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Tejas Networks: Revives its IPO plans on the back of improved financials

December 07, 2016

Tejas Networks: Revives its IPO plans on...
Tejas Networks is passing through an interesting phase. After achieving a major financial turnaround in 2015-16 – the company’s revenues touched $100 million after almost a decade – it is now all set to revive its long-pending initial public offering (IPO) plans.

Tejas Networks is one of the leading homegrown telecom manufacturing companies and has made a significant contribution to building a robust telecom manufacturing base in the country, even before the Make in India scheme kicked in. The initiative has added strength to Tejas’ ongoing efforts, opening up new opportunities for it.

Tejas was founded in 2000 with the aim of serving the Indian telecom hardware market better and growing into a domestic telecom giant, matching companies like Cisco, Nokia and Ericsson. It focused on optic fibre, which was then emerging as a key solution for high bandwidth requirements. The company had an encouraging start and revenues peaked in 2008-09.

Riding on this growth, Tejas was all set to list on the Indian bourses when a host of external factors led to a major downturn for the company. The US financial crisis in 2009 resulted in many firms filing for bankruptcy, while business for others shrank drastically, impacting the global demand for telecom products. Nortel, one of Tejas’s largest clients, filed for bankruptcy, wiping away significant business and revenues. This was followed by the surfacing of 2G spectrum-related controversies in the Indian telecom sector, which further impacted the operator’s investments in telecom hardware and products. Demand from government companies, particularly from Bharat Sanchar Nigam Limited (BSNL), Tejas’s biggest client, hit an all-time low. As per industry sources, Nortel and BSNL together accounted for almost 75 per cent of the company’s revenues at the time. Consequently, between 2008-09 and 2011-12, Tejas’s revenues plunged from Rs 6.5 billion to Rs 2 billion.

But while revenues took a hit, the company’s ambition survived the onslaught. It was at this time that Tejas turned towards research and development (R&D) in a big way. No external money was raised and all the preserved cash was dedicated to developing new technologies and solutions. Its focus on R&D has helped the company expand its addressable market and hold its own in the face of growing competition from global players. Further, Tejas has made special efforts to enhance its geographical diversity and has reached out to customers in international markets too.

Financial upturn
In 2015-16, Tejas Networks recorded a remarkable 60 per cent year-on-year growth to touch revenues of Rs 6.74 billion. Of this, exports contributed about 35 per cent. The company is now profitable on a profit after tax basis, lending confidence to it to go ahead with its IPO. Although hitting 60 per cent growth every year seems unlikely, Tejas is expecting to grow at about 30 per cent for the next five years.

Focus on R&D
R&D is a key focus area for the company and it invests close to Rs 1 billion in this area annually. Its products have a huge domestic as well as international market. In the past few years, the company has stepped up its R&D investments, earmarking 30-35 per cent of its revenues on R&D on an average. It is also set to play a big role in the Indian 5G space. The government is proactive in this area and wants to tap the 5G opportunity at the same time as other international markets. To this end, a research team commissioned by the government to work on 5G technology has already filed 100 patents, of which around 10 have been granted. Most of these patents were filed simultaneously in the US and in India. Several private players including Tejas Networks, Reliance Jio Infocomm and Tata Teleservices Limited are pitching in by lending resources such as manpower and equipment.

Betting on government initiatives
Tejas Networks is also optimistic about the opportunities thrown up by government programmes like Make in India, Digital India and Smart Cities. As network security emerges as a key focus area, manufacturing and developing critical technologies within the country will be crucial. Helping create domestic telecom products through a policy impetus and adequate funding will go a long way in making India self-reliant. Implementing the preferential market access policy for government tenders will give companies like Tejas an edge over its global counterparts that have been cornering substantial business from leading private operators in India. Tejas is also making investments under the government’s modified special incentive package scheme and has plans to invest about Rs 17 billion in telecom equipment manufacturing.

Going forward
Currently, the company’s focus is on ensuring the successful implementation of its IPO plan. It is looking to raise close to Rs 8 billion from the listing and has appointed Axis Capital, Citibank, Edelweiss and Nomura as its bankers. The IPO, which is likely to be launched by February 2017, will most likely value the firm at Rs 24 billion. The funds from the IPO are likely to be used to pare existing debt as well as to strengthen international marketing.

In the long term though, the focus will continue to be on developing state-of-the-art optic fibre products and solutions for the Indian market. The domestic optic fibre market currently comprises less than 4 per cent of the global market, which offers significant opportunities for companies like Tejas. The company, with its financial revival, its R&D strength, and support from the Make in India initiative, is all set to tap the opportunities that come its way.

 
 

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