Skipper - 2QFY18 Result Update - Well-placed in Power Transmission Space

Skipper - 2QFY18 Result Update - Well-placed in Power Transmission Space

Skipper continued to deliver a strong performance in 2QFY18. Its net revenue grew by 31.9% YoY to Rs5.1bn led by strong volume execution in Engineering Products business. However, GST-led disruption restricted revenue growth in PVC business. Though reported EBITDA dipped by 7.1% YoY to Rs516mn,  adjusted EBITDA grew by 19.9% YoY. Owing to lower margin, higher depreciation and tax rate, its reported PAT declined by 30.2% YoY to Rs232mn, while adjusted PAT rose by 3.9% YoY. We continue to believe that a sizeable order book, huge imminent opportunity and diversification into PVC business continue to place Skipper firmly on a higher growth trajectory. 

Revising our target multiple to 17x (from 15x earlier) on the back of strong revenue visibility and steady margin profile, we reiterate our BUY recommendation on the stock with a revised Target Price of Rs299 (from Rs254 earlier).

Engineering Products Biz Aided Strong Revenue Growth

Volume in Engineering Products business – which forms 90% of its total sales – grew by a strong 27.8% to Rs4633.7mn. However, Skipper’s PVC revenue – which contributes 8.0% to its total sales – declined by 7.0% YoY to Rs427.8mn owing to GST-led disruptions. Notably, the capacity utilisation level of Engineering Products and Infrastructure Products segments stood at 90% and 50-60%, respectively. Infrastructure Products revenue – which accounts for 1.8% of total sales – declined by 24.4% YoY to Rs94.7mn.

GST Disruptions, Higher Input Prices Impacted Segmental Margins

Owing to higher commodity prices, Skipper’s adjusted EBITDA margin declined by 133bps YoY to 13.4%. Margin in Engineering Products business dipped by 150bps YoY to 13.6%, as Skipper executed high-margins projects in 2QFY17. While Infrastructure Products business showed a marginal 40bps YoY rise in EBITDA margin to 15.9%, margin in PVC business dipped by 110bps YoY to 9.3%.

Order Book

Skipper secured new orders worth Rs430mn in 2QFY18 for transmission tower supply. Outstanding order book – which stood at Rs25.8bn as of Sept’17 – is well-diversified between domestic (80%) and international (20%). Notably, order book to sales stands at 2.0x of FY17 sales.

Outlook & Valuation

Looking ahead, we believe that while robust order book provides revenue visibility in T&D business, expansion in PVC business would aid Skipper to sustain healthy earnings profile. We continue to remain positive on Skipper’s fundamentals on the back of improved order inflow traction and diversified opportunities in other verticals. We expect Skipper’s sales and net profit to witness 21.5% and 24.9% CAGR, respectively through FY17-FY19E, while RoCE is seen at 25.3% by FY19E. Revising our target multiple to 17x (from 15x earlier), we reiterate our BUY recommendation on the stock with an upwardly revised Target Price of Rs299.

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