Tejas Networks - Product based IT business in a favored sector?

Will this satellite make Tejas’s Direct to Mobile communication possible?

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It is good to note that, Khush Tech, a Tejas partner for D2M mobiles, is exploring online e-commerce distribution opportunities, talking to telecom service providers for bundling D2M mobile devices with their services and creating an integrated UPI payment mechanism on D2M-enabled mobiles, tablets, and laptops. This will definitely increase revenue potential for Tejas Networks in the coming years.

Tejas networks shares have fallen long enough and deep enough for me to finally take some time and do some work on it. Here is my understanding of the situation. I can be completely wrong and the following is certainly not a recommendation to buy, sell or hold.

Currently, we are seeing 90% yoy revenue fall due to the BSNL work being finished(almost). The market is treating it as a spent force. There is a leadership vacuum since the last CEO resigned. Receivable are very high, which has lead to heavy debt, and interest burden is like 300 crores per year. So, things are bad. On top of it, management is very reticent. They do concalls, but are shy of giving any future numbers. But are there some hopes for the future?

  1. The inventory is around 2300 crores. However, half of this is almost already sold. The company awaits a PO from BSNL of about 1500 crores. So this inventory can immediately become revenue without any manufacturing lag. We can see a “super quarter” either in Q4 or by Q1 or Q2 of FY27.
  2. The BharatNet Phase 3 opportunity seems to be significant however no number are available. They have won 7/12 packages of the phase.
  3. There can be some orders from Vodafone, but that is not certain.
  4. The trials with Kavach for Indian Railways are going on. There is a good probabability that it would perform the same way they have done in BharatNet. This will be a long term opportunity.
  5. The D2M is a long shot. I do not think this will be very big or even can be a non-starter. The KhushTech from Korea is an SME, not a big manufacturer. Even the name is very Indian. The policy is not clear on D2M. Same band is sought by telcos for 5 and 6G. I do not think the govt would be able to assign it to TV without a legal challenge. Secondly, nobody wants an antenna coming out of their phone, even in rural areas. There will likely be no mandate on this except in case of emergency broadcasts(still not convinced this would happen).
  6. They continue to make IP and that I think is a good thing. They have filed for 26 more patents this quarter, mostly for 5g and 6g. Now if the final 6g architecture is aligned to their patents, it opens up the path to them becoming a very profitable firm with licenses. think a mini ZTE or mini Huawei. But that is the moonshot.
  7. They have also started working with datacenters for switching gear.

They have recently got their 500 crore commercial paper rated, so I think they will be able to continue without dilution.

The way I understand, BSNL is key for 2027 revenue. I think the lack of PO is because they have no budget for 2026. The budget will likely give them space for releasing funds and the PO. BharatNet too will start coming in 2027. I think we should see bigger numbers that in FY24 but lower than in FY25. However in 28-30 is when a new capex cycle in 5G and 6G will perhaps start. That is also the time when BharatNet will end and Kavach cycle should be at peak.

I cannot comment on the valuations as of now and the work continues. However, it looks like we might be trading at 20x 2027 PAT, which seems to be fair value to me. Will try and do some more work on that and post.

Disclosures : I have recently started buying Tejas Network shares, and will perhaps continue to buy in coming weeks. I am biased and above information is not a recommendation. I am not a SEBI registered RA and above is not investment advice.

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