The operative word at Skipper is
REPOSITIONING.
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 numbers
during the year under review was the result of a temporary downturn in our principal
business that affected the overall organisational average.
The principal message that I wish to communicate is that the Company has moved with
speed to reposition itself, strengthening its relevance in a transforming industrial
environment.
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 review,
there 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 finance
sector being affected by a liquidity crunch. The effects of this were feared to extend not
only to depositors and other NBFCs but across the entire economy.
The result was a liquidity paralysis within the economy during a major part of the
second half of the financial year under review. As consumer sentiment was progressively
affected, there was a decline in the offtake of automobiles and other high-ticket
products. There was a related trickle-down in impact across other sectors as well, pulling
down the national growth average to 5.8% in the last quarter, one of the lowest reported
by the economy in a number of quarters and comparable to the immediate post-demonetisation
phase. The result was that the Indian economy grew 6.8% during the year under review
compared with 7.2% during 2017-18.
Sectoral background
Even as the long-term outlook of India's infrastructure growth story continued to be
positive, there was an interruption in the government's infrastructure spending related to
the power sector during the year under review.
There was a slowdown in the government's investment in new power transmission lines. As
per an unofficial estimate, the quantum of orders issued by the Power Grid Corporation of
India Limited (PGCIL) for the commissioning of new electrical transmission towers declined
by 70% during the year under review. This affected the Company's order book, which
declined from a year-start figure of H26,270 million to H24,600 million at close. The
order inflows during the year under review declined from H19,340 million to H13,330
million,
We believe that this decline is temporary in view of the vast infrastructure
underpenetration in India's transmission sector. Now that the general elections of 2019
have been concluded, the new government will seek to ensure a larger and quicker
infrastructure rollout across the foreseeable future. We believe that this will strengthen
our order book, revenues and business surplus across the foreseeable future.
Sectoral transition
The slowdown in India's power T&D infrastructure was compounded by a number of
challenges.
One, there is a premium on the ability to deliver the right product for markets as
opposed 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 from
the design stage onwards.
Three, since a number of renewable energy projects are being commissioned at a
quicker pace, there is a need to provide supporting power evacuating infrastructure even
faster.
Four, transmission lines are moving to higher voltages from 200 Kv to 400 Kv to 765
Kv, warranting a corresponding improvement in the quality of transmission infrastructure.
Five, with right of way of transmission lines becoming an increasingly contentious
issue in the urban areas, there is a growing need to provide customised transmission
infrastructure.
Six, there is a growing traction within the country's power infrastructure sector
to work with companies that are sustainable, warranting long-term investments in
knowledge, assets, technologies, processes, governance and Balance Sheet integrity.
Skipper's repositioning
At Skipper, we repositioned our business with speed during the financial year under
review with the objective to remain relevant and competitive.
The Company strengthened its customer focus through the reinforcement of a
service-driven mindset and higher service benchmarks. The result was a greater propensity
to manufacture complete product batches, as opposed to the largest volume of the highest
selling products, and a greater focus on providing complete solutions to customers.
The Company graduated from being a dependable vendor to a trusted partner through the
anytime-any quantity and anywhere product delivery, helping customers enhance their
working capital efficiency.
The Company repositioned itself as a one-stop and broad-based engineering solutions
provider through the manufacture of towers, fasteners and monopoles, coupled with in-house
testing facilities, widening the value chain on the one hand and strengthening its unique
global positioning on the other.
The Company replenished its revenues by seeding new products like monopoles and railway
structures, which would account for a larger proportion of prospective revenues.
The Company responded to the prevailing environment through the implementation of the
Theory of Constraints concept in its PVC business. It focused on value- added products mix
and has transferred all the capacities from its satellite plants to its parent plant in
Uluberia. All of these capacities are expected to be installed as well as utilised within
FY 20.
The Company protected its financial foundation by staying relatively under-borrowed,
where a moderated working capital outlay will enhance competitiveness.
The Company widened its global footprint through a growing presence in focused markets
with increasing potential.
The Company strengthened its business sustainability through a stronger compliance with
global 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 Polymer
Business. This will ensure that the brand is present across the maximum number of retail
outlets in the areas that it operates in. This will ensure the brand's availability in
these markets as well as enhance revenues and margins.
The Company also rationalised its product portfolio and focused on the high value
plumbing sector while maximising reach and enhanced product availability with key
retailers and minimising sales loss.
The Company strengthened its supply chain with the objective to moderate dealer
inventory without compromising stocking range while at the same time strengthening the
dealer's return on investments. It also focused on just-in-time delivery across smaller
product lots, the first of such proposition in the sector.
The Company focused on complete product availability through the manufacture of
products and quantities sold, resulting in effective replenishment that strengthened the
Company's market orientation, business development focus, deeper understanding of
opportunities and working capital efficiency, obviating the need for dumping products on
trade partners.
Key challenges and how we are mitigating them
• Increased raw material costs
• Response Skipper has gone into faster execution of projects so that in
the 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 decision
to curb low margin revenues
Outlook
At Skipper, we believe that our repositioning should translate into a stronger
competitiveness.
Even as we account for a sizable share of the Indian market, there is a growing focus
on 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 and
sustainability across market cycles. Even as the focus is on remaining viable, there is a
greater 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 is
a movement to strengthen our compliance with a wider range of global accreditations
facilitating our entry into more markets. Even as we strive towards continuous growth, we
will protect our profitability and strengthen our projects bidding, product mix and trade
terms.
Conclusion
We believe that the repositioning initiatives at Skipper will enable it to graduate
from being volume-driven to a value-focused Company that successfully addresses the needs
of all stakeholders.
Sajan Kumar Bansal
Managing Director.