How Sanjay Nayak brought Tejas Networks back from the brink of failure

INDIA - JANUARY 31: Sanjay Nayak, CEO TEJAS Network, at office, in Bangalore, India. Potrait (Getty Images)

As demand for higher broadband data speed rises in India, Bangalore-based Tejas Networks is approaching a tipping point. Started in 2000, Tejas Networks is the only standing home grown telecom hardware company in India which has successfully tackled competition from its Chinese or American rivals.

The company makes optical transmission products and software such as ethernet switches.

From a young startup post the dot com bust to now a publicly listed company since June, this year, Tejas Networks has seen the whole curve.

In its first Q1 results, last week, the company posted a sharp growth in its net profit to nearly Rs 20 crore during the April-June quarter, reversing the loss of Rs 1.75 crore the company had reported in the same period last year.

The company had a stellar IPO debut in June, becoming one of the few Indian IT hardware product makers to go public. The IPO, which raised Rs 450 crore through the issuance of 1.7 crore shares, was subscribed about 1.9 times at close.

“There’s only one motivation that kept us going, that we wanted to build a home grown hardware company. All our actions were motivated by that thought,” says Sanjay Nayak, Tejas Networks’ co-founder and CEO in an exclusive interaction.

'Building a good company is like a marathon'

The company has seen multiple failures in the past.

The first blow Tejas Networks suffered was in 2009 on account of one of its largest customer back then – Canadian telecom equipment maker Nortel. The company filed for bankruptcy and drove down Tejas’ revenues from a peak of Rs 600 crore to just Rs 200 crore.

“It was a very difficult time. Our international revenues were growing at 100 percent y-o-y that time, which was majorly due to Nortel. But once it filed for bankruptcy, we started sinking rapidly,” Nayak says.

Soon after came the second blow. It hit where it hurt the most. The infamous 2G scam, involving then telecom minister A. Raja, broke out in 2010-11, impacting the basic spending of telecom companies on infrastructure and equipment.

“It was a double whammy. Indian operators were not spending, international revenues were in the doldrums. There was a fire at our facility; our manufacturing unit in Pondicherry was flooded. Things weren’t going very well,” Nayak says.

Nayak gradually resurrected the company from catastrophic disasters to first recover from the two blows, and then to drive it to profitability.

“It took us much more time than we had thought. But building a good company is a marathon, not a sprint!” Nayak says.

The credit of that success, he says, rests entirely on the company’s team. With engineers who have stuck with the company for decades, Nayak never ignored the power of R&D.

'Stick to your bigger vision, invest in R&D'

“We always looked at the big picture and stuck to it. We had a sense that the industry has potential to grow so we continued our efforts at innovation,” he added.

In the year that the company’s revenues hit its lowest level of Rs 200 crore, Tejas Networks still invested Rs 50-60 crore on R&D. “That saved us,” Nayak says.

Tejas Networks spends at least 9-10 percent of its revenue on R&D.

Spending is much higher at 15-20 percent with its peers in the international market. “But we have cost advantage here. So we can hire 4-5 engineers for the same amount they will hire just one. So the productivity we get out of 9-10 percent R&D investment is much more than those who are investing 15-20 percent,” Nayak explains.

According to him, the company has products that can address over 80 percent of the optical network market, highlighting the high R&D efficiency.

The company’s push towards software defined hardware also helps the company keep down the costs. It allows them to reuse an existing hardware design and just reprogram with upgrades.

The company’s efficiency levels are also evident in the fact that in FY17, Tejas Networks doubled its revenue y-o-y while growing its R&D workforce to about 610 from just about 550 last year.

'Have patient investors, retain talent & be lean'

“We have been able to retain exceptional talent for years that has helped us be consistent in our innovations. It helps us stay ahead of the competition. Then we have investors who are not impatient. They stuck with us through difficult times, which is big support considered the fall we saw,” Nayak added.

But a more important point to highlight here is the company’s lean structure, which probably was the single most factor that kept the company floating. It meant less pressure in testing times, and it gave enough leg room to continue investing in R&D.

The company had raised USD 35 million from investors such as Battery Ventures, MayField, IL&FS prior to going for an IPO.

“Capital wise we have always been underfunded compared to our global peers. So we had to make sure that every dollar we have in the company is optimally used. The lean organisation philosophy came naturally to us. Our peers have huge expenses, compared to us, which eats on to their margins,” he says.

The company is now looking at expanding its R&D investment, “because that really is our bread and butter,” now that the company has had a successful close to the IPO. With its customers and clients deploying larger and high capacity data networks, Nayak is ready to handle the huge quantum of network up gradation the telcos will soon launch.

Preparing for 5G deployment

Currently, Nayak is spearheading deployment of its proprietary gigabit passive optical networks (GPON) products for 40,000 villages for high-speed internet, under the government’s BharatNet program.

Nayak is also taking a proactive approach in the emerging technologies. The company is collaborating with standardisation organisations such as the International Telecommunication Union and 3GPP to evolve standards for 5G. India is now the 7^th voting member on the 3GPP standards body.

“The plan is to get directly involved in the process of technology evolution and create our own IPR. When 5G is ready to be deployed in 2019-2020, we will be ready too,” Nayak claims.

In the hardware space in general, Nayak feels the game changer will be Internet of Things (IoT). According to him, 5G will have 1000 times more devices connecting to it, because of IoT products, which can include anything from home appliances to cars. “It again boils down to our business. For all that to happen, IT backhaul needs to be robust. There’s a significant market for us right there,” Nayak says.

For the whole financial year 2018, Nayak expects the company to clock a top-line growth of 20 percent. “Q1 was much faster, but on a whole year basis, that’s the trend we are noticing. And we think 20 percent growth is very much sustainable in coming years also,” he says.

durba.ghosh@nw18.com