Skipper looks poised for robust growth

More opportunities in T&D space as well as the company's increasing capacities across all segments will drive growth

Skipper, the power transmission and distribution (T&D) structure manufacturer, is well placed to benefit from the increasing need for T&D infrastructure in the country.  Its capacity expansions in PVC pipes is likely to fuel growth further. The company has seen its order book more than double in past two years led by its agreement with Latin America’s biggest transmission service operator (TSO) and increased order flow from Power Grid Corporation. With receipt of new orders for engineering products in excess of Rs 1,200 crore in Q4'FY16, the company's order book at the end of March’16 stood at Rs 2,429 crore, well diversified between domestic and international orders.

This order book is expected to grow further looking at the fact that there are existing unopened bids worth Rs 1,200 crore under submission. The order flow from Power Grid had remained subdued during initial part of FY16 and has picked up only in March quarter, and the same will be strong in first half of FY17, explained the management of Skipper.

The company is likely to see growth fuelled by increasing interstate transmission networks as well as demand from State Electricity Boards (SEBs) as the government's new initiative “UDAY” has helped them gain some financial strength as also forcing states to revamp their T&D infrastructure. Meanwhile, the company has also expanded its capacity to 175,000 metric tonnes per annum( MTPA) from 150,000 MTPA last year and analysts expect the same to increase by 20% annually going forward.

The PVC business, which contributes about 10% to overall revenues, is also well poised to grow faster with the help of expanded capacities. The company has already commissioned capacities at Ahmedabad (Gujarat), Guwahati (Assam) and Sikandrabad (Uttar Pradesh) under its asset-light model to almost triple its manufacturing capacity to 35,000 MTPA. Another 6,000 MTPA at Hyderabad is likely to be commissioned in June’16 quarter. It plans to have capacities of 100,000 MTPA by FY19-end. The segment, which has registered close to 80% growth in FY16, is expected to maintain this momentum going forward too though with geographical expansions, the segment's margin may get slightly subdued in the interim.

Notwithstanding soft commodity prices, the company has delivered revenue growth of 6% for March'16 quarter and 16.2% for FY16. Analysts as those at IIFL expect Skipper to register a compounded annual growth rate (CAGR) of 22.5% in revenue and 32.6% in net profit over FY16-18 on the back of higher order inflows for the engineering segment and ramp-up of new capacities in the PVC products division.

Margins, too, have shown improving trend during March’16 quarter, which is positive. With marginal increase in interest costs and depreciation charges as well as slight decline in tax outgo, net profit (excluding one-offs) was up 19.2% year-on-year to Rs 36 crore.

In this backdrop, most analysts remain positive on the stock. Their target price ranges Rs 183-248 for stock trading at Rs 138 levels indicating upside potential of 32-78%.