ICT hardware makers need tax break to compete

Fledgling Indian ICT hardware manufacturers have no hope of becoming big and competing with the Taiwanese and Chinese unless the "killing 16 per cent excise duty" is at least partially mitigated, says S Narayanan, chairman of MRO-TEK. MRO-TEK manufactures access equipment for telecom networks and has a strong R&D programme.

In this age of connectivity and convergence we will eventually have cell phones and PCs made in India. But the entire network in between will come from abroad, he bemoans.

MRO-TEK, for its part, aims to grow its topline 15-20 per cent in the current year and the next. It will be partly helped by the success of the products developed by its own R&D.

The company, which has spent Rs 8 crore on product development and has an R&D team of 45, hopes to recover the investment by next year, according to Narayanan.

In the current year MRO-TEK managed to sell 10,000 units of the media converter (it switches signals from copper to fibre), developed by its own R&D, to Indian telecom service providers like VSNL, Tata Power and Hathway.

The company's revenue from its own technology will come to just about Rs 3-4 crore in the current year. But it hopes that with products gaining acceptance (three have so far been commercialised), the proportion of the revenue will go up.

The company is laying considerable store by the trial orders it has received so far for its converters from Japan and South American countries like Chile and Argentina. In most places, the first phase of the evaluation is over, revealed Narayanan.

Once these trials are fully completed and order volumes pick up, the company will have enough installed capacity to meet them, H Nandi, managing director said. Overseas orders will also mean higher export earnings, which currently stands at Rs 2 crore from its own products.

Another key product, whose market MRO-TEK is currently consolidating within the country before taking it overseas is the bandwidth manager. It helps an enterprise regulate bandwidth between different users so that the resource is optimally utilised.

While R&D-driven products are the hopes for the future, the company's bread and butter currently comes from products licenced from MRO-TEK's Israeli partner RAD. One of the most successful among them is the digital modem, which commands over 50 per cent of the Indian market.

MRO-TEK is reaping the benefits of the telecom rollout currently on in the country and has significant orders for modems (RAD technology) from the BSNL rollout which has been contracted to Nokia and Nortel.

The company's bottomline in the current year is likely to be only marginally better than last year's at Rs 3.8 crore as it has had to meet an extraordinary tax item of Rs 7.8 crore. Hence, next year is likely to see a sharp rise in its net bottomline based on current operating margins.