tejas networks ltd Management discussions

3. Inventories

On a standalone basis, during the year ended March 31, 2023 inventory increased by Rs.350.05 crore and the inventory balance was Rs.628.07 crore as at March 31, 2023, compared to Rs.278.02 crore as at March 31, 2022. Inventory days outstanding increased to 295 days as at March 31, 2023 as against 289 days as at March 31, 2022.

On a consolidated basis, during the year ended March 31, 2023 inventory increased by Rs.368.84 crore and the inventory balance was Rs.646.86 crore as at March 31, 2023, compared to Rs.278.02 crore as at March 31, 2022. Inventory days outstanding increased to 301 days as at March 31, 2023 as against 289 days as at March 31, 2022.

The increase in inventory is on account of securing some long- lead components in anticipation of expected orders that require faster delivery. In addition, inventory increased since we built of a majority of the sub-systems but could not ship out complete systems, due to lack of availability of certain components.

4. Financial assets

a) Investments

Investment in subsidiaries is carried at cost as per Ind AS 27, Separate Financial Statements. Investment includes Rs.294.81 crore (previous year Rs.10.87 crore) out of which Rs.10.87 crore is towards investment in the 100% subsidiary company Tejas Communications Pte Ltd and Rs.283.94 crore investment in majority owned subsidiary Saankhya Labs Private Limited.

Pursuant to a definitive agreement entered into by the Company with Saankhya Labs Private Limited (Saankhya Labs) and its shareholders on March 30, 2022, the Company acquired majority stake in Saankhya Labs Private Limited on July 1, 2022. The Company between July 01, 2022 to August 19, 2022 acquired 64.40% of equity shares in aggregate through secondary purchase at a price of Rs.454.19 per equity share amounting to Rs.283.94 crore (refer note 40 of consolidated financials).

Other investment comprise of investment in reputed mutual funds amounting to Rs.262.24 crore as at March 31, 2023 (previous year Rs.401.78 crore), and investment in ELCIA ESDM cluster of Rs.11,000/- as at March 31, 2023 (previous year Rs.11,000/-).

b) Trade receivables

We manage credit risk by regularly monitoring individual customer payment capability, their creditworthiness, their past payment performances, and through routine communication with those customers and the concerned parties.

On a standalone basis, trade receivables amounted to Rs.481.28 crore and Rs.282.58 crore as of March 31, 2023 and March 31, 2022, respectively. On a consolidated basis, trade receivables amounted to Rs.518.03 crore and Rs.292.16 crore as of March 31, 2023 and March 31, 2022, respectively. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. On a consolidated basis, Days sales outstanding (DSO) was at 161 days as at March 31, 2023, compared to 234 days as at March 31, 2022.

As per Ind AS 109, we are required to apply Expected Credit Loss (ECL) model for recognising the allowance for doubtful debts.

While Rs.87.91 crore and Rs.87.76 crore was provided as ECL on a standalone and consolidated basis respectively in the previous year, during the current year we partially collected the receivable which had been provided for in the earlier year. Hence the reversal of ECL of Rs.33.32 crore and Rs.32.97 crore on a standalone and consolidated basis respectively. We will continue to focus on collecting the receivable amounts which are overdue.

Our cash and cash equivalents comprise deposits with banks and financial institutions with high credit-ratings assigned by various credit-rating agencies. Investment in mutual funds are placed with reputed Indian Mutual Fund where we have no or negligible risk to capital.

On a standalone basis, during the year our total cash and cash equivalents (including investment in liquid mutual funds and deposits with financial institutions) improved by Rs.193.16 crore and stood at Rs.1,293.28 crore as at March 31, 2023, as compared to Rs.1,100.12 crore as at March 31,2022.

On a consolidated basis, during the year our total cash and cash equivalents (including investment in liquid mutual funds and deposits with financial institutions) improved by Rs.204.18 crore and stood at Rs.1,306.36 crore as at March 31, 2023, as compared to Rs.1,102.18 crore as at March 31, 2022. During the year, the increase in the cash and cash equivalents was primarily due to amounts collected towards issuance of fresh Equity/share warrants through private placement amounting to Rs.1,012.50 crore.

Our cash and cash equivalents comprise balances with banks in current accounts, EEFC accounts and deposits with original maturity of less than three months. Other bank balances comprise of deposits with banks with original maturity of more than three months but less than twelve months and balances held as margin money or security against bank facilities or guarantees. Investment in mutual funds as at March 31, 2023 includes Rs.183.19 crore in Tata Liquid Fund Direct Plan Growth and Rs.79.05 crore in Nippon India Liquid Fund - Direct Plan Growth Plan - Growth Option. Deposits with financial institutions as at March 31, 2023 comprise of deposit with Bajaj Finance Limited of Rs.300 crore. With this healthy cash position, we are confident to execute large orders and scale-up our business.

d) Other financial assets

* On a standalone basis, the balance of other receivables, comprises of outstanding balances from contract manufacturers amounting to Rs.30.02 crore and Rs.30.34 crore of receivable from Saankhya Labs Private Limited, a related party

Interest accrued but not due of Rs.3.98 crore on standalone basis and Rs.4.12 crore on consolidated basis are on the deposits kept with financial institutions and banks as on March 31, 2023 (previous year Rs.0.96 crore).

During the current year, Company has entered to forward contracts to cover the exchange risks. As on March 31, 2023 the forward contract receivables is Rs.0.02 crore (previous year Rs.0.60 crore). Further, the balance of other receivables, comprises of outstanding balances from contract manufacturers of Rs.30.02 crore as on March 31, 2023 (previous year Rs.8.05 crore).

5. Other assets

During the year, on a consolidated basis advances to suppliers stood at Rs.59.88 crore as at March 31,2023 as compared to Rs.32.57 crore as at March 31, 2022 primarily due to advance payment to few vendors to secure the inventory on time.

Balance with Government Authorities primarily consists of Rs.113.04 crore (Previous year: Rs.36.47 crore) towards GST Receivable which can be utilised in the subsequent years.

Effective the Ind AS transition date, the Company has recognised deferred tax assets on losses comprising unabsorbed depreciation and unutilised expenditure on scientific research carried forward from previous years. The Company has estimated that the deferred tax assets will be recoverable using the estimated future taxable income.

Deferred tax assets primarily comprise of deferred taxes on property, plant and equipment, tax losses, tax credits and unabsorbed depreciation of previous years.

During the year, the Company has accrued Rs.2.91 crore of interest recognized on the income tax refund on account of the receipt of the order giving effect for few assessment years.

During the year, the Company has received refund from Income Tax Department amounting to Rs.12.71 crore for various Assessment Years.

On Standalone basis the Company continues to pay the income tax on MAT basis. During the current year, since the company had business loss, the company has not accrued any income tax. However, the company has recognized deferred tax charge amounting to Rs.8.25 crore on account of timing differences and creation of asset based on carry forward of losses. On a consolidated basis we have accrued a deferred tax credit of Rs.5.92 crore mainly due to decrease of deferred tax liability on intangible assets accounted as part of Purchase Price Allocation (PPA).

On a consolidated basis, trade payables for goods & services stood at Rs.301.02 crore as at March 31, 2023 as compared to Rs.111.57 crore as at March 31, 2022. On a consolidated basis, amount due to employees increased from 17.72 crore as at March 31, 2022 to Rs.50.02 crore as at March 31 2023, comprising of the employee compensation benefits (including year end performance linked variable pay) payable as of the respective year end. On a consolidated basis, our days payable outstanding (DPO) decreased by 32 days from 113 days as at March 31, 2022 to 81 days as at March 31, 2023.

As per the Shareholders agreement between the company and the shareholders of Saankhya Labs Private Limited ("SHA"), in the event the merger is not completed within the "Merger Long Stop Date", the Company shall purchase and the remaining shareholders of Saankhya Labs Private Limited shall sell the balance equity shares to the Company, as per the agreed price provided for in SHA. As the contract contains an obligation for the entity to deliver cash in exchange for its own equity shares (Non-Controlling interest), such an obligation is in the nature of financial liability under the provisions of Ind AS 32 "Financial instruments- Presentation". Hence, a financial liability has been recognized amounting to Rs.156.68 crore (includes an amount of Rs.9.23 crore pertaining to interest cost recongnised).

Deferred revenue represents the billings towards Annual maintenance contract (AMC) in excess of earnings. Revenue from AMC is recognized on accrual basis pro-rated over the period of the contract. Statutory dues comprise of the withholding and other local taxes payable as on the date of the Balance sheet for the respective year end.

The provision for warranty represents estimated warranty cost on the products sold. These estimates are established using historical information on the nature, frequency and average cost of warranty claims and management estimates regarding possible future incidence based on corrective actions on product failures. The timing of outflows vary as and when warranty claim arises, which can typically be up to three years.

Pursuant to a definitive agreement entered into by the Company with Saankhya Labs Private Limited (Saankhya Labs) and its shareholders on March 30, 2022, the Company acquired majority stake in Saankhya Labs Private Limited on July 1, 2022. The Company at various dates acquired 64.40% of equity shares in aggregate through secondary purchase at a price of Rs.454.19 per equity share amounting to Rs.283.94 crore.

On July 08, 2022, Saankhya Labs has acquired 100% Shareholding in Saankhya Strategic Electronics Private Limited (SSE) which was incorporated with the main objective to develop, maintain and service all types of communication systems, electronic products, semiconductor integrated circuits/chips, micro controllers, digital signal processors, processing algorithms, embedded software and related hardware and software. Consequent to such acquisition SSE has become a wholly-owned subsidiary of Saankhya Labs and a step-down subsidiary of the Company with effect from July 08, 2022.

*loss primarily on account of restricted stock units charge of Rs.29.27 crore which was part of the acquisition.

current year compared to previous year. Service revenues were 12% of net revenues for the year ended March 31, 2023 (previous year 13%). Service revenue includes revenue of Rs.47 crore which pertains to revenue derived from our subsidiary Saankhya Labs Private Limited.

Geographic segment

Out of total revenue, 76% (previous year 64%) came from India, and 24% (previous year 36%) came from International locations.

Customer concentration

We are in a B2B business and significant portion of our revenues are derived from small number of customers, which is inherent nature of our industry. This may lead to quarterly fluctuation and seasonality in our revenues.

The net revenue contribution of our top-two customers during FY 2023 was 20% as against 33% during the previous year.

Revenue from operations

Our revenue from operations increased by 67.0% from Rs.550.59 crore for FY 2022 to Rs.919.57 crore for FY 2023.

During the year, we re-engineered and improved our supply chain processes and IT tools, to better manage the unpredictability of component supplies which has resulted in consistant revenue growth by taking adequate inventory actions to ensure that we can scale-up and deliver on the growth opportunities ahead of us.

In FY 2023, our India business grew by 100% YoY overall. Within that, we saw growth in the India-Government segment (158% YoY growth), led by business from the critical infrastructure segment. The India-private segment grew 79% YoY, and we secured new application wins in major telecom operators and it contributed to 50% of the total revenues on a larger revenue base compared to 47% in the previous year.

During the year total export revenue share was 24% as against 36% during the previous year. On an absolute basis, international revenue increased 9% YoY. Out of the above service revenue, revenue of Rs.47 crore pertains to revenue derived from our subsidiary Saankhya Labs Private Limited.

Sale of products

Our revenue from the sale of products grew by 68.2% from Rs.479.49 crore for FY 2022 to Rs.806.56 crore for FY 2023. The revenue increase was primarily due to increase in our India private and India critical infrastructure revenues. Product revenues were 88% of net revenues for the year ended March 31, 2023 (previous year 87%).

Sale of services

Our revenue from the sale of services grew by 58.9% from Rs.71.10 crore for FY 2022 to Rs.113.01 crore for FY 2023. During the year, AMC revenues contributed to 47% of the total service revenues and our installation and commissioning revenues are lower in the We saw strong order inflows during the year and our backlog increased to Rs.1,934 crore as of March 31, 2023 ( 1,175 crore as of March 31, 2022). Our backlog represents the PO’s received from the customers which remain unexecuted as of March 31, 2023 and consists of product as well as service orders. Out of this, the Company expects to recognize revenue of around 72% within the next one year and the remaining thereafter.

Cost of materials consumed

Our cost of materials consumed increased by 83.6% from Rs.290.74 crore for FY 2022 to Rs.533.87 crore for FY 2023. During the year we saw margin pressure due to increased semiconductor component costs and our inability to pass the cost increases to our customers, since many of the contracts were fixed price. Adverse fluctuation on the exchange rate further increased our costs for rupee-denominated orders in India.

Function wise expenses

• Our manufacturing expenses increased by 73.8% from Rs.17.54 crore for FY 2022 to Rs.30.48 crore for FY 2023 primarily due to increase of production capacity and warehouse and also increase in employee benefit expenses and subcontractor charges. As a percentage of our net revenues, the manufacturing expenses in FY 2023 increased to 3.3% from 3.2% in FY 2022.

• Our service expenses grew by 87.3% from Rs.46.92 crore for FY 2022 to Rs.87.87 crore for FY 2023 primarily due to increase in employee benefit expenses. As a percentage of our net revenues the services expenses in FY 2023 increased to 9.6% as compared to 8.5% in FY 2022.

• Our gross profit in absolute terms increased by 37.6% from Rs.174.00 crore for FY 2022 to Rs.239.42 crore for FY 2023. During the year the gross margin declined by 557 basis points to 26.0% of net revenues primarily due to increased semiconductor component costs and lower international revenues.

• Our research and development expenses on a gross basis increased by 97.2% from Rs.131.23 crore (23.8% of net revenues) for FY 2022 to Rs.258.79 crore (28.1% of net revenues) for FY 2023 primarily attributable to increased employee benefit expenses and technical consultancy charges. Our research and development expenses, net of capitalisation grew by 59.4% from Rs.51.60 crore for FY 2022 to Rs.82.23 crore for FY 2023. As of March 31, 2023 we have filed for 445 patents of which 217 have been granted.

• Our selling and marketing expenses grew by 24.3% to Rs.100.95 crore (11.0% of net revenues) during FY 2023 from Rs.81.20 crore (14.7% of net revenues) during FY 2022. This is primarily on account of the increase in employee benefit expenses.

• Allowance for expected credit loss has decreased from Rs.87.76 crore in FY 2022 to Rs.(32.97) crore in FY 2023. The reversal of allowance for expected credit loss during the year was primarily on account of collection of certain long outstanding receivable which was provided in the previous year. We continue to focus on collecting the overdue amount receivable from customers.

• Our general and administrative expenses grew by 113.2% to Rs.72.28 crore (7.9% of net revenues) during FY 2023 from Rs.33.90 crore (6.2% of net revenues) during FY 2022 primarily on account of increased employee benefit expenses, with respect to the cost of RSU of which Rs.25.26 crore of cost pertaining to the Saankya Labs and professional charges.

Employee benefits expense

Our gross employee benefits expenses grew by 84.3% from Rs.214.06 crore for FY 2022 to Rs.394.46 crore for FY 2023. This was primarily due to increase in head count and also on account of increase in annual compensation required to retain talent. The head count has increased from 920 as on March 31, 2022 to 1,417 as on March 31, 2023 of which 914 are from the R&D function. In addition to R&D, we continue to focus on recruiting talented workforce across all functions, in line with our expected growth plans.

The employee benefit expense includes share based compensation expense (for ESOP/RSU granted), recognised in accordance with Ind AS 102 of Rs.59.92 crore, of which Rs.29.27 crore of cost pertaining to Saankya Labs, for FY 2023 compared to Rs.11.20 crore for FY 2022.

Other Expenses

Our other expenses excluding allowance for expected credit loss increased by 48.0% to Rs.145.15 crore for FY 2023 from Rs.98.08 crore for FY 2022. The increase in other expenses was primarily on account of increase in the cost of technical charges from Rs.7.94 crore to Rs.18.97 crore and increased travel expenses by Rs.8.04 crore

Earnings before exceptional items, interest, tax, depreciation and amortization

Our earnings before interest, tax, depreciation and amortization ("EBITDA") as a % of net revenues increased during the year to 1.8% compared to (14.6)% in the previous year. The EBIDTA increase was primarily on account of increase in revenue and also the other cost remaining quasi-fixed.

Finance Costs

Our finance costs increased by 376.5%, from Rs.3.19 crore for FY 2022 to Rs.15.20 crore for FY 2023. Current year cost includes Rs.9.23 crore towards recording of non-controlling interest cost of Saankhya Labs Private Limited as financial liability.

Depreciation and amortization

Our depreciation and amortization costs increased by 59.5%, from Rs.76.78 crore for FY 2022 to Rs.122.50 crore for FY 2023. This was attributable to increase in amortisation of intangible assets by an amount of Rs.32.83 crore, Rs.17.75 crore of amortisation on account of higher capitalisaton of product development and Rs.12.68 crore of amortisation towards technical know-how acquired as part of Purchase Price Allocation, pursuant to acquisition of controlling interest in Saankhya Labs Private Limited. Increase in depreciation on property, plant and equipment amount by Rs.9.27 crore and increase in amortization of right-to-use assets by Rs.3.62 crore.

Other income

Other income increased from Rs.40.17 crore for FY 2022 to Rs.80.53 crore for FY 2023. This was primarily on account of increase in treasury income on deposits kept with banks and financial institutions and with Mutual funds. During the year other income includes Rs.2.91 crore of interest income recognized on the income tax refund (previous year Rs.2.49 crore) accrued as per the income tax orders received during the year.

Loss before tax

As a result of the foregoing, our loss before tax decreased by 63.6% from a loss before tax of Rs.117.13 crore for FY 2022 to Rs.42.65 crore for FY 2023. As a % of net revenues, our loss before tax for FY 2023 was 4.6% compared to 21.3% for FY 2022. The primary reason for loss is on account of Saankhya and its subsidiaries which had a loss of Rs.33.25 crore, primarily towards restricted stock units charge of Rs.29.27 crore was incurred which was part of the acquisition, Rs.12.68 crore on account of amortization cost for technology asset acquired from Saankhya and Rs.9.23 crore on account of finance cost for recognizing non-controlling interest as financial liability.

Tax expense

On Standalone basis the Company continues to pay the income tax on MAT basis. During the current year, since the company had business loss, the company has not accrued any income tax. The company accrued a deferred tax credit of Rs.5.92 crore on consolidated basis mainly due to decrease of deferred tax liability on intangible assets accounted as part of Purchase Price Allocation (PPA).

Loss after tax

As a result of the foregoing, our loss reduced by 41.9% from a loss of Rs.62.71 crore for FY 2022 to Rs.36.41 crore for FY 2023. As a % of net revenues, our loss after tax for FY 2023 was 4.0% compared to 11.4% for FY 2022.

Earnings per share (EPS)

On a consolidated basis, our basic and diluted EPS increased by 58.8% on a year on year basis. The increase in weighted average basic share numbers for the year ended March 31, 2023 was on account of the shares allotted through private placement and pursuant to the exercise of employee stock options and RSUs by the eligible employees.

IV. Liquidity

On a consolidated basis, the net cash outflow from operations for FY 2023 was Rs.380.14 crore, as compared to Rs.17.33 crore for FY 2022. The decrease in operating cash flows is primarily due to increase of inventories by Rs.368.84 crore as compared to the previous year. The increase in inventory is on account of securing some long-lead components in anticipation of expected orders that require faster delivery.

The free cash outflow for FY 2023 was Rs.629.26 crore as compared to Rs.134.67 crore for FY 2022. The capital expenditure comprises of expenditure on property, plant and equipment of Rs.46.60 crore and expenditure on intangible assets (including Product under development) of Rs.202.52 crore. Investing activity comprises of the investment in Mutual fund and the deposit kept with the banks and financial institutions.

Net cash generated from financing activities was Rs.998.85 crore for FY 2023, as compared to Rs.839.43 crore for FY 2022. During FY 2023, the Company received Rs.8.83 crore towards exercise of ESOP and RSUs by employees (Previous year the Company received Rs.11.44 crore) and Rs.1,012.50 crore towards Proceeds from Issue of Share Warrant/ Equity shares through Private Placement (Previous year the Company received Rs.837.31 crore).

The closing cash and cash equivalents including the investment in liquid mutual funds and deposits with financial institutions stood at Rs.1,306.36 crore as at March 31, 2023, as compared to Rs.1,102.18 crore as at March 31, 2022.

Detailed Explanation of Ratios

i. Current Ratio: The Current Ratio indicates a Company’s overall liquidity position. It measures a Company’s ability to pay short-term obligations or those due within one year. It is calculated by dividing the current assets by current liabilities.

ii. Debt Equity Ratio: Debt Equity ratio is used to evaluate a Company’s financial leverage. It is a measure of the degree to which a Company is financing its operations through debt versus wholly owned funds. It is calculated by dividing total debt by shareholder’s equity.

iii. Debt Service Coverage Ratio: Debt Service coverage ratio is used to analyse the firm’s ability to pay-off current interest and instalments. It is calculated by dividing earnings available for debt service by debt service.

iv. Return on Equity (ROE): It measures the profitability of equity funds invested in the Company. The ratio reveals how profitability of the equity-holders’ funds have been utilized by the Company. It also measures the percentage return generated to equity-holders. It is calculated by dividing PAT by average equity.

v. Inventory Turnover ratio: Inventory Turnover ratio measures the efficiency with which a Company utilises or manages its inventory. It establishes the relationship between sales and average inventory held during the period. It is calculated by dividing turnover by average inventory.

vi. Debtors Turnover Ratio: Debtors Turnover ratio measures the efficiency at which the firm is managing the receivables.

The ratio shows how well a Company uses and manages the credit it extends to customers and how quickly that short-term debt is collected or is paid. It is calculated by dividing turnover by average trade receivables.

vii. Trade payables turnover ratio: It indicates the number of times sundry creditors have been paid during a period. It is calculated to judge the requirements of cash for paying sundry creditors. It is calculated by dividing purchases by average trade payables.

viii. Net capital turnover ratio: It indicates a company’s effectiveness in using its working capital. The working capital turnover ratio is calculated by dividing net sales by the average amount of working capital during the same period.

ix. Net (loss)/profit ratio: It measures the relationship between net profit and sales of the business.

x. Return on Capital Employed(ROCE): ROCE indicates the ability of a Company’s management to generate returns for both the debt holders and the equity holders. It measures a Company’s profitability and the efficiency with which its capital is used. ROCE is calculated by dividing the EBIT by capital employed.

xi. Return on investment (ROI): ROI is a financial ratio used to calculate the benefit an investor will receive in relation to their investment cost. The higher the ratio, the greater the benefit earned. ROI is calculated by dividing EBIT by average net worth.

Government support

Government of India has formulated various supportive policy measures for encouraging Indian electronics and telecom industry and proposed several incentive schemes which are applicable to the Company. The Company’s products are eligible for Preference to Make in India (PMI) policy which is applicable for government procurement of telecom equipment. The company is also eligible to receive capital subsidy from the Modified Special Incentive Package (MSIPS) scheme. In FY 2023, Government of India approved the company under the modified design-linked Production Linked Incentive (PLI) scheme with an investment commitment of Rs.750 crore during the scheme period. In FY 2022, the company and its products have also received approval from National Security Council Secretariat (NSCS) under the new Trusted Sources Mandate. The Company has been registered as a Karnataka ESDM company and is eligible for certain incentives as specified under the state ESDM policy from time to time. As a Department of Scientific and Industrial Research (DSIR) approved R&D center we are also eligible for benefits as specified by DSIR from time to time.

Research and development expenses

The Company tracks the latest telecom/networking industry standards, technology trends, consumer usage patterns, advancements in semiconductor as well as optical components and software development trends. Company’s R&D efforts are geared towards defining and developing future-ready product portfolio with leading-edge features, in line with market trends and customer requirements. The Company maintains requisite R&D facilities, technology competence and skillsets that optimise product development time to deliver competitive products that meet the required technical and regulatory standards. Our Intellectual Property is in the form of our product design, software, know-how and know-why and some of it has been captured in the form of patents. As of March 31, 2023, our company and Saankhya Labs have cumulatively filed 445 Patents of which 217 patents have been granted.

V. COMPETITION AND STRENGTHS

Tejas has been successfully competing against many of the world’s leading telecom equipment vendors from China, USA and Europe as well as local vendors from India. Our customers often cite the competitiveness of our products and our ability to keep them updated for future, our industry knowledge, technology strengths, world-class quality, highly responsive technical and supply chain support and a proven track record, as reasons for preferring us over our competitors both in India and internationally. The core competitive strengths of our business are summarised below:

Software-Defined Hardware™ Product Architecture:

Our products are characterized by a flexible architecture based around a proprietary software base and a common hardware platform. We have a portfolio of re-usable "building blocks" of hardware as well as software, which enables us to develop cost- effective and highly customisable products and also provides a time-to-market advantage. Our products utilize a programmable software-defined hardware architecture implemented with programmable semiconductor devices, and a common software code-base that delivers an app-like ease of development and upgrades of new features and technology standards. Further, our advanced software and hardware integration leads to higher performance and lower costs. We are able to help our customers manage costs by enabling them to extend the life of installed systems through regular software upgrades which help them transition across technology changes in their networks, without having to invest in new hardware purchases. Our software-led product approach also enables us to sell the same product globally by easily making country specific adaptations.

Platform Convergence with Multi-technology Integration:

Our products deliver a greater degree of service flexibility and performance to our customers through cost-effective integration of diverse technologies, access modalities and telecom functions in the same platform. Our leading-edge optical Access/Edge products combine 4G LTE/5G NR mobile RAN, xPON-based fiber-to-the-home (FTTH) broadband, multi-gigabit IP/Ethernet access (GE/10GE/100GE) and terabit-scale optical transmission technologies in a compact and energy-efficient shelf. Similarly, our optical Metro Core/Backbone products converge terabit- scale DWDM transport with multi-terabit OTN switching to help our customers achieve significantly lower cost per bit than our competitors. Moreover, we offer a versatile network management system that delivers substantial savings in operational costs to our customers by unifying service provisioning, monitoring and management across multiple technology layers in the same software.

Next-generation Wireless Products for 4G and 5G:

We have a differentiated portfolio of 4G/5G products for building both mobile and fixed wireless networks. Our company, along with its subsidiary Saankhya Labs, offers a diverse range of high- power 4G and 5G radio units operating in multiple frequency bands, supporting both TDD and FDD multiplexing technologies, while delivering advanced features such as massive MIMO, 5G broadcasting and software-defined radio (SDR) designs. Our novel 4G/5G baseband unit (BBU) platform also integrates optical transport and packet switching functions thereby avoiding hardware duplication and simplifying network management. We are currently one of the few telecom equipment companies in the world to offer both 3GPP and O-RAN compliant products for 5G RAN (Radio Access Networks).

Low Operating Cost Business Model:

Our business model is based on locating substantially all of our operations in India, except for international sales and support, which results in significantly lower operating expenses as compared to our global competitors. Further, since all our research and development is based in India, we are able to develop state-of- the-art products and are able to generate significantly better returns on our investments, by leveraging the availability of qualified and cost-effective engineering talent in India. We manufacture our products in India through partnerships with reputed Electronics Manufacturing Services (EMS) companies, which enables us to stay asset-light and cost-efficient in our production. We ensure high customer shipment quality by having an in-house manufacturing facility, that is focused on final integration, testing and quality control of our products. Our turn-key EMS model allows us to adjust our manufacturing capacity to meet changes in customer demand, while optimizing our working capital, since the EMS takes the responsibilities of sourcing and managing long-lead components. For our international sales, in addition to our direct sales force, we leverage our partnerships with local systems integrators as well as others telco OEMs to sell in to their customer base in the global markets. This allows us to keep our sales costs relatively low, while - expanding our reach to customers that may otherwise not be accessible to us.

Customer Retention and Significant Repeat Business:

We have a history of high client retention across our clients, both in India and Internationally and we derive a significant proportion of our revenues from repeat business, built on our successful execution of prior engagements. Once we win a customer for a particular application and prove our credentials, we try and increase our wallet share from the customer by expanding into new regions and by positioning other products from our end-to-end optical and access product portfolio. By offering highly responsive and high quality technical support as well as supply chain support, we are able to forge strong relationships with our clients and win repeat business from them, since they prefer to expand their networks with their existing suppliers, who have been performing well and on whose products their operations teams have been well trained. In the current fiscal year, a significant proportion of our net revenues from operations were from existing clients. In addition, some of our top revenue generating customers over the last three years have been using our products for over a decade.

Professional Management with Industry Experience:

We have a strong and experienced management team with deep industry knowledge. Our key management personnel comprising our Chief Executive Officer, Chief Technology Officer and Chief Operating Officer have advanced degrees in engineering from US universities and have an average of over 30 years of global experience. Several key members of our management team have been with us for more than ten years and have extensive experience in the industry. We have built our management team to include personnel having deep experience in R&D, Sales, Marketing, Support, Supply Chain Management, Finance, Human Resources, Administration etc. Our R&D leadership team has experience in optical communication systems, networking protocols, wireless and radio, FPGA design, embedded system software, application software, high-speed PCB design, thermal and mechanical design, product management, quality and test engineering and reliability engineering, working both in India as well as internationally.

Technology and Thought Leadership:

Tejas has been actively participating in various technology and industry forums and Tejas management personnel are well respected thought-leaders. Our CEO was the Chairman of India’s leading trade and advocacy body, Federation of Indian Chamber of Commerce and Industry (FICCI) sectoral committee for Science, Technology and Innovation from January 2020 till December 2021 and has also been a Co-Chairman of the Telecom Export Promotion Council (TEPC) of India in the past. He has also represented the domestic telecom industry as a member of CII National Committee on Telecom & Broadband, as the Chairman of sub-committee on Globally Relevant 5G eco-system and as the Chairman of Government of India’s Taskforce for the Telecom Chipsets. Tejas is one of the founding members of India’s Telecom Standards Organisation (TSDSI) that aims at developing and promoting India-specific requirements, standardising solutions for these requirements and contributing to global standardisation activities in the field of telecommunications. Our Chief Technology Officer was the first chairman of TSDSI. Senior members of our technology office are contributing to TSDSI’s work related to new optical backhaul and 5G RAN standards. We also hold membership in international standards bodies such as 3GPP and industry bodies such as BBF Our other management leaders are also on the Governing council of Telecom Export Promotion Council of India (TEPC).

Favorable Policy Environment in India for Domestic Telecom Product Companies:

Government focus on building an "Atmanirbhar Bharat" that is self-reliant in core technology areas is expected to benefit domestic telecom equipment companies like us with strong R&D capabilities and in-house IPR. Both Central and State Governments in India are investing in telecommunications infrastructure projects such as Bharatnet Phase-II and III and Smart and Safe Cities, which have a significant telecom component. Government of India is expanding the scope of BharatNet to connect every one of the 650,000 villages in the country in the next few years. India’s largest public sector operator is building a pan-India 4G network for which our company, as part of an Indian consortium, has successfully completed POC (proof of concept) testing of its indigenous RAN product. Our company has been approved under Government of India’s design linked PLI scheme with an investment commitment of Rs.750 crore during the scheme period. In addition, we benefit from Government policies such as Preference to Make in India ("PMI") Policy, which are targeted towards encouraging indigenous technology/ product development and design-led manufacturing companies like ours. With increased focus on telecom and cybersecurity, Government of India has recently amended telecom licensing rules to mandate use of only trusted products and sources (as defined by National Cyber Security Coordinator) by all public and private Telecom and internet service providers in the country from June 15, 2021 which is expected to help the domestic telecom vendors, who can be a considered as a trusted source. Our company and products have been approved under the Trusted Sources mandate.

Innovative Products for Focus Applications:

While our products are based on global telecom standards and can be used widely, our focus has been to build highly differentiated feature set for certain target applications that have a large market potential. Our unique software-defined hardware architecture gives a competitive edge to our products and enables us to win against global competitors. TJ1400, our ultra-converged broadband access/edge product, is a unique offering that enables a broadband operator to offer high-speed Internet services over fiber (FTTx)/ copper (Ethernet)/fixed and mobile wireless (LTE) while also integrating packet and optical transmission functions. Our advanced alien wavelength solution on TJ1600 platform for seamlessly transporting high- capacity 100G/200G/400G+ wavelengths without guard bands, on a third-party 10G DWDM network is field-proven with multiple optical vendors and is gaining strong market traction with Tier-1/ Tier-2 bandwidth service providers in emerging markets. TJ1600S/I is a versatile OTN and packet cross- connect product for backbone networks with a novel disaggregated "pay-as-you-grow" architecture that can realise multi- terabits of packet-optical switching. Across our product portfolio, we have one of the densest realizations of circuit emulation function in the industry today that allows a service provider to efficiently support legacy TDM services while transitioning to a next-generation packet switched infrastructure. Our mobile backhaul products can transcend multiple technology generations and the same base platform can transition from 2G/3G to 4G/5G through suitable hardware and software upgrades. With our efficient R&D processes and investments, we have developed an end-to-end product portfolio, starting from the edge of the network (fiber or wireless access) and going all the way to multi-terabit capacity optical metro core networks. Our products are optimised for building converged services networks that support multiple applications such as mobile backhaul, wholesale and enterprise bandwidth services, broadband access, critical infrastructure and optical network modernisation. Unlike competitive offerings in this space, all our products can be managed from a single Network Management System (NMS) that can provision services across multiple technology layers viz., Ethernet, MPLS-TP, IP/MPLS, DWDM, OTN and GPON/XGS-PON.

Market Leadership in India:

Tejas is a leading Company in India’s optical networking market. Our products have been deployed by leading telecommunications operators in India, such as Bharti Airtel Limited, Reliance Jio, Vodafone-Idea, Tata Communications, Tata Tele services and Bharat Sanchar Nigam Limited, and many others, with whom we have long-standing customer relationships. Further, large public sector utilities such as Power Grid Corporation of India, RailTel Corporation of India, Indian Railways, Indian Oil Corporation, Oil India Limited, Delhi Metro, Gas Authority of India Limited have been our customers for many years. Our products incorporate several key requirements of emerging markets and are hence well suited for Indian market conditions. Our GPON products have also been selected by multiple pan-India and regional broadband operators for their FTTx rollouts. As a domestic company, Tejas is able to build deeper customer relationships through superior local market support and first-hand knowledge of domestic customer needs to build more relevant products. Further, the optical and data networking products business is characterised by a high-entry barrier because of the initial investment required in research and development, demand for skilled professionals across multiple domains and the up-front time taken to successfully develop the networking products and solutions. Due to our extensive history of operations in India and incumbency with key customers, we stand to benefit from the high-entry barrier against domestic competition.

Focused Sales Model for International Markets:

We have a focused sales model, where we target specific regions where we have a strong product-market fit. Our focus regions are typically large, high-growth markets, where we get a fair market access and where the technical/product requirements are in the sweet spot of our products. The recent geo- political developments have motivated our customers to consider a diversification of their sourcing from specific countries so as to reduce their supply chain risks and address their security concerns. We have proven ourselves be a very credible alternative and are seeing increased interest from our customers as a source of trusted, reliable, high- quality, technically-sound and cost- competitive products. Globally there are many specific initiatives for "rip-and-replace" in Europe and USA, which we are also targeting. In terms of emerging markets, we have already made inroads with over 100 customer wins in South Asia, South- East Asia, Africa and Americas, and we will continue to expand our sales investments and market share in these geographies. Since our products utilize a programmable software- defined hardware™ architecture, we are able to customize them to meet market- specific requirements of features and performance. Furthermore, we intend to increase our international sales and market share by becoming a part of large telecom export projects that the Government of India may secure using government to government line of credit and sovereign loans from EXIM Bank of India, especially for Africa, ASEAN and SAARC countries. We also use OEM channels (Original Equipment Manufacturer) and local System Integrators (SI) to gain access to those markets which we do not serve directly.

Proven Quality with Mature Development Processes:

We are TL9000 and ISO9001: 2008 certified for our quality management system. We have established sophisticated design, development and testing infrastructure in-house, which helps us monitor our quality management closely. Our optical networking products have successfully passed all tests and have received approvals from the Telecommunication Engineering Centre of India and have received Technical Specification Evaluation Certificate, signifying that our products meet the specifications set out by PSU customers in India. We have also been approved under various international standards such as MEF CE2.0, CE marking, cTUVus mark, FCC, ICES, Safety standard IEC60950-1 in connection with our products. We also comply with European Union directives on electronics waste, Waste of Electrical and Electronics Equipment and Restriction on the use of Hazardous Substances and our Environmental Management System is ISO 14001 certified. We have built a reputation for technologically-advanced, high-quality products that are supported by our reliable customer service. In FY 2022 we also received ISO 27001 certification for our information security management. We have shipped over 750,000 systems since inception and our products have consistently delivered a field uptime exceeding 99.999% since 2008.

VI. OPPORTUNITIES

The global telecom service provider equipment market can be broadly classified into wireless and wireline segments. The wireless segment predominantly consists of Mobile RAN (Radio Access Network) and Mobile Core products whereas the wireline segment mainly includes Broadband Access, Optical Transmission, Switches and Routers. With our current portfolio of products, we are able to address a significant portion of this market. At a global level, the total addressable market (TAM) for Tejas’s wireline products is estimated to grow from $15.2 Billion in 2022 to $32.7 Billion by 2027. Similarly, the global TAM for Tejas’s wireless products is estimated to grow from $2.4 Billion in 2022 to $30.5 Billion by 2027. All of the major geographic markets in the world are significant addressable markets for these product segments.

Emergence of High-Speed Mobile Broadband Networks (4G and 5G):

The telecom industry is witnessing an increasing adoption of highspeed mobile broadband technologies based on 3GPP standards. Mobile networks are rapidly evolving from 2G/3G to 4G/5G technologies driving a strong demand for 4G and 5G RAN (Radio Access Network) equipment, comprising both baseband and radio units. Although 5G has been launched in a few large markets, including India, 4G has significant room to grow in developing countries. As per GSMA, nearly 77% of mobile subscribers in Subsaharan Africa, 34% in Latin America, and 42% in CIS countries were using 2G/3G services in 2022. In India, the country’s leading public sector telco is in the process of launching a pan-India 4G network which will be subsequently upgraded to 5G. We are well positioned to play a key role in this large rollout in the coming year. Further, success in India will serve as a powerful reference with telcos in other emerging markets deploying similar 4G and 5G networks.

Growing Demand for High-capacity Optical Transmission & Switching:

5G is driving an explosion in the use of powerful smartphones, larger deployment of network-enabled IoT devices, and deeper fiberisation to support micro base stations deployed closer to the consumers on street lights, lamp posts etc. This, in turn, is placing additional demands on mobile backhaul networks driving a greater demand for terabit-scale optical transport and switching equipment in the Aggregation, Metro and Core networks. Besides this, 5G is also opening up new opportunities for optical networking products on high-speed, short reach optical fronthaul links connecting geographically separated 5G RUs (Radio Units) to 5G CU/DUs (Centralized/Distributed Units).

Accelerated Adoption of Fiber Broadband Services:

In wired broadband networks too, broadband access speeds are growing with multi-gigabitfiber-based home and office broadband fast replacing copper-based broadband services based on xDSL technologies. Today, on fiber-based access networks, popularly referred to as Fiber-to-the-Home/Curb/Premises (FTTx), next- generation xPON (GPON, XGS-PON) technologies can deliver up to ten gigabits of access speed to a fixed residence, cell tower or a business location. Newer xPON technology variants such as HS- PON are expected to increase this to 25G and 50G speeds in the near future. The pandemic further accelerated the need for highspeed, reliable and secured networks given the new trends such as work-from-home, remote learning, telemedicine, entertainment, e-commerce, etc.

Digital Transformation of Enterprises and the rise of Hyperscalers:

Migration to cloud-based services is a major driver for network evolution. Businesses worldwide are increasing their usage of online applications and services that are delivered over the cloud which is driving the need for high-speed data services. In addition, the emergence of web-scale internet companies (ICPs) is leading to large-scale construction of hyper-scale data centres and a significant growth in data traffic and optical networks. ICPs have significant bandwidth requirements for data center interconnectivity (DCI) and are among the first to deploy high-speed 200G, 400G and 600G optical channels on optical networks. The emergence of DCI is also resulting in a demand for newer types of optical networking equipment that are specially optimized for such applications which has further enhanced its market potential. High bandwidth content such as mobile applications, games and high- definition videos are being created and consumed worldwide. Video-centric services such as Netflix, Amazon Prime and YouTube are dominating data traffic and traditional telecommunication services such as short message service are being replaced by Internet applications services such as instant messaging, social networking and e-mails.

Pent-up Demand for Cellsite Fiberisation in India:

The rapid increase in data and broadband traffic is driving the need for operators to increase backhaul capacities. As a result, globally microwave-based mobile backhaul technology is trending down in favor of optical-fiber based backhaul. Compared to other developed countries and many emerging economies, India is vastly underserved in terms of fiber connectivity to cell-sites, with less than 35% connectivity. Hence, with the advent of 4G/LTE and 5G, a larger proportion of an Indian operator’s capex will continue to go into optical networking especially in the aggregation and metro networks and India is expected to be one of the world’s fastest growing optical networking market for many years. In addition, while India has over 806 million mobile broadband connections, less than 34 million homes have wired broadband connections. Several ISPs and broadband operators are therefore planning to roll out fiber-to-the- home (FTTx) networks based on GPON technology to serve this market and it is projected that by 2030 over 100 million homes in India will have a fiber broadband connection.

Increasing Government Investments in Broadband Networks:

Government of India has rolled out one of the largest greenfield networks for rural broadband connectivity called Bharatnet on GPON-based fiber broadband technology. BharatNet project utilises funds from the Universal Service Obligation Fund (USOF) to invest in building a pan-India rural broadband network. In BharatNet Phase-1 and Phase-2, over 150,000 gram panchayats have been connected, which is being implemented by the center as well as many state governments, which is being extended to every one of the 650,000 villages in the country in the next few years. In addition, as per ITU, similar national optical networking projects are being undertaken by the governments of over 150 countries around the world, both in the developing and developed economies of the world which will significantly boost global optical equipment spending. Optical equipment and Ethernet switches are also used in other government networks such as those for defence and smart/ safe cities.

Optical Network Modernisation:

The rapid growth of data traffic in telecom networks is driving the need to replace ageing and inefficient TDM infrastructure in aggregation and metro networks with modern-day optical equipment built on Ethernet, IP and various packet technologies. However, given the large installed base of such TDM equipment (especially in markets like USA and across sectors such as utility and financials globally) it is operationally difficult for operators to replace this infrastructure abruptly and there is a clear need to make this transition smoother. Coupled to this is a large access network infrastructure using legacy TDM interfaces which the operators want to retain to avoid the risk of customer churn. Given all this, the optical network modernization requires packet transport network (PTN) equipment with advanced capabilities such as high- capacity circuit emulation, high quality packet synchronisation and scalable sub-50ms protection switching for thousands of services. In advanced markets such as USA there is a significantly large opportunity and demand for cost-effective solutions that can address this optical network modernization challenge.

VII. RISKS AND CONCERNS

Business Risks:

A significant portion of our business is generated from a limited number of large customers, who have substantial negotiating leverage with us. Our business operations may fluctuate due to a variety of factors such as loss of key customers, fluctuation in demand and sales volume, timing and size of customer capital spends, inventory management practices and timely collection of receivables. Our gross margins and revenues are a function of our product and geographical mix that can sometimes turn unfavorable and adversely impact our business prospects. The telecommunications industry is highly competitive and the acquisition of new customers often calls for aggressive pricing besides state-of- the-art technology, support and quality. Since we compete against several equipment suppliers who are much larger than us in size and have far greater significant financial and marketing strengths, these competitors may offer lower prices, offer long-term low cost financing, run expensive campaigns to attract customers or announce other attractive offers that we may not be able to match and hence impact our business.

Industry Risk:

The telecommunications industry is dynamic and displays significant demand variations and lumpiness in short periods of time due to changes in the risk appetite of our service provider customers that can either delay purchases or lower their purchase volumes in response to perceived risks in the external environment. In the Indian market, we may see short term financial stress as well as industry consolidation amongst our customers, which may also impact our business. Although we expect the industry segments we operate in to stay healthy in the long and medium term, the industry has gone through multiple economic downturns in the past that have seen sharp drops in capital spending by telecom operators. Sometimes the slowdown in investments is seen to be restricted to certain geographies or limited to specific industry segments, in which case our business in those geographies or from those product lines could be adversely impacted. Besides this, our inability to effectively respond to new developments in our markets arising from a growth in IP-based communications, emergence of new buyer categories such as OTTs (Over The Top) etc., can reduce our market power and impair our financials.

Technology Risk:

Our industry is characterised by rapid technological changes, customer requirements, evolving industry standards and launch of new products and services by our competitors. Our future success will depend largely on our ability to effectively anticipate and adapt to such changes by incorporating these in the form of new hardware or software features in our products. We have developed our solutions based on certain widely accepted industry standards that may either undergo changes, become obsolete or have reduced market acceptance owing to competing standards. Moreover, the use of open standards makes it possible for our competitors to develop similar products and services that are based on the same technology which can increase competitive pressure. Unless we respond quickly enough to such market challenges, either by repositioning our solutions or introducing new solutions with superior characteristics, our business, revenue and growth prospects would be adversely affected. However, developing new products and services in this industry is complex, expensive and often requires long hardware and software development cycles that require significant amount of resources which may not always be possible. In many cases, we may be required to obtain special certifications or approvals before our solutions can be introduced in new geographies or to new customers in existing geographies. Our ability to expand our international operations may sometimes be constrained by such country specific regulations or standards that may require us to redesign our existing solutions or develop new products suitable for these countries. The cost of complying with evolving standards and regulations, or our failure to obtain timely domestic or foreign regulatory approvals or certifications, may prevent us from selling our solutions where such standards or regulations apply, Our industry is characterised by rapid technological changes, customer requirements, evolving industry standards and launch of new products and services by our competitors. Our future success will depend largely on our ability to effectively anticipate and adapt to such changes by incorporating these in the form of new hardware or software features in our products. We have developed our solutions based on certain widely accepted industry standards that may either undergo changes, become obsolete or have reduced market acceptance owing to competing standards. Moreover, the use of open standards makes it possible for our competitors to develop similar products and services that are based on the same technology which can increase competitive pressure. Unless we respond quickly enough to such market challenges, either by repositioning our solutions or introducing new solutions with superior characteristics, our business, revenue and growth prospects would be adversely affected. However, developing new products and services in this industry is complex, expensive and often requires long hardware and software development cycles that require significant amount of resources which may not always be possible. In many cases, we may be required to obtain special certifications or approvals before our solutions can be introduced in new geographies or to new customers in existing geographies. Our ability to expand our international operations may sometimes be constrained by such country specific regulations or standards that may require us to redesign our existing solutions or develop new products suitable for these countries. The cost of complying with evolving standards and regulations, or our failure to obtain timely domestic or foreign regulatory approvals or certifications, may prevent us from selling our solutions where such standards or regulations apply, thus adversely affecting our operating results and growth prospects.

Operational and Supply Chain Risk:

We depend on a limited number of external EMS companies and component suppliers for our manufacturing needs. Any failure on their part to deliver our products on time or in the performance and quality standards can have an adverse impact on our business. In order to ensure business continuity, we have arrangements with multiple EMS organizations to provide us additional flexibility to change organizations if there is any kind of disruption at one facility. In spite of these measures, depending on the severity of the disruption it may not be possible for us to entirely alleviate its effects on the production of one or more of our product families. As far as possible, we source our components from multiple suppliers (multi-sourcing) to minimize impact of adverse events and to accommodate sudden, unforeseen increase in customer demand for our products. But despite our best efforts, for certain specific functionality, we have to rely on a single supplier for certain critical components in our products. In such cases, we are subject to supply chain risks from these single- sourced components, which could be on account of their lead times, costs, availability and quality.

The ongoing global semiconductor chip shortage has increased lead times and costs for many components used by us, including those which are single-sourced. inventories also poses a risk to our business. To mitigate this, we have to take long-term forecasting and inventory actions with our suppliers, while we may not have similar forecast from all our customers. . Any failure on our part to forecast, plan, procure and manage the requirement of chips and the rest of our inventories could have an adverse impact on our business, with either excess levels of inventories or shortage of inventory to meet our customer demand.

Our success of business execution depends to a significant degree upon our continued ability to attract and retain highly-skilled personnel for our research and development, sales and marketing, customer support, manufacturing, finance and operations teams. While we continually strive to adopt best practices in human resources and provide attractive compensation, including equity- based rewards, to attract and retain talent, the loss of services of any of our key personnel, significant increase in attrition level or our inability to attract new talent could make it difficult to execute our business.

Environment Risk:

The Company is subject to credit risks, interest rate risks, refinancing risks and liquidity risks and the Company will adopt various measures at different points in time to counter these risks successfully. However, if these risk mitigation strategies do not prove to be successful, the health of the Company is likely to be adversely affected. As our international sales increase, we will increasingly be subjected to foreign exchange risks. Besides foreign exchange risks, our prospects can be impacted by the political developments in the countries we operate in such as governance instabilities, degree of privatization or sudden restrictions on the flow of goods to/from these countries.

Legal and Regulatory Risk:

There are outstanding legal proceedings against the Company and certain subsidiaries that are incidental to our operations, related to various tax proceedings which are pending at different levels of adjudication before courts, tribunals and appellate tribunals. While we are contesting the same, if these are not decided in our favor, may adversely affect our business and reputation. Intellectual Property (IP) is a critical element of our business and we will continue to apply for both domestic and international patents to improve our competitive advantage in the market. However, it is possible that some of these patent rights may be overturned by our competitors that will prevent us from selling the products that make use of these patents in their manufacture or compel us to pay royalties or licensing fees to our competitors.

The telecommunication industry is driven by regulations and standards. Evolution or emergence of new standards that directly impinge on the types of products we manufacture or regulations that have a bearing on the services that these products deliver can affect our development costs or lower the business potential of these products. Sometimes, there may be alternate standards that may evolve in parallel and our investments in a standard that eventually loses out can lead to a decline in sales for associated products.

Credit Risk:

We are exposed to credit risk on the amount owed to us by our customers and these trade receivables are typically with no security and collaterals which are unsecured in nature. We periodically monitor individual customer payment capability in granting such open credit arrangements, and consider its creditworthiness, its past payment performances and communication with those customers. If our customers do not pay us promptly and if we are not able to collect the same or at all, we may have to make provisions for, or write-off such amounts.

Liquidity Risk:

The principal sources of liquidity are cash and cash equivalents, and the cash flow that is generated from operations through internal accruals. We may be expose to liquidity risk if we do not generate enough cash flow from operations, and the free cash flows.

Pandemic Risk COVID-19:

Post COVID-19, due to increased demand for semiconductor chips and disturbance in global supply chain, we have faced long-lead times as well as shortage of many semiconductor components that are used in our products. In addition, many component suppliers have declared End-of-life for some of their older/slow moving products, which has resulted in delays in our ability to fulfill customer orders. We closely monitored this situation and by taking appropriate advance inventory actions and realignment of our supply chain processes, we have been able to mitigate these challenges.