Have recently started initial positions in this scrip.
With that said, key competitive advantages can not be better underlined than in this (rather old, circa 2018) interview ‘Software is a sweet spot for our company’ - The Hindu
I quote several excerpts
“You (have to) build deep technology product companies, not services, and use India as a home market, which is a huge sandbox for you to really perfect your product and then go around the world.”
“In 5G standardization, some of the operators and the government played a key role. India standards body threw its weight and enabled India to become the seventh voting member in the world. Now that we have a say in the standards, we have come to know the standards early and we can design the products, protocols and create IP which you can actually monetize when the standards become bigger.”
“If you were to look at 15 years back in a telecom equipment probably 80% of the value came from hardware and 20% value from the software. Any country in the world which had an advantage in electronic manufacturing will win. So China did extremely well in that scenario. The next 10 years, starting from 5G and other technologies are going to be the reverse equation. In software, we are as good as anybody in the world, we do not have a disadvantage.”
"The number one sustainable advantage we have is ….if I can do $100 worth of R & D in the U.S., I can do four times the same R & D for the same dollar if I do it out of India. "
“On the same financials, for example, if you think from a gross profit angle, telecom equipment industry 20 years back, the gross profit of the industry was about 55-60%. Now over the last 20 years because of competition from China, it has become 35-40%. For this profit, you got to spend a lot in R&D and SG&A. Most of the Western world countries are not able to find enough money in R&D and as a result, they spend 30-40% on operating costs and do not have any profitability left.”
“my capex is actually R&D. R&D is manpower. So 75% of our operating cost is people cost. So the scalability of the business is very easy. We may need to hire about 1,500 people a year and hiring a few good men is not that difficult.”
Now, considering the latest developments
- COVID impact on networks/bandwidth/connectivity requirements
- Security concerns around Chinese equipment
- 5G inevitability
- TATA branding
All the points mentioned in the the old article above, suddenly have become so much more of a competitive advantage. In fact, It is beginning to look like a very strong moat, dependent solely on execution.
Request long term followers/investors of this ticket to provide their thoughts regarding current situation.
Edit: the R&D ratio of 4 times is on 2018 exchange rate. Today its probably around 7 times.
