Frog Cellsat Limited (FROG) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Frog Cellsat Limited Q1 and FY '25 Earnings Conference Call hosted by Ventura Securities Limited. [Operator Instructions] Please note that this conference is being recorded. Before we begin, I would like to point out that this conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements do not guarantee the future performance of the company, and it may involve risks and uncertainties that are difficult to predict. I would now like to hand the conference over to Tushar from Ventura Securities Limited. Thank you, and over to you, Tushar.

Thank you. Good day, ladies and gentlemen. On behalf of Ventura Securities Limited, I welcome you all to Frog Cellsat Limited Q1 and FY '25 earnings conference call. The company today represented by Mr. Konark Trivedi, Managing Director; and Mr. Charanjeet 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.

Good evening, everyone. Thank you for joining us today for this conference call. I, along with our CFO, Mr. C. J. Kalra, welcome you all to our Q1 financial year '25 earnings call. Today, we have gathered the 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 20 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 on 2G to 5G and beyond. Our products are not just components. They are backbone of telecom towers and public safety networks, ensuring seamless connectivity and reliability for millions of users worldwide. With a portfolio of over 27 products, including RF repeaters, active DAS system and antennas, we have established ourselves as a comprehensive solution provider in the RF equipment domain. Our dedication goes beyond products. We offer end-to-end solution encompassing in-building coverage, planning, design and installation for mobile operators. We are also proud to announce the successful launch of our enterprise integration system, showcasing our commitment to leading the way in providing superior telecom services. Looking at our performance. Revenue from operations increased by 7.6% from INR 334.01 million in Q1 financial year '24 to INR 359.44 million in Q1 financial year '24, led by robust execution of orders. EBITDA stood at INR 28.31 million in Q1 financial year '25 compared to INR 36.39 million in Q1 financial year '24. Margins stood at 7.88% compared to 10.89% over the same period. The compression EBITDA margin is attributed to increase hiring to meet the demand of our upcoming services. PAT stood at INR 11.75 million in Q1 financial year '25 and PAT margins stood at 6.27% during the same period. Frog Cellsat Limited's order book stands at impressive INR 810 million at closing of Q1 financial year '25, reflecting strong client confidence in our capabilities and in our ability to deliver high-quality, innovative telecom infrastructure solutions. The diverse and extensive project pipeline provides a solid foundation and sustained revenue growth in the coming quarters. Looking ahead, our growth is driven by rising demands for in-building coverage and expanding opportunities in mobile coverage solutions, particularly DAS as greenfields, airports and metros alongside 4G to 5G upgrades. Increased spending from third mobile operators, deployment of VHF coverage for railways and interference mitigation solution in operator network further bolstered our prospects. These initiatives are reinforced by the Make in India initiative and National Security product requirements, aligning perfectly with Frog Cellsat's core competencies and positioning us for substantial benefits. Now moving on to business update. We received an LOI from L&T Technology Services for designing, manufacturing and supply by IBS systems for Bangalore Metro, valued at approximately INR 9.4 (sic) [ 7.4 crores ] crores to be executed within financial year '24/'25. We also received an LOI from ACES India Private Limited for the design, manufacturing and supply and services of an Active DAS System for Noida International Airport. It's a significant deal also to be executed within financial year '24/'25. In conclusion, FCL's future look promising as the industry undergoes significant CapEx growth, and we will be -- we will contribute to this with our innovative products. We are well prepared to capitalize on the numerous growth opportunities ahead and are confident in our ability to expand our operations while delivering value to our stakeholders. We extend our gratitude to our Board, management, employees, partners and shareholders for their unwavering trust. Together, we aim to deliver solid performance and reliable growth for FCL. Thank you for your time, and I'm happy to answer any questions you may have. Thank you.

[Operator Instructions] Our first question comes from Tushar Raghatate from KamayaKya Wealth Management.

So just wanted to know like you have front-loaded the cost in terms of employee expense. Just wanted to know how you're seeing the FY '25 going forward in terms of margins? And how are you seeing the order pipeline going forward. Yes, sir, that's the first question.

Right. So Tushar, thanks for the question. I'm sure several of our shareholders are looking for answer to this question. So we are -- what we have been doing for this quarter, for Q1, as well as because we started this from Q4 last year -- last financial year. But we are building up really our team for the services as well as production to cater to the new upcoming requirements that we have -- that we are seeing that the orders are already there, and we are expecting a few other large orders to cater to those requirements. We are building a team. So and that's the reason why you see the results. The product margins are intact. The cost of employees have gone up. And that is basically a build up to deliver new services and products for the business which we have in hand, and which is upcoming business. We are expecting a growth of about 30% in this financial year '25 from last year, and we are expecting EBITDA margin of around 15%. Further, there is a potential upside of another 10% growth. If we manage to get few of the deals -- large deals which we are expecting.

So this guidance is coming from any soft order bookings or there are yet to be ordered -- yet the orders are to be confirmed?

Tushar, we get orders on a quarterly basis. So there is a regular operator business that we have. That's 1 thing. So there, we are seeing a nominal growth of about 20%. So which is going to be there. Then in addition to that normal business both from the operators, we are expecting -- we already secured 2 projects. One is BMRCL that's Bangalore Metro through L&T. And the second project is for Noida Airport. So this is a totally new business, which is an upside for us from the new business. We are expecting a couple of more projects coming our way in the short term, maybe within this quarter, which will be again delivered within this financial year. So those are again going to be a new business for us. So this is new business. Further, we are seeing upside coming in from the third operator. With the funding in place, with their plans for expansion, expanding the network, we are seeing the business growth from there, our substantial business growth. So this is with the short term of this financial year growth, which we're expecting to come from.

Yes. So why I'm asking because historically, your guidance was trimmed by half. So just wanted to know like what sort of risk are you seeing in terms of your guidance, your FY '25 guidance?

So Tushar, see what happened last year, we initially have given guidance of 40%, which curtailed down to 20% later and we have managed around that. So why that has happened? We were expecting these projects which we have secured now in Q1 this year, BMRCL and Noida Airport. These projects we were expecting in the last financial year, which for some reasons got delayed and finally came in Q1. As they happened last year, we would have definitely hit our 40% target. So we missed out on that 40%, and we have to curtail our forecast from 40% to 20% is simply because of that reason. But now those projects have come so they can contribute in last year's financials, but this year, they are contributing. And then we are expecting a couple of more projects closure within this quarter, which will take us to this target, which we have mentioned.

[Operator Instructions] Our next question comes from Rohan Patel from Turtle Capital.

Yes, sir, I have a question regarding, the growth you are talking about, 30% that you are going to experience this year plus additional 10% growth you were saying. So how much that would be from our new portfolio of goods and services that were not provided last year.

When I say new growth or new market, new business, it is something what we are doing currently with the operators, which is a routine business. That is our existing business, which gives us potentially a growth of 20%. And that additional 10% plus 10%, what I'm saying is expected to come from businesses like Noida Airport is there or BMRCL is there or similar projects that we are expecting.

Okay. So the order book that you are having right now and that you are expecting this year to come, you are expecting from that 30% growth?

Right.

Yes. And regarding in one of your presentation, the opportunities that we can address, like we have a couple of opportunities in INR 100 crores basket and maybe INR 50 crores. So where are we right now? Like how many we can grab it in next 3 years or 4 years? Like how can we take it to like INR 500 crore revenue in next 3, 4 years? And we have sufficient of opportunities that we can address. So I just want to understand the developments that are going on right now.

Right. So look, again, there are -- one, we are seeing a lot of growth coming from our DAS business, IBS business, because there are several new airports and metros which are getting built up, developed. There is a lot of stress on in-building coverage in large buildings for 4G, 5G. So that is one we are seeing a lot of upside in that. I think, there is -- related to this, today, there is what you say, regulation, which is put by the government on all the operators that any equipment that they are going to put in their network has to be a National Security certified. And that has changed a bit how the competition works. And that is helping a bit because we are National Security certified as a company and our products as well. So there is a bit of headwind favoring us in that direction. Another growth perspective we are expecting is coming in from our public safety products, which are tetra coverage and VHF coverage, which is primarily for railway. Now VHF, again, VHF product is there, but it will take -- it is in the approval process. And railways RDSO approval process takes a bit of lengthy process. So we expect that to start adding to our revenues from later this financial year or maybe next financial year. Additionally, we are investing in SMT line or EMS services. And that is further going to give us addition to our new business. And our interference mitigation solution is anyway there. We are just waiting for a conclusion with the business on that. That's another growth area we have.

Do we have any order of interference mitigation system because this is something that we have developed indigenously over here. So do you have any progress over there because that could be a big opportunity...

Right. So still things are on pause on that. We are waiting for operator to conclude a deal. It is getting included in part of some other bigger network deal, which they are currently negotiating. So we are waiting and watching. So far, there is no order to answer you, but it is expected sometime soon.

And like before we say that we won't be getting like your backing TRSP the manufacturing service like SMT line is, margin -- not margin accretive product and now we are wanting to get into it. There are a lot of players already in SMT line. So why do we think like we will be making progress over there?

Right. So there are -- okay, there are 2 things to this. One is we -- anyway for our products also, we use SMT line, so for which currently, we outsource it to a third party. So we have in-house requirement for that. Second is when you look at manufacturing as a service, you go to seek customers for that. Their first primary requirement is that if we have SMT line or not. Can we do SMT process in-house. So if the answer to that is no, then that business opportunity drops out mostly. So if we need to do something on the lines of manufacturing in the surface, SMT line is kind of must. Please go ahead.

So I'm asking the manufacture -- SMT line that you are talking, will that be used captively for our other products? Or you are going to outsource people like you are going to get contracts for manufacturing on that line?

So my first aim objective is to use it for our in-house work. And whatever is paid capacity, if at all, will be there, we plan to use it for third party, that too, not for just the PCP assembly work, but to manufacture boxes -- complete boxes, units. And I was telling you the third point. The third point is, we are already PLI recipients, and now government is checking with all the PLI recipients if they are interested to enhance their investment units, which will obviously enhance the incentives also. With that, if that is going to happen, we are going to make this new additional investment as far of PLI, which will give us, incentives as well.

[Operator Instructions] Our next question comes from Shikhar Mundra from Vivog Commercial Limited.

I wanted to understand for the growth guidance you have given, are we expecting H2 to be significantly better than H1? Or we are assuming all the 3 quarters to be roughly contributing the same?

We expect ramp-up to start from Q2 itself, but the H2 is going to be definitely much, much more significant, better than Q1 and Q2 -- H1...

So we are expecting like quarter-on-quarter growth, Q2, Q3, Q4.

Yes.

And so we are guiding for around 30% growth minimum, not assuming the extra 10%. So that's like a revenue of INR 205, INR 210 crores. And we have -- right now, we have an order book of INR 80 crores. So what gives us the confidence that we'll be able to win more orders worth INR 100 crores during the year. I mean, which areas are you seeing and what gives you the confidence?

Right. So as I said, our normal business is with the operators -- mobile operators. We're seeing nominal 20% growth, which is there. We have already signed what you say, rate contracts because this -- signing rate contract is an annual process, which they have. So they have already for further financial year. They've already signed great contracts now. So that is one confidence which we have to achieve that nominal growth of 20%. Further, these 2 projects, we have already announced, BMRCL and Noida Airport, they themselves are about INR 30 crores of business, which we'll be definitely billing within this financial year. So that makes it almost 10% growth. You're right. And then we are expecting a few large projects more for airports and metro. And that's how...

So the growth, 30% is excluding these airports, the Noida and BMRCL.

So that is including the BMRCL and Noida, yes.

Okay. And so I mean what kind of competitive intensity is there in the -- for the Noida and BMRCL like how confident are we of getting that INR 30 crore order from there?

Order is already there. Order is already there, we have to just execute them.

Okay. All right. And for this, let's say, whole year, we do INR 205, INR 210 crores, so roughly like what will be the breakup between the different products?

Look, we generally don't provide the breakup as such. But broadly if you look at it, then in INR 205 crores, we will be doing about INR 30 crores of services. About INR 40 crores to INR 50 crores of projects, DAS projects and remaining is going to be our normal business, which is IBS Accessories and Network accessories and antenna.

Okay. And the current order book of INR 80 crores, like, is it possible to give a breakup like what else is there in that?

We usually don't do that. We are still a very small company, doing INR 157 crores is very small to break out thin lines from that, doesn't make that sense and gives a lot of exposure or competition to use that data. So we will avoid giving that.

And so where are we with like Jio. We have -- I believe we have onboarded Jio as a customer, if I'm not wrong?

Yes, you're right. We have Jio as the customer.

And how big a business would Jio, is it possible to share details about how big -- I mean how fast are we scaling up with Jio?

It's scaling up. We'll not be able to share a lot of details here because of confidential reasons. But we are extremely strong with them, yes.

Next question comes from Santosh Kondapuram from Investment Handle.

I have a question regarding the telecom sector business as such. So as your clients like Jio and Tejas Networks, they are growing at a very rapid pace. So definitely looks like there are certain tailwinds in the industry. Can you please enlighten us with what are the -- in summarized form, what are the tailwinds you're seeing in the sector? Because your vendors are -- your customers are growing so I'm anticipating you will also obviously grow with that effect. If you can throw some light on that.

Right. So Santosh, you're right. A lot of investment happening in this sector already. Although, if you see on the 5G level as of now, there has been pause, operators have invested on the outdoor sites, whatever they need to invest. There is a pause there on most of them. But what they're doing now is they are now looking at indoor coverage. They're very particular about that, and they are investing on the indoor coverage, and that's where we come into picture. So we are seeing a lot of growth coming in that segment. Yes, so that's -- where we are.

And is it like a repetitive business? Or is it a onetime product that you sell for these customers?

See, 1 site, let's say, we're talking about Noida Airport. So Noida Airport, once we deploy the equipment, it is good to go for next 10 years. Unless there is in between, there will be some 6G upgrade will come, so we have that upgrade option in between. But majorly, investment will be done in one time. Okay. Noida airport right now, we have got is Phase 1, okay? Similarly, there are going to be 6 different phases for Noida airport itself, which is going to be happening over the next 3 years, 4 years. So similar size orders, we are expecting as repeat orders for different phases of Noida airport. So these are on the expansion side. And there are new airports which are coming, which needs this equipment, something like, just for example, Navi Mumbai is 1 airport which is going to come which will need such equipment, right? And there are several other. There is plan for almost 150, 200 new airports to be built up. Each 1 of them will need system. So yes, there is a lot of expansion, a lot of potential there.

And how about this VHF and IBS on the railways or the metro side can you explain what is the VHF product that you are trying to build?

Okay. So like there are -- one is cellular network or mobile coverage that we all know, we use. In addition to that, there are different other networks. One is TETRA network, which is there. TETRA network is used by mainly police wireless, fire safety, ambulances, they can on TETRA. So for TETRA, we provide, again, the coverage solution, repeaters and DAS. Similar to that, there is VHF system, which is used by railways. So for railways, again, for that VHF system, we will be providing our repeaters and DAS system for project management.

Okay. And 1 last question. There was something -- there are some products you were building for defense. I know you said it was a little slow at that point in time, probably a year back. Any progress on that, anything that you are seeing in the near future.

So I think I told this in the earlier conference call also. So for us, defense is going a bit slow and which is a bit not matching with our DNA. We are kind of a company where we work with operators, sort of intricate results go up and down pretty fast. Defense is a little bit slow for us.