Frontier Springs - has departed, whats the next destination?

Stock Opportunities
42

First Concall by the company…My Notes (Invested and biased)

Air Spgs - Key Product

Used in passenger, metro coaches, Loco
Last yr IR demand was 3k coaches, CFY 5k, NFY onwards 8k per yr
TAM from NFY INR 600-800 Cr,
Only mfr in the country (03 current suppliers to IR, new entrant will take 2.5-3 yr to get RDSO approval)
Competitive Edge : Tech collaboration with conti with NIL rejection rate (others alligned with Chinese, with relatively lower quality), more than 70% sourcing is indigenous and hence qualifies for 'Make in India"

Earnings Projection :

CFY : 150-160 cr (up from 100cr)
Nxt yr : 200 cr
500 cr by 2027

Segment Rev :

CFY -Air springs 20 cr, Coil Springs-60Cr, Forging 70 cr
Diversification from Railway Biz
Entering def due to better margins
New defence order likely from BEML
Nxt area will be Tractors

Capex:

Total capex of 10-12 cr from int accurals
5 cr for air springs, bal for 6T hammer (forging)
Company to remain debt free
No further capex reqd to scale to 500 cr topline

Cap Utilisation:

Coil springs 70%, forging 50-60%, Air spgs- just started

Air spg capacity: Current 120 coach set per month ( 4 spg per coach= 480 spgs per month), being enhance to 800 spgs per month (capex - 5 cr), rev potn of 12 cr per month (144 cr potn per yr). This vertical started recently, will contribute 15-20 cr in CFY, VB coach per has 4 air spgs + 16 Coil spgs

Forging Outlook:

Expecting significant incr in forging (key area for diversification from railway biz)
Adding 6 T hammer
6T Hammer - trial prodn in Jan 24, comm prodn in NFY Q1
Rev profile : Currently 50-50 split for wagon:coaches, in future 70: 30 for rail: def
Significant growth targetted through forging in future

Mkt Share:

Dominant posn in mkt for both Air and Coil Sp
Can bid only upto 20% for air spgs, this is a limiting condn, likely to over come this nxt yr under push for ‘Make in India’, Bal 80% with other mfrs
FSL is 3rd or 4th mfr approved by RDSO

Replacement Mkt:

Coach/ wgn life 22-23yr
Spg gaurantee for 5 yrs, need replacement after that
Spgs are fungible across various mfrs
3 open bidding cycles/contracts thru life cycles

Quality:

Rejection Rate - NIL for air spgs (condn for RDSO apprvl)
1% for Coil spgs

Order Book : Current 69 cr done, bal 80 cr in CFY, continously receive orders from all wgn and coach mfrs. Will do 200 Cr NFY

Margins expectation (consolidated basis):

15% in CFY, NFY tgt 0f 15-18%
Coils -14-15%
Forging - 12-14%
Air Spgs - 22-23%

Misc:

Per wagon Rs 50K loading, pricing power exists, high demand from wgn mnfrs
Exports happening indirectly thru bombardier/siemens/Alstom Metro sales

Pl do supplement for better understanding

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44

To understand the management plan to execute the growth of 50% to 60% higher compared to previuos year and almost doubling the revenue in next year up to Rs200 cr and 5 times revenue by FY 2027, one has to listen the concall land the Question and answers session.

The management sounds confident.

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PRESS AND MEDIA RELEASE
Kanpur, January 06, 2024
FRONTIER SPRINGS LIMITED AWARDED & 52.20 CRORE ORDER FOR AIR
SPRINGS SUPPLY
Frontier Springs Limited, a leader in the manufacturing and supply of Coil Springs to
Indian Railways for more than 40 years, is thrilled to announce the **award of a significant **
**contract valued at approximately * 52.20 crores. This order, a milestone in the **
company’s history, involves the supply of 894 sets of air springs.
Commenting on the order win, Kapil Bhatia, Managing Director, said:
The **new plant set up of Air Springs in collaboration with Contitech Germany for which the **
trails were under way got If’s approval last month; received major orders of this scale
yesterday and it certainly paves the way for more in the future. Our team is fully prepared
and confident in delivering these air springs. We are optimistic and anticipate that orders
will keep coming our way. **We are scheduled to supply quantities on a monthly basis, **
aiming to complete the order by the end of this calendar year."
This order is a significant step in Frontier Springs Limited’s journey towards becoming a
prominent player in the supply of Air Springs to Indian railways. It strengthens our position in
the market as a reliable and quality-driven supplier.

1466dab2-598c-424c-9909-703bbdc25e4e.pdf (bseindia.com)

If you heard the concall, the mgt was reluctant to give details on Order wins and Order Book…i see this as another positive…this order is in addition to the mgt picture painted in the concall (20 cr for air spgs in CFY)…so would it be fair to assume they will certainly meet their guidance for the CFY and NFY?

Comments invited pl.

Disc- invested and biased.

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Decent set of nos. with even greater update. Mgmt. is still optimistic about achieving it’s FY24 target of 150 cr. revenue.

Recent budget had declared conversion of 40k conventional rail bogies to ‘Vande Bharat’ standards. This produces a substantial opportunity for Frontier.

6k ton hammer in forging division will start contributing financially Q225 onwards.

Disc: Invested. No transaction last month.

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FY 23-24 Earnings Call - My notes (Invested and biased)

Firstly…Key concern of initial speakers was the “missed 150 cr topline” to which the mgt clarified that they implied incl of taxes which they have delivered. Logical explanation.

Second…this was again a very confident session by the Mgt, all responses were full of conviction, and where needed, sufficient details were given, and repeated patiently again when asked for by some late entrants. There was two or three supplementary submissions by the second rung leadership also…on one instant not hesitating to call out the corrupt practices of the rating agency!

Guidance .

250Cr incl of taxes for CFY

350 Cr in NFY, 500Cr by 2026-27

Likely to do 60-62Cr per qtr going fwd

Last FY turnover was 150Cr approx incl of taxes

Segment Breakdown .

Coil springs…70-80cr

Forging…70cr

Air spgs…bal i.e 75-80Cr

Total…225Cr ( 250 cr incl of taxes)

Capacity .

Air spg only. 250 coaches/1000 spgs per month. (doubled from last call, as stated)

Total Cap. Max turnover potn of 350Cr with current capacity
Will need to do incremental capex to reach 500Cr capacity, have landbank for 500Cr turnover.
May require 15-20 Cr for the capex to incr capacity, expansion in each of the three segment to mov from 350Cr to 500cr
Have already Iden bottlenecks, addressing them, adding some machines, on progressive basis

Order book . 150Cr

2 years ago, starting order book for the year was 60-70 Cr, now 150Cr

3-4 Tenders Every day, will keep adding to order book

Air spg order . Did 18 Cr in last FY, Q4 was 7Cr. (monthly run rate 5Cr not met) Some Bellows are imported, red sea issue delayed shipments. Rubber portion is 40% (imported), rest is fully indigenised value add. All set to meet the timeline i.e in Q1?

Air Spg Type.

120KN,140KN,160KN,180KN

LHB coaches require 160KN spring, now FSL is the regular source and getting 100%orders.

180KN for EMU (metro coaches), currently FSL is a devp source, will qualify in 2 months to become a regular source.

Can Cater for 50% reqmt of railways reqmt of spgs (all type, IR will order 3.5k/7k coaches - in CFY as stated in Q2 call)

6T hammer capex . 2.5/4Cr done with rev potn 15-20Cr in CFY, Next FY can be 60-70Cr. To commence production by 15 Jul.( some delay, as this was to begin in Q1)

Margin . Maintain as in q4. Confident of improvement, 1 yr from now, if not earlier.

Misc Points

Competition. Not reasonable to take cognizance of (gave details of 03 companies in Air spgs and 7-8 small suppliers ex kolkota for others products). Still awaiting RDSO approval for regular supplier status which, takes 2 years to graduate from devp source to regular source… gives advantage to FSL. Enjoy confidence of RDSO due to quality and safety conscious approach.

Replacement cycles.

Coil spgs after 5yrs

Air spgs after 8yrs.

Equity Dilution. No major reqmt for addl funds to move ahead in existing segments. No plans nor reqmt to dilute equity in near future. Did not seem to be intrested to respond to a suggestion to consider increasing liquidity due to the low float and high share price.

Exec Time. 60 days from recpt of orders.

Looking to supply to Siemens, bombardier etc

No royalty to conti tech. Are suppliers to them

Defence . No new input.

Pl supplement for better understanding.

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48

Fantastic set of nos. The topline looks very much in line with guidance of 225 cr. topline for the year with the margins being the cherry on the cake.

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Mgmt. had spoke about these points in the Q424 call.

  1. The new 6 Tonne hammer (Forging Div.) will start contributing from Q3’25.
  2. Air Springs Capex (of additional 5cr. on top 7 cr. done already) is taking the capacity from 480 to 1000 air springs per year and to be completed by Aug24.
  3. Company is now already a regular source for the Air Springs.
  4. Mgmt. reiterated it’s confidence in the goal of reaching 450 cr. topline by FY27

Full year eps could be in the range of 70-80. valuation looks pretty decent with current price ~1500/-.

Disc: Transactions in last month.

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49

Very sound results…

Takes in an experienced IRS technocrat as an Independant Director…should add to the management capabilities of this microcap.

Let the journey unfold…

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Modelled Frontier Springs as per management forecast.
Risk- Need to monitor Govt Railway Capex Spend.

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If you are going as per Mgmt. forecast, then bake in ~10% of tax from their forecast as explained in the call. So FY27 bake in 450 cr. topline.

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84cr profit before tax, after 26% tax net profit should come down to 62.16cr

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Thanks for pointing out sir. The last model was totally faulty.

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They will have good operating leverage in coming quarters. As it clearly seen by revenue growth and ebitda growth while cost of goods staying constant in last few quarters. So the eps growth will be much more than topline growth atleast till their present capacity is fully utilised. That’s untill 350 cr topline as per the concall notes someone posted above

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dc30f458-0d5d-4861-8283-e9252bd8dcf6.pdf

Q2 results…Good show

Topline up marginally but EPS uptick of 10%
Good Op cash flow

The story playing out well…Concall on 18th.

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Management is still Guiding for 240-250 Cr Annual Sales. Which means next 2 quarter shall contribute 140+ Cr. Which leads us to annual profit of 40+ Cr annually at 19-20% OPM.

Which will lead us to Annual EPS of ~80. Now How much valuation market will give can be anyone’s guess but in Bull Market it could have easily crossed 40 P\E.

Increasing the liquidity by way of Bonus will bring in new investors on board and enrich the valuations.

Only Green Flags as of now

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Railway Production plan for FY25,26,27

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Q225 Call Notes:

  1. Mgmt. reiterates it’s topline guidance and thinks the current margins are maintainable.
  2. Good order book on Coil Springs due to emergency procurement for LHB coaches.
  3. New upcoming forging capacity also has received order from Railways.
  4. No major capex planned and small incremental capex can support the growth guidance.
  5. Air spring division keeps receiving regular orders and has received orders worth 50+ cr. on top of what was informed to exchange (and to be delivered by Dec’24).

Disc: Transactions in last month.

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Management guidance is of 240-250cr gross revenue including GST. Net revenue would be lower approx 220-225cr. H2 would be in range of 120-125cr

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It seems a bit unusual. When I tried to look up the auditor, Sanjay Nandani and Co., who signs their balance sheet, I couldn’t find any details about them online. I also couldn’t locate any information about the signing partner. Does anyone have any insights on this?

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I hope these were not supplied by Frontier, Can anyone from the region or connections inquire

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Q3 FY25 ppt