Tejas Networks: Blockbuster Quarter; More To Come?

Moneylife Digital Team 26 April 2024

Investor Interest

Tejas Networks Ltd (TNL) declared its Q4FY23-24 results on 22April 2024. We had discussed the company’s business here. On all parameters, this proved to be a blockbuster quarter for the company. Net sales increased 343% year-on-year (y-o-y) to Rs1,327 crore. While this included production linked incentive (PLI) of Rs160 crore, net sales increased at 290% y-o-y, even after being adjusted for this incentive. TNL’s strong growth was on the back of execution of orders from Bharat Sanchar Nigam Ltd (BSNL) for its 4G project. TNL closed FY23-24 with its highest-ever sales of Rs2,314 crore and an order-book of Rs8,221 crore.

TNL claims that execution of this order-book is progressing well. It is undertaking installation of 4G and 5G radio access network (RAN) equipment for BSNL’s pan-India network and has already shipped equipment to over 10,000 sites. However, these constitute only about 10% of the total sites yet to be serviced; the rest of the sites are expected to be serviced over the next two to three quarters generating around Rs7,700 crore of total revenue over this period. TNL has completed supplies of TJ1400 access and aggregation routers for BSNL’s multi-attribute addressable network (MAAN) -– the largest network of indigenous internet protocol multi-protocol label switching (IP-MPLS) routers in India. Apart from executing its existing order-book, TNL has also reported strategic order wins for supply of dense wavelength-division multiplexing (DWDM) and switching/routing products in the critical infrastructure sector.

TNL’s strong sales growth also allowed the company to report highest-ever operating and net profit during the quarter, on the back of its operating leverage.

Having established its dominance in India, TNL is now looking at winning orders from private telecom companies of rest of Asia and Africa for the backhaul expansion of their 4G and 5G networks. As international orders form only about 3.2% of TNL’s current order-book, international expansion presents a key long-term growth tailwind for the company. In India, while the current orders from BSNL provide short-term visibility to the company, it is also favourably placed to capitalise on expected capital expenditure (capex) by the government of India (GoI) BSNL, Bharat Net phase-3, Indian Railways’ Kavach systems, etc. These projects are expected to provide an order inflow of Rs30,000 crore, in aggregate. Of these, the tenders for Bharat Net phase-3 are already in process. While large expected order wins will support TNL’s sales growth in the medium to long term, its research & development (R&D)-focused asset-light business model is expected to support its profitability and return ratios.

Valuation

As the pace of order wins and execution has improved remarkably in the near term, looking at TNL’s trailing financial performance may not be useful. At a share price of Rs1,029.70, the stock trades at 16.31x its consensus FY24-25E (estimated) earnings per share (EPS). TNL is expected to sustain its strong growth over the medium to long term, on the back of new order wins and enhanced execution. Taking this into account, its current valuation appears reasonable.

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