed), Saankhya is a pioneer in building software defined radios (SDR). It has a strong technology team of more than 250 engineers with deep expertise in wireless communication systems and semi-conductor design. This acquisition will enable Tejas to emerge as a global telecom equipment company from India, which will provide an end-to-end menu of world-class products and solutions based on latest technologies and customer requirements. The company will get a ready market in the Tata group itself as Tata Elxsy requires semi-conductors for its design work, Tata Chemicals for its batteries production and Tata Motors for its electric vehicles.

  In short, the entry into the Tata group will transform Tejas Networks into a growth-oriented company scaling higher and higher levels in performance.

• Besides the fact of the sizeable captive demand from the Tata group companies, Tejas will be able to market its products globally as the company’s products will be received well by customers on account of the Tata stamp. As the Tata group is known for its ethical values and corporate governance, Tejas will get these benefits in selling its products. Thus, the company’s topline will get a big boost at home as well as abroad.

As the acquisition of the company by the Tata group has transformed the status of Tejas, its share price has started climbing up from around Rs 150-160 to around Rs 500. As the entry into the Tata group will change the shape and size of the company, the share price can shoot up to even touch the Rs 1,000-mark in the medium term. Discerning investors should include this stock in their portfolios.