India will be the fastest growing optical networking market in the world in 5 years: Sanjay Nayak

Interview with MD & CEO, Tejas Networks

Tejas Networks, home-grown telecom hardware company backed by Gururaj ‘Desh’ Deshpande, is preparing for an initial public offering (IPO) this year. Sanjay Nayak, co-founder, managing director and chief executive, tells Bibhu Ranjan Mishra the rolling out of fourth-generation technology (4G/LTE) and increase in consumption of data are expected to drive the revenue of telecom equipment suppliers. Edited excerpts:

What is making you reactivate to the IPO plan you had shelved back in 2008-09?

We were preparing for it then but first the Lehman Brothers (collapse and global financial turmoil) happened, followed by the telecom spectrum scam (at home). Then, Nortel, one of our biggest customers, went bankrupt. Three strikes from one side.
 

We went into introspection mode and said, let’s re-invent ourselves. We reinvested in technology, in sets of products, and re-sized the company. Today, we are lean, mean and fit, and growing. In the year ended March this year, we crossed $100 million in revenue, we are profitable, and are probably the only unlisted company in India in the core hi-tech ICT (information and communications technology) sector, which grew 60 per cent over a year. I don’t think you will get a single company where all these three criteria would be there.

Is this growth looking much more real now? You don’t expect any more bumps on the way?

Of course, much more real, and we are definitely going to see a growth rate of 30 per cent annually over the next five years. We grew from zero to $100 mn (around Rs 600 crore) in eight years. Then, from 2009 to 2012, our annual revenue came down to almost Rs 200 crore because of all the external mess. Then, in the past three years, we grew steadily to now reach Rs 674 crore. Back to our previous position and the growth is much better — earlier, it was concentrated on government (of India) tenders and Nortel, both of which went away in one shot. Now, we have geographical diversity; 40 per cent of revenues come from international markets. There is no more dependency on only one country or one customer.

How does the demand environment seem?

We are probably the only company at the intersection of three very important things happening in India now -- Make in India, Digital India and Start-up India. We are a start-up, which makes in India and which probably is the single largest beneficiary of Digital India because all these National Optic Cyber Networks, Smart Cities and the huge spending that is happening in (the) defence (sector).

We are the guys who have core deep technology that will influence in a positive way all three parameters. If you look at India, except for one multinational corporation, we are in every single (telecom) operator’s network. If you make a phone call in India, more than 60-70 per cent chances are that it has to go through a Tejas box somewhere. This is what we did last year.

What is triggering the demand from private operators and the government?

The telecom equipment market worldwide is $200 billion per year. Within that, the optical networking market we address is about $15 bn. Thus, one of the thrust areas for India is telecom export. Domestically, the Indian optical market is $400-500 million. The reason it is so low is because we have a problem in connecting fibre to the base stations. Only 20 per cent of our cell towers are connected by optical fibre. Whereas, it is a $2-bn market in China; they made a regulation that every cell tower should have fibre optic connectivity. As a result, 85 per cent of Chinese cell towers are connected with fibre.

Things seem to be changing in India. The government itself is going to take the National Fibre Optic Network; in the first phase itself, they will take 500,000 km of new fibre into villages. In the next phase, they will take 1.5 mn km of new fibre and connect all the towers and base stations. Third, they have allowed active infrastructure sharing. That has helped the operators to cover a lot of sites, as there are four-five mn passive sites which are now coming into active electronics.

So, India would probably become the fastest growing optical networking markets in the world for the next five years. As 20 per cent of the cell towers are on fibre, even if they become only 50 per cent over a five-year period, we are talking about doubling and tripling. All the investments which have been made in optical fibre in the past 15 years will need to be made over the next three years.

Why is optical fibre so important for telcos now, especially when the operators are rolling out 4G/LTE?

Inter-city fibre is not an issue but intra-city fibre is a challenge. The problem even becomes bigger with 4G. What happens is that up to 2G, you could connect base stations on microwave (a small circular dish), a point-to-point technology. The problem is microwave can carry only 100 Megabits point to point. Now in LTE, you are expected to get 2-5 mbps. So, you have to go to fibre and until you have optical fibre, you will not get a good broadband or 4G experience.

How has been the Tejas focus on innovation?

The telecom space is very dynamic globally, in terms of adopting to newer technologies. Every five to seven years, operators come out with a new vendor selection cycle, especially when the technology changes. That means when 3G was there, there will be certain vendors and when they change to 4G, a new set of vendors come in.

Similarly, in our business of fibre optics transport, worldwide all operators are selecting new vendors because technology has changed. As a company, even when we were going through difficult phases, we continued to invest heavily in research and development (R&D). In the past five years, while our revenues were low, our R&D (proportion) was at the highest. In one year, we used 60 per cent of our revenue in R&D. That is now helping us.