ICRA has upgraded the long-term rating of Tejas Networks to "[ICRA]A+" from "[ICRA] A-%". It has also upgraded the short-term rating to "[ICRA]A1+" from "[ICRA]A2+".

The outlook on the long-term rating is 'stable' and the ratings have been removed from 'rating watch with positive implications', the credit rating agency said.

Offering the rating rationale, ICRA stated that the rating upgrade factors in the strategic investment by Panatone Finvest (PFL) under a definitive agreement with Tejas Networks (TNL) in July 2021 for a controlling stake in TNL.

PFL, as of Q4 FY2022, had acquired a 37.7% stake in TNL, leading to an inflow of Rs 837.5 crore (including Rs 337.5 crore received against share warrants) and PFL will increase its shareholding in TNL as per the definitive agreement.

The rating upgrade also takes into account the financial flexibility emanating from the strong parentage of PFL, which is a subsidiary of Tata Sons (TSPL), and an investment holding company of the Tata Group's 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 strong liquidity position with nil debt and cash and liquid investments of approximately Rs 1,164.5 crore as on 31 December 2021.

The Atmanirbhar Bharat Abhiyan of the Government of India (GoI) also provides better growth opportunities for the company.

Further, TNL Production Linked Incentive (PLI) scheme application for telecom manufacturing has been approved by Department of Telecom, Government of India.

The ratings, however, are constrained by decline in revenue and profitability in past two years on account of a significant reduction in revenue, primarily from the government sector.

Further, TNL continues to face delays in realisation of receivables primarily from one PSU customer, which has put pressure on its cash flows. Additionally, the increased inventory holding due to deferment of certain shipments on account of critical component shortage has elongated the working capital cycle.

The company's ability to generate improved revenue and profitability through sustained growth in business from India private and international segments while improving its overall collection cycle period, will remain key rating sensitivities.

Tejas Networks is a broadband, optical and wireless networking company, with a focus on technology, innovation and R&D. TNL carrier-class products are used by telecom service providers, utilities, government, and defence networks in 75+ countries. TNL has an extensive portfolio of telecom products for building end-to-end telecom networks.