Skipper- 3QFY18 Result Update - Transmission Capex Play; On Right Track

Skipper continued to deliver a strong performance in 3QFY18 with its net revenue growing by 39.6% YoY to Rs4.32bn, led by strong volume execution in Engineering Products business and rising commodity prices. Aided by better execution, its EBITDA and PAT grew by 27% YoY and 31.5% YoY to Rs740mn and Rs292mn, respectively. We continue to believe that a sizeable order book, huge imminent opportunity and diversification into PVC business firmly place Skipper on a higher growth trajectory. Rolling over our estimates to FY20E, we maintain our BUY recommendation on the stock with a revised Target Price of Rs340 (from Rs289 earlier).

Healthy Revenue Growth on Strong Engineering Volume

Though Skipper delivered a robust growth led by strong volume execution in Engineering Products business and rising commodity prices, GST-led disruptions restricted revenue growth in PVC business, which albeit rebounded from Nov’17 onwards. Its Transmission business (85.6% of total sales) grew by a strong 28.6% YoY to Rs4,863mn, while PVC business (9.5% of total sales) grew by 6.4% YoY to Rs593mn owing to GST-led disruptions. Notably, Infrastructure Products business (4.6% of total sales) remained flat (-0.7% YoY) at Rs261mn on high base.

Operating Margin Improves Marginally; PAT Zooms

Skipper’s EBITDA margin rose by 27bps YoY to 13.1% owing to cost benefit initiatives. Notably, interest cost declined by 7.3% YoY to Rs176mn due to lower cost of debt. Interest cost to sales dipped to 3.1% in 3QFY18 vs. 4.5% in 3QFY17. While margin in Engineering Products and Polymer business expanded by 40bps YoY and 50bps YoY to 13.1% and 6.7%, respectively, margin in Infrastructure Products business dipped by 170bps YoY to 12.3%. Aided by improved execution, higher margins and lower interest cost, Skipper’s PAT surged by 31.5% YoY to Rs292mn.

Order Book Continues to Remain Well-diversified

Skipper secured orders worth Rs5.2bn during the quarter from Power Grid Corporation (PGCIL), Telangana-TRANSCO, Tamil Nadu-TRANSCO and Reliance Jio including various supplies across South East Asia. Notably, its order book continues to remain well-diversified between PGCIL, domestic SEBs/private players and international clients. Skipper witnessed significant YTD order inflows from the North East Region, and we expect the momentum to continue with large size T&D investment happening in the eastern states i.e. Bihar and Jharkhand.

Outlook & Valuation

We continue to believe that apart from increased revenue visibility in T&D business on the back of robust order book, expansion into PVC business would aid Skipper to sustain healthy earnings profile, going ahead. Skipper’s sales and net profit are expected to clock 19.6% and 22.3% CAGR, respectively over FY17-FY20E, while RoCE is seen at 25.4% by FY20E. Rolling over our estimates to FY20E, we maintain our BUY recommendation on the stock with a revised Target Price of Rs340  valuing at 17x FY20E earnings of Rs19.9/share.

Next Read KEC International - 3QFY18 Result Update - Improved Project Execution Lifts Earnings

Previous Read : Heidelberg Cement India -3QFY18 Result Update - Higher Sales Volume Drives