Skipper Ltd. is one of the world’s leading manufacturers for Transmission & Distribution Structures (Towers & Poles) in it’s Engineering Products segment. Company also in Plastic Water Pipes sector as well as into executing critical Infrastructure EPC projects. Company has successfully backward integrated the value chain by manufacturing angle rolling, towers, fasteners manufacturing and EPC line construction, giving it strong control over its operating cost.
The company manufactures huge range of premium quality pipes and fittings, which are used in different areas such as Plumbing, Sewage, Agriculture and Borewell sectors. Skipper Ltd is fast evolving from an Eastern region to a National Brand.
Revenue Break Up:
Major part of company’s revenues comes from manufacturing of engineering products, such as towers, angle rolling, fasteners, solar structures etc, which contributes 81.17% to the total revenue of the company. The second biggest contributors is the PVC pipes business (which includes, PVC pipes, UPVC pipes, casing pipes , SWR pipes) which forms 11.76% of the total revenue of the company. Infrastructure activities form 4.42% of the total revenue of the company and rest 2.65% comes from other activities. A detailed chart of Revenue Break Up of Skipper Ltd is given below:
Sales of Skipper Limited has been growing at a CAGR of 18.10% for the past 5 years. From sales of Rs. 900.35 crores in 2013, to Rs. 1702.96 in 2017, company has performed well in its sales front. Skipper is the fourth largest company in terms of Net sales in its segment.
Company has posted stellar profit growth in the past 5 years. Skipper Ltd Net profit has seen a growth of 42% CAGR from Rs. 18.71 crores in 2013 to Rs. 111.5 crores in 2017. Skipper is the second largest company in its segment in terms of Net Profit.
Revenue From Operations/Share:
Revenue from operations is a measure of how much revenue a company is generating from its core business. Revenue from operations does not include income from non operating activities such as sales of assets, sale of subsidiaries, income from investments made etc. Revenue from operations/share measures how much revenue a company is generating from its core business on per share basis.
Skipper Ltd revenue from operating activities has seen double digit growth every year in the past 5 years, from Rs. 92.4 per share in 2013, to Rs. 166.41 per share in 2017. Companys per share operating revenues have grown at 12.5% CAGR. ?
Basic EPS is a measure of how much profit a company is making on per share basis. In other words, it’s a measure of how much money each share of the company will receive if all the profits earned during the year is distributed to its shareholders.
Skipper Ltd EPS growth has been great in the past 5 years, from EPS of Rs. 2.52 on 2013, to 10.9 in 2017, a CAGR growth of 34%. The growth in EPS started catching up after 2014 when companys received orders in large numbers, and were booked for the next 2 years. Secondly, company, despite being a new entrant in the PVC segment, gained 10% market share especially in the eastern part of the country in states such as West Bengal, Bihar. Company is planning to expand its market to central India in states such as Madhya Pradesh, Gujrat.
Net Profit Margin:
Net Profit margin is the key ratio which is used to compare profitability of two or more companies working in the same sector. Net profit margin is a measure of how much percentage of total sales remains with the company as profit after all the expenses are paid.
Net Profit Margin of Skipper Ltd has seen significant improvement, especially after 2015, the same period when companys profitability and sales started to pick up. The Net Profit Margins of the company improved from 2.07% in 2013 to 6.54% in 2017.
ROCE or Return on Capital Employed, is a measure of how efficiently the capital of a company is being used to generate profit. ROCE is expressed in percentage terms. A company with ROCE of 20% means out of every 100 rupees employed as capital, company is able to make a return of rupees 20.
ROCE of Skipper Ltd has improved a lot in the past 5 years from 4.4% in 2013 to 15.67% in 2017. Improving ROCE is a great indicator of capital efficiency of the company. Skipper has been bagging order in the pst and is investing heavily in the capacity expansion.
Debt to Equity:
Debt to equity ratio tells us how much of the total financing of the company comes from creditors (those who lend money at an interest) and investors (those who invest in the shares of a company). Higher debt to equity ratios is an indication that majority of company is financed by loans and other debt (such as debentures and bonds).
In the past 5 years, company has pared down its debt to some levels. However, company is still holds some debt on its books. From debt to equity of 1.97 in 2013, company has pared down is debt to 0.85 in 2017.
Being in a capital intensive business, it is common for companies like Skipper to have some debt. Since company has paid large part of debt in the past few years, there is no reason to be concerned about companys solvency.
Dividend per share is the amount of dividends a shareholder receives on per share basis. Dividend per share includes all the interim dividends paid during the financial year as well as the final dividend paid at the end of the financial year. Dividend per share is calculated by dividing total dividends paid during the year from total number of shares outstanding.
Skipper Ltd is in its growth phase, thus it is not expected to give dividends as company needs capital to expand its business by adding more production capacity and widening its distribution network.
However, company has still managed to give increasing dividends per share every year for the past 5 years. In the year 2013, Skipper paid dividend per share of Rs. 0.1 per share while in 2017, company paid a dividend of Rs. 1.5 per share. If we look at the dividend payout Ratio data, company has been giving larger part of its net profit as dividends every year.
Future Expansion Plans Of Skipper Ltd:
Skipper Limited has entered in Joint Venture with Israel based MetzerPlas Co-operative Agricultural Organization, one of the worlds largest drip irrigation solutions provider. The domestic market for drip irrigation in India is estimated to be around Rs. 5,000 crores. With Governments Initiative to promote drip irrigation under Pradhan Mantri Krishi Sinchai Yojana(PMKSY) company expect this sector to grow at a robust pace and for the JV to become a major player in it in the years to come.
Company is a new entrant in PVC pipes segment where it manufactures pipes for various purposes. The company leases land and sets up a plant so that land acquisition costs
and time delays are eliminated. The PVC pipes business will act as a new growth engine for the company improving companys ROCE.
SWOT analysis of Skipper Ltd:
Skipper Ltd is the largest T&D manufacturer in India, with 8 manufacturing facilities, and 2,30,000 MTPA capacity. Company has massive distribution network of 3,500 channel partners.
Strong financial performance for the past many years. Companys order book is getting bigger, capacity expansion helping in sales growth. Company has posted 18% CAGR growth in sales and 42% CAGR growth in Net Profit.
Company has backward integrated the entire T&D manufacturing process. Company commands strong cost control over the entire manufacturing process, enabling it to provide products at a competitive price.
Company PVC pipes manufacturing business is working as a growth driver for the company, helping in diversifying and de-risking its business by creating multiple sources of revenue.
Although company has pared down the debt, it still has some debt on its books, investors need to remain watchful of the debt of the company.
Skipper has recently entered joint venture with an Metzerplas Cooperative Agriculture Company, in drip irrigation business. Metzerplas Cooperative Agriculture Company is a leader in the drip irrigation business. With only 37% of agricultural land under irrigation, there is a huge potential for growth in this sector. This new business will further improve the profit margins of the company.
Skipper is also expanding its PVC business to other parts of the country such as Gujrat, Madhya Pradesh. Since PVC business is a high profit margin business for the company, expansion to new states will improve sales, and net profit margins as company will achieve better economies of scale.
Major part of companys order book comes from Power Grid Corporation India Limited(PGCIL). With Governments push to rural electrification and increasing usage of solar electricity, especially in the eastern and North Eastern parts of India, Company is going to get bigger orders for T&D business. Since 2014-15 companys order book has seen huge growth.
Most of the T&D order book of Skipper Ltd. is filled by Power Grid Corporation India Limited (PGCIL). Any drop in orders to PGCIL will shrink the order book of the company. ????
Export market contributes about 50% of the orderbook of the company. Because of such huge exposure to exports, company is exposed to exchange rate risk. Any weakness in US dollar will adversely impact the margins of the company.
Skipper has an aggressive capacity expansion plan for the PVC business which will bring new execution and competition challenges. If the company resorts to aggressive pricing on its way to become a national player than it would be a margin dilutive proposition for Skipper.
Should I invest in Skipper Ltd at current Levels?
Skipper Ltd is trading at a P/E of 23 while the industry P/E is at 32. Looking at the P/E data, it looks like company is still undervalued compared to industry average and is a good buy candidate for long term. With companys aggressive expansion in different sectors, the revenue and profitability of the company will improve. If you are a long term investor with an investment horizon of 3 to 5 years, skipper is definitely a buy at current levels with a target of Rs. 765 per share in the next 3 years.