ITI's tango with start-ups

Public sector enterprises popularly known as PSU's have mostly a bad market reputation. Protected and mollycoddled by the government for decades, they have been seen as dens of inefficiency and being bottomless pits for taxpayers money. One such player trying to reinvent it-self is the erstwhile Indian Telephone Industries or ITI Ltd, independent India's first PSU.

The telecom revolution in the country was made possible when the duopoly of BSNL and MTNL was broken and private sector players entered the segment. This meant that India today has some of the cheapest telco rates in the world. However, this also meant that ITI which was the main telecom equipment supplier to the duopoly got hit hard. From a peak of around 20,000 workers it is a pale shadow today.

While the government has been making noises about selling off loss making PSU's, it has not been aggressive on that front. ITI which received infusion of funds from government is trying to reinvent itself by entering telecom equipment required by the defence sector and by working with start-ups in the area of IoT.

Markets seem to believe that there is some action happening in the company. Over the last three years shares of ITI Ltd have gone up by nearly 300 per cent. After nearly a decade of losses, the company has been showing small profits mainly due to government support in terms of grants.

Sudarsanam Gopu the CMD of ITI Ltd spoke to BT on path to profitability and why he was wooing start-ups. Edited excerpts:

BT: In the past you were completely dependent on BSNL and MTNL. Has your market mix changed? Where is your growth coming from?

Gopu: Yes it has. The customer diversity started about 3-4 years back. We went into e-governance service projects like helping the government in creation of the National Population Register and Socio Economic Caste Census. We provided the managed, lease line network. We manufactured cables, other equipment, installed and maintained them. Compared to 2014, we have more than doubled our revenue and this year (2016-17) our (unaudited) revenue is Rs 1621 crore a 30 per cent growth compared to the previous years.

Earlier BSNL, MTNL would provide 70 per cent plus of our revenues but today on a growing base it is only 35 per cent of our revenues. 25 per cent of revenue today comes from defence as we were the pioneers in encryption technology in the country.  We are focusing on newer areas like IoT - where we manufacture everything from sensors to control units - data centres and telecom services which are contributing another 25 per cent and the rest is from various other projects and sectors where we service legacy equipment.

Our data centre in Bangalore is already full, we will be launching a new data centre in Naini, Allahabad. We are acting as a system integrator for state-wide area Networks (SWAN) and are aggressively participating in smart cities projects.

BT: What kind of start-ups are you working with?

Gopu: ITI has huge telecom manufacturing facilities setup over decades and we want the vibrant start-up sector to take advantage of this. Start-ups come and pitch to us and we screen them based on the technology they have. We are working with close to 22 start-ups including the likes of Cardiac Design Labs, Yuktix Technologies Ltd, Citrus Platform Solutions, Hanbit Automation Ltd etc.. Most of these start-ups are in the IoT space and smart city technologies. We help them manufacture prototypes and even handhold them in go to market.

Instead of a stake in the start-up we are opting for revenue share, thus helping them succeed.

BT: Is there any overlap between you and BEL in addressing the defence market?

Gopu: There may be some areas but being the oldest encryption player in the country, we have our own strengths.

BT: But are you still surviving on government handouts. While you have turned profitable after nearly a decade, partly it is due to grants. When will you be profitable standalone?

Gopu: In 2014, we were given a revival package of Rs 4,156 crore. Earlier money given was to address past dues. Now this package is in two parts. Capital to upgrade our equipment and rest is grants. We have upgraded five plants including getting things like 3D printing. Last year, yes we were profitable partly due to grants. But in 2016-17 we are mostly likely to break even without grants, though I need to be careful as auditing is going on for it. Next year, we will be profitable without any grants because of the projects in pipeline. Our profit growth is going to be sustainable.

BT: What is the attitude of the current government towards PSU like you?

Gopu: For us is zero interference in any decision-making. The only mandate is that we stand on our own legs. That we should give dividends to shareholders (government). To ensure we address our liability burden, we are trying to monetize some of our underutilized assets including land. That is also a key area for us.

BT: Government is currently holding about 95 per cent of the company and under listing rules, it needs to divest more to bring it to 75 per cent. When is this likely to happen?

Gopu: We are talking to several lead managers and the government has to take a call on timelines. We also might do another round of VRS for employees as average age of employees is 54. So even as we do that, we are infusing fresh new blood. After a long time we are hiring people. I am confident that ITI is back to a path of long term sustainable and profitable growth.