Fortune Scrip     

Published: December 31, 2024
Updated: December 31, 2024

Tejas Networks

Flying high after Tatas’ takeover

Sky’s the limit for network champ

This fortnight we have selected one of the best investment bets in the Indian stock market as the Fortune Scrip. Tejas Networks, belonging to the Tata group, is a wireline and wireless telecom & data networking products company which designs, develops and manufactures products for highspeed communications networks that carry voice, data and video traffic from fixed line, mobile and broadband networks. In fact, it is among the earliest such companies to have built home-grown technology products in networking and optical backhaul that are crucial for high-speed broadband. It is reputed for its innovative software-defined hardware which provides award-winning time-tomarket and cost-advantage product.

Set up in 2000 by Sanjay Nayak, Tejas Networks began well and developed the world’s largest optical switch, but around 2020 its business went down. Subsequently, the Tata group obtained a controlling majority stake in the company.

During the last two years, the company has made rapid strides. In 2022, it acquired Sankhya Labs, a wireless communication and semi-conductor company, which was made a subsidiary of Tejas. Today, the company’s products include Xpon-based fibre broadband access, OTN/DWDM, carrier, Ethernet routing & switching, and network management. Its services include customer services, build services, managed services, consultancy services and nurture services. The company’s products are also used in defence communication networks and by utility companies. Its customers include communication service providers, internet service providers, web-scale internet companies, utility companies, defence firms and government entities.

SALES BOOST

After the Tatas’ entry, Tejas has been doing extremely well on the financial front. During the last 12 years, its sales turnover has expanded more than six times – from Rs 369 crore in fiscal 2013 to Rs 2,471 crore in fiscal 2024, with operating profit shooting up more than five times – from Rs 47 crore to Rs 266 crore. At the net level, the company, which had incurred a loss of Rs 79 crore in 2013, has earned a net profit of Rs 63 crore. However we have not picked the company as the Fortune Scrip on account of it robust performance during the last two years. We strongly feel that its future prospects are extremely encouraging. Consider:

• Inspired by the Tata touch, Tejas has been transformed from an ordinary, lack-lustre firm into a fast-growing, multi-bagger corporate entity. The first half (April-September 2024) performance of fiscal 2025 has been unbelievable, with sales turnover shooting up over eight times – from Rs 526.32 crore in the first half of fiscal 2024 to Rs 4,372.17 crore in the first half this year. The company has earned an operating profit of Rs 764.13 crore as against a loss of Rs 36.57 crore, and at the net level has shown a profit of Rs 188.42 crore in striking contrast to a net loss of Rs 43 crore. For the whole of FY25, it is certain to put up a scintillating financial performance, and not only the management but research analysts too are confident that its new stature will not only be sustained but will further improve going ahead.
• Today, the company provides an extensive portfolio of optical, broadband and networking products as well as 4G/5G wireless products that are used by telecommunication service providers, internet service providers, utility companies, and defence and government entities in 75+ countries

GROWTH FACTORS

• According to Emkay Global, the massive transformation of the company can be attributed to: (A) The government’s emphasis on domestic manufacturing and the PLI (production linked incentive) scheme. During the last two years, the company has received over Rs 80 crore as incentives under the PLI scheme for telecom and networking, and Sankhya Labs has been approved under the semiconductor PLI scheme; (B) Large spends by the government on BSNL, Bharat Net and the railways have played a key role in boosting the sales and profit numbers of the company; (C) References from TCom and TCS have added several solid clients; and (D) The global move towards replacing Chinese telecom equipment. All these four factors have not only transformed Tejas from a little-known, loss-making company into a formidable, fast-growing corporate entity.
• The company’s stature got such a boost that from a wireless business perspective, it has been selected for PTN and DWDM equipment from one of the leading mobile companies in India for capacity expansion of the 4G/5G mobile network. It has seen continuing success in the critical infrastructure segment and has been selected by a leading state power utility company for its captive SCADA network, and it has also been selected for one of the smart city projects in the country. All these developments have further raised the stature of Tejas.
• Going a step further, the company has emerged as a global leader in its field in the international market. It is seeing good traction for GPON and DWDM products, and also has customer wins in the Americas and Africa.

NEW OPPORTUNITIES

• Its prospects are all the more positive due to the factors driving the growth of network traffic. Besides, there are large investments happening in broadband connectivity throughout the world, including for digitalization of cities, smart cities and safe cities. The modernisation of utility networks and the modernisation of legacy TDM-based network infrastructure is a large opportunity for the company as well. Little wonder, Tejas is expected to grow remarkably. Quick to realise the company’s promising future prospects, most research analysts have revised their estimates and targets upwards.
• There is a sustained demand for the company’s stock by investors. FIIs, FPIs, institutional investors, mutual funds and high net worth investors have been accumulating the stock, while retail investors are also adding these shares to their portfolios. Its share (FV Rs 10), which was issued at a price of Rs 257 at the time of the IPO in 2017, is today quoted around Rs 1,225. We feel there is a lot of steam still in the stock and discerning investors will do well to include it in their portfolio at every decline.