Rating Rationale
December 30, 2017 | Mumbai
Skipper Limited
'CRISIL AA-/Stable/CRISIL A1+' assigned to bank debt and CP
 
Rating Action
Total Bank Loan Facilities Rated Rs.1947 Crore
Long Term Rating CRISIL AA-/Stable (Assigned)
Short Term Rating CRISIL A1+ (Assigned)
 
Rs.200 Crore Commercial Paper CRISIL A1+ (Assigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL AA-/Stable/CRISIL A1+' ratings on the bank facilities and Commercial Paper of Skipper Ltd (Skipper).
 
The ratings reflect Skipper's strong business risk profile driven by a strong market position in the transmission tower manufacturing business in India, healthy operating efficiency from its integrated nature of operations and strategic location of its plants resulting in sustained operating profitability margins. The ratings also factor in healthy unexecuted order-book with revenue visibility from significant investments in developing transmission infrastructure and strong financial risk profile because of sizeable net worth, above average debt protection metrics and continuously improving gearing. These rating strengths are partially offset by working capital intensive operations and nascent stage of the polyvinyl chloride (PVC) pipe manufacturing business requiring investments for brand building, distribution and additional capacities.

Key Rating Drivers & Detailed Description
Strengths
* Leading market position as transmission tower manufacturer in domestic market
With consistent addition of new capacity and scaling up of operation in the transmission line tower manufacturing (TLT) segment, Skipper has evolved as one of the largest manufacturer of transmission tower in domestic market with present capacity of 2,30,000 metric tonne per annum (MTPA). Skipper has been supplying transmission tower to Power Grid Corporation of India Ltd (PGCIL; rated CRISIL AAA/Stable/CRISIL A1+) since over a decade and is presently one of the largest supplier to PGCIL. Over the years Skipper has also strengthened its foothold in the export markets.
 
* Healthy operating efficiency
The company has been able to maintain comfortable and sustained operating profit margin at around 14% for the last three fiscals through 2017. Integrated nature of operation resulting from the rolling mill, which with a capacity of 2,80,000 MTPA acts as a backward integration for the transmission tower division and strategic location of the manufacturing units help in lowering the transportation cost have helped the company in maintaining the operating profit margin at a healthy level. Return on capital employed has also remained robust at around 24.4% in fiscal 2017

* Sizeable order book providing steady revenue visibility:
For the engineering division, the present order book aggregating at around Rs.2650 crore as on September 30, 2017 is 1.6 times of the gross revenue for fiscal 2017, providing healthy revenue visibility for the medium term. The orders are well diversified across various reputed government and private sector entities and also from overseas clientele. Around 50% of the order book has PGCIL as the end user, 20% consist of export orders and the balance is to various state transcom and reputed private entities.
 
* Healthy financial risk profile: Networth was strong at Rs 489.78 crore, backed by steady accretion to reserves, and gearing was low at 0.89 time as on March 31, 2017, enhancing financial flexibility, especially to cope with sudden changes in business conditions. The gearing is likely to remain low over the medium term on account of controlled debt levels. Debt protection metrics remained healthy, with interest coverage at 3.78 times and net cash accrual to total debt ratio at 0.33 time for fiscal 2017.
 
Weakness 
* Working capital intensive operations: The operation of Skipper is working capital intensive in nature as reflected in gross current asset (GCA) of 175 days as on March 31, 2017. The same is driven by high inventory period of about three months and credit period of around two and half months offered to customers. However, the company has effectively managed its working capital requirement which enabled a significant increase in the scale of operation without any major increase in the debt level.
 
* Nascent stage of PVC pipe manufacturing business requiring additional investments :-In the PVC segment, Skipper is presently in the growing phase of adding up capacities on PAN- India basis to emerge as a national level player. Though the company follows asset light strategy of expansion lead to saving in implementation cost, however, there has been significant investment towards brand building and expansion of distribution channel. Though the company has been able to maintain moderate operating profitability in this division also, however, going forward the sustenance of the margin amidst stiff competition from organised and unorganised players will remain a key rating sensitivity factor.
Outlook: Stable

CRISIL believes that the Skipper will maintain a stable business risk profile over the medium term backed by established market position and sizeable order-book position
 
Upside scenario
* Substantial and sustained improvement in its scale of operations and accruals, along with improved working capital management and capital structure leading to a better business and financial risk profile.
Downside scenario
* Larger than expected debt-funded capex leading to deterioration in financial profile and liquidity
* Elongation of working capital cycle
* Slowdown in transmission infrastructure investments

About the Company

Skipper Ltd (Skipper), incorporated in 1981, is a part of Kolkata based S.K.Bansal group and was promoted by Mr. Sajan Kumar Bansal. Skipper is engaged in manufacturing of engineering products (transmission and distribution towers for power sector) and PVC water pipes (unplasticised PVC pipes, chlorinated PVC pipes, Soil, Waste & Rain pipes, Agri Pipes) and related accessories. Engineering products (with an installed capacity of 2,30,000 MTPA) is the major contributor to the revenue of the company (accounting for 83% of gross sales in fiscal 17). In the PVC water pipes division, the company has an installed capacity of 51,000 MTPA and this division accounted for around 12% of the total revenue in fiscal 2017

Key Financial Indicators
Particulars Unit 2017 2016
Revenue Rs crore 1659.2 1440
Profit after tax (PAT) Rs crore 111.5 95.1
PAT margin % 6.6 6.4
Adjusted debt/adjusted networth Times 0.89 1.24
Interest coverage Times 3.76 3.48

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Rating assigned with outlook
NA Long Term Loan NA NA 31-Mar-2019 143.23 CRISIL AA-/Stable
NA Cash Credit NA NA NA 400.0 CRISIL AA-/Stable
NA Proposed Long Term Loan Facilities NA NA NA 3.77 CRISIL AA-/Stable
NA Letter of Credit NA NA NA 280.0 CRISIL A1+
NA Bank Guarantee NA NA NA 1120.0 CRISIL A1+
NA Commercial paper NA NA 7-365 days 200 CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  200  CRISIL A1+    --    --    --    --  -- 
Fund-based Bank Facilities  LT/ST  547  CRISIL AA-/Stable    --    --    --    --  -- 
Non Fund-based Bank Facilities  LT/ST  1400  CRISIL A1+    --    --    --    --  -- 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Proposed Long Term Bank Loan Facility 3.77 CRISIL AA-/Stable -- 0 --
Long Term Loan 143.23 CRISIL AA-/Stable -- 0 --
Letter of Credit 280 CRISIL A1+ -- 0 --
Bank Guarantee 1120 CRISIL A1+ -- 0 --
Cash Credit 400 CRISIL AA-/Stable -- 0 --
Total 1947 -- Total 0 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for rating short term debt

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