Skipper - Healthy Performance Continues; Transmission Capex Play

Skipper has delivered a strong performance in 1QFY18 as well with its net revenue growing by 39.6% YoY to Rs4.32bn led by healthy performance in Engineering Products and Infra Projects segments. Reported revenue includes sale of surplus inventory worth Rs500-550mn carried forward from 4QFY17, in absence of which revenue would have grown by 24% YoY. Looking ahead, we continue to believe that a sizeable order book, huge imminent opportunities and diversification into PVC business firmly place Skipper on higher growth trajectory. Notably, the stock has witnessed a sharp rally since our initiation report with BUY recommendation in Feb’17. Remaining positive on Skipper’s fundamentals, we reiterate our BUY recommendation on the stock with an upwardly revised Target Price of Rs254 (from Rs187 earlier).

Strong Engineering Volumes Lift Net Sales

Strong volume in Engineering Products segment led to revenue growth, while glitches relating to GST roll-out restricted revenue growth in Polymer segment. Revenue from Transmission business – which contributes 84% of Skipper’s overall sales – surged by 42.6% to Rs3.36bn. PVC business grew by just 1.9% YoY to Rs384mn, while revenue from Infra Projects business zoomed by 124.4% YoY on low base and faster completion of key projects.

EBITDA Margin at 11.9%; PAT up 51.7% YoY

Led by healthy execution, Skipper’s EBITDA and PAT surged 31.2% YoY and 51.7% YoY to Rs516mn and Rs160mn, respectively. Its overall EBITDA margin declined by 80bps YoY to 11.9% owing to higher commodity prices. Margin in Engineering Products, Polymer and Infra Projects segments declined by 100bps YoY, 100bps YoY and 130bps YoY to 13.4%, 9.3% and 12.5%, respectively.

Foray into Solar Structure Biz

The solar structures – ground-based module mounting, roof top mounting, module mounting accessories and seasonal tilt – will be manufactured at existing Uluberia plant. As per the Management, the required automated machineries have already been installed at the plant.

Outstanding Order Book at Rs26.4bn

The Company has secured new orders worth Rs3.57bn during Q1FY18 for transmission tower supply from PGCIL, Transmission Corporation of Telangana, UP Power Transmission Corporation  and other clients. Its outstanding order book stands at Rs26.4bn, which is 1.5x of FY17 revenue.

Outlook & Valuation

Looking ahead, we expect Skipper’s sales and PAT to witness 15.0% and 24.6% CAGR, respectively over FY17-FY19E, while RoCE is seen at 22.4% by FY19E. Given higher revenue visibility and huge imminent opportunities, we increase our target multiple to 15x FY19 earnings from 12x earlier. We reiterate our BUY recommendation on the stock with an upwardly revised Target Price of Rs254.