Tejas Networks secured a contract worth Rs 7,492 crore to provide its most recent 4G/5G radio access network equipment to Bharat Sanchar Nigam Limited (BSNL). Additionally, they will offer support and maintenance services for a duration of 9 years following the warranty period.

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In an interview with CNBC-TV18, Anand Athreya, MD & CEO and Arnob Roy, COO & ED of Tejas Networks said that the company has secured new orders with a total execution period spanning from 12 to 18 months.

Below is the verbatim transcript of the interview with Sonia Shenoy, Ekta Batra & Mangalam Maloo on CNBC-TV18:

Shenoy: I want to understand, you have said in your press release that the order will be executed this year and next. How much will you be executing this year; how much will come through in your revenue stream and what are the kind of margins that you enjoy with this order?

Athreya: We will be executing a large portion of the order and the total duration is going to take anywhere between 12 months and 18 months, and a certain percentage of that will get executed this year.

Maloo: What is that certain percentage? If you could give us a sense. And thereafter, there will be maintenance for nine years as well, right? What is the value of that?

Athreya: I would expect close to 40 percent to get executed by the end of this year and then the rest next year.

Maloo: And the maintenance?

Athreya: Maintenance is going to start three years from now and that would take nine years.

Batra: What is the value of that?

Athreya: It is actually several thousand crores.

Batra: The value of the maintenance contract, which starts three years later is worth around Rs 7,000 crore?

Athreya: No, Rs 7,000 odd crore is for all the equipment that we are supplying now, and then there will be several thousand crores later just for the maintenance. But that is spread over nine years.

Shenoy: In Q1, there was an issue with one of your Element Management System (EMS) partners moving their plant from one location to another. Can you tell us what was the loss with respect to that particular move and what was the loss in revenues and what are the expectations for Q2 and Q3 onwards?

Roy: We do not like to get into the specifics of how much it affected us, but it did affect us substantially, and we are past that right now. So, this quarter, our supply chain management, and our manufacturing lines are much more streamlined. So, that issue is behind us, and we should not get affected by that anymore.

Maloo: Just to confirm, this order is worth nearly Rs 7,500 crore and over and above that will be a maintenance order for about Rs 7,000 crore that would be spread over nine years starting three years from now. Is that correct?

Roy: That is correct. I think a few things are not yet there, I mean, the whole network will be more than 100,000 sites, and currently, we have got close to 100,000 not there; so, a smaller number of additional sites will come in. What is also missing over here is the 5G upgrade that is going to happen and that part of the order we are expecting which is going to come in subsequently and then there is the portion which is the services and the annual maintenance contract (AMC), and support for nine years post the warranty period.

Athreya: One thing I would like correct is, the order for the AMC, we have still not got the purchase order (PO) yet, and we will reveal the numbers once that comes in.

Batra: What could this do to the quarterly run rate in terms of sales, which you are clocking in? You did close to Rs 300 crore in Q4 (FY23) which went to around Rs 187.9 crore in Q1 (FY24). So, once you do start executing this order, revenues do start coming in. What is the quarterly run rate that we can expect in terms of sales on a sustainable basis for the company?

Roy: We do not give quarterly or annual guidance but given the size of the deal and the execution time period, and including whatever backlog of orders that we have, it should be a substantial increase to the quarterly numbers over the next few quarters going forward. How much it is, I would not like to quantify right now, and we will announce it along with the results of the quarter.

Maloo: You won't face any component delays, right? I mean, there was an issue of semiconductor shortage, etc. You are confident of fulfilling this order in the next two years?

Athreya: That is a plan. So obviously, there will always be component challenges. But we are working very well with the suppliers, and we will also use the government's help if we need to force the suppliers to give us the components in time. But to be very fair, everybody understands the urgency and importance of this deployment and they all showed us to support us along the way.

Shenoy: A couple of more questions, any more such orders in the anvil, anything that you are looking to close, perhaps in the next year or so?

Roy: Will not give guidance on that. Of course, there are many deals in the pipeline including large opportunities. I will not get into specifics right now, in the sense that this itself is an execution of this plus the addon that is going to come with the other things that I mentioned, 5G upgrades and additional sites and all those kinds of things are going to be fairly substantial. This is just the start of what we are seeing as part of the overall contract. There is some more to go over here. But apart from that there are many other investments that are happening in building the telecom networks in the country and we are working closely with our customers on that, and we will announce them as they come along.

Athreya: And one thing I would like to point out is this is one of the largest single purchase orders (POs) ever given to a mobility deployment. And this will be one of the largest deployments in the world. It’s important that we execute this, and I am sure more opportunities will open up both domestically as well as internationally.

Shenoy: One follow-up, on average your quarterly run rate has been in the range of around Rs 200-300 odd crore. Once a proper execution of these orders happens, what kind of uptick do you think, I am not talking about the here and the now; FY25-FY26 onwards what is the kind of average run rate that you are looking at on the topline?

Athreya: As Arnob said, we do not give guidance right now, but you should expect that once we execute this order, new opportunities and new markets will open up and we have a mission to build one of the largest network and telecom companies out of India, for India and rest of the world. So, what that should do to us is to actually open up new opportunities both domestically in service providers as well as enterprise and also internationally.

Maloo: What will be the margin on this order?

Athreya: We do not share margins.

Maloo: Just wanted to understand if it's in line with your current margins, is it margin accretive, or is it margin dilutive? Not asking for a number, but just an operational direction maybe, if at all.

Athreya: There are too many things involved right now. We are just focused on execution and margins will come out as we announce the results.

Batra: A two-part question -- is there any downside risk to this order? For example, receivables? Are you anticipating an increase in terms of receivables while you are executing this order? And you mentioned that 5G would be a possible opportunity in terms of upgrading. How much do you think that opportunity would be? Can you quantify it?

Athreya: In this deal the way it is structured is we will get the money from Tata Consultancy Services (TCS) who will get their money from BSNL. So, that is one. So, I do not see a lot of risk from the receivables point of view. The second thing is, I see great teamwork in terms of BSNL, TCS, Tejas and ITI, all working towards one direction to make this happen because this will be momentous when we get this done. On the 5G, roughly 40 percent of the sites will get upgraded from 4G to 5G. But I think that's the first step. When we execute this, it will also open up opportunities for brand new 5G deployments, both in India as well as internationally.

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