Frog Cellsat Limited (FROG) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Frog Cellsat Limited Q4 and FY '24 Earnings Conference Call, hosted by Vinstra Securities Limited. [Operator Instructions] Please note that this conference is being recorded. The company is today represented by Mr. Vipin Yadav; Mr. Konark Trivedi, the Managing Director; and Mr. Charan Jeet Kalra, Chief Financial Officer of the company. I would now like to hand over the call to Mr. Trivedi for his opening remarks. Thank you, and over to you, sir.

Thank you. Good evening, everyone. Thank you for joining us today for this conference call. I, along with our CFO, Mr. CJ Kalra, welcome you all to our financial year '24 earnings call. Today, we have gathered to discuss the journey of Frog Cellsat Limited, vision for the future, and the key drivers that have propelled us to success. As you know, FCL is a growing company, and we have been in the industry for more than 19 years. From humble beginnings, we have evolved into a leading design house and manufacturer of radio frequency equipment, catering to the diverse needs of mobile networks from 2G to 5G and beyond. Our products are not just components. They are the backbone of telecom towers and public safety networks, ensuring seamless connectivity and reliability for millions of users worldwide. With over 20-plus products in our offerings, ranging from RF repeaters to antennas, we have established ourselves as a comprehensive solution provider in the RF equipment domain. But our journey doesn't end with products. We are committed to providing end-to-end solutions, offering services such as in-building coverage planning, design and installation services to mobile operators. Our dedication to excellence extends to our manufacturing facility in Noida, equipped with the state-of-the-art technology to ensure the highest quality standards. Looking at our performance since financial year '24, our revenue stood at INR 1,577.33 million for financial year '24 as compared to INR 1,351.89 million in financial year '23. This growth was driven by increasing trust on investing in technologically sound telephony infrastructure by leading telecom operators, led by healthy demand for data and voice services. Our adjusted EBITDA stood at INR 218.53 million in financial year '24 with margin which stood at 13.85%. Our PAT stood at INR 155.19 million for financial year '24, and margin which stood at 9.84%. Now on the business update. During the financial year, we moved to our new state-of-the-art 1.6 lakh square feet facility in Noida. This has centralized and consequently streamlined our operations, ensuring greater agility and execution under one roof. Talking about our achievement during Q4 financial year 2024, we are delighted to share a couple of notable milestones that underscore our dedication to advancing and innovating. Firstly, we are happy to share that we have successfully welcomed Jio, Tejas, IPI Limited, Indus and Crest Digitel as our valued customer. Secondly, we have concluded trials for our interference mitigation system, and we anticipate finalizing commercial agreements with operators soon. Furthermore, we are proud to announce the addition of 7 new products in our portfolio, led by our continuous focus to develop R&D-led products. These products are used across various applications in telecom infra equipment like mobile networks, railway communication networks and metros and airports. Alongside these achievements, the company has successfully secured orders from key partners, evident in our robust order book position, which stood at substantial INR 610 million as of March 31, 2024. In conclusion, FCL's future looks bright as the industry is going through a major CapEx update, and we will be incrementally contributing to this by our innovative products. We are well prepared to capitalize on the numerous growth prospects that await us and are confident in our ability to expand our operations while providing value to our stakeholders. We thank our Board, management, employees, partners and shareholders for their unwavering trust. Together, we plan to deliver solid performance and reliable growth for FCL. I thank you for your time, and I'm happy to answer any questions you may have. Thank you.

[Operator Instructions] First question comes from [ Rupesh Kumar ], an individual investor.

Hello. Are you able to hear me? Hello?

Yes, sir.

My question is on the -- can you let me know the reason for the low employee expenses in Q4 2024 as compared to your Q3 or Q4 of 2023? The employee expenses are INR 1.6 crores as compared to INR 5.2 crores for Q3 and INR 4.3 crores for the last quarter, Q4 2023.

Right. Thanks, Mr. Rupesh. There is noise coming in the background, so if you can mute it. Yes. So Mr. Rupesh, the reason for this is, what we have done in Q4 is we have capitalized our R&D manpower expense, because for -- to take our R&D expense as part of our PLI investment, there is a need to capitalize those expenses. So in the last quarter, we have capitalized our R&D manpower expense, which is -- that's the reason why it is showing as reduction in employee cost.

Is this going to be the norm going forward?

Yes, it will be like this, yes.

Okay, okay. And in the same vein, can you explain the reason, is this moved to the higher other expenditure in Q4? Because the other expenditure in Q4 is higher, like INR 4.1 crores as compared to INR 1.8 crores in the last quarter.

Right. So it is primarily due to the services cost. So we provide installation services as well, and so it's basically because of increase in that cost, which we have adjusted for the last 3 quarters, also in this quarter.

Okay, okay. Last 3 quarters cost has been adjusted in this quarter, right?

Yes, yes.

Okay, okay. And also, sir, if you can explain to me the business outlook for your various segments like 5G, defense and mobile network sectors, what is the opportunity size you anticipate? And how will Frog be able to capture it going forward? And also with regards to your order book of INR 61 crores, over what period will this be executed? And how do you anticipate the order book going forward?

Look, we are seeing a lot of growth coming in in the mobile segment going forward, especially related to in-building solutions. The companies who are providing in-building coverage, like Indus or Crest or iBUS, they have forecasted a big growth and undertaken big targets for themselves in this year, which are multifold of what they did last year. So this is one segment where we are seeing a lot of growth area coming in. Second is now with Vodafone Idea getting their funding done, we are expecting them to invest a lot in their 4G network upgrade. And Vodafone is already our current customer, but the business was pretty low from them so far. So we expect decent growth in that in this year. Defense segment is a bit slow, and takes longer time. So we are not too excited, frankly, on that side as of now. And the other part of the growth which we are seeing should come from our VHF solution which we have developed for railways. That should be -- so it's kind of a bit of diversification also from just focusing on mobile operators, so we are adding on solutions for railways. Then another growth area which we are seeing is from our interference mitigation solution, as we mentioned that the trials have been now done and now we are the commercial negotiation phase, and we are expecting a closure soon. One more thing which we are now going to do pretty soon over the next few months is investing in SMT line, which will get into our Manufacturing as a Service business. So it's a PCB assembly line. That's the first step for Manufacturing as a Service. So that will again further give you -- give us more diversification, because once we do PCB, then we can do it for not just telecom, but for any industry. So these are a few growth areas which we are seeing in this year.

Sir, just last -- one last question. With regards to this other income of INR 2.4 crores, is that related to the PLI benefits in some way or...?

No, that is related to the sale of that [ loan ] property.

Sorry, I missed that. Can you repeat that?

That's coming from the sale of Dehradun property. We have a plant in Dehradun that we closed.

Yes, yes. I got it. I got it. Okay. Okay. Got it. And how -- when do you expect this PLI benefits to flow into the income statement from which year, sir?

Okay. So PLI benefits is already -- we are receiving PLI benefits already. So it was part of this year financials also. So we are already receiving that.

Next question comes from [ Varun Mandani ], an individual investor.

So in the presentation, in Slide #9, they have mentioned the different sectors which we cater to. So if you could give me a rough ballpark mix between the different customers, like telecom operators equipment, in-building [ IPS ], large developers, defense and government. Can you give a rough percentage of it?

Varun, thank you for the question. See, we have not classified our revenues in these segments. But primarily our -- 70%-plus revenues do come from mobile operators. So this is just to give you an idea. So yes.

Okay. And you just mentioned about getting into Manufacturing as a Service. And I think to the previous participant, you were mentioning about the PCB assembly part. So generally, we -- generally, we see the EMS industry doing PCB to be very low on margins, like 6%, 7% EBITDA. So what -- are we getting into similar kind or are we doing some ODM kind of manufacturing, original design manufacturing? And what kind of margins do you expect in this kind of Manufacturing as a Service business?

Right. So you are right, so this will be a start of our EMS business. So we'll be in EMS business. And yes, in EMS business, the margins are pretty on the lower side than what we are used to. But that is going to be an add-on business. It's not a replacement business. It's going to be an add-on business. It's an additional revenue for us, and we'll be treating it as a separate line of business altogether.

Okay, sure. And lastly, I think in the last year final quarter we have spoken about the defense projects like AVM and we've been developing it. So any, I mean, update on the commercialization of that product? And also, are there any more defense projects coming -- taken up currently?

As I mentioned, the defense, we are seeing a pretty slow movement. And company like us, [indiscernible] we've built solutions. We want to -- we are hungry for business market. So -- but I think defense moves a bit slow but within a different way. So it's not moving as we expected it to. It's moving slow. So to be fair, our focus is not so much on the defense as of now. We are doing it, but not so -- not with so much focus.

Okay. And lastly...

It's not one of the very large growth areas which we are seeing or -- yes -- for us.

Sure. And lastly, regarding the BSNL 4G project phase, I think mentioned in the past about having a INR 100 crores run rate, and there have been in talks and close to finalization. Can you update us on that project?

Yes. So supplies have already started. 2 stages. We are already supplying some parts. But as you know, BSNL is also moving very slow. Like in the press, it was in -- towards the end of March, it was so that they have deployed only about 3,000 sites until then. So [indiscernible] is a bit slow there so far. I think that that pace, it should pick up and it should evolve.

Okay. Helpful. One final question, if I can. So in the past, we have given a very long-term guidance of INR 500 crores revenue in 4 years. Do we stick to it, or is there any changes to it?

Yes. So I've also told that from the things which we have been doing, they will not let us reach to INR 500 crores. They will give us nominal growth. So we have to do something new to get to that number. And we are -- so things like interference mitigation solution is one of them which will make us reach there. Things like EMS service is one of the things that will make us do there -- reach there. And more and more such additions is going to take us and lead to that point.

Next question gen comes from [ Ritesh ], an individual investor.

Mr. Konark, can you hear me?

Yes, Mr. Ritesh, yes.

My first question is about our outgoing CEO, Mr. Pankaj Gandhi, I mean, leaving the company in a very short time. So what is the succession plan, or then again you will be coming back to wear the driver's seat. How would that be?

Yes, Mr. Ritesh. So yes, it's unfortunate that Pankaj has left us in a short time. So it is -- now I have taken over back as CEO position as well. So I'll be taking care of that until the time we go for someone else for CEO position.

Okay. And one more question is about the railway equipment what you mentioned. So what is exactly that and which area of the railways would that product be going into it?

So look, all the railway communication that happens, they have a dedicated network of -- on VHF frequencies. So all the train communication happens on VHF. So what we have developed is a solution which is VHF repeaters and as well as VHF DAS equipment. So all these stations or tunnels, they need this communication equipment which we have developed.

So when can we expect the first order? Or do we already have the order from railways?

No, no, we don't have the order. The product has just been developed. Now we are in the process of taking it for approval to railways. So it's -- and then we have to participate in tenders. So although in some tenders we have already participated, which are under evaluation. So -- but to be fair, I think it will take a couple of quarters before we can see the business.

Okay. And last question, sir. Of late, we are seeing substantial volumes getting traded for FCL in the stock market. It's something market expecting, or we are something -- planning something which would like to share?

Look, we work very transparently with our investors and shareholders. Everything is already communicated what we are, and I've just told what upside we are seeing from where we are seeing upside coming in. So I think our investors are picking up from the clues that we are giving, like a lot of uptake is seen in IDS work from the plants of Crest, Indus, iBUS and companies like that. We are expecting uptick from Vodafone investment in their 4G network upgrade, then we are about to close on interference mitigation solution. That's what is expected. Then our new investment for EMS facility, that's another thing. So these are -- we have been very transparently sharing all these informations in our regular releases, and I think that's what is exciting the investors.

[Operator Instructions] Next question comes from [ Tushar Rabate ] from Kamakhya Wealth Management.

Sir, on the Slide #15, you mentioned the past year [indiscernible] and the current year what are your plans. So just wanted to know, in the past product like the DAS, [indiscernible], VHF, any soft order theme do you see? Or what kind of [indiscernible] in terms of percentage of your revenue, how are you seeing that? And also in the plan for FY '25, you have mentioned about the smart meters. So how do you see this go, the planning or in terms of revenue contribution for next [indiscernible] year?

So as I've mentioned, in-building solutions is something where we are seeing a lot of uptake. And the DAS, cellular DAS is basically part of that, even repeaters is part of that. And this is a new thing what we have come out with is smart repeaters for smart meters. So basically, what is happening in the smart meter case, in a lot of places these smart meters are installed in basement areas or in areas which are not reachable, dark areas [indiscernible], where there is actually, in many, many times, there is no signal which reaches a smart meter. And if a smart meter doesn't get mobile signal, it doesn't remain smart, right? So operators are looking for solution for such cases, and we have developed a solution for that. So this is what we have mentioned is smart meters, smart repeater for smart meters. So yes, this is one big segment where we are seeing -- expecting decent growth in this year.

Sir, any numbers to that? In percentage terms of revenue, maybe for 2 to 3 years in the segment, new products?

Look, it's hard to tell the numbers revenue, but this is one area which we are expecting substantial growth.

Fair enough, sir. And sir, in regards to the order book of BSNL, are you seeing that quanitfying in FY '25? Or are you seeing it again to get delayed?

Look, this -- it should happen. It should happen this year, because they have delayed the rollout last year, but we are expecting that rollout should happen this year. So yes, the numbers should come from BSNL also.

Fair enough, sir. And sir, in the investor presentation, you mentioned about a $5 billion opportunity. And what would be our industry share that the product [indiscernible]? From the total big pie, what would be our share that our investors share?

Our industry share from that should be typically, from the products that we make, should be around 10%, what we do gets 10%. Most of the -- 70% of any investment in network goes to big companies like Ericsson, Nokia, Samsung.

And sir, any guidance for this year are you seeing?

Look, we have not come out with the number. We are still trying to consolidate the inputs from the market, how -- a lot of things are happening at current time. So maybe by -- along with Q1 results, we'll be giving some guidance.

Next question comes from [ Raj Kumar ], an individual investor.

Yes. Congrats on a good set of numbers. Sir, the first question is what is the revenue and the margin guidance for FY '25?

Look, as I answered in my last question, we are still working on gathering a lot of inputs from the market because things are changing very dynamically. And especially with this Vodafone Idea FPO, it's pretty dynamic. So give us time, and we will be sharing some forecast by -- along with Q1 results.

Okay. And just a couple of housekeeping questions. So I just want to know what is the PLI benefit booked in Q4 and which -- is it sitting in your net sales income from operation line item?

Yes, it's sitting in the income from operation line item, yes.

And what is the amount of benefit we booked?

We have about 2.7 crores.

2.7 crores. Okay. And the R&D capitalization also happened in Q4, that is why your employee cost is abnormally low compared to the previous quarters?

Right. Exactly, exactly.