Tejas Networks, whose IPO opens on June 14, is the only Indian company present in India's top 10 in the Indian optical networking equipment market, with a 15% market share. The segment is otherwise dominated by global giants like Huawei, Nokia, and ECI Telecom. At the IPO price band of Rs. 250-257, the stock is available at a multiple of 35.6-36.4X of the firm's FY17 EPS.
Performance till date
Tejas’ operating revenues and EBITDA have grown at 24.2% and 40.9% CAGR over FY13-17 to Rs 878.2 crore and Rs 174.2 crore, respectively. It is coming with a fresh issue of Rs. 450 crore (1.75-1.8 crore shares) and offer for sale (OFS) of Rs. 317.8-326.7 crore.
88% of FY17 revenue from repeat business
Tejas' major clientele includes BSNL, PGCIL & RailTel. It also supplies private telcos like Airtel, Idea and Aircel, and as a result 19% of the company's revenues are from the private sector. The company's loyal clientele base generated 88% of FY17 revenues for the company - essentially repeat business for the firm.
Growth opportunities
Currently, India is the largest geographic segment (65% of revenues in FY17). The company’s management is optimistic about expansion to markets structurally similar to India, including South East Asia, Latin America, and Africa.
Tejas is banking on growth opportunities arising out of Digital India and the Make-in-India programmes of the Indian Government along with demand from the private telcos as they expand their 4G network. The company is likely to benefit from growth in high speed digital communication, given rising data consumption.
Risks for Tejas Networks
The Indian telco market's margins are under pressure, which may impact Tejas' margins in turn. The company also has a long working capital cycle, which can put cash generation under pressure for the firm. Tejas Networks also does business in a highly competitive market with global players, and constantly faces the challenge of having to enhance and build on its products.
The company recently won the India Innovation award for 2017 (which is awarded based on patent related metrics) - so its not as if the company is not up to the challenge, but will have to ensure hiring and business practices that constantly hew to the best in class.