Frog Cellsat Limited (FROG) Earnings Call Transcript & Summary

[Audio Gap] The company will be represented by Mr. Konark Trivedi, Managing Director; Mr. Umesh Singh, Chief Executive Officer; 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, Tushar. A very good day to all of you, and welcome to the quarter 2 financial year '25 Earnings Call. As we are here to discuss Frog Cellsat's performance and the significant milestones we have achieved over the past few months. Firstly, I would like to state that with over 2 decades of expertise, Frog Cellsat has evolved into a leading design house and manufacturer of radio frequency equipment, catering to the full spectrum of mobile networks from 2G to 5G and beyond. Our products, including RF repeaters, Active DAS system and antennas and accessories play a critical role in ensuring seamless connectivity for millions of users worldwide. These essential components are integrated into telecom towers and in public safety networks providing both reliability and scalability. Today, our portfolio boasts over 27-plus products, making us a comprehensive solution provider in the RF equipment sector. Our commitment goes beyond manufacturing. We deliver end-to-end solutions of covering planning, designing and installation supporting mobile operators in optimizing their network infrastructure. Notably, we have successfully launched our interference integration system, interference mitigation system, a testament to our dedication to driving superior telecom services. Moving to our financial highlights for Q2 financial year '25. Our revenue from operations this quarter reached INR 438.1 million, up from INR 359.4 million, marking a 21.9% quarter-over-quarter increase, and 24.6% year-on-year rise. The growth has fueled by robust revenue realization, the accelerated rollout of 5G services and heightened demand for network coverage solutions. Our EBITDA for the quarter came in at INR 32.2 million (sic) [ INR 36.2 million], reflecting a 27.9% quarter-on-quarter growth with an EBITDA margin of 8.3%. While our manpower expenses increased in Q2 as its strategic investment in expanding our workforce, this positions us well for future projects delivering in upcoming quarters. Additionally, the issuance of employee stock rewards in Q2 underscores our commitment to retaining and nurturing talent and investment that while impacting short-term margins will fuel growth across both our manufacturing and services center. Our PAT was reported at INR 41.3 million, from INR 11.7 million, representing a remarkable growth of around 250% quarter-on-quarter and 60.4% year-on-year increase with a PAT margin of 9.4%. Our half yearly financial numbers -- our revenue from operations increased by 16.3% to INR 797.6 million compared to INR 685.5 million in H1 financial year '24. Our EBITDA stood at INR 64.5 million and a margin of 8.1% as compared to 12% in H1 financial year '24 [indiscernible]. Our PAT for H1 financial year '25 was INR 53.1 million, slightly up from INR 52.7 million in H1 financial year '24 with a PAT margin of 6.7%. Business update. Now moving on to our business update. We are proud to announce that Frog Cellsat has recently secured INR 31 crore order from Metrotel Teleworks to enhance mobile coverage at Mumbai International Airport with a completion target of December 2024. We have also secured a INR 16 crores contract for the deployment of our OneDAS system at Navi Mumbai International Airport, marking our third major airport project. Furthermore, the deployment of OneDAS at Chaudhary Charan Singh Airport in Lucknow has been successfully completed. Order book and future outlook. Our order book at the end of Q2 financial year '25 reached INR 1,100 million, a clear indicator of the trust our clients place in our solutions. This momentum, coupled with the pipeline of projects positions us well for continued revenue growth. We expect Q3 to be particularly strong with significant project billings lined up for completion. At the recent India Mobile Congress, we unveiled key innovation designed to meet evolving market needs such as active DAS for 5G, Smart Mini Booster for IoT, VHF Repeaters for Railway and Noise Shield Solution. These new offerings are expected to contribute meaningfully to our revenue streams in the coming quarters. Industry developments. As we can observe that the telecom industry is undoing significant capital expenditures with leading operators like Airtel and Vodafone Idea building their 4G and 5G networks. This trend provides us with ample opportunities to capture market share and growth alongside these operators. By aligning our product offerings with their network expansion efforts, we are confident in our ability to capitalize on the growing demand for advanced telecom infrastructure. Conclusion. As the industry continues its CapEx expansion, Frog Cellsat is strategically positioned to seize new opportunities with our innovative solutions. We are confident in our ability to scale operations, enhance our market presence and consistently deliver value to our stakeholders. Thank you for your time today. I am happy to take any questions you may have.

[Operator Instructions] First question comes from Siddhartha from Caprize.

Congrats for the great set of results. So I'm new to this company. So I just wanted to understand what exactly is our moat here? So what are we doing differently compared to our competitors?

Right. So look, firstly, we are a fully Indian company having product designed in-house by us. And this is -- and the coverage solutions, which we are providing. So we are the only Indian company who is manufacturing these kind of products. There is no other Indian company who is manufacturing these kind of products in this range. So this is very unique for us. And that gives us leverage. Now there is a focus on make-in-India products on products, which are certified by government as is NSDPA certified, national security certified. So those kind of things will give an edge and makes us a vendor of choice by the customers.

So -- and one more question, sir. If you look at our customers, so most of our orders, we cater mostly to Airtel, right? So just wanted to understand any -- I mean, so there's a different claim concentration out there. So just wanted to understand your strategy here how do you want to diversify going forward -- moving forward?

Right. So look, the things are changing slowly but surely. If you see our airport orders that we have been receiving and which have a major project orders, those orders are coming from neutral hosts or system integrators. So like Noida airport project, which we have received, that was from a neutral host called Cases. The projects that we have received for Mumbai Airport or Navi Mumbai Airport. Both of them, we have received from a system integrator. Project for Delhi Metro, we have received from Motorola, which is a system integrated plus equipment provider. Project for Bangalore Metro, we have received from L&T, right? So our solutions are now being taken by a lot of system integrators and neutral hosts and that is upside, which we are seeing, which is making us less dependent on mobile operators.

Okay. So -- and one last question from my end, sir. So our margins have been quite volatile and you have guided for 12% to 13% margin, whereas in the first half of our -- in the first half of the financial year, we hardly have a 10% or 9%, so I mean, do we expect the margins to significantly go up in the next coming 2 quarters? And so I just wanted to understand the reason behind these kind of fluctuations?

Right. So look, firstly, the fluctuation happens -- the kind of product mix that has built in that quarter, right? So we have -- as I mentioned, we have 27 plus products. So different product comes with a different margin profile. So it varies from what kind of product mix has been build in this back quarter. As far as going forward is concerned, if you look at it, the -- we are going to see most of our projected growth in the next 2 quarters in revenues whereas the fixed cost is same. All these large projects are going to be getting profitable in these coming 2 quarters, majorly in Q3 actually. So and there's not going to be so much upside on the fixed costs. So fixed costs will stay same. And that's where it would make a difference, and we are going to achieve still our targets of 12% to 13%.

Next question comes from Narendra Shah from Robo Capital.

So a broad-based question, right? So going forward, 3 years down the line, where do we see our company in terms of revenue and PAT? I mean do we see it as a INR 500 crore turnover company with a INR 50 crores kind of a PAT? What's our vision for the company moving ahead?

Yes. So look, this is -- what you're asking has already been given by us some time back as our target but by financial year -- in financial year '28, we should be -- we are targeting to achieve INR 500 crores revenue and margins in the range of 10%. So that's what we are aiming at for financial year '28.

Okay. Talking about big projects coming up [indiscernible]

Sorry, can you please be a bit louder? Hello.

Yes, there is no response. Shall we move to next question?

Yes. I think let's do that. If he comes back then we can take them on board later.

Next question comes from Raj from Aarjav Partners.

I'm new to the company. I just wanted to understand the business of the company. So is the order book fully based on L1?

Okay. Raj, so we are a company providing solutions primarily to for the coverage enhancement of mobile networks. That's what we do. Your question is if it is fully based on L1 so that's not the case. We do need to be competitive. But when you work with customers that we work with, they also look at the quality. So like Airtel or Vodafone, a Jio or neutral hosts, they need to look at quality as well. And so it's a mix of price and quality and the specifications.

All right. As of now, you have an order book of INR 110 crores, right? How much of this INR 110 crores is based on L1?

I will say none of them is based on L1.

Okay. And how much is the order pipeline?

So see, we don't have a visibility of order pipeline as such. We don't give that order pipeline number. We are -- quarter-on-quarter, we are only declaring the number of our order book. So that's the practice we have.

All right. And how much is the order execution time line?

It depends on, I mean, from customer to customer. If you ask about this INR 110 crores pipeline, INR 110 crores order book that we have at the end of September. Our good guess is at least INR 65 crores to INR 70 crores of this should get billed in Q3 and remaining should get billed in Q4.

I didn't get what you were saying. Can you repeat it again? How much of it will be executed in Q3? INR 50 crores around?

No, INR 65 crores to INR 70 crores should get executed in Q3 and the balance should go to Q4.

All right. So overall INR 110 crores will be executed by FY '25 end fully?

Yes.

Understood. And since we design our equipment in-house, so how much of the raw material is imported?

Look, again, it depends on product to product because we have 27-plus products. But broadly, if you look at it, then I think -- overall percentage, if you look at it, it should come to 50% to 60%.

50% to 60% raw material will be imported, right?

Yes.

And I wanted to know how much of like value addition do we exactly do? Like are we an assembler exactly? Do we add any value in our products from our end?

Look, this is all our in-house design products. So depending on how you calculate value add. But if you do value-add calculation as per what government of India does, we -- our value addition is more than 50%.

Okay. And sir, how many SKUs do we handle?

We have 27 plus products as of now. But then they -- but then there are sub-variants of, let's say, digital repeaters variants which are there. DAS can be configured in different forms. So those are additional to that.

Understood, understood. And sir, since we design our products in-house, so it needs to be approved from the customer end, right?

Yes.

So for example, Jio is there. So when we design our products, then we go to Jio and then they approve it. And after the approval, we get the order, right?

Yes.

And do we get the order directly from OEM or is it from a Tier-1 partner?

No -- so I didn't get your point, OEM or Tier-1 partner...

What I'm trying to say is do we get the order directly from Jio? Or Jio gives orders to someone else?

Yes, no. So we get orders directly from mobile operators, Jio, Airtel, Vodafone, directly from them.

Okay. All right. And sir, I wanted to ask, who are our peers in this segment?

So there are mostly international companies like this CommScope. CommScope has, by the way, sold their division of Active DAS to another international company called Amphenol for a few billion dollars. And then there is Solid, which is a Korean company. Then there is -- what we call Pros, Pros is a Chinese company. So yes, these are some of the main contenders.

Sir, for example, if Jio wants to give an order. So why does Jio give an order to us and not to the international companies? Is the competition based on the pricing or quality or -- like I wanted to understand what exactly differentiates us?

Okay. So look, it's for a different product, it's a different differentiator again. Now if we take it to, let's say, the DAS product or repeaters, then basically, for any active product, one needs to have -- firstly, the preference is for Make in India. There is a lot of push by government for that, okay? So -- and we are the only make in India company for these products. Second is for these products, there is a national security requirement is also there. So national security certification has to be there. And that's what we have being a local company and that also gives us an edge. For other items like accessories, let's say, jumpers or CPRI cable. Now these international companies have their own -- they bring in from outside. They take a lot of shipment time. Now with these are required immediate basis. So being a local, we can provide it locally to these customers. We have been supplying these items consistently over the last 6, 7 years to them, and they are happy with the performance. They are happy with the quality. So that's it's just simply a continuity.

Understood. Understood. I also wanted to understand, for example, if we take a mobile tower...

Can you join back the queue. Next question comes from Akshada Dave from Vivog Commercial Limited.

I just want to understand -- I understand you don't give order pipeline of the future, but can you see what type of clients or what -- where exactly orders would be coming from? And would there be any margin difference depending on which customer is giving you the order?

Look, mostly, we do business with mobile operators and neutral hosts or all big civil contractors who are designing airports or metros. So these are our potential customers. So safe to say, mobile operators anyway like Airtel, Vodafone, Jio. They are our customers. Second, the neutral hosts are like, you know, companies like 8 Phase or Crest Digital, Indus towers. So those are our customers, our system integrators like you know, like Metrotel or L&T. So, these guys are customers or for that matter, Adani. So, they are all potential customers or they are our customers.

I also understand that we had trials with Jio, right, a while back? Did anything come?

Yes. So we are doing business with Jio. The volume is still small there.

And then by this time, we expected for the volumes to be picked up, right?

Yes. We are working with them, and we expect the volumes to pick up. But as of now, we have not -- they're still small.

And any reason for the hiccup there?

Look, things take time to build up to develop. So we are new to their system.

Any time line on your side that what do you believe probably be the next...

It's not possible to provide any time lines on that. But to tell you that is -- our projections are not dependent on that. Our growth projections are not dependent on that. So it's not taking into our growth production. If and when that will happen, it will be over and above our projections.

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

Just in your opening remarks, you mentioned that you have successfully launched IMF, is that right?

Launch what, sorry?

IMF, Interference Mitigation System?

No. So what I mentioned is that we have launched at the India Mobile Congress, Active DAS system for 5G, Smart Mini Booster for IoT, VHS Repeater for Railways, and Noise Feed Solution.

I understood that in one of your presentation, you mentioned that you are also working for -- working on IMF. So can you share the progress in that?

Yes. So look, it is -- the trials have happened. The commercial discussion is still on, and it's not yet concluded. So that's where it is.

Okay. Can you give us a time frame when this IMS will get start reflecting and when we will start working on that like commercial orders, when will we start getting commercial orders?

Look, as of now, we don't have a time line. See if it happens, It can happen tomorrow. If it won't happen, it cannot happen maybe 2 quarters. So we don't have a time line still for that, a bound time line. But yes, we are working towards it.

Okay. And another thing was regarding your SMT line that you were going to start with a manufacturing as a service. So can you share progress over there?

Yes. So the equipment has been ordered now and delivery time line for that is by Q4. In Q4, we should be getting the deliveries for it. And yes, maybe in Q4, it should be implemented.

Okay. So then this business -- this vertical log will be reflected in FY '25, if I'm right? Sorry FY '26?

FY '26. Yes.

So out of those manufacturing as a service, how much would be the in-house we will be using for our captive consumption and how much that would be for a third party?

So my current estimate is that 25% to 30% will be in-house and balance will be outsourced.

Okay. And like we are targeting around 30% top line growth in FY '25, which takes us to somewhere around INR 205 crores. And right now, we are somewhere around INR 80 crores. So we would be -- INR 80 crores, INR 85 crores. So we would be -- in H1, we did INR 85 crores and around 8% EBITDA margin. I'm considering your guidance of 12% to 13% EBITDA margin, we need to do in H2 around INR 120 crores with 15% to 16% EBITDA margin. So what gives you confidence that we'll be able to make, like in second half, 16% EBITDA margin?

The orders in hand.

Okay. So the orders in hand will help us?

Yes.

And second thing, your long-term guidance of INR 500 crores, which you have been stating for the last 2 years, what we have seen is that there has been fluctuation in EBITDA margins that you were targeting. Like in last call, we were confident of doing 14% to 15% EBITDA margin. And in your remarks, in this quarter, in this remarks, you have said 10% margin. Is that PAT level or is this EBITDA level?

No. So this is for the long term, with INR 500 crores revenue in financial year '28, I am saying the EBITDA margin should be in the range of 10% at that time. So -- and this is a cautious approach. I don't want to be giving a number, which is difficult to reach. I don't know -- I cannot say today what kind of exact margins, we will be able to make at that point in time. So it's a bit of caution which I put there by stating that, yes, we should be doing EBITDA of 10%.