Integrated power play
With its presence across the T&D ecosystem, Skipper Ltd (Skipper) is poised for a powerful performance driven by: i) proposed NEP with indicative transmission capex of INR9.2tn (over FY22–32E); and ii) a global wave of RE transition driving HV (high-voltage) T&D capex (Lights out: Power deficit in the making?). Skipper, hence, stands to benefit immensely from domestic and export order intake tailwinds.
Skipper turned in OB/sales CAGR of 33%/24% over FY20–24; its OB is INR58.4bn, i.e. 1.8x FY24 sales. We bake in OI/sales CAGR of 22%/26% over FY24–27E with an OPM of ~10.5% by FY27E (FY24: 9.7%; guidance of 11% over three years), yielding an EPS CAGR of 50%-plus over FY24– 27E. Initiate at ‘BUY’ with a TP of INR650 at 25x FY27E EPS of INR26.
High-voltage macro tailwinds: Domestic and international drivers
The NEP recently proposed the 2022–32 outlay of INR9.2tn with an emphasis on HV (> 220kv), auguring growth for domestic T&D. We peg the transmission towers’ TAM at INR1.4–2.2tn (exhibits 5 and 6). Given this backdrop, we estimate PGCIL’s annual capex (70% of Skipper’s T&D OB)—a proxy for India’s transmission capex—shall jump 300%-plus over the next two–three years (exhibit 2). Internationally too, Skipper faces lower Chinese/Turkish competition in key markets, resulting in 64% growth in its international pipeline in FY24 to INR108.3 bn.
Doubling tower capacity; only backward-integrated player in India
Skipper intends to double tower manufacturing capacity to 600,000MTA (from 300,000MTPA currently) at an outlay of ~INR8bn over the next four–five years. The company is undertaking phase-1 of capex (of INR2bn), which shall increase capacity to 375,000MTPA by end-FY25, making it the largest tower manufacturing company (by capacity) in India (exhibit 23). Skipper is the only company with backward integration of rolling mills, tower pole fasteners’ production and EPC capabilities.
Niche player in pole position; initiate at ‘BUY’
Skipper’s business segments comprise: i) Engineering (68% of FY24 sales): Manufacturing T&D + non-T&D (telecom/wind) structures; ii) Infra (18% of FY24 sales): EPC of transmission projects, particularly in HV 400KV and 765KV segments with a market share of 10–15% among only five—six players in HV EPC; and iii) Polymers (14% of sales): B2C with cash payment helps improve WC position.
Skipper is ready to harness several tailwinds: i) power T&D capex of INR9.2tn over 2022–32; ii) improving product mix with a shift to margin-accretive HV segment; iii) doubling of capacity in four–five years; iv) a well-capitalised balance sheet with FY24 D/E at 0.49x (exhibit 32); and v) OPM improving from 9.7% in FY24 to 10.5% by FY27E (guidance of 11% for three years).
Valuing Skipper at 25x FY27E EPS of INR26 yields a TP of INR650. Our bull case TP of INR740 factors in ~11% margin by FY27E with a 30% OI CAGR and a similar target multiple vis-a-vis the base case. Key Risks: Execution and order award delays, sharp price movement of raw material (50% unhedged T&D OB) and WC management.
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