About the Company:
Tejas Networks is a India-based optical and data networking products company with customers in over 60 countries. They design, develop and sell high-performance and cost-competitive products to telecommunications service providers, internet service providers, utility companies, defence companies and government entities(collectively, “Communication Service Providers”).
Company’s products are used to build high-speed communication networks that carry voice, data and video traffic from fixed line, mobile and broadband networks over optical fibre.
Company’s products utilise a programmable software-defined hardware architecture with a common software code-base that delivers an app-like ease of development and upgrades of new features and technology standards.
Currently India is the largest geographic segment (in terms of revenue) and they are well-positioned to take advantage of the growth opportunities arising out of the Digital India and the Make-in-India programs of the Indian Government.
Over the years, Company has invested heavily in research and development in order to grow through multiple technology cycles and are well-positioned to capitalize on the expected growth in optical capital expenditure globally. Driven by rising smart phone penetration and a massive increase in data traffic, global optical capital expenditure is expected to increase from US$14.6 billion in 2014 to US$17.9 billion in 2020.Further, optical equipment expenditure in India is
expected to grow from US$391 million in 2014 to US$869 million by 2020, at a CAGR of 14.2%.
In FY 16 they were the second largest optical networking products company in terms of market share in India, with a market share of 15% in the overall optical networking market.
Company’s engineering and management teams have diverse experience in optical communication systems, networking protocols, Field Programmable Gate Array (“FPGA”) design, embedded system software, application software,high-speed printed circuit board (“PCB”) design, thermal and mechanical design, product management, quality
and test engineering and reliability engineering.
Company outsources most of their manufacturing to reputed electronics manufacturing services (“EMS”) companies.This allows them to stay asset-light and enables them to scale-up production without requiring a corresponding increase in capital expenditure towards manufacturing operations.
Company sells its products predominantly through a combination of direct sales to Communication Service Providers as well as by leveraging their strong relationships with leading global optical vendors as well as integrated solution providers as original equipment manufacturer (“OEMs”).
Company has a history of high customer retention and their top five revenue generating customers (except two customers) for each of financial years 2017, 2016 and 2015 have been continuing to use the products for over a decade. Company’s strategic OEM relationships enable them to gain access to their customers, especially in North America and Europe and grow the international business in these geographies.
TOP 10 Shareholders:
| Sr.No. | Shareholder Name | Number of Equity Shares held | Percentage of Equity Share Capital |
|---|---|---|---|
| 1. | Cascade Capital Management Mauritius | 21,843,184 | 31.38 |
| 2. | Samena Spectrum Co | 13,981,648 | 20.09 |
| 3. | Mayfield XII, Mauritius | 7,106,628 | 10.21 |
| 4. | Sandstone Private Investments | 4,487,250 | 6.45 |
| 5. | Intel Capital (Cayman) Corporation | 4,181,400 | 6.01 |
| 6. | Sanjay Nayak | 2,563,967 | 3.68 |
| 7. | India Industrial Growth Fund | 2,514,147 | 3.61 |
| 8. | Kumar N Sivarajan | 1,721,700 | 2.47 |
| 9. | Arnob Roy | 1,164,200 | 1.67 |
| 10. | Intel Capital Corporation | 1,150,404 | 1.65 |
| Total | 60,714,528 | 87.22% |
Competitive Strengths:
- Company’s end-to-end portfolio of optical networking products positions them well to take advantage of the expected industry growth.
- Leadership in the fast growing Indian optical equipment market.
- Track record and culture of innovation leading to product and technology leadership.
- Cost and capital efficient business model.
- Long standing customer relationships with strong repeat business.
- Strong professionally managed team with significant industry experience.
- Company has a very strong Research and Development Team.
Company’s Future Growth Strategies:
- Will Continue investments in innovations focused on the high growth optical networking segments.
- Will Expand into newer and adjacent product areas.
- Will Continue to strengthen company’s leadership position in India.
- Will Expand global sales network in emerging and selected developed markets.
Company’s products offering are as follows:
- Optical Networking Products.
- Broadband Access Products.
- GPON based Broadband Access Products.
- 4G/ LTE based Wireless Broadband Access Products.
- Network Management Software.
Company’s Major Customers are as follows:
- Ciena
- .NEC
- Bharti Airtel.
- BSNL.
- Ciena.
- Sacofa.
- Tata Communications Limited.
Manufacturing of Company’s products:
Company outsources most of its manufacturing to reputed EMS companies. They use two EMS vendors, which we believe enables them to achieve product delivery timelines and specifications and also brings efficiency in their supply chain.Company conceptualises these products, select suitable components, design the PCBs and the test jigs and specify quality standards. EMS companies procure the components and manufacture the PCBs, test and assemble the PCBs (as per company’s test specifications) and ship tested and qualified PCB cards. Company does the product assembly, software and hardware integration and final acceptance testing in-house at company’s manufacturing facility in Bengaluru and ship the products to customers.
Company has entered into manufacturing and service agreements with Sanmina and Cyient for the provision of end-to-end contract manufacturing services.
Competition in the Business:
- Company’s competitors include end-to-end telecom equipment manufacturers such Huawei Technologies Co., Ltd., Nokia, ZTE Corporation, and Ericsson, specialised optical network equipment providers such as Ciena, Coriant, Fiberhome, Adtran, Adva, ECI, UT Starcom and Infinera and Ethernet switches and IP router providers such as
Cisco and Juniper. - Company’s competitors for DWDM products are Huawei, Ciena, ZTE, Nokia, Adva and Infinera. Our primary competitors for GPON based broadband access products are Huawei, Nokia, ZTE, Dasan, UTL and Alphion.
- Company’s competitors for 4G/LTE based wireless broadband access products are Ericsson, Nokia, Samsung, ZTE and Huawei.
- Company’s competitors for enterprise Ethernet switches are Cisco, Juniper, Huawei and HP.
Employees of the Company:
Company has around 607 employees, including 313 employees in research and development, 184 employees in sales, marketing and customer support, 62 employees in manufacturing operations and 48 employees in general and administrative activities. Substantially all of the employees are located in India.
Registered office of the Company:
Company’s registered office is located at 5th Floor, Plot No. 25, J P Software Park, Plot No. 25 SY No.13, 14 17 and 18,Konnappana Agrahara Village, Begur Hobli in Bengaluru, Karnataka, India. They occupy approximately 95,000 square feet of office space, which has been leased under a lease agreement.
Objectives of the Company:
- To engage in the business of providing, designing, developing, selling, and servicing of networking equipment and software in India and abroad.
- To develop, manufacture and deal in application tools of all kinds for internet based applications, and to provide internet service, and deal with all kinds of software and hardware related to all fields to internet communication.
- To develop, manufacture, deal in, export and import all kinds of computer software, application software, computer systems like data management systems, digital systems, storage systems, memory systems, information systems and the like.
Subsidiaries of the Company:
- Tejas Communication Pte. Limited.
- Tejas Communications (Nigeria) Limited.
- Tejas Israel Limited.
- vSave Energy Private Limited.
Company’s Management Team:
- Balakrishnan V. (Designation: Non-Executive, Independent Director and Chairman)
- Sanjay Nayak (Designation: Managing Director and Chief Executive Officer)
- Dr.Gururaj Deshpande (Designation: Non-Executive Director)
- Shirish Saraf (Designation: Non-Executive, Additional Director)
- Leela Krishnamurthy Ponappa (Designation: Non-Executive, Independent Director)
Positives for the Company & the Telecom Sector:
- The last few years have seen domestic Telecom manufacturers grow significantly because of policy support.
- In telecom alone, projects worth about Rs.10,000 crore are being executed by domestic players under government procurement.
- With a massive focus on Make in India and Digital India initiatives, a large opportunity for telecom products and services has been created.
- Indian telecom sector is considered as the fastest-growing telecom market in the world which requires equipment and technology.
- While awarding the contract “Bharat Broadband Network Ltd” is following India’s Preferential Market Access (PMA) policy.( where it is mandatory to procure 75% of its total equipment requirement from the Indian vendors)
- Preferential Market Access (PMA) rules will apply in case of mega government telecom projects like NOFN, calling for mandatory local sourcing of 24 telecom products classified as security sensitive.
Negatives about the company:
- Competitors are large global companies such as Huawei Technologies, Nokia Corporation, ZTE Corporation, Ericsson, Ciena, Coriant & Fiberhome.
- Competitors( MNCs) have significantly greater financial, technical, marketing resources.
- Management is seeking “High valuations” .(as compared to its financials)
Financials of the Company:
| (in Crores) | FY 12 | FY 13 | FY 14 | FY 15 | FY 16 | FY 17 |
|---|---|---|---|---|---|---|
| Revenue | 201.42 | 369.27 | 423.00 | 386.8 | 627.45 | 878.19 |
| Net Profit | (-92.8) | (-79.04) | 2.77 | (-17.86) | 29.00 | 63.2 |
