Skipper Q3FY18: Buy for an upside implying an upside of 42% over 18 months |


Skipper Limited, promoted by Mr S K Bansal of Kolkata, is India’s third largest transmission tower manufacturer and tenth largest in the world, having production capacity of 2,30,000 MTPA. It also manufactures PVC pipes for water transportation in which it has aggressive growth plans.

Investment Rationale

Top-line to grow at a CAGR of ~19% over FY17-20E

– During Q3FY18, Skipper reported net sales of Rs 5,664.2 mn, registering growth of ~33.2% y-o-y basis due to healthy execution in the engineering segment. Engineering vertical grew by 29% y-o-y to Rs 4,863.3 mn, driven by robust volume growth and better realisations. Polymer segment grew at a muted ~6% y-o-y to Rs 540 mn as GST related disruptions continue to impact offtake from distributors and dealers.

– Going forward, we expect Skipper sales to grow at a CAGR of ~19% during FY17-20E on the back of robust demand from Power Grid (PGCIL) and incremental capacity addition in the PVC pipe business, resulting into better capacity utilization and higher sales volume. Engineering Product Business: Strong order book; expansion underway to enca sh substantial growth opportunity

– Skipper has a strong order book of ~Rs 25 bn (around 1.7x FY17 Engineering product sales) of which, domestic and export order is 73% & 27% respectively (51% of Skipper’s order book is made up of PGCIL orders). During the quarter, order inflows worth Rs 5.3 bn were accrued from PGCIL, SEB’s and private sector players. Going forward, the company is also planning to increasingly bid for railway electrification projects.

– Skipper’s JV with MetzerPlas – Israeli kibbutz-based industry of microirrigation products is likely to be finalised in February 2018. The company has forayed into manufacturing of solar structures and successfully commenced trial production from its existing Uluberia plant. Going forward, the management plans to tie up with developers as against bidding for EPC contracts themselves. Polym er division to grow over next 2 years post GST related hiccups in FY18

– The polymer pipe industry is likely to report flattish growth in FY18 as GST related disruptions still persists and majority of dealers hesitate to replenish stocks. However, growth likely to come back over next two quarters at pre GST level. Skipper is likely to registered sales growth of ~15% CAGR over the FY17-20E, backed by ramping up of manufacturing capacities leading to higher utilization levels coupled with lower working capital requirements, exploring newer markets, strengthening of dealers network and policy push by the government. Margi ns to stabilize at ~13%+ with better operating leverage

– During Q3FY18, EBITDA margins contracted by 64 bps y-o-y to ~13.1% led by higher other expenses due to rise in export mix leading to higher freight and packaging cost. Engineering segment’s EBIT margin improved by 42 bps to 13.1%.

– Post expansion of PVC pipe segment, Skipper will become a pan India player, which would lead to higher overhead spending, thereby restricting EBITDA margins at level of ~13%+ in the near term. The company has reduced its debt in FY17 by Rs 680 mn even after incurring capex of Rs 750 mn.


– With higher order inflow from PCGIL, strong entry barriers, efficient working capital management, increasing PVC Pipes capacity through asset light model and enhancing return ratios, augurs well for Skipper. We have valued the stock on the basis of P/E of 20x of FY20E EPS and recommend a BUY on the stock with a target price of Rs 367/- (~42% upside) in 18 months.

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