ICRA has reaffirmed the long-term rating at “[ICRA] A+” and short-term rating at “[ICRA] A1+”. The outlook on the long-term rating is ‘stable'.

ICRA said that the reaffirmation of Tejas Networks Limited's (TNL) ratings factors in the financial flexibility emanating from the strong parentage of Panatone Finvest Limited (PFL), which is a subsidiary of Tata Sons Private Limited (TSPL) and an investment holding company of the Tata Group for investment in telecommunication.

Further, the ratings draw comfort from TNL's healthy order book, strong track record in the industry and its long-term relationship with some large clients, which has helped it to maintain a healthy market share in the optical networking space in India.

TNL's financial risk profile is marked by strong capital structure and debt protection metrics and a healthy liquidity position with nil debt and unencumbered cash and liquid investments of ~ Rs. 1,215.7 crore as on 31 December 2022.

The Atmanirbhar Bharat Abhiyan of the Government of India (GoI), which is aimed at limiting import dependence and increasing the demand for indigenous products, also provides better growth opportunities for the company.

Further, TNL's application for the design led production linked incentive (PLI) scheme for manufacturing telecom and networking products has been approved by the Department of Telecom, Government of India.

The ratings, however, are constrained by modest profitability in the last two years on account of a reduction in the gross margin and high fixed expenses. The gross margins were impacted by rising input costs and depreciating exchange rates.

Further, despite a healthy order book, the revenue in FY2022 and 9M FY2023 was impacted by supply chain challenges caused by the global semiconductor component shortage. Consequently, TNL was not able to absorb the fixed cost base because of which the profit margin continued to be under pressure.

TNL continues to face delays in the realisation of receivables, which has put pressure on its cash flows. Additionally, the increased inventory holding has elongated as certain shipments were deferred due to shortage of critical components. However, going forward, the cash flow position is expected to improve, supported by improved collections and liquidation of inventory.

The ratings continue to be constrained by stiff competition from global players such as Nokia, Ciena, and Huawei, among others, who have a more diversified product offering and the advantage of economies of scale.

Tejas Networks designs and manufactures wireline and wireless networking products, with a focus on technology, innovation and R&D. TNL carrier-class products are used by telecom service providers, utilities, governments, and defence networks in 75+ countries. TNL has an extensive portfolio of telecom products for building end-to-end telecom networks. It is currently a part of Panatone Finvest Limited (a subsidiary of Tata Sons Private Limited).

The company reported a consolidated net loss of Rs 10.88 crore in Q3 FY23 as against a net loss of Rs 24.30 crore posted in Q3 FY22. Revenue from operations zoomed 156.4% to Rs 274.55 crore in the quarter ended 31 December 2022 from Rs 107.06 crore recorded in the same period a year ago.