The operative word at Skipper is
During the year under review Skipper Limited reported a 11% decline in revenue and 73%decrease in profit after tax.
Despite superior performance reported in the past few years the decline in our numbersduring the year under review was the result of a temporary downturn in our principalbusiness that affected the overall organisational average.
The principal message that I wish to communicate is that the Company has moved withspeed to reposition itself strengthening its relevance in a transforming industrialenvironment.
The Indian economy
The Indian economy has reported one of its most sluggish performances in recent years.While the country grew attractively in the first two quarters of the year under reviewthere was a marked decline in growth indices starting from the third quarter onwards.
This decline was triggered by a prominent company in the country's non-banking financesector being affected by a liquidity crunch. The effects of this were feared to extend notonly to depositors and other NBFCs but across the entire economy.
The result was a liquidity paralysis within the economy during a major part of thesecond half of the financial year under review. As consumer sentiment was progressivelyaffected there was a decline in the offtake of automobiles and other high-ticketproducts. There was a related trickle-down in impact across other sectors as well pullingdown the national growth average to 5.8% in the last quarter one of the lowest reportedby the economy in a number of quarters and comparable to the immediate post-demonetisationphase. The result was that the Indian economy grew 6.8% during the year under reviewcompared with 7.2% during 2017-18.
Even as the long-term outlook of India's infrastructure growth story continued to bepositive there was an interruption in the government's infrastructure spending related tothe power sector during the year under review.
There was a slowdown in the government's investment in new power transmission lines. Asper an unofficial estimate the quantum of orders issued by the Power Grid Corporation ofIndia Limited (PGCIL) for the commissioning of new electrical transmission towers declinedby 70% during the year under review. This affected the Company's order book whichdeclined from a year-start figure of H26270 million to H24600 million at close. Theorder inflows during the year under review declined from H19340 million to H13330million
We believe that this decline is temporary in view of the vast infrastructureunderpenetration in India's transmission sector. Now that the general elections of 2019have been concluded the new government will seek to ensure a larger and quickerinfrastructure rollout across the foreseeable future. We believe that this will strengthenour order book revenues and business surplus across the foreseeable future.
The slowdown in India's power T&D infrastructure was compounded by a number ofchallenges.
One there is a premium on the ability to deliver the right product for markets asopposed to a generalised approach of one product being applied to all.
Two there is a global movement towards the use of lighter transmission towers(including state electricity boards) which requires a re-engineering of the product fromthe design stage onwards.
Three since a number of renewable energy projects are being commissioned at aquicker pace there is a need to provide supporting power evacuating infrastructure evenfaster.
Four transmission lines are moving to higher voltages from 200 Kv to 400 Kv to 765Kv warranting a corresponding improvement in the quality of transmission infrastructure.
Five with right of way of transmission lines becoming an increasingly contentiousissue in the urban areas there is a growing need to provide customised transmissioninfrastructure.
Six there is a growing traction within the country's power infrastructure sectorto work with companies that are sustainable warranting long-term investments inknowledge assets technologies processes governance and Balance Sheet integrity.
At Skipper we repositioned our business with speed during the financial year underreview with the objective to remain relevant and competitive.
The Company strengthened its customer focus through the reinforcement of aservice-driven mindset and higher service benchmarks. The result was a greater propensityto manufacture complete product batches as opposed to the largest volume of the highestselling products and a greater focus on providing complete solutions to customers.
The Company graduated from being a dependable vendor to a trusted partner through theanytime-any quantity and anywhere product delivery helping customers enhance theirworking capital efficiency.
The Company repositioned itself as a one-stop and broad-based engineering solutionsprovider through the manufacture of towers fasteners and monopoles coupled with in-housetesting facilities widening the value chain on the one hand and strengthening its uniqueglobal positioning on the other.
The Company replenished its revenues by seeding new products like monopoles and railwaystructures which would account for a larger proportion of prospective revenues.
The Company responded to the prevailing environment through the implementation of theTheory of Constraints concept in its PVC business. It focused on value- added products mixand has transferred all the capacities from its satellite plants to its parent plant inUluberia. All of these capacities are expected to be installed as well as utilised withinFY 20.
The Company protected its financial foundation by staying relatively under-borrowedwhere a moderated working capital outlay will enhance competitiveness.
The Company widened its global footprint through a growing presence in focused marketswith increasing potential.
The Company strengthened its business sustainability through a stronger compliance withglobal and Indian regulatory and quality benchmarks.
Strengthening the PVC business: Implementation of ToC
The Company is in the process of implementing the principles of ToC in its PolymerBusiness. This will ensure that the brand is present across the maximum number of retailoutlets in the areas that it operates in. This will ensure the brand's availability inthese markets as well as enhance revenues and margins.
The Company also rationalised its product portfolio and focused on the high valueplumbing sector while maximising reach and enhanced product availability with keyretailers and minimising sales loss.
The Company strengthened its supply chain with the objective to moderate dealerinventory without compromising stocking range while at the same time strengthening thedealer's return on investments. It also focused on just-in-time delivery across smallerproduct lots the first of such proposition in the sector.
The Company focused on complete product availability through the manufacture ofproducts and quantities sold resulting in effective replenishment that strengthened theCompany's market orientation business development focus deeper understanding ofopportunities and working capital efficiency obviating the need for dumping products ontrade partners.
Key challenges and how we are mitigating them
Increased raw material costs
Response Skipper has gone into faster execution of projects so that inthe next phase the Company is not impacted by the increased costs of the raw materials.
Slower orders from Power Grid India's largestT&D company
Response: Accelerated sectoral and customer diversification
I Delay in availability of project P sites
Response: Increase non-T&D and International business share of revenues
Sectoral liquidity crisis
Response: Engaged in selective business; secured payment terms; conscious decisionto curb low margin revenues
At Skipper we believe that our repositioning should translate into a strongercompetitiveness.
Even as we account for a sizable share of the Indian market there is a growing focuson carving out a larger share of the customer's wallet and extend into contiguous spaces.
Even as we are a preferred choice among customers we seek to graduate to become a'must work with' partner.
Even as we remain profitable there is a movement towards enhanced profitability andsustainability across market cycles. Even as the focus is on remaining viable there is agreater focus on creating a larger business with fewer resources (working capital).
Even as we are one of the most respected players in our niche the world over there isa movement to strengthen our compliance with a wider range of global accreditationsfacilitating our entry into more markets. Even as we strive towards continuous growth wewill protect our profitability and strengthen our projects bidding product mix and tradeterms.
We believe that the repositioning initiatives at Skipper will enable it to graduatefrom being volume-driven to a value-focused Company that successfully addresses the needsof all stakeholders.
Sajan Kumar Bansal