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MUMBAI : Tata Sons Pvt. Ltd has agreed to buy a 43.35% stake in telecom gear maker Tejas Networks Ltd for 1,884 crore, as India’s largest conglomerate attempts to build a networking equipment business to capitalize on the massive spending by carriers to build 5G networks and curbs on Chinese vendors.

The transaction involves the sale of shares worth 500 crore and warrants worth 1,350 crore. Tatas will own a 43.35% stake once the warrants are fully converted into shares.Tata Sons will buy the shares and warrants at 258 each.

The Tata group also offered to buy an additional 26% of Tejas Networks from public shareholders to comply with local takeover rules. In addition, Tata Sons will buy shares worth 34 crore from four senior executives of Tejas. Tata’s investment comes at a time the government is trying to promote local manufacturing of telecom gear through the production-linked incentive scheme (PLI). The government has also mandated telcos to install equipment from trusted sources to prevent cyberattacks.

Grabbing a pie
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Grabbing a pie

Curbs on Chinese vendors such as Huawei in India and many developed countries, including the US, UK and the European Union, over security concerns, have opened the door wider for firms such as Tejas to win business for cost-efficient equipment and software solutions.

“Tata-owned TCS is a formidable player in IT services. However, Tata had little success in the retail telecom services business. Acquiring Tejas and entering the network equipment and hardware side of the business is a significant shift for Tata’s telecom business," said Mahesh Uppal, a senior telecom expert.

“This is an excellent move for both firms. For Tejas it is certainly a big shot in the arm. It is one of the most credible telecom manufacturing companies in India. They also have a presence in some global markets. However, no company can thrive in the telecom equipment market without scale. Tatas will bring the resources to do just that."

Tejas will utilize the capital infusion by Tata Sons to invest in research and development (R&D), sales and marketing, infrastructure, and to enhance its manufacturing capabilities to secure a larger piece of the network equipment pie.

“We are excited to partner with Tejas Networks, India’s leading telecom and network company, with a strong DNA of R&D. We look forward to working with the highly experienced management team of Tejas Networks and creating a full stack of globally competitive wireline and wireless products," said Saurabh Agrawal, executive director of Tata Sons.

In February, India unveiled the 12,195 crore PLI scheme for telecom gear makers to make local manufacturing cost-efficient. The five-year scheme covers core transmission equipment, 4G/5G and next-generation radio access network and wireless equipment, access and customer premise equipment, Internet of Things (IoT) access devices, and enterprise equipment such as switches and routers.

Tejas Networks has submitted a PLI application under the telecom and networking equipment category, the company said in its latest investor presentation. The company has applied for approval as a “secured telecom equipment" supplier from the government’s Trusted Telecom Portal, run by the National Security Council Secretariat.

Managing director and chief executive Sanjay Nayak will continue to lead Tejas Networks, along with the existing management team.

“Tejas Networks was started with a vision of creating a top-tier global telecom equipment company from India. The association with Tata group will accelerate the realization of this vision and enable us to address the large market opportunity available to build a financially strong global company, backed by a trusted brand," Nayak said.

Kotak Mahindra Capital Co. Ltd will manage the offer to buy shares from public stockholders. Khaitan and Co. is the legal adviser to the transaction.

Tejas Networks designs, develops and sells networking products to telcos, internet service providers, utilities, defence and government entities in more than 75 countries.

For the year ended 31 March, the company’s sales rose 36% to 514.8 crore. It also swung to a profit of 37.5 crore from a loss of 167.3 crore in the previous year.

In the quarter ended 30 June, Tejas derived 52% of its revenue from overseas markets, 35% from the domestic private market and 13% from the government.

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