Skipper Limited (538562) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Skipper Limited Q1 FY '27 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Sahadeo. Thank you, and over to you, sir.

Thank you, Anushka. Good evening, everyone. On behalf of ICICI Securities, I welcome you all to the Q1 FY '27 Earnings Call of Skipper Limited. From the company, we have with us Mr. Sharan Bansal, Director; Mr. Shiv Shankar Gupta, CFO; and Mr. Aditya Dujari, EVP, Finance and Head, Investor Relations. So without any further ado, I hand over the call to the management for their opening comments. Over to you, sir.

Yes. Good afternoon, everyone, and thank you for joining us today. Before we proceed, I would like to draw your attention to the fact that certain statements made during the call may be forward-looking in nature and should be considered in conjunction with the risks and uncertainties associated with our industry and business. We are pleased to report another quarter of resilient execution despite a challenging external environment. We ended last year with a lower-than-expected order inflow due to subdued domestic bidding and various geopolitical and tariff-related uncertainties in various -- in a lot of our export markets. During the quarter, geopolitical developments temporarily impacted export dispatches and revenue recognition. However, the strength of our domestic business, disciplined project execution and continued focus on operational excellence enabled us to deliver our highest ever first quarter revenue while further improving profitability across every metrics. For the quarter, revenue grew 4.5% year-on-year to a record INR 1,310 crores. More importantly, EBITDA increased 10% to INR 140 crores with margins expanding by 60 basis points to 10.7%. PBT grew 27%, while PAT increased 26% to INR 56.5 crores, reflecting the benefits of improved operational leverage, a better project mix and continued cost optimization. Finance costs reduced to 33.6% of revenue from 4.2% last year, further strengthening earnings quality. Beyond financial performance, this quarter marked an important milestone in strengthening our balance sheet. We successfully completed a INR 433.5 crores preferential equity raise from marquee global and domestic long-only institutional investors, substantially enhancing our financial flexibility. This was followed by CRISIL upgrading our long-term credit rating to A+ stable in July, validating our stronger financial profile, prudent capital allocation and consistent operating performance. Together, these developments are expected to lower our cost of capital and support our next phase of growth. Operationally, business momentum remained robust as we continue to build on our leadership position in the transmission infrastructure sector. We closed the quarter with our highest ever unexecuted order book of over INR 9,200 crore, representing healthy growth over March '26 and providing strong multiyear revenue visibility. During the quarter, we secured fresh order inflows of approximately INR 1,674 crores, while our bidding pipeline expanded to an all-time high level of INR 35,000 crores, supported by robust domestic transmission investment and improving opportunities across international markets. We secured two 765 kV projects from a reputed developer in the state of Maharashtra and successfully completed qualification audits and from developed market customers, including U.S.A., Finland and Australia, while strengthening our international presence with establishment of subsidiaries in Brazil and UAE. The U.S.A. entity is also expected to become operational shortly. Further, the ongoing 75,000 ton capacity expansion is expected to become operational during the second half of the year, taking our total manufacturing capacity to 450,000 tons per annum, further strengthening our position as the largest power T&D structure manufacturer in the country. Looking ahead, we expect FY '27 to be H2 weighted. As export logistics normalized, capacity utilization improved and recently secured orders move into execution, we expect stronger growth momentum during the second half. Our focus remains on improving project mix, driving operational efficiencies, expanding exports, strengthening return ratios and maintaining a disciplined balance sheet. The long-term outlook for the power transmission sector remains exceptionally strong. Accelerated investments in renewable energy integration [indiscernible] HVDC corridors, interstate transmission infrastructure and rising electrification across both and global markets continue to create significant opportunities. With our strengthened balance sheet, expanded manufacturing footprint, healthy order pipeline and improving profitability, we believe Skipper is well positioned to deliver sustainable growth and create long-term value for all stakeholders. Thank you, and I look forward to your questions.

[Operator Instructions] The first question is from the line of Aditya Welekar from Axis Securities.

Congrats for the decent set of numbers. So my question is with respect to ordering and awarding. So are we seeing any pickup in ordering activity -- means as compared to last year in FY '26, we have seen some slowdown. So is the ordering environment improving? Any color on that?

Yes. Thank you for the question. And definitely, the ordering has certainly picked up in this financial year. We have seen a number of bids getting finalized. And we believe that those order inflows will start translating from quarter 2 itself. We have seen -- we are expecting bids of close to INR 90,000 crores to INR 1 lakh crores of bids in the Indian transmission market in this financial year. And also on terms of the export side, we are seeing good traction coming from a number of markets, including our focus areas, which is the developed markets of U.S.A. and Australia. So these markets also, we are seeing very good positive development. So we definitely do expect FY '27 to be much better compared to FY '26 in overall ordering.

Understood. And just to get a broader perspective on the sector in general means we have INR 9.2 trillion of CapEx earmarked, but that has been divided into two parts from FY '22 to '27 and then '27 to '32. So currently, where are we in that entire execution CapEx cycle? And how much is still remaining?

We are seeing annually, we can expect that, like I said, INR 90,000 crores to INR 1 lakh crores of bids in the transmission sector. Like this year, that is what we are expecting to see. So our estimate is so far about -- just about 40% of the total bids of INR 9 lakh crores have been bidded so far.

Understood. Just one last one. On the -- we have seen in this quarter, our finance cost has declined and that has led to growth in our PAT. So is it due to the drawdown or the decline in our gross debt post our QIP?

No. Our fundraise actually came in the month of -- end of July or in fact, the first week of August is when we received the fund. So quarter 1 did not see any benefit from the fundraise. Whatever improvement you are seeing in the finance cost is purely due to better operational -- better working capital management and overall operational leverage of the company.

That's great to hear. So how much are we expecting the finance cost to go down once this -- because you will use that fund to reduce your debt? And how much is the current debt position and how much it will go down to further?

I believe that this year, our finance cost should be somewhere between 3.2% to 3.5% for the whole year after this fundraise.

We take the next question from the line of [ Rengavarshini ] from Wealthify.

Congratulations on the good set of numbers. Am I audible? My first question is on the export revenue. Is it completely lost or delayed for a longer period due to geopolitical disruptions? My second question is on the growth guidance of approximately 15 percentage given for the financial year. And for this quarter, we were able to achieve some 4 percentage kind of growth. For the remaining quarters of the year on which segment do we expect growth to achieve this target of 15%? Third, we have a strong order book of INR 9,200 crore. So can you please quantify on what percentage of it will be completed by the end of, let's say, FY '27 and end of FY '28? That will be helpful sir.

Okay, sure. So regarding your first question, I can tell you very strongly that export revenue is just export ordering has certainly not stopped or slowed down. Last year, we saw certain uncertainties with regarding to tariff as well as overall geopolitical issue in the Middle East. However, this year, there is already a strong bounce back. We are in advanced level of contract discussions with a number of buyers, and we should start seeing those orders coming in from quarter 2 itself. So definitely, the export opportunity is very robust. All over the world, there is a very strong push for transmission grid investments, thanks to renewables and AI data centers. In fact, in many locations in the U.S., data centers are not getting clearance because the grid does not have enough power to supply to the new data centers. So certainly, we believe that export opportunities are going to be very robust. We ourselves are expecting more than a 50% jump in export order inflow compared to last year. So this is on the export side, it is definitely much, much more positive compared to last year. Regarding your second question about guidance of 15%. So despite the first quarter growth of about 5%, see, the first quarter 1 and quarter 2 are generally the lowest -- the slowest in terms of execution because of incoming monsoons and monsoon period. And of course, this first quarter, we were also impacted by West Bengal elections and the freight disruptions in the export side. So overall for the year, we still maintain our 15% guidance. We are quite confident we will achieve that. And it will come as a combination of all our three segments in Engineering, Polymer and Infra. Infra, we expect that this year, already in the first quarter, we have seen a good growth. So we are definitely expecting a higher growth in Infra segment overall in the year, thanks to all the execution that will likely pick up post quarter 2 as well. And regarding your third question about order book of INR 9,200 crores. So typically, our orders are executable over a period of 2 to 2.5 years. So we believe that in this year, in FY '27, out of this INR 9,200 crores, approximately INR 5,000 crores will be executed. And then there will be certain short-term orders also that will come during the year. So that -- I hope that answers all the three of your questions.

We take the next question from the line of Keval from Axis Capital.

Am I audible? Congratulations for the decent set of numbers. Sir, my first question is regarding the sector outlook. So in the TBCB market, we saw some bidding moderation in FY '26. So with our strong Q1 inflows, are we seeing any deferred projects? And likewise, how much growth in percentage terms do you expect in TBCB side for FY '27?

As I was telling the previous caller that last year, we saw a muted bidding activity of close to about INR 50,000 crores to INR 60,000 crores only in the TBCB segment. But this year, we expect that the number to go up from INR 90,000 crores to INR 1 lakh. And it is further boosted by the fact that now we are seeing a lot of intrastate projects also come up for bidding. Earlier what used to happen that the interstate project, the ISTS projects were the only ones coming up for TBCB. And all the intrastate was still being done by the state transmission companies through EPC route. However, now what we are seeing is that all projects, whether it is interstate or intrastate, they are all coming through the TBCB route. And the project pipeline is also very robust as published by the NTC, National Transmission Council. And also what we are the bidding activity, which we are seeing. So we are quite confident that the INR 90,000 crores to INR 1 lakh crores will be bidded this year. Already a number of bids have already been floated. And in fact, in the sector, the large number of new players, new developers are also coming in. A lot of foreign capital has also been coming in by -- if you have heard -- you might have heard of I Squared, which has set up a platform, CubeGrid, then NIIF, which is the sovereign government of India fund, they have launched a new fund -- they have launched a new platform called AnantGrid. So there are a lot of new foreign capital also, which is saving the transmission sector.

We take the next question from the line of Harsh Motika from SKP Securities.

On set of numbers. I just wanted to get some clarity on the polymer segment. When you look at the segment, last year, we achieved about more than INR 500 crores of revenue. But this particular quarter has been slightly muted, but we maintain the margins for sure. So can you please give us a guidance on how the rest of the year will look like? And what has driven this dip in revenue?

So again, it's mostly due to ongoing commodity price fluctuations, what we have seen in the market. So most players have suffered in this current scenario where the trade has just been very cautious as because the commodity price movement has been very sharp on both sides, upper side and lower side. So that's why I would say that trade has been cautious and there has been some amount of destocking that has taken place. However, having said that, we are happy in the direction that the margin profile is moving in this business. And we are quite confident that for the full year, we will be able to deliver a 20% improvement -- a 20% growth in top line with some improvement in margins as well.

And sir, do we expect to increase the volume as well going forward? Or will this mostly be driven by higher additions?

Yes. This will come with both volume and value.

We take the next question from the line of Navin Sahadeo from ICICI Securities Limited.

Sir, a couple of questions. So my first question was about the margin improvement that we have seen this year. Now you would appreciate that this quarter was particularly known to have some cost inflation even on the commodity side, each of the things. So I just wanted to get more if you can talk about more as to how did we manage the Q-o-Q margin improvement as well? And is this more sustainable or structural?

Yes. Yes, absolutely, Navin. So as I -- we have mentioned before, our long-term aspirational margins are 12% for the company. So we are happy that we are moving towards that direction on the right track. We have also benefited from some of our legacy contracts now getting over. And now hardly any of those are left in our order book, which were low margin. So definitely, that's why -- and the new contracts are obviously -- coming with a better quality, better margin profile. Apart from that, obviously, see our constant effort on operational leverage, et cetera, is also giving us results. In -- with regard to commodity prices, as I've mentioned earlier, we have a combination of both firm price and variable price contracts. And even on the firm price contracts, we do deploy a number of ways, a number of measures to secure ourselves on the raw material side. So I would say due to all these efforts only, we have dealt with these commodity price fluctuations that are taking place in the market and yet delivering a margin expansion. So that definitely will be structural, and we will consistently move towards our long-term aspirational margin of 12%.

Understood. And in the previous participant's question, did you say we are aspiring for 20% revenue growth this year because that would be like increasing our guidance from 15% in the past?

No, I mentioned in the Polymer segment, 20%. Overall, for the company, we are expecting 15% revenue growth only.

Sure. And sir, just one more question, if I may slip in. Is there a way we are like -- is the scope of work seeing any change? Because now in the past two quarters, the infra segment is seeing a significant jump, whereas like our engineering main segment is a little soft in this quarter. So is there a difference in the scope of work that we are doing for the client or new orders or some new projects we would have received in infra, which is driving this?

No, there's nothing different. What is happening is, see, the Engineering segment mainly is suffering what I've mentioned earlier was of a lower order intake last year, both on domestic and particularly on the export side. See, bulk of our new capacity that we have built up last year also the 75,000 tons capacity, which we built up is primarily focused on exports. And export order intake was poor last year. And even on --right now this year, there is still the --disruption is there in terms of high shipping prices where customers are delaying the lifting because they don't want to pay the additional shipping charges right now. So they are constantly deferring the shipments also. So I would say that these are temporary in nature. Long term, the outlook is very, very positive. As I mentioned, we are guiding for a 50% jump in export order inflow this year compared to last year. So certainly, the engineering slowdown is temporary for this year and not structural at all. Our new capacities, which are going to come up in -- very soon, the capacity is going to go up to 450,000 tons. And with the normalization of shipping rates, I would say with these new orders coming in, certainly, we will see a bounce back in engineering revenue from next year also.

We take the next question from the line of Abhijeet Singh from Systematix.

But sir, one thing I just wanted some more clarity on. So exports have declined in the revenue mix, right? And as far as we understand, both steel and aluminum have risen about 10% for steel and about 30%, 40% for aluminum in Q1 on a Y-o-Y basis. And also across the industry, we have seen gross margin, which is essentially reflecting the raw material cost as a percentage of revenue has compressed sharply both Y-o-Y and Q-on-Q. And on the contrary, we have done an exceptional job wherein even the export lever wasn't there in the mix. So export was down. And therefore, that could pull the gross margins down. So what is, I mean, driving this kind of margin sustenance is very impressive. And in Q2, Q3, if these cost pressures continue, would we see a similar margin range, 10.5% to 11%?

Right. So as I was mentioning to Navin earlier also, see, our -- firstly, we had the burden of some legacy contracts till last year also, which are now almost negligible in the order book. So that also has contributed to the revenue or to the margins going up. Secondly, we have maintained in the past that, see, we are not that impacted by the commodity price movement because we have a combination of firm price and variable price contracts and see variable price contracts anyway get adjusted on a month-to-month basis based on the commodity prices. And as far as the firm price contracts are concerned, they already have that buffer built in to take care of the prices increase. And plus we also deploy a combination of other measures like increasing inventory and also doing some part hedging for some materials. So that's why we are able to manage and not let the commodity prices impact. However, to answer also your statement about steel and aluminum, see steel, which is our major raw material, that did see some increase earlier in the quarter. But by the month of May, we saw the steel prices had normalized to the pre-February or January levels quite a bit. So now they are completely back to the pre-February level. So in steel, there was only a temporary spike. Even aluminum prices have rationed to a quite extent. And -- but like I said, we do deploy a number of measures, including increasing inventory and hedging, et cetera, which -- so we don't expect that commodity prices are going to be really a big concern for us to our margins.

Understood, sir. And sir, this export order inflow growth that you are expecting for the current financial year, this would primarily come from U.S.A. and Australia. Is that correct?

North America and Australia are going to be our main market. Europe is still going to take some time because we are yet to get our approvals, et cetera, in place. So we are a bit ahead in these two markets, North America and Australia. So for this year, yes, certainly, we do expect most of our inflows in developed countries to come from here. Of course, our traditional markets of Middle East, Africa and Latin America, we are expecting substantial flows from there also.

Right. Because I think for the full year, we are maybe targeting about INR 1,100 crores of inflow from exports around that number -- based on the last year export number, yes.

Absolutely.

So -- and of course, this is also coming from the fact that we've been thinking of increasing our export mix to 50% and half of that would come from developed markets and half from the other markets, we are on track.

We're on track for that, yes.

Amazing, sir. And sir, lastly, infra projects, what is the project that we are executing right now, this INR 250 crores revenue that you've got for the two quarters?

These are all... We do infra projects in India only. We don't do any EPC project outside of India. So all of these projects are the transmission projects, which we have won under the -- from various TBCB developers.

Right, right. So EPC -- these are the EPC projects and the civil portion, non-product portion of the EPC projects, right, that you book under infra?

The services portion, correct.

We take the next question from the line of Basant Bansal from NBG Investment.

I have three question on the P&L. The one is about the labor stores and other project expenses, which has increased from INR 122 crore to INR 195 crore. So if you can throw some light on that. Similarly, the employee cost has also increased from INR 55 crores to around INR 71 crore. So it will be helpful if you can also throw some light on that. And lastly, on the other expenses, which has increased from INR 117 crores to INR 129 crores.

Sorry, the second and third aspect, the first one was the labor and store. The second was employee and the third one was?

Other expenses.

The other expenses. Okay. Just a minute please. [Audio Gap] Can you hear me? Okay. So sir, the labor store and other project expenses, these are directly linked to the EPC side as the EPC revenue has grown, so that's why we see an increase in these expenses, which are primarily site related. The employee cost, if you see, it is in line with the March quarter. March quarter also, the cost was INR 69.6 crores. And in this quarter, it is INR 71 crores. So it is not much of an increase on that front. And with regard to the other expenses, see, these always have a varying impact because of the kind of contracts which we are executing. In many cases, when we are executing CIF or DDP or DAP contracts, then the export freight also comes into other expense and the export -- the logistics cost also goes into the revenue. So honestly, this will vary from -- on a quarter-to-quarter basis. You will have to -- it will not -- you will not be able to draw any particular trend from the other expenses.

So coming back to this project expenses I understand your explanation that it is variable in nature. So the revenue, and it is in proportion to increase in the revenue?

Increase in the infra revenue, yes.

Yes, infra revenue, yes obviously. [indiscernible]