Tata eyes foothold in telecom equipment business after Tejas acquisition

For over two decades, the Tata group has tried to make a mark in the telecom equipment business. The most prominent examples have been that of Tata Lucent and Tata Telecom. Success was always elusive, and over time the group decided to reduce focus on this business. Those in the know say that once the group realised there was no IP (internet protocol, referring to how packets of data can travel across networks) being developed, it made little sense to be there.

Now, there appears to be a complete rethink with the acquisition of a controlling stake in Tejas Networks. With a revenue of Rs 551 crore, this Bengaluru-based company manufactures networking products to telecommunications service providers, utilities, internet service providers, among others. The first part of the deal entails Tata Sons, the group's holding company, picking up a 43.35 per cent stake for Rs 1,884 crore to later be followed by the mandatory open offer.

Also read: Tata Sons' arm Panatone Finvest to acquire controlling stake in Tejas Networks for Rs 1,890 crore

The telecom equipment business globally is dominated by the likes of Huawei and ZTE, with the key to success being scale and that eventually leading to the ability to win the big orders. In that sense, Tejas is still a small operation and how it makes a strategic difference is slightly hard to comprehend. The most obvious way of synergy could be with the two telecom enterprise service businesses - Tata Communications and Tata Teleservices - who will need Tejas' equipment for their operations. How much of a difference Tejas can make, however, remains to be seen.

The other piece could be the curbs on Chinese vendors and the Tatas, therefore, seeing a growth opportunity. The buyout of Tejas, and then the possibility of joining hands with a global player, could give them a foothold in the equipment business. The existing manufacturing base is a handy thing to have here.

The most interesting part of the deal is that it is Tata Sons being the buyer, through a subsidiary, Panatone Finvest. It was this very entity that bought over the then state-owned Videsh Sanchar Nigam Limited (VSNL) in 2002. A little over five years later, it was renamed Tata Communications. Logically, it ought to have been one of the group companies acquiring Tejas. Now, the buzz on the street is about how the group will look at Tejas (and other buyouts later) as a way to get a larger enterprise IP play. With the exit from mobility, this could be the next big story unfolding.

Also read: Tejas Networks stock hits 52-week high as Tata Sons arm buys controlling stake in telecom gear maker