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Kavveri Telecom: Expanding globally and locally

March 30, 2012
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While the Indian telecom sector has been witnessing rapid growth, the domestic equipment manufacturing segment is still at a nascent stage. To provide a fillip to the segment, the Telecom Regulatory Authority of India (TRAI) has released a set of recommendations for formulating a telecommunications equipment manufacturing policy. The Telecommunications Equipment Manufacturing Policy recommendations aim to enhance the share of locally manufactured equipment, including products manufactured by companies registered in India.

 

At present, locally manufactured telecom hardware accounts for a mere 12-13 per cent of mobile operator needs. Of this, Indian companies comprise about 3 per cent. In this context, TRAI has recommended that companies owned by Indians and located in India will be awarded 50 per cent of all telecom network orders by 2020.

This focus on indigenous production of equipment offers significant opportunities for companies like Kavveri Telecom. Over the past year, the Bengaluru-based telecom equipment manufacturing company has been busy forming alliances and expanding its product portfolio and footprint in the international market.

Background

Established in 1991, Kavveri Telecom manufactures antennas and radio frequency (RF) products for the wireless space. It primarily caters to the telecom industry and defence forces. It has three manufacturing units in and around Bengaluru.

The company’s customer list includes original equipment manufacturers like Ericsson, Motorola, Nokia Siemens Networks, Alcatel-Lucent, Huawei and ZTE; and mobile operators like Vodafone India, Bharti Airtel, Idea Cellular, Bharat Sanchar Nigam Limited, Reliance Communications and Spice Telecom.

According to C. Shivakumar Reddy, managing director, Kavveri Telecom, the company has grown significantly over the past six years. The company’s revenues have increased by about 800 per cent and profits by more than 1,000 per cent, through its focus on organic and inorganic growth paths.

The organic route, Reddy elaborates, entails adding to the company’s product portfolio, particularly in the areas of RF products and antennas. It also involves acquiring customers in new geographical areas.

The inorganic route involves the company’s expansion in the global market. In the past four years, Kavveri has acquired four RF product and antenna manufacturing companies. In January 2007, it acquired Canada-based DCI Digital Communications, which specialises in RF interference products, in an all-cash deal worth Canadian $1.8 million. Earlier, in April 2006, it had purchased Til-Tek Antennae, Inc., a manufacturer of base station antennas for GSM, CDMA, Wi-Fi and Wi-Max applications, for Canadian $2.5 million. Both acquisitions were made through Kavveri Technologies, Kavveri’s wholly owned subsidiary in Canada.

In 2008, it acquired Spotwave Wireless Limited, a Canadian firm that designs, develops and manufactures intelligent repeaters for in-building solutions. In July 2009, the company acquired Montreal-based Trackcom Systems International.

Recent initiatives

In December 2011, the company signed a 10-year deal with Tata Teleservices Limited to provide in-building wireless solutions to improve network coverage in areas where tower signals are weak. The agreement, signed by its infrastructure arm, Kavveri Telecom Infrastructure, is on a build-operate-lease basis.

The company has kept itself busy overseas as well. It was awarded a contract worth $15 million-$17 million by a European telecom product company. The order is expected to be executed in the next 12-18 months.

Moreover, Kavveri has expanded its footprint in Europe with the purchase of Rymsa Telecom Business of Radiacion y Microondas. The company plans to invest Euro 20 million in Rymsa and the acquisition is expected to enhance its antenna product portfolio and expand the existing sales channels for its group companies in Europe and Latin America.

The company also made its debut in North America’s 4G space with the launch of the linearly Polarised CPE antenna. The product has been designed and developed by Kavveri’s Indian research and development department, at an investment of Rs 35 million, to meet the needs of operators in the North American LTE market.

Financials

Kavveri is on a relatively strong financial wicket. For the quarter ended December 31, 2011, it posted a consolidated net profit of Rs 170.44 million as compared to Rs 121.24 million for the previous quarter ended September 30, 2011, indicating an increase of 40.59 per cent.

Total consolidated net sales increased by 14.3 per cent from Rs 991.07 million for the quarter ended September 30, 2011 to Rs 1,132.8 million for the quarter ended December 31, 2011. During this quarter, the consolidated operating profit margin decreased 170 basis points to 13.55 per cent from 15.26 per cent for the same period of the previous quarter.

The road ahead

According to Reddy, Kavveri plans to increase its revenues by 30 per cent over the next one year and by about 100 per cent in the next three years. With this, it hopes to enhance its global product market share by around 15 per cent. The company plans to invest Rs 1 billion as capex in the form of debt and equity for Kavveri Telecom Infrastructure during financial year 2013.

In terms of market reach, the company plans to increase its footprint in North America and Europe, and make its Indian production facilities a global manufacturing hub. It aims to achieve this by shifting all its overseas manufacturing units to India.

 
 
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