Skipper Ltd. share price target

We hosted the management of Skipper Ltd for investor meetings in the UK. Management has given an upbeat outlook for both segments - Engineering and Polymer. While the Engineering segment is expected to double its revenue in the next 5 years, the Polymer segment is likely to grow at a CAGR of ~50-55% over the next 3 years. Despite having the largest capacity in Transmission Towers, Skipper's capacity utilization has exceeded 85-90% over the last several years on account of it being the lowest cost producer - benefiting from high economies of scale, fully integrated operations and close proximity to raw material sources....

Skipper's operational performance was in line with our expectations. Revenues increased by 29% yoy. Adjusted for the restated 2QFY17 financials, EBITDAM declined by 23bps yoy while the APAT increased by 3% yoy. While engineering products reported strong growth of 34%yoy, the polymer segment declined by 2% yoy impacted by GST related disruptions. Management commentary...

With working capital expansion owing to rising inventory and the recent run up in the stock price, we downgrade Skipper to NEUTRAL with TP of Rs 253/share. Skippers sales grew 32/29% YoY/QoQ to Rs 5.2bn vs our expectation of 12% YoY growth, aided by a 28% YoY rise in Engineering revenues to Rs 4.6bn. A 250 bps rise in raw material cost impacted gross margins, which fell to 32.9% vs 35.4% YoY. Further, a 323bps rise in other expenses (at 14.8% of sales) led to EBITDAM fall of 573bps to 13.2% (in line with our estimates). Net profit fell 30% YoY to Rs 232mn, a result of higher depreciation (up 68% YoY to Rs 121mn), interest cost (up 21% YoY to Rs 200mn) and tax rate (at 36.4% vs 34%).

Rs519crore in Q2FY18 due to healthy execution in the engineering segment. Its engineering segment grew by 28% YoY driven by both volume and healthy realisation due to rising commodity prices. However, the infrastructure segment and PVC segment showed poor performance during Q2FY2018. Continued concerns related to GST led to a decline in polymer business by 7% YoY...

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...

Indian power T&D; industry stands to benefit from India's humongous power transmission infrastructure laying plan (Rs 2.6 tn) in the 13th Plan to strengthen its inter-regional grid capacity (Rs 1 tn), intra-regional grid capacity (Rs 1.3 tn) and sub 220 kV distribution systems (Rs 300bn). Shift towards renewable energy - 175GW capacity planned by 2022- would doubtlessly shorten the order execution cycle of EPC players due to relatively shorter erection time for renewable energy generation & transmission infrastructure. New technologies such as higher voltage...

Reiterate BUY with TP of Rs 245/share (15/15/25x Jun-19E EPS for Engineering / Infrastructure / Polymer business). Skippers 1QFY18 results came in ahead of our estimates on back of dispatches of undelivered inventory in the Engineering segment, held at the beginning of the quarter. Revenue grew 40% YoY led by growth in the Engineering segment (+42% YoY). Polymer segment registered a mere 3% growth on the back of GST transition. EBITDA margins stood at 12.9% (-90bps YoY). APAT grew 52% YoY to Rs 160mn. Order inflow stood at Rs 3.6bn, resulting in an order backlog of Rs 26.4bn (+10% YoY), providing comfort to our revenue estimates for FY18/19E.

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...

Skippers 4QFY17 results (adjusted for forex gains) were in line with our estimates. Revenue grew 7% YoY, led by 25% growth in the PVC business. As per the mgmt, PVC sales normalised starting Feb-17 (post demonet impact). EBITDA margin at 13.2% (-70bps YoY) was in line with our estimates, adjusted for a forex gain of Rs 164mn. APAT grew 12% YoY to Rs 404mn.

We expect Skipper to report PAT CAGR of ~16.7% over FY16-19E, with ROEs consistently over 20%. In contrast, valuations (12.6x FY19E EPS) look attractive, both on relative and absolute basis. Initiate coverage with a BUY and TP of Rs 220/share (15x FY19E EPS), implying 19% upside from current levels.