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Tejas, HFCL change strategies to counter supply chain, rising input cost issues

Tejas, HFCL change strategies to counter supply chain, rising input cost issues
Photo Credit: Pixabay
7 May, 2022

Local telecom gear makers such as Tejas Networks and HFCL that have been borne the brunt of component shortages affecting shipments are changing strategies to limit the impact on their order books, even as they continue to face intense competition from European majors Nokia and Ericsson. 

Besides supply chain constraints, uncertainties on account of geopolitical conflict, increased input cost and pandemic related volatilities have led to sharp reductions in revenues and profits, at a time when global supply chain shortages have pushed orders towards Indian manufacturers. 

“What are we doing now, we have already placed orders for our entire FY2023 requirements which is more than 12-month ahead of time,” said Sanjay Nayak, chief executive officer at Tejas Networks, adding that since the company had a large and dedicated order book it would be able to recover the revenue it lost in FY22 through the ongoing financial year. 

In a recent earnings call, Nayak pointed to shortages in low-cost components that came up during FY22 which coupled with shortage of high-value components disrupted manufacturing despite the company having customer wins and robust order book. Tejas’ revenue dropped 37.2% to Rs 126.5 crore while profits took a massive hit and resulted in a loss of Rs 49.6 crore in the quarter ended March. 

HFCL also clocked a fall in revenues and profits for the March quarter even as full-year numbers were higher on-year. Its net profit dropped by 21% on-year to Rs 68 crore for the March quarter, while revenue was down 15% to Rs 1,183 crore. The company said it has started to seek orders at higher prices to soften the blow of high input-costs and freight costs. 

“We’re now asking customers to give orders at increased prices, which customers are also responding, because they also know that input prices have gone up, so output prices will also go up. So, we’re balancing it out in the coming quarter,” HFCL managing director Mahendra Nahata said in an analyst call. 

Industry insiders said that large global players place orders for components years in advance that amount to tens of billions of dollars, but Indian players lag far behind not only due to their scale but also due to far smaller revenue streams. 

“They place orders at most a quarter in advance and if supplies of any component get hit, their entire output gets choked and limits the ability to complete orders. They not only lose business but the market to other (read foreign) player,” said a senior executive who did not want to be named. 

Sector watchers said that companies need to come together when putting in supply orders from component vendors, most of which are in China and Taiwan, such that the scale can become bigger and suppliers can treat demands on priority. 

“Industry has to come together to generate a consolidated demand and put in orders much in advance because we are aware that supplies are set to get delayed. The same strategy can be applied when orders are getting replenished. This will give them adequate foresight and allow them to mitigate potential risks,” said NK Goyal, chairman of Telecom Equipment Manufacturers Association (TEMA). 

The change in strategies assumes significance more so since India’s own semiconductor chip supply chains will take a few years to develop, and only after the first chip makers set up their manufacturing units. While in this regard the first steps have been taken by the likes of International Semiconductor Consortium (ISMC) which recently signed an agreement with the government of Karnataka for $3 billion, the actual supplies may only begin in a couple of years. 

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