Frontier Springs Limited (522195) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Frontier Springs Limited Q2 and H1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Mehra from TIL Advisors. Thank you, and over to you, sir.

Thank you, Bhumika. Good afternoon, and welcome, everyone. Thanks for joining this Q2 and H1 FY '26 earnings conference Call of Frontier Springs Limited. The investor updates have already been uploaded on the stock exchanges and the company website. In case you do not have a copy of the same, please feel free to reach out to us. To take us through the discussion, we have today with us Mr. Kapil Bhatia, Managing Director; Mr. Neeraj Bhatia, Whole-Time Director and Chief Financial Officer; and Mr. Dhruv Bhasin, Company Secretary and Compliance Officer. We'll be starting the call with a brief overview of the business and the financial performance, which will then be followed by the Q&A session. I'd like to remind you all that everything said in this call reflecting any outlook for the future which can be construed as a forward-looking statement must be viewed in conjunction with the risks and uncertainties that the company faces. These risks and uncertainties have been mentioned in our annual report. With that said, I'd now like to hand over the call to Mr. Bhatia. Over to you, sir.

Hi. This is Kapil Bhatia, MD of the company. Good afternoon, everyone, and I hope I am loud and clear. Good afternoon, everyone, and welcome to the earnings call of Frontier Springs Limited Quarter 2 and H1 FY '26. We appreciate your time today and are eager to share with you the company's strong performance across all key metrics. Beginning with the financial performance, Frontier Springs recorded a revenue from operations of INR 82.74 crores for the second quarter, making a healthy year-on-year growth of over 58.39% over earnings before interest, taxes, depreciation and amortization surged by more than double, registering an EBITDA of INR 22.07 crores, reflecting a year-on-year increase exceeding 106.53%. The profit after tax stood at INR 15.71 crores, more than doubling compared to the same period last year with an impressive year-on-year rise of 115.5%. For the first half of the fiscal year, the revenue from operations reached INR 158.08 crores, representing a robust year-on-year growth of 53.49%. EBITDA for this period was INR 42.5 crores, which more than doubled compared to the previous year, showing a remarkable growth of 107.92%. Profit after tax crossed INR 30.45 crores, reflecting a significant year-on-year increase of 113.37%. Turning to our business developments. The second quarter demonstrated solid demand across all product lines. Underpinning our sustained growth, we continue to uphold a healthy order book and provide substantial visibility into the remainder of the fiscal year. Profitability was notable, enhanced by the Air Spring segment, complemented by consistent realization from our Coil Spring division, which remains bolstered by ongoing demand from the railway sector. The 6-tonne hammer project is progressing well with expectation for improved capacity utilization in forthcoming quarter, which will be strengthening our operational efficiency. A highlight of this quarter is the advancement of our air spring portfolio with the development of failure indication and brake application system probably called as FIBA. This innovative product aims to elevate operational safety by automatically applying service brakes in the event of air spring failure and delivering real-time alerts to operators. We anticipate securing RDSO approval shortly with commercialization plan in the next financial year. Our strategic [ view is to include ] expenditure aligned with our growth ambitions and capacity expansion to meet the continuous increasing demand across our target sectors. Looking ahead, the company remains confident in maintaining its strong growth path. We focus on achieving a gross revenue amounting to INR 375 crores for the full fiscal year '25-'26 and further progressing to INR 500 crores gross revenue in the following year. Frontier Springs is well placed to capitalize on the Government of India's railway modernization program and our extended product range, positioning us to capture new opportunities while delivering sustained value to our shareholders. With that, I am now open to any questions that you may have. Thank you so much.

[Operator Instructions] The first question comes from the line of Priyanshu Jain from GrowthX Infinity.

Congratulations on good set of results. In Q4, when I had a conversation with you, so tell like 21%, 22% EBITDA margins will be sustainable. But 27% margins like that's quite commendable. So can you throw some light on it, like what's the reason behind the same?

I couldn't get your question. Your voice was a little cracking. You are asking for the EBITDA.

Sorry?

You are asking for the margins.

Yes, sir. On the -- like in this quarter and in Q1 as well, we get 27% EBITDA margins. In the last con call when we discussed, it was around 21%, 22% margin. So like what's the reason behind the same?

No, we keep on improving on our sales price and capitalization on the demand by railways. And it's an opportunity to have that much of margin in our product, and we hope to close year by this almost the same range of margins.

So we can expect 27% margins, 26% margin sustainable going forward?

Yes, at least for this year, I am confident that we'll be doing this.

Okay. And sir, my second question is on the product mix. Can you just give the revenue breakup from our 3 divisions for this quarter and like previous quarter?

Revenue, it is around INR 35 crores to INR 40 crores by Air Springs and around the same with Coil Springs and the remaining is from the Forging division.

Sir, like from the Coil Springs, it's like -- can you mention that?

Yes, it's around INR 35 crores. Air Springs is around INR 35 crores and around INR 16 crores, INR 17 crores is from Forging divisions.

Okay, sir. And like last question is on the order pipeline. Are we targeting like the tenders in the pipeline as well? And by the FY '26 end, what kind of order book we can expect?

As I have committed that INR 375 crores this year, we have -- already have that much of order to close the year, what I have promised. And for the next year, tenders are already there, and we have already started receiving orders. Around INR 60 crores, INR 70 crores, INR 80 crores orders have already been received by us. And by the year end, I think we'll be around INR 200 crores to INR 250 crores order in hand after closing this year. So it is in a good position as far as order books are concerned.

[Operator Instructions] Next question comes from the line of Akshay from AK Invest.

Congratulations for the very good set of numbers. Sir, my first question is we have already achieved INR 158 crores in half 1. So are we confident of achieving remaining INR 217 crores in half 2 of FY '26 and also we are confident of achieving INR 500 crores in FY '27 while maintaining the same or slightly increased margin because we have given the margin guidance of around 27%, we will maintain in this financial year? But what about the next financial year?

What I am -- I have committed that this INR 375 crores we are telling you a gross revenue, not the net revenue. So we are already crossed around INR 187 crores gross revenue in the half year. So we are already in line to go to INR 375 crores plus in this year and INR 500 crores next year gross revenue is already on the card. So we are having a good order book. As far as margins are concerned, we will try to have that much of margin, but maybe 1%, 2% minus, plus may happen because of the tender business, but we'll try to remain in the same margin level for the next year also.

Okay, sir. And sir, my second question is about the FIBA, failure indication and brake application. So we are expecting the approval from RDSO. So can you please give some more light about this product, total addressable market in India and whether this is the new product or the Indian Railway is already having this product for safety purpose already in place. So whether this is a new product or whether this is -- it is already in use?

It is already in because it is air springs, further product which is used by the Indian Railway in the coaches. But at the moment, 1 or 2 players who are from the foreign companies, and it is -- railways are mostly importing the same product, which we are developing in India. And we are quite hopeful that we'll be able to do that. We have already applied for approval in RDSO. Samples are ready by December end. And we'll be also participating for patenting this patent [Foreign Language]. I was quite hopeful that the requirement [Foreign Language] for FIBA system at the moment, and there are 1 or 2 players who are importing and supplying to Indian Railways. So we'll be early one to get -- develop in India, and we'll able to get a good market share in this.

So we will be the first domestic player to get approval, right?

[Foreign Language] I cannot say I am the only one but definitely [Foreign Language] early market, we can get good business share and with good profit margin.

So if we get approved and we expect the order book to -- for this product to be started from next financial year. So this is the product -- this is the similar level margin products, is our current margin?

It is almost a similar level. I just -- I'm quite hopeful that margin will be able to get the same margin in this. But there is a trial period for this product in Indian Railway. So we'll be ready with the product by December end and then approval. And then I think 6 to 8 months of trial period. So by next year, second half, like next year December onwards, we'll be able to supply more into this thing, which will reflect in our sales.

The next question comes from the line of Garvit Goyal from Nvest Analytics Advisory.

Just want to understand, like you mentioned in first half, we did a gross revenue of INR 187 crores, right? And on full year basis, we are having a target of INR 375 crores. So which essentially means H2 you are anticipating more or less muted. So is that understanding correct? And if it is correct, then why is it so? Like H2 last year was significantly better than H1. So just wanted to understand where the gap is.

I couldn't get your question. We are already having INR 187 crores, and we have [ guidance from ] around INR 375 crores gross this year. So we are right on target. So what is the question actually?

The question is on Q-on-Q basis, that means we have crossed INR 80 crores kind of number on quarterly run rate. So does that mean it will be constant for next few quarters? And if it is so, like we are targeting INR 500 crores for next year. So why can't we execute those orders maybe in H2 and increase our top line on quarterly run rate? That's what I'm trying to know.

Actually, railway has a delivery schedule for all the tenders. So we know that this is the delivery schedule given for this financial year and the orders coming in, which is a delivery schedule for the next financial year, April onwards. So if we execute here, we will not get money back, and they might not receive our material. So we have to adhere the delivery schedule of Indian Railway. So that's why we are on these numbers.

Got it. And secondly, on the defense part, so we were speaking about the product getting approved from defense. So what is the update on that, sir?

Still on the development things, and we are already -- so it's a long process, the item which we are developing for defense. So it's a long process and samples has been made and all things are going on. Maybe next year, we'll be able to start supplying to defense item what we have selected at the moment.

And what is the TAM for those items?

What is the...

Addressable market for those items?

It is good because I just cannot disclose at the moment the item what we are doing it, but it's a huge market for that, not only in defense, but in mining as well as in road construction equipment, the item which we are developing. So we have a good market for those items.

So basically, why I am asking this, I agree like FY '27, we are having the clear target, maybe the clear delivery schedules as well. But just to get some idea, not speaking about the exact numbers or something like that, but just to get an idea, how are we planning to scale further beyond FY '27? So that -- if you can put some color on that, sir.

Like this year will be -- as far as Forging divisions are concerned, we are planning to close this year around INR 75 crores to INR 80 crores. And next year, we may touch around INR 100 crores, INR 125 crores, maybe INR 115 crores next year. So the extra thing which is coming in around INR 20 crores, INR 25 crores, which will be with the new market and new players, which we are targeting.

The line from the previous participant has been disconnected. The next question comes from the line of Yashovardhan Banka from Tiger Assets.

Many congratulations on the great set. Sir, on the FIBA devices, I was just going through your commentary in the IP, you mentioned that 2 devices will be required for each coach. And on an average, I think 15 coaches are there in Vande Bharat. So sir, I wanted to understand for every air spring that is already installed, will there be any kind of, say -- will we require any kind of modification or replacement? Or this will just be an addition to the ones that are already put?

It is -- where the air springs are installed, this FIBA system is already there in the trains, in Vande Bharat as well as the LHB coaches, which they are converting into air springs. So air spring required a FIBA system. At the moment, it is an imported component by Indian Railways. And like I'm developing in India, 1 or 2 persons are also developing, but we are quite ahead from others. So air springs, wherever it is installed, whether it is Vande Bharat, Metro coaches, LHB coaches, it requires a FIBA system. So in 1 coach, there are 2 bogies under same. And in 1 bogey, there are 2 air springs. So every bogey requires 1 FIBA system and 4 indicators of 4 air springs. So it is like that.

And sir, like you mentioned like the addressable market for this system is around INR 100 crores, if I heard it correctly. And so what is the share that we are targeting to begin with from next year when it commercializes?

Yes. After a successful trial, I think we'll be able to get around INR 40 crores to INR 50 crores business. INR 100 crores is just Vande Bharat and LHB. But by that time, we'll also approve our -- our air spring will also approved by that time for the metro coaches. So it is a continuous increase for this thing, and it is also -- aftermarket is also there because it is a very sensitive thing, and it may fail so railways is also buying for their rolling stock also. So it's a continuous demand by Indian Railways, and it has to be increased every year.

Okay. Okay. Understood. And sir, just a follow-up. So for this INR 40 crores to INR 50 crores that we are targeting, is it -- are we doing any incremental CapEx or it will be in our existing facility only? And if you can just elaborate this one.

It is -- a few machines are used with the existing capacity. But for the testing and other thing, we required around INR 2 crores, which we are already investing. Already advances are given, and the testing machines are coming in. So it's 50% utilization of -- in this product for the current machines and the testing -- manufacturing part will be taken care by current machines and testing part, we required machines. So we are already buying those machines.

The next question comes from the line of Mahesh Atal from [ Atal ] Investment Advisors.

Sir, the next forging, as you said that we are in talks with the defense guys, and they are coming -- they are actually looking for some new products to come. So do you think the margins to improve in the Forging division also going ahead? Will they be better than the current forging margins that we are having? Are we targeting margin-based products or we are just trying to utilize our 6-tonne hammer in a way to contribute the operating efficiency? If you could throw some light on that?

Actually, Forging division has a lesser margin than the Coil Spring and Air Spring, you are quite right. But the market which we are targeting, that will improve a little bit of margin also in the forging items. And you are also quite right that capacity utilization will also give us an edge on improving our profitability and margin. So both things are there that we are trying to target product which has a little better margin from the existing components and also capacity utilization to a maximum we can reach in the Forging division. So both things are there that margin -- we're also trying to improve the margin with the product we have selected and the capacity utilization of the machines will be there, which will reduce our expenditure and permanent expenditure and other things that will also give us some edge.

And sir, I think the hammer has already been commercialized. So are you seeing the numbers? Do we see the second half -- the hammer contributing in the second half of this year?

Yes, definitely, you will see in the second half, we have already started getting orders from the railways and things are also started moving in. But at the moment, we are able to utilize around 10% to 20% capacity only. And the orders have started coming in, and we are hopeful that by year end we'll have a good contribution from 6-tonne hammer also because our 3-tonne hammer and our 2-tonne hammers are already working on 60%, 70% capacity. So 6-tonne hammer also, we have around 15% to 20% capacity started running. And by next quarter and further year-end quarter, we'll be able to get good things. The numbers are already there as far as orders are concerned. So -- and for the next financial year also, the tenders have been floated by railways. So we are quite hopeful that, that will contribute in this financial year itself.

And sir, with FIBA coming on stream...

I'm sorry to interrupt you, Mr. Mahesh, but please rejoin the queue for further questions.

Sure. I'll do that.

[Operator Instructions] Next question comes from the line of Santosh from Financial Finesse.

Are there any CapEx plan for the spring division?

The CapEx, like this year, we have -- we are doing around it INR 15 crores in all our 3 divisions and around half year, we have already done around INR 8 crores of CapEx for Coil Spring, Air Spring and Forging divisions. And further INR 7 crores, INR 8 crores will be done in another 6 months. So it is not only the Air Spring we are also increasing and in Coil Spring division as well as in Forging division, where the bottlenecks are and capacity increase is required. So we are already doing it, and it is a continuous process. This year, we are doing around INR 15 crores CapEx in half year, we have already done INR 8 crores. And so it is a continuous process. Wherever it is required, we will do it. And we are doing it with our own resources. We are not taking any loans or we are not going anywhere for that, we have plow back the money to the company.

The second question is on -- we had in the past talked about discussions with Siemens and Alstom to supply air springs to those companies. So is there any progress on those discussions?

Yes, it is already on and it is almost on the verge of completion. And we are quite hopeful by that another 1, 1.5 months, we will start getting orders from Alstom.

The next question comes from the line of Piyush Bora from Stambha Systems.

First of all, congratulate to management and the efforts are really appreciated for the tremendous set of numbers. Now my -- a few of the questions are related to FIBA and forging system hammer are already been answered. Now my question is regarding the metro projects. What kind of product we are looking in the metro apart from air spring and FIBA. So is -- are these only 2 products what we are supplying?

Air spring, FIBA and coil spring. So these are the things. There are very little forging [ or other types ] in the metro coaches, but air spring, FIBA and coil spring, we are targeting for the metro coaches.

Okay. And the second question is related to the NSE listing. So any structuring in capital structure will require in future? Or what is management's view on that?

We are already planning to go ahead with the NSE listing, and we have already started working on those lines. And we are planning to have our NSE listing in the next financial year first quarter.

Okay. And my last question is regarding...

I'm sorry to interrupt you, Mr. Piyush, but please rejoin the queue for further questions. The next question comes from the line of Ankur Kumar from Alpha Capital.

Sir, my question was on similar lines on one previous participant. When I see the wagon side orders in terms of Titagarh, Texmaco, Jupiter, they are saying that they had wheelsets availability issue in the last couple of months, and they are saying that the wheelsets availability has now resolved. So they are expecting things to improve in second half. But given our guidance of this INR 375 crores gross, it seems that our second half would be like similar to the first half. So any difference? Are we looking lower growth as in terms of first half or second half, sir?

[Technical Difficulty]

I am sorry to interrupt you, sir, your voice is breaking. I will reconnect you. Ladies and gentleman, thank you for patiently waiting. We have the management reconnected with us. Please go ahead, Kapil sir.

Yes. I was replying to the question to the gentlemen that we are having good orders. So we are quite confident that we'll be able to achieve INR 375 crores gross. And we are having orders from all the wagon manufacturers, whether it is Titagarh or Jupiter. We are already supplying springs for the wagon to them. And we have railways orders and locomotives orders. So we are quite confident that we'll be able to achieve INR 375 crores gross this year.

Sir, actually, I wanted to ask what is the gross in 1H?

What is the growth in 1H?

Gross revenue in first half. Gross revenue.

Gross revenue is INR 187 crores.

So that is what I wanted to ask, sir, INR 187 crores we have already done. So why are we expecting only INR 375 crores when the wagon manufacturer are expecting faster growth in second half?

No, I told you that railway has a delivery schedule. Wagon manufacturer may ask some extra spring. We may cross INR 375 crores, but I'm little conservative. We can cross INR 375 and we can touch INR 400 crores also, but as far as railways orders are concerned that is very clear that whatever we have to execute in next 6 months and they have a delivery schedule. So whatever increase may take place, it may take place from the wagon industry also. But I'm a little conservative on that. I don't want to comment or commit to our investors and shareholders that we will be able to achieve INR 400 crores, INR 450 crores. But definitely, it will improve if their demand and their wheelsets problem is over. So it is definitely going to improve.

Got it. Sir, I wanted to ask what -- as in what percentage of revenue we provide directly to these wagon manufacturers?

What percentage of?