Skipper Ltd
NSE:SKIPPER
Earnings Call Analysis
Summary
Q2-2024
The company experienced increased short-term debt aligned with revenue growth, while long-term debt remained stable. Finance costs as a percentage of revenue have decreased to about 4.5%, down from over 5% last year. Capital expenditure (CapEx) reached approximately INR 55 crores in the first half, anticipating a total of INR 80 to 90 crores by year's end. The order book stands at INR 6,000 crores, with nearly 40% each in domestic transmission and distribution (T&D) and non-T&D, and about 20% in exports. Exports, primarily to the Middle East and North Africa, command higher margins than domestic sales, and further margin expansion is expected from developed markets such as Australia, U.S., and Canada. The company is prepared for a significant revenue jump with strong internal cash flows and working capital support, aiming for at least 25% CAGR over the next three years.
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Ladies and gentlemen, good day, and welcome to the Skipper Limited Q2 FY '24 Earnings Conference Call hosted by Centrum Broking Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Mishra from Centrum Broking Limited. Thank you, and over to you, sir. Hello, Mr. Mishra.
Yes. Good afternoon, everyone. On behalf of Centrum Broking Limited, I welcome you all to the 2Q FY '24 Conference Call of Skipper Limited. The management today is represented by Mr. Sharan Bansal, Director; Mr. Devesh Bansal, Director; Mr. Shiv Shankar Gupta, CFO; and Mr. Aditya Dujari, GM finance and IR.
I would now hand over the call to the management for the opening remarks, post which we can open the floor for Q&A. Over to you, sir.
Thank you, Rahul. Good afternoon to you all, and thank you for your continued interest in Skipper. Please take note any forward-looking statement made during this call must be reviewed in conjunction with the risk that the industry and the company faces. Some of the key operational and financial highlights in comparison to previous year quarter were as follows. I am pleased to inform you that the company registered its best-ever revenue quarter of INR 772 crores against INR 452 crores in previous year quarter 2, on back of strong performance across all its major business segments, achieving growth of 57% over previous year quarter period, while maintaining healthy operating EBITDA margins of 9.4%.
The segmental revenue breakup were as follows: engineering was INR 595 crores, up by 57% over previous year quarter. Polymer was INR 112 crores, up by 58% and Infra segment was INR 64.2 crores, up by 490%. The company engineering export sales were at approximately INR 207 crores and constituted 35% of overall Engineering segment revenue. The company achieved its best ever second quarter revenue in the polymer business, fueled by robust volume growth of 101%, our revenue surged by an impressive 58% compared to previous year's quarter.
Years of dedicated effort towards building a robust retail network for our polymer business have now started showing encouraging results. Skipper Pipes brand campaign at India's safest pipes with brand ambassador MS Dhoni and Chris Gayle is paying rich dividends. Higher growth business in campaign markets indicating campaign effectiveness.
Company intends to increase its campaign spread to other geographies as well and open new markets in the coming couple of quarters. Our quarterly operating performance, excluding the impact of ForEx gain loss were as follows: Operating EBITDA increased to INR 72.4 crores and operating margin stood at 9.4% for the quarter. The Engineering segment operating EBITDA margin for the quarter stood at 11%. Over the years, the average proportion of our H1 revenues in relation to total revenue is close to 40%.
Accordingly, with operating leverage coming into play, historically, our margin profile see an improvement in H2 versus H1. Going forward, we expect similar trends to continue and deliver further margin performance of 12% in this business on back of better quality contracts getting executed and rising share of international business. While the EBITDA margin for polymer business will continue to get benefited from fixed cost getting rationalized over a larger revenue base.
The management to stay focus, continue towards bottom line improvement. The consolidated PBT increased to INR 28.6 crores and PBT margin at 3.7% of sales for the current quarter period against INR 5.5 crores in the previous year quarter with PBT margin of 1.2%. And the consolidated PAT increased to INR 19.8 crores with PAT margins at 2.6% of sales for the current quarter period against INR 2.99 crores in previous year quarter.
Our half year performance highlights were as follows: revenue of H1 FY '24 increased to INR 1,327 crores against INR 878 crores in H1 FY '23, registering a growth of 51%, with margins at 9.7%. Engineering business segment achieved revenue of INR 1,012 crores against INR 689 crores in the previous year half period -- previous year first half period, registering a stupendous growth of 47%. Polymer business achieved its best ever half revenue performance. Revenue increased to INR 240 crores against INR 159 crores, up by 51%. Polymer sales volume doubled to 16,700 tonnes against 8,600 tonnes in previous year H1 period, registering a growth of 94%. Consolidated PBT increased to INR 51.8 crores, against INR 5 crores in the previous year period. PBT margin of sales increased to 3.9% of sales against 0.6% in previous half year. Consolidated PAT increased to INR 36 crores against INR 2.3 crores in previous year first half, registering a growth of 1,436%. The PAT margin to sales improved to 2.7% against 0.3% in corresponding period. Finance cost as a percentage of sales improved to 4.7% against 5.3% over previous year first half period. On the order front, I'm happy to inform you that the current year quarter was the best ever for quarter -- best ever quarter in the company history.
During the quarter, we secured large sized contracts, particularly from PGCIL for the transmission line works in state of Rajasthan and for several other T&D projects both domestic and international, including telecom. The total inflow for the quarter was in excess of INR 1,529 crores against INR 461 crores previous year, registering a year-on-year growth of 232%. The total H1 inflow was the highest ever for the company. We secured new orders in excess of INR 2,744 crores during the year against INR 863 crores last year first half period, registering year-on-year growth of 218%.
The current order book stands at INR 6,074 crores, which is the highest ever in the company's history and is well diversified across sectors and segments. The order book to Engineering and Infra segment sales now stands at 3.9x of FY '23 sales giving us revenue visibility for the next 3 to 4 years.
The domestic T&D environment is showing signs of a strong rebound after 2 years of lukewarm response. The company is committed to leverage and address the vast potential of India's transmission sector with this integrated operation. With the government-accelerated efforts towards scaling renewable grid infrastructure and improving electrification in urban and rural areas, Skipper is poised to support this growth. Further, we expect good traction in the international transmission line to continue. The company is witnessing a surge in global inquiries and getting benefited from China Plus One trend. The company will continue to get benefited from pent-up demand as the global economy opens up, and global focus on investment in building T&D infrastructure catering to renewables continues to grow.
Further, the company looks forward to tap emerging opportunities in sectors aligned with the government's rising interest. Skipper's rising diversification into the business of telecom, railway electrification, water EPC and field irrigation have tremendous potential aiding to strengthen its revenue stream.
The tender pipeline for us to participate look deep and the current bidding pipeline also remains strong and at their all-time high levels of INR 12,620 crores, international share at INR 8,020 crores and domestic at INR 4,600 crores.
Thank you, and I'm happy to take your questions now.
[Operator Instructions] The first question is from the line of [ Deepak Purswani from Svan Investments. ]
Congratulations for a very good set of numbers. Sir, my question relates to, firstly, on the execution front, how much was the contribution in the engineering product from the BSNL order in this quarter? Secondly, on the debt front, it has increased to the INR 713 crores in this quarter. Looking at the current execution run rate, how should we look at the debt level at the end of the year? And thirdly, on the EBIT margin, in the engineering product, our margin on a sequential basis has come down slightly. So can you please share the thoughts, I mean, how should we look at it going ahead?
Okay. So your first question was about what is the share of BSNL in the current year -- current quarter that just ended?
Yes.
Okay. So BSNL was approximately INR 125 crores in the current quarter that just ended. And could you repeat your second question also, please.
So second question is related to the debt level. In this quarter, debt has risen to the INR 716 crores. How should we look at the debt number at the end of this year, considering the growth phase we are going through, especially on the working capital debt level?
Well, the debt number has only increased in the short-term debt. In the long term, debt number actually has come down for the company. From previous year, it was about INR 226 crores -- INR 290 crores and currently it's about INR 284 crores. So actually, the long-term debt number is almost flat. The short-term debt has gone up from about INR 294 crores to about INR 428 crores, but largely, that is in line with the revenue growth of the company. If you -- the important metric for the management to track is the finance cost.
Now if you see the finance cost as a percentage of sales, it has come down. And currently, we are at approximately 4.5% finance cost as a percentage of revenue. This number was higher than 5% last year. So I think our overall working capital number of days have also come down. So although it is difficult to say what the debt level will be at the end of the year, it will definitely be higher considering the growing revenue but we can definitely target that at an annual basis, our finance cost as a percentage of sales will be lower than last year's level.
Okay. And sir, finally, on the margin front, I mean on a sequential basis, there is a slight dip in the margin across the segments. Any thoughts on that?
Yes, we've been -- yes, we've always guided for approximately 12% margin for our engineering business, and approximately 10% margin for our infra business. So we are -- the current order book of the company supports that guidance, and we definitely hope to deliver that for the full year period for the quarter. And for the half year, normally what happens is, there may be a difference in the quality of contracts getting executed. So that could have an effect on the margins, on the quarter basis. But for the full year basis, definitely, we continue and maintain our earlier guidance of 12% for engineering segment and approximately 9% to 10% for the infra segment.
Okay. And sir, finally, on the CapEx front, how much have we incurred in the first half? And what would be the full year CapEx for this fiscal year?
Yes. So our -- we've already incurred approximately INR 55 crores CapEx in the first half of the year. And towards the end of -- by the end of the year, we expect to be about in the INR 80 crores to INR 90 crores range.
[Operator Instructions] We'll move on to the next, that is from the line of Rahul Mishra from Centrum Broking.
Sir, I have a few questions. Sir, the first question pertains to, like you have mentioned in your opening remarks that global inquiries are increasing. So can you just name from which regions are we seeing these inquiries? And if possible, if you can quantify what will be the margin level for these regions? And if not, overall, if you can tell me just how much margin expansion can we see with orders or with the new inquiries coming -- inquiries conversion to orders and then execution, how much margins can -- expansion can we see from this overseas orders? Hello?
Yes, sorry. So in regard to export market, what we can tell you is that company is exporting to about 65-plus countries worldwide and our international presence is consistently growing. We are seeing demand opportunities in a number of countries. Currently, the strongest demand is coming in from, I would say, the Middle East region, and that is probably the area where we are seeing the maximum demand inflow from countries like Saudi, from Iraq, from UAE, Oman, et cetera. So all these countries are quite active, even in North Africa regions. So the larger MENA region, Middle East and North Africa region, which includes countries like Egypt, et cetera, all of them are having robust demand.
Of course, our traditional markets like Latin America and parts of Africa, there also company is enjoying healthy demand. So in terms of future projections, see, it is estimated that global T&D spend will see a massive jump from currently about $250 billion annually to perhaps about $500 billion in the next 3 to 4 years' time. So certainly, there will be a lot of opportunity in the overall transmission network for strong players like Skipper.
And with regard to margins, we have always maintained that export margins are 1%, 2% higher than domestic margins as our business will come more and more from developed geographies, countries like Australia, U.S., Canada, from which from -- in some of these places, we are already doing significant business, and we are expecting to see good large orders being finalized from these developed countries in the times to come. There we can definitely hope for more and more margin expansion at the bottom line level.
Fair enough. Sir, my next question is towards the domestic market. So if you can help me understand what is the current size of the transmission towers in the domestic market? And how are we placed, I think, what is our market share? And how do we compete with our competitors in this particular space? And what is your outlook going ahead given that India or the government is emphasizing more on the renewable energy generation. And if you -- and if for in this case implemented in real time, then we could really see a good amount of opportunities coming from these sectors. So just some brief outlook, if you can share with us?
Yes. So currently, our overall order book is about INR 6,000 crores as of end of September, which had a roughly 17% to 18% export and where 83% came from domestic. Now within the domestic order book, approximately there's an even split between T&D and non-T&D, so 41% coming from T&D and 42% coming from non-T&D.
So this has seen a sharp rise in the last 1 year, where basically there is a lot of pent-up demand in the Indian transmission space. CEA has come out with a paper of expected investment of INR 2.4 lakh crores up to 2030 in the Indian transmission space, particularly to cater to 500 gigawatts of renewable energy, which is coming online. So I think we should -- this current trend that we have seen in the domestic market of robust ordering, we expect this to continue over the next few years. And all large players like Skipper will definitely benefit from this trend.
Sure. Also my next question is again on the domestic market. So like once we start getting orders and the tenders started getting rewarded to players, and we start generating revenue book, we start booking our revenues. So how would be the working capital requirement and how are we supposed to fund that? Like, will the initial -- internal accruals will be sufficient or else we have to resort to some kind of funding too because once revenue increases, it will definitely have to be supported by working capital needs, so how are we placed at this point of time?
Yes. I mean the company has strong cash flows, and we have quite comfortable working capital limits with our lenders for taking care of any working capital expansion requirement of the company, even though this year, we are looking at a significant revenue jump. We are seeing no challenge meeting the working capital funding requirements.
And also, we don't see any challenge in the coming future as well as the company is guiding for a minimum 25% CAGR growth over the next 3 years. Definitely, our internal approval plus the working capital support received by our lenders will be sufficient for taking care of any requirements that we have. As you might be aware, the company is also in the process of coming out with the rights issue of about approximately INR 200 crore value. And that rights issue will further be used for supporting the working capital, growing working capital requirements of the company.
Sir, just one last question. If you can just give us sales breakup between sectors like how much we do it from T&D, from railways and from telecom, any round figure if you like to...
You may -- normally, what we've seen is that the order book of any year, that translates into the revenue of the next year. So maybe perhaps what you can see is that, like I mentioned, that currently, the order book is 40-40-20, 40% domestic T&D, 40% domestic non-T&D and approximately 20% export. So I think that is the split that you can see in execution also in the coming times.
All right. Sir, if I can just squeeze in one more question. Sir, about telecom. So we see that the upcoming 5G and 6G network will see some increased demand for telecom towers. And this particular sector will be promising in the next few years. So if you can just give a brief outlook on this, like how can we as a company can offer us services to the telecom sectors given that you've already received one of the large orders from BSNL to set up telecom towers in rural areas. So what is the outlook for telecom sector?
Yes, I would say that the telecom sector is certainly going to be seeing good demand. We have secured the large order from BSNL. We are also getting large orders from other players like Indus Towers and Jio. So we expect that ordering trend to continue. And as India moved into 5G and then subsequently, 6G network, the demand for towers will continue to be there in the telecom space. So certainly, we look at telecom as a growing area overall for our engineering products business.
I'll join back in the queue if I have more questions.
The next question is from the line of Dhruv Agarwal from Niveshaay Investment Advisors.
Am I audible ma'am?
Yes, you are.
Congratulations, sir, for the good set of numbers, sir. My question is order book as on -- stood at around INR 6,000 crores. So can you please give the color on the execution time line? Like within how many quarters we can execute this order book, sir?
Yes. So normally, the order book is executable over between 15 to 24 months, and that will be the trend for this order book as well.
Okay. Right. Around INR 8,000 crores on international front and around INR 4,600 crores on domestic front. So from this, what amount can we expect, sir, and by what time, sir?
Sorry, your voice was not very clear. Could you please repeat again?
Sir, as a robust bidding pipeline sir, so what -- by what amount can we expect this bidding to flow into the order book and by what time sir?
Right. So the company already has a significant order book and we are adopting a more selective approach in further order inflow. We are obviously targeting higher margins because they're already sitting at a comfortable order book. There is sufficient business to be taken, both on the domestic front and international front. So I think the -- now the company will use the opportunity of the current large order book to be -- to target more higher margin orders in the coming years.
Okay, right, right, sir. And sir, the third question would be, sir, as we can see on the polymer division, there is a margin dip, sir. So what can we expect like around 10% margin as there was in year 2014, '15. So when can we expect those margins, sir, in the Polymer division?
Yes. So in fact, Polymer division has not had a margin dip if you consider H1 to H1. Last year, H1, we were at about 4.4% operating margin, and this year, we are about 5.8%. As our revenue and volume keeps growing in this segment, which it already is, we have delivered about a 51% growth in volumes. We expect margins to increase -- keep improving every quarter as we go ahead towards the double-digit margin eventually.
So this is something which we -- definitely there is a lot of headroom to grow. And we will -- we are definitely on the path towards that margin expansion in this business.
Sir, if you can give some color like by what time like within next quarter or within the next few years?
It is difficult for me to put a time frame to that, but we are definitely on the path to margin expansion. And hopefully, we'll get there sooner rather than later.
Right, sir. Sure. And sir, what would be the current installed capacity in the engineering and the polymer segment and the respective capacity utilization for the same, sir?
Okay. In the engineering space, our total capacity is approximately 300,000 tonnes per year. And looking at the order book and continued robust demand, we expect that this year, we will be ending at about 70% to 75% capacity utilization. In the polymer space, our total capacity is 62,000 tonnes per year. And here also, we are looking at approximately 70% -- sorry, 60% capacity utilization for the full year this current year.
Okay. And sir, like are we expecting any upcoming future CapEx plan, seeing the robust demand on the like towers and distribution segment?
Yes. Sure. So currently, in a company, whatever the CapEx that we are doing, it is towards more capacity debottlenecking, cost -- driving cost efficiency and increasing of our range because our revenue mix is going through a lot of changes. We are catering a lot more to different country, different export market. So in that, we definitely do need to invest in our capacity to cater to all the various sizes, the various grades that are required in the international market.
And even in the domestic market because of non-T&D share rising, there is a lot of capacity debottlenecking and range expansion that we need to do. So all that is happening, and we are currently carrying out the CapEx for that, which is mostly brownfield. We are -- and looking at the robust demand, we may go in for a greenfield plant expansion, but the Board is yet to take a call on that, that we will be deciding subsequently in the coming quarters.
The next question is from the line of Rahul Mishra from Centrum Broking.
Sir, my question is on the polymers business. So what -- how do you see the current demand situation panning out? And what is the growth rate that you are expecting to clock in H2 of this fiscal as well as for FY '24 as well?
In terms of growth, we delivered a 51% growth in the first half of the year in the Polymer segment. And for the second half, also, we are targeting a similar growth number. What was -- could you repeat your first question, please?
Yes. So yes, the question is pertaining to the growth. So I've already got it from your side. So how exactly are the company would be looking to grow in the second half of the year and for FY '24? I would like to also add in one more question. What about our A&P spend as a percentage of sales? And do we see this percentage increasing from here on?
You're asking about our advertisement spend?
Yes. Yes. Yes, sir. Advertisement spend. Advertisement and promotion spend.
Right. Our advertisement spend has been to the tune of about INR 2 crores to INR 3 crores in the past. And we expect that trend to not vary too much because as the ad spend increases, the volumes are also increasing. So maybe it will remain in the 2% to 3% range.
Just to add on to this. The promotional spend, we include the ad spend as well as other promotional programs that we run in the market, so on a cumulative basis, both revenue-based and non-revenue based it's approximately in the 8% to 10% region for the brand.
I'm not able to hear you very clearly. Could you please -- I think there's some audio problem at your side.
Am I audible now?
Yes.
Yes. Yes. Sir, just last question from my side for the Engineering products segments, we understand that one of our key competitors globally are Turkish players. So how exactly are we advantageous in terms of either cost or either in terms of supply chain, in terms of quality of product, how are we competing with these Turkish players? And do we see Chinese players trying to penetrate the market through either price undercutting, if you can just give an outlook on this.
Yes, sure. So I think as we have -- Skipper has a lot of inherent cost advantages compared to any manufacturer in the world. We are the only, truly end-to-end integrated company with backward integration and forward integration for our product. So that definitely gives us a lot of advantages. We are also located in the eastern part of India, where we have advantage for raw material forcing and also, we are close to the port. So our logistics cost is also very low compared to some of the other players.
Now how do we compare against Chinese and Turkish? I'd say that, yes, definitely, in terms of cost, we are fairly competitive because of sea freight, again, getting rationalized post-COVID. Now sea freight levels are back to pre-COVID levels. So it is very easy for us to supply our products all over the world at low sea freight. During COVID years, we did have a disadvantage because sea freight prices were so high. So there definitely maybe perhaps Turkish players had more of an advantage in supplying to western continents. But now the advantage is no longer there.
Sea freights are largely same, whether it goes from here or whether it goes from there. So in terms of size and scale, we are definitely up there from the largest -- with the largest Chinese and Turkish players. In terms of cost economy, certainly, we compete -- are able to compete very well. I think, the important thing about -- for us, for breaking into newer markets are things like registrations, approvals, product certification, product type testing. I think those -- engineering active here, techno-commercial engineering activity, which the company has been doing for the last 8 to 10 years, and it has yielded positive results already for us. And subsequently, it is going to get more and more beneficial, more and more it's going to yield better and better markets for us in the international space.
[Operator Instructions] There are no further questions. I now hand the conference over to Mr. Rahul Mishra for his closing comments.
I thank the management for giving us an opportunity to host the call and all the participants for attending the call. Sir, do you like to make any closing comments?
Yes, sure. So thank you, everyone. We are confident of delivering profitable revenue growth with a consistent margin in the current year and expect to clock revenue growth in excess of 25% CAGR for the next 3 financial years on back of ending engineering contracts and strong polymer segment performance. We will continue to focus on improving bottom line profitability, stabilize operating cash flows, trim our debt thereby leading to improvement of the company's margin profile and strengthen its balance sheet position and capital return ratios.
The company refers to our sustainable business practices that help us to achieve its goal by making meaningful contributions to the national and global infrastructure. We appreciate your continued support and look forward to interacting with you again in the next quarter. Thank you.
Thank you, members of the management team. Ladies and gentlemen, on behalf of Centrum Broking Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.