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)
- 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?
- 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?
- 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
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My quick notes from the con call - Possibly missed some points.
Highlights:
- Net sales increase by 20% - 282 Cr for Q1 FY 17
- Op EBITDA up by 15% - 47 Cr
- Margins at 14.4%
- PBT – 20.25 Cr Vs 15.2 Cr up by 32%
- PAT Increase 13.72% up by 37%
Highlights of the PVC Business:
- Commissioned 5th PVC Manufacturing unit in HYD
- National expansion plans on track
- 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
- 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.
- PVC fitting will feed other units across the country
- 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 - Polymer target growth is 70% for this FY – apparently on track
- Capacity utilization for PVC – East @ 90%, West @ 55%, New plants very low utilization right now.
T&D Business:
- T&D entered new Asian and African markets -
- 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
- Orders bid for this Quarter are @ 1000 Cr – awaiting results
- Order inflow for T&D – 240 Cr for the quarter
- 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
- Engineering products margins 13%-14%
- Polymer product margins 11% + EBITDA
- Infra business 15%-16%
- PGCIL demand in NE is 10,000 Cr (Size of entire T&D project) – therefore Skipper shifted capex spend to Guwahati
- 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.
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Promoter has sold 2% of stake to L&T.
But, stock has increased about ~12%. I think promoter selling in bulk is not a good thing.
Any views?
Looking at the capital management of the company we find that in last 7 years (from FY11 to FY17) the company has earned cash flow from operation (CFO) of Rs 521.7 crore. Capex done by the company in that period is Rs 421 crore, giving us the free cash flow of around Rs 100 crore. Out of this Rs 100 crore company has paid total dividend of Rs 86 crore leaving us with cash flow of only Rs 14 crore. Between FY11 and FY17 company has paid total interest of around Rs 340 crore and total bank commission of around Rs 46.4 crore. To pay for this cash outflow company has taken debt of Rs 87.4 crore between FY11 and FY17. Now since there is no fresh equity is infused by the promoters, it raises the questions from where the company is paying for the cash outflow of around Rs 140 crore. In the balance sheet company have cash and cash equivalent of ~Rs 25 crore out of which ~Rs 23.5 crore is pledged to the bank for bank credit facility, and cannot be used freely by the company. It is advisable that the investors should clear this before investing in the company. Report-skipper.pdf (298.2 KB)
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Very elaborate. Just to learn, from where did you get the data for Metric analysis?
All the data I have compiled from Balance sheets of previous years. Rest is from various resources like company concall and investor Presentation. If you want I can share with you the excel sheet for reference.
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Dr. Malik has raised pertinent questions regarding Skipper on his blog - need to investigate these going forward. I did the numbers myself and there is some discrepancy for sure.
- Beyond the case of putting interest expense under CFO till 2013, after transition between auditors, there is change in trade receivables reporting in cash flow in 2014
Disc: Invested 5% of portfolio and might reduce stake in light of these concerns
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The cash flow reconciliations with regard to trade receivables, trade payable etc. have been covered in finer details in the Q&A section of the blog…
Sanjoy Bhattacharya is betting on Skipper Ltd. I believe this company will be a huge beneficiary of power sector policies.
2 Likes
Trying to understand what could be the reason for such a steep fall of Skipper? At current price its available at a PE of 16 (with TTM EPS can come down further if Q4 EPS is considered).
The company is showing early signs of deteriorating balance sheet quality. The working capital days is showing a really bad trend with Inventory levels at abnormal levels. While the order book is encouraging - i guess the management needs to really work on getting some of its basics right.
Disclaimer: Had a small position from February 2017 and exited after current quarter results. Will look for a reentry if this falls to more attractive valuations.
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Investor presentation from the company:
They believe working capital cycle of 83 days is manageable. No word on the inventory.
Does anyone have a summary or the key points discussed in the earnings con-call for Q1 FY 2019?
Wow. These guys sure have put a lot of money and effort making investor presentation. If only they put such effort in marketing their PVC products, maybe it would have not seen such bad days ( Siddhu as a brand ambassador? come on!! )
Insider has bought 250,000 share on 14th August.
SKIPPER SHARAN BANSAL 250,000 BUY
Another Insider bought today …
SKIPPER SHARAN BANSAL 250,000 BUY