ValuePickr Forum

Skipper Ltd., (Power and Water) a moat in making?

Skipper is showing improvement and results are quiet impressive from last year onwards…
The self sustainable growth is very visible.
for SSGR see Dr Vijay Malik’s explaination: http://www.drvijaymalik.com/2015/06/self-sustainable-growth-rate-measure-of.html

2 Likes

Thank you @maven26 … Great Share

@hssodhi198 Thank you.

Skipper Ltd Q2 net declines 14% to Rs 30 croreThe Kolkata-based firm had clocked a net profit of Rs 35.29 crore in the year ago period, it said in a BSE filing.
Read Full Story http://t.in.com/3XXL

3 Likes

this type of order base companies shouldn’t be compared on QoQ, as revenue is spread across quarters. Skipper has excellent working capital strategy with cash conversion of 65 days. one should hold min 2-3 years to reap management effort

Tracking the bulk deal of DSP Blackrock valuing about of Rs. 41 crores, I was going through the company, which is now in limelight through a series of brokerage reports. I have no idea about promoters’ background and would love to get inputs on the same.

Apparently the consensus of these reports are that they seem to have have few advantages, like …

  1. Since they manufacture the inputs for towers in their inhouse Angle Rolling Mills, based in eastern India, they have 2 - 3 percent cost advantage due to proximity of raw material source and lower labor cost — I am trying to understand the validity of this argument as this type of backward integration has some disadvantages too especially when tower erection happens in very remote locations (transport cost) or if you need to produce sub optimal batch quantities as at times the economic batch sizes may be quite high. So, how beneficial the backward integration is in the long term success of Transmission Tower business especially during the next downturn of economic activity (may be sometime away but still important to know to slot the business quality). They must be buying Long Billets and, to get good price., they must have entered into some form of Guaranteed Offtake Contracts … How much commodity fluctuation they have to bear and how much they pass on to customers like PGCIL?

  2. Their export foray and present order book is quite impressive and would be interesting to know what are their key strengths vis a vis KEC / Kalpataru apart from the price advantage mentioned by management and the analyst reports. Also, how sustainable is the order book beyond the infrastructure upturn cycle and on a Run Rate basis? How will they sustain the momentum over time? What is the key “pain point” of customers they are addressing which will keep them at an advantageous position in a very old and competitive business? It is key to build a long term conviction.

  3. Their asset light PVC foray with RM assurance from Sekisui would make them a competitor of importance provided they can create a brand like Astral or Aasirvad (with Lubrizol RM). Presently they are mainly into rigid PVC space which is used in Agri sector and as per management the realization is low at around Rs. 75000/- per ton. Their CPVC capacity currently at about 2000 MT and realization may be in the range of Rs. 250000/- to Rs. 300000/- per ton. Now management already expanded the capacity from 12000 Ton to 40000 Ton without much stretching the balance sheet, It is commendable. But, as Jain Irrigation is also coming with Sekisui supply assurance, I guess, the competition in the space would heat up between incumbents and the newcomers. How quickly and effectively they can establish their brand image beyond East India would be key to their success. Since they are using Leased Land and Infra, management claims to have project set cost per ton of PVC would be Rs. 7500/- vis a vis Rs. 20000/- for competition. It would be a huge advantage if they can make a market pull for the product in next 1 - 2 years time. Management expects 100% YoY growth in PVC sales.

  4. Wavin is also roped in by them for adhesives and fittings in plumbing business … So technologically it may be possible (not sure) their product and service set offering would be same as Astral or Aasirvad… Is the assumption correct in CPVC space? Are they like to like comparison?

  5. With reduction is debt over next 3 years, benefit of INR depreciation and buoyant infra spending, the company may be in a sweet spot for next few years if we can understand their competitive advantages in a more granular level.

  6. One positive thing is company pays full tax.

  7. One strange thing I found in placement document (2014) is in spite of being an engineering company of Rs. 1000 + crores, among key management personnel there is only one graduate engineer. I am not at all sure about the management bandwidth and execution capacity in these types of organisation structure.

13 Likes

Thank you sir for providing such insights. I have recently invested in skipper after going through their concall , presentation and 2015AR…never got such quiries in my mind. Your views definitely help beginners like me to think and analyse properly

1 Like

Results out - http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/8F701F07_938D_4731_BDBE_B78CE1EFE15E_134430.pdf
Investor presentation :
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/8648C560_4DA3_4E5F_B5F7_DCB7F3B30448_151257.pdf

company has maintained growth momentum YoY basis.
management seems to be forthcoming in the concalls & largely walking the talk as observed over the last year but experts can chip in on this.
interesting part is the sales growth in PVC units @ 40%
new PVC unit getting ready for production.
looking forward for their latest balance sheet data.
concern is about their exposure lat-am countries and currency risk exposure.

disclosure : invested

I reached out to the MDs office seeking a response to a couple of questions on the T&D business and received the responses below. These answered some of the questions I had - specifically pertaining to the threat of lower cost Chinese imports and product differentiation.

  • Threat from Chinese imports and localized manufacturing. In a recent article this was highlighted as a particular threat to the industry.

A: On the domestic front, the company does not face any pressure from the Chinese companies. Competition is largely between Indian players. PGCIL , a monopoly player till now in Indian T&D market sources its tower requirement indigenously (empanelled Players) and made out of primary steel rather than secondary steel, which are generally used by Chinese players.

Further Setting up a tower manufacturing capacity involves a long gestation period of say about 4-5 years and with tower being a QR and a critical substance, getting it em-paneled with PGCIL is a long term & tedious process. Moreover, it shall requires a lot of time to build repute & credibility specially in high voltage offerings for obtaining order of any sizable scale. Hence we don’t foresee any major threat in the near future from Chinese manufacturing set up in the country.

  • Cost leadership through backward integration aside what are the advantages that you offer as a supplier.

A: ) Majority proportions of global tower supplies are concentrated in India and China. The recent currency depreciation along with low logistic cost and cost leadership has further increased the competitiveness of the Indian products and Skipper in particular.

The key advantage of the company enjoys over its global peers are as follows:
1.The conversion cost are generally higher in non -Asian countries
2.Raw material & Galvanizing cost are comparatively lower in Asian countries.
3.Global EPC player operating in high cost economic region, prefers to outsource their tower requirement from a low cost producer like India & China.
4. Developed & Emerging economies of Europe & America generally have strong environmental legislation and generally list the industry under Red Category.

The key advantage of the company enjoys over its Asian peers:
The Indian companies have an edge over the Chinese manufacturers since they are not preferred for long term orders. Since the execution period is well over 2-3 years since the initial order is been placed the Chinese players are generally not considered for lack of their commitment value in long term assignment.

The key advantage of the company enjoys over Indian peers:

  1. Most of the scale players are largely EPC players (like KEC, Kalpatru, etc…) We being the only player of its size focused on supplying transmission tower give us an great edge over the peers.
  2. Further, In India Skipper enjoys additional saving on margins over its peer due to its backward integration and location advantage.

Key Differentiator : The transmission tower is not commoditive in nature and requires very high engineering expertise, because each Transmission Line has a specific design requirement and the offerings are completely customized in accordance to the client requirement. Further the company mainly focuses on High Voltage line i.e 400 KV plus, which has far stringent criteria to meet, hence price is not only the deciding factor. Credibility, Capability, Capacity and track record of timely delivery of good quality products are the major differentiating factors.


Some of you maybe interested in this presentation - its a general overview of electrical machinery sector with some interesting numbers though slightly dated.

This is a more recent article (Feb 16) on the sector and its outlook.

Disc: Invested <5% of PF

4 Likes

Hi Mahesh -

I couldnt quite understand the asset light model. Is it that they are leasing out factories and land, instead of buying it?

If yes, how they have transformed from the current model? Or they are applying it only on new plants?

What are the costs involved? Do we have a view on this?

I wish to add in respect of Skipper’s business model from what I understand:

The tower business involves design of the tower for different terrains and individual specifications, breaking it down into parts, manufacturing the various parts and assembling it on site. An EPC company does the entire gamut plus connecting the transmission lines. Where as a tower company merely supplies the tower based on its own design or as specified by the EPC contractor. As far as I understand the margins are pretty low and are mostly on a cost plus model. That is why the capacity for towers are given in tons as the weight forms the basis of pricing.

A tower company may not have to block large amount of funds unlike an EPC contractor. For EPC projects the working capital cycle is quite long right from procurement of material to manufacturing to assembling to approval certificate and then release of payments. Often the earnest money deposits too build up to a sizeable amount over a period of time. Thus a tower manufacturer is nothing but a contractor and that too not a very sophisticated or specialised one. Only the size enables him to get a larger chunk of business. As mentioned elsewhere in this thread having in-house capacities to manufacture 80% of the items may be an advantage for a tower manufacturer but not for an EPC company. The disadvantage to the tower company is that it may be located far from project site and logistics cost may go against him for a distant project site. The EPC company may prefer a local supplier.

As regards the asset light model for PVC plant, it is a joke. Just because you lease out the land does not make it asset light. Asset light means you have the ability to earn without owning any assets and your USP is technology/ software/ brands, thereby maintaining the mobility of business, in case opportunities arise elsewhere. In this case the plant is still owned by the company. In any industrial project the land cost is usually not more than 10-20%. If you have to spend higher it is not viable. So terming it as asset light is just using a fancy term in vogue.The land may be owned by promoters directly or indirectly and leaves the company vulnerable to higher lease charges in future.

5 Likes

I went through the Skipper concall.
I think the demand will not be a problem, due to huge investments in infra, there is going to be good demand for Transmission tower and PVC business also. they are already reporting very good growth in topline for PVC business.
I feel they should be able to grow at 20% going forward.

But how are they going to improve margins further. I believe the margins will remain same or may come under pressure in near future. So I am not considering a scenario of dis-proportionate growth in this case.

Also due to escalation and de-escalation clauses the margins are likely to be range bound. low commodity prices are not going to help them much.

I don’t think they have much of Brand name in PVC pipes and they are trying to enter new markets. It is likely to put pressure on margins as well due to promotional, discount and advertisement expenses.

another minor thing, there are 4 Bansals in the board, the independent directors are primarily ex-govt employees.

Disc : Not invested.

CONFERENCE CALL - from Capital Markets

Order book of around Rs 2400 crore as on Mar’16

The company held its conference all on 18th May’16 and was addressed by key management

Key Highlights

  • The government’s increasing focus on transmission reflected in the total line capacity addition from 2, 57,481 Ckm in the 11th Plan to 3, 64,921 in the 12th Plan.

  • India Transmission capex estimated at INR 2.6 trillion an increase of 49% in the 13th Plan. The government estimates 29% increase in capacity (400kV and above) for the 13th plan.

  • The company has Tower manufacturing capacity of around 2 lakh MTPA and around 35000 MTPA of Pipes manufacturing capacity as on Mar’16. The company also has galvanization and fabrication facility of around 1.8 lakh MTPA which is used completely for towers and poles manufacturing

  • The company achieved a 15% increase in volumes sold in FY’16 to 1.57 lakh MT in Engineering products as against target of around 20% largely due to lower commodity products. Polymer products volumes grew up by around 77% to 20107 MT.

  • Current order book stands at around Rs 2400 crore as on Mar’16 with further L1 orders of around Rs 1200 crore. Order book is more or less flat on YoY basis. Order inflow during FY’16 stood at Rs 1300 crore, with around Rs 1200 crore of orders coming in Mar’16 quarter. 75% of total order book is from domestic orders while rest is international orders.

  • Exports now account for around 45% of total turnover. Exports stood at around Rs 600 crore as compared to Rs 154 crore of net sales for FY’15. The company has increased its geographical footprints with presence in North Africa and Egypt markets in FY’16.

  • No significant orders came in exports in FY’16. The export order book was Rs 1200 crore in Mar’15 which is gone down to Rs 600 crore in Mar’16.

  • Rs 50-60 crore capex planned every year for next 4 years.

  • Rs 468 crore total debt as on Mar’16

  • PVC pipes company is strong player in Eastern India. The company has expanded to other markets in Ahmedabad, Guwahati, UP on asset light model, which has resulted in total capacity of around 35000 MTPA. WIP in new 6000 MTPA capacity in Hyderabad is going on as per planned, which should commission before end of July’16

  • 8000 MTPA of galvanized plant capacity addition is planned and this is for 400 KV monopoles which is a higher realization business for the company.

  • The company was earlier present in Agriculture sector in PVC pipes business. In FY’16, the company also had ventured into Pumps segment of PVC business.

  • The company has entered a technology tie up with Japan for CPVC compounds and CPVC pipes business which it expects to commercialize in FY’17.

  • Going forward the company expects higher margins in the coming years with better economies of scale in engineering business and higher realizations from polymer business as well as volumes.

2 Likes

A thumbs up from Business Standard for Skipper: http://www.business-standard.com/article/opinion/skipper-looks-poised-for-robust-growth-116052400653_1.html

NITI Aayog has set a target of adding 51,400 circuit km (CKM) transmission line this fiscal, 82 per cent more than what was achieved in 2015-16. Skipper is a big beneficiary as transmission budgets will go up by 82% this fiscal year 16-17

Read more at:

The news on Skipper is that it will be the biggest beneficiary of transmission projects in the North East. Almost exclusively.

Rgds
Ankit

Skipper expands its exports market by bagging Rs 100 Cr of orders from several new geographies

http://www.bseindia.com/corporates/anndet_new.aspx?newsid=47a83830-1785-436a-8264-89b162408880

I am invested with approx. 3 % of my portfolio. Do not see any risk from revenue growth perspective but I have few concerns of financial quality of business. Few points I would like to highlight about financial quality of the business (data collected from screener.in and 2009 & 2010 data was missing, hence, those years ignored as of now)

  1. There is a trend of deterioration in accounts receivable and working capital. From 7 year vs 5 year vs 3 year CAGR perspective, Revenue growth rate has been 37%, 32% and 29% respectively However, Accounts receivable growth has ballooned to 39, 42% and 55% respectively. The gap between current asset growth rate vs current liability growth rate has deteriorated from 41%:40% to 18%:49% to 38%:52% resulting in a working capital ratio to deteriorate from 4.1 in 2011 to 2.1 in 2016. Slow disproportionate accounts receivable growth and increasing working capital requirement are concerns. Are these levels still within comfort levels or are they warning signals ( have not analyzed competitors yet). What is the view of others tracking this company?

  1. If i add cash flow from operations between 2011 to 2015 (data before that had inconsistencies and yet to put those numbers from annual report), it is 179 crores where CAPEX amounts to 242 crores. So, net cash flow is negative. Is it a sustainable model?

  1. For such companies without a positive free cash flow, how to do valuation and calculate margin of safety? Wihich would be more suitable : 1. relative valuation to peers on P/E et. 2. Asset based valuation 3. EV/EBITDA or something else. I am yet a novice on valuations and do not have much idea beyond traditional DCF based and ratio based comparative valuations.

Disc : Invested with 3% of portfolio and evaluating further as a portfolio concentration exercise

4 Likes

My quick notes from the con call - Possibly missed some points.

Highlights:

  1. Net sales increase by 20% - 282 Cr for Q1 FY 17
  2. Op EBITDA up by 15% - 47 Cr
  3. Margins at 14.4%
  4. PBT – 20.25 Cr Vs 15.2 Cr up by 32%
  5. PAT Increase 13.72% up by 37%

Highlights of the PVC Business:

  1. Commissioned 5th PVC Manufacturing unit in HYD
  2. National expansion plans on track
  3. Polymer business growth was slow this quarter because of:
    • Slow off take from trade channel
    • Project orders being shifted to Q2 – Holding inventory which will be dispatched in Q2
  4. New plant in Guwahati commissioned - Cost 70 Cr – catering for engineering (30000 MT) and PVC fitting (7000 MT) – targeted at NE market which is fast growing.
  5. PVC fitting will feed other units across the country
  6. Funded through internal accrual + bank debt. Overall debt will remain flat though – 50 Cr will be debt funded (repayment 6-7 years)
    *Entire capex to be spent in this FY
  7. Polymer target growth is 70% for this FY – apparently on track
  8. Capacity utilization for PVC – East @ 90%, West @ 55%, New plants very low utilization right now.

T&D Business:

  1. T&D entered new Asian and African markets -
  2. Major orders received on T&D – Congo, Ghana, Cameroon new markets entered. Looking to expand this presence. Order book @ 2400 cr. SE Asia expected to be a strong market for exports
  3. Orders bid for this Quarter are @ 1000 Cr – awaiting results
  4. Order inflow for T&D – 240 Cr for the quarter
  5. Infra business margins shrunk – this because execution is very low. Will increase as execution take off which they hope to see happen over subsequent quarters
  6. Engineering products margins 13%-14%
  7. Polymer product margins 11% + EBITDA
  8. Infra business 15%-16%
  9. PGCIL demand in NE is 10,000 Cr (Size of entire T&D project) – therefore Skipper shifted capex spend to Guwahati
  10. Guidance for sales – 15%-20% at a consolidated level.

On the PVC Business - Management seem to be very focussed on expanding capacity to 100,000 T by FY 18. However, with capacity utilization levels quite low just now – and no immediate signs of an up-tick I am a little circumspect with respect to their want to keep the pedal pushed firmly to the floor.

Additionally, what is evident is that in the PVC business their margins lag the big boys (Astral/ Ashirwad etc.) quite substantially. They are attempting to use price as a ploy to wrest market share from them and in the long term am not sure if that’s a great strategy. With Sekisui partnering with Astral earlier this month Skipper is going to have its work cut out … Regionally, particularly in the NE the brand will do well – however, their entry into the Southern market may take time to show rewards.

2 Likes

Can anyone explain please?

Thanks