Skipper Ltd. May 17, Towering high. CMP INR 205 Target INR 238 Result Update - BUY. Company Background. Investment Rationale

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May 17, 2017 Skipper Ltd. Towering high CMP INR 205 Target INR 238 Result Update - BUY Key Share Data Face Value (INR) 1.0 Equity Capital (INR Mn) 102.3 Market Cap (INR Mn) 20,979.9 52 Week High/Low (INR) 214/125 6 months Avg. Daily Volume (BSE) 35,969 BSE Code 538562 NSE Code Bloomberg Code Shareholding Pattern (as on 31st Mar 2017) Source: Company 17% Key Financials (INR Million) 12% 71% SKIPPER SKIPPER:IN Promoter Non Institutions Institutions Particulars FY16 FY17 FY18 FY19 Net Sales 14,880.9 16,836.4 19,803.6 22,861.0 Growth (%) 17.1% 13.1% 17.6% 15.4% EBITDA 2,011.1 2,267.1 2,710.8 3,151.3 PAT 951.3 1,115.0 1,325.9 1,522.8 Growth (%) 6.8% 17.2% 18.9% 14.9% EPS (INR) 9.3 10.9 13.0 14.9 BVPS (INR) 37.3 48.3 59.4 72.0 Key Financials Ratios Particulars FY16 FY17 FY18E FY19E P/E (x) 15.1 14.3 15.8 13.8 P/BVPS (x) 3.8 3.2 3.5 2.8 Mcap/Sales (x) 1.0 0.9 1.1 0.9 EV/EBITDA (x) 9.3 9.0 9.4 8.0 ROCE (%) 15.7% 15.5% 17.4% 20.0% ROE (%) 24.8% 22.4% 22.7% 22.3% EBITDA Mar (%) 13.5% 13.5% 13.7% 13.8% PAT Mar (%) 6.4% 6.6% 6.7% 6.7% Debt - Equity (x) 1.2 0.8 0.7 0.5 Source: Company, SKP Research 1 Yr price performance Skipper vis-à-vis BSE Small Cap 60% 40% 20% 0% -20% 16-May 16-Jun 16-Jul 16-Aug 16-Sep Skipper 16-Oct 16-Nov 16-Dec 16-Jan 16-Feb 16-Mar BSE Small Cap 16-Apr Analysts: Nikhil Saboo Tel No: +91-33-40077019; Mobile: +91-9330186643 e-mail: nikhil.saboo@skpmoneywise.com Anik Das Tel No: +91-33-40077020; Mobile: +91-8017914822 e-mail: anik.das@skpmoneywise.com 16-May Company Background Skipper Limited, promoted by Mr S K Bansal of Kolkata, is India s third largest transmission tower manufacturing company (after KEC and Kalpataru) and tenth largest in the world, having production capacity of 2,30,000 MTPA. It also manufactures PVC pipes (accounts for ~12% of total revenue in FY17) for water transportation in which it has aggressive growth plans. Investment Rationale Top-line to grow at a CAGR of ~17% over FY16-18E During Q4FY17, Skipper reported net sales of Rs 5,673.6 mn, registering growth of ~7.1% y-o-y basis whereas sales grew by ~13.1% during FY17 due to lower execution in the engineering segment. The growth was also lower as the company received freight benefits on its exports in FY16. Exports share to the total revenue was ~10% ~vis-à-vis ~40-45% last year. Going forward, we expect Skipper sales to grow at a CAGR of ~17% during FY17-19E on the back of robust demand from Power Grid (PGCIL) and 1.5x capacity addition in the PVC pipe business, resulting into better capacity utilization and higher sales volume. Engineering Product Business: Strong order book; expansion underway to encash substantial growth opportunity Skipper has a strong order book of Rs 26 bn (around 1.9x FY17 sales) of which, domestic and export order is 73% & 27% respectively (51% of Skipper s order book is made up of PGCIL orders). Post Q3FY17, the company has managed to bag orders worth Rs. 9 bn. During Q4FY17, the company has commissioned a new manufacturing plant in Palasbari (near to Guwahati) having a capacity of 30,000 MTPA, to tap the growing demands of T&D products in the North East region. It has also entered into the new geographies of Botswana and Philippines and bagged orders worth Rs.1. 2 bn from these geographies. PVC Pipes Business to grow exponentially, backed by 1.5x capacity addition Post expansion, capacity of PVC pipes will increase from ~48,000 MTPA to ~72,000 MTPA by FY19 registering an exponential sales growth of ~22% CAGR over the FY17-19E, backed by ramping up of manufacturing capacities leading to higher utilization levels coupled with lower working capital requirements, exploring newer markets, strengthening of dealers network and policy push by the government. In the last one year, Skipper has managed to increase its channel partners from 1,500 to 3,500. Its share in the total revenue is likely to increase from ~12% in FY17 to 16% in FY19E. However, engineering products would continue to be the mainstay of the company. Margins to stabilize at ~13.8%+ with better operating leverage During Q4FY17, EBITDA margins contracted by 5 bps q-o-q & by 66 bps y- o-y to ~13.2% (adjusted for a forex gain of Rs 164 mn) backed by improved margins of engineering product business and change in project mix for Infrastructure projects vertical. On a segmental basis, EBIT margins in the PVC segment stood at 8.3% (-150 bps y-o-y). However, with an increase in penetration and better product mix, the company expects margins to be in double digits in FY18E. Post expansion of PVC pipe segment, Skipper will become a pan India player, which would lead to higher overhead spending, thereby restricting EBITDA margins at level of ~13.5%+ in the near term. The company has reduced its debt in FY17 by Rs 680 mn even after incurring capex of Rs.750 mn and has a target to reduce its further by 400 mn in FY18. Valuation With higher order inflow from PCGIL, strong entry barriers, efficient working capital management, increasing PVC Pipes capacity through asset light model and enhancing return ratios, augurs well for Skipper. We have valued the stock on the basis of P/E of 16x of FY19E EPS and recommend a BUY with a target price of Rs 238/- (~16% upside) in 15 months. SKP Securities Ltd www.skpmoneywise.com Page 1 of 8

Exhibit: Q4FY17 Result Review Figs. in INR M illion Particulars Q4FY17 Q4FY16 YoY (%) Q3FY17 QoQ (%) FY17 FY16 YoY (%) Net Sales 5,673.6 5,297.5 7.1% 4,301.5 31.9% 16,836.4 14,881.0 13.1% Total Income 5,673.6 5,297.5 7.1% 4,305.9 31.8% 16,836.4 14,881.0 13.1% Expenditure 4,924.9 4,563.4 7.9% 3,735.5 31.8% 14,569.3 12,869.7 13.2% Material Consumed 3,823.2 2,593.5 47.4% 2,947.4 29.7% 11,729.5 9,538.1 23.0% (as a % of Total Income) 67.4% 49.0% 68.4% 69.7% 64.1% Changes in inventories of Finished Goods (56.4) 819.8 (104.8) (821.5) (53.1) (as a % of Total Income) -1.0% 15.5% -2.4% -4.9% -0.4% Employees Cost 192.1 152.4 26.1% 192.7-0.3% 731.5 499.6 46.4% (as a % of Total Income) 3.4% 2.9% 4.5% 4.3% 3.4% Other Expenses 966.1 997.8-3.2% 700.2 38.0% 2,929.7 2,885.2 1.5% (as a % of Total Income) 17.0% 18.8% 16.3% 17.4% 19.4% EBITDA 748.7 734.1 2.0% 570.4 31.3% 2,267.1 2,011.2 12.7% EBITDA M argin (%) 13.2% 13.9% (66)Bps 13.2% (5)Bps 13.5% 13.5% (5)Bps Depreciation 100.2 63.2 58.5% 76.1 31.7% 315.5 241.2 30.8% EBIT 648.5 670.9-3.3% 494.3 31.2% 1,951.7 1,770.1 10.3% Other Income 8.2 11.0 8.0 31.3 51.7 Interest Expense 123.7 155.4 176.8 611.0 570.0 Income from Forw ard Contracts 163.7 193.3 181.4 Profit Before Tax 696.7 526.4 32.4% 325.4 114.1% 1,565.2 1,433.1 9.2% Income Tax 168.9 165.3 101.9 450.2 481.8-6.5% Effective Tax Rate (%) 24.2% 31.4% 31.3% 28.8% 33.6% Profit After Tax (PAT) 527.9 361.2 46.2% 223.5 136.2% 1,115.0 951.3 17.2% PAT M argins (%) 9.3% 6.8% 249 Bps 5.19% 411 Bps 6.62% 6.39% 23 Bps Diluted EPS 5.2 3.5 46.2% 2.2 136.2% 10.90 9.30 17.2% Source: Company Data, SKP Research SKP Securities Ltd www.skpmoneywise.com Page 2 of 8

Order Book is expected to grow at a CAGR of ~7% over FY16-18E Exhibit: Trends in Orderbook 40000 2.2 2.5 PGCIL contributes ~51% of the total order book, domesticothers constitutes of ~22% and export for ~27%. 32000 24000 16000 8000 0 1.4 1.2 0.8 0.6 12815 5435 8310 3843 1.9 1.9 1.8 1.7 31327 28479 25890 24290 25000 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E 2.0 1.5 1.0 0.5 0.0 Order Book (In Millions) Order Book/T&D Sales Source: Company, SKP Research Top-line expected to grow at a CAGR of 17% over FY16-18E Exhibit: Total Revenue & Revenue Growth (%) Net Sales is expected to grow at a CAGR 17% to Rs 22,861 million over FY17-19E, backed by higher capacity utilization. 30000 24000 18000 12000 6000 0 47% 7407 22% 9003 16% 10416 22% 12708 14881 17% 13% 16836 18% 15% 22861 19804 50% 40% 30% 20% 10% 0% FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E Total Revenue (Rs Mn) Growth (%) Source: SKP Research Margins to stabilize at ~13%+ with better operating leverage Exhibit: EBITDA & EBITDA Margin 3500 13.6% 13.5% 13.5% 13.7% 13.8% 16.0% EBITDA is expected to grow at a CAGR 18% to Rs 3151 million over FY17-19E 2800 2100 1400 700 0 10.6% 12.0% 9.5% 8.3% 3151 2711 2267 2011 1730 1102 852 615 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E EBITDA (Rs Millions) EBITDA Margin (%) 8.0% 4.0% 0.0% Source: SKP Research SKP Securities Ltd www.skpmoneywise.com Page 3 of 8

PAT expected to grow at a CAGR of 17% over FY16-18E Exhibit: PAT And PAT Margin (%) 1500 7% 7% 10% PAT is expected to grow at a CAGR 17% percent to Rs 1523 million over FY17-19E 1200 900 600 300 2% 3% 7% 891 6% 7% 951 1115 1326 1523 7% 4% 1% 0 187 269-2% FY13 FY14 FY15 FY16 FY17 FY18E FY19E PAT(Rs Million) PAT Margin (%) Source: SKP Research D/E ratio improves to 0.8x in FY19E from a high of 1.9x in FY13 Exhibit: D/E Ratio and Interest Coverage Ratio The company has reduced its debt in FY17 by Rs 680 mn even after incurring capex of Rs.750 mn. Debtor days also reduced on a y-o-y basis and led to D/E improving to 0.8 from 1.2 at the end of FY16. Company has a target to reduce its debt by Rs.400 mn in FY18. 5.6 4.8 4.0 3.2 2.4 1.6 0.8 0.0 5.2 4.2 2.1 1.9 1.8 3.1 3.2 2.6 1.1 1.2 0.8 0.7 0.5 1.4 1.6 1.6 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E Debt-to-Equity Ratio (x) Interest Coverage Ratio (x) Source:SKP Research ROE to improve from 3% in FY12 to 22% by FY18E Exhibit: Return Ratio 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 3.1% 8.2% 26.1% 24.8% 22.4% 22.7% 22.3% 20.0% 15.5% 15.7% 15.5% 17.4% 7.7% 5.9% 10.0% 11.4% FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E ROE (%) ROCE (%) Source:SKP Research SKP Securities Ltd www.skpmoneywise.com Page 4 of 8

Key Concerns Slowdown in order intake & execution: Over the last couple of years, Skipper reported healthy top-line on the back of order pick-up from PGCIL and export market. However, going forward, any slowdown in transmission capex and lower than expected execution for the export market could adversely impact order book intake and could also impact our estimates for the engineering product segment, thereby, adversely affecting the overall performance. Delay in capacity addition for PVC segment: Skipper has an aggressive capacity expansion plan for the PVC business which will bring new execution and competition challenges. If the company resorts to aggressive pricing on its way to become a national player than it would be a margin dilutive proposition for Skipper. Volatile Dollar Rupee Rate: Export market contributes 27% of total order book. Any unfavorable USD-INR movement may have negative impact on the margins and profitability. Valuations With GoI s thrust on improving T&D infrastructure (capex of Rs 2.6 tn over the 13th five year plan) in the country coupled with higher order inflow from PCGIL, strong entry barriers, efficient working capital management, prudent approach to reinforce orders, increasing PVC capacity through asset light model and enhancing return ratios augurs well for the company. We have valued the stock on the basis of P/E of 16x of FY19E EPS and recommend a BUY on Skipper with a target price of Rs 238/- (~16% upside) in 15 months. Exhibit: Valuation Charts 40.0 Rolling Forward P/E (X) Chart 30.0 20.0 10.0 0.0 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Source: Com pany, SKP Research Fwd P/E Mean P/E P/E+1sd P/E-1sd SKP Securities Ltd www.skpmoneywise.com Page 5 of 8

Exhibit: Income Statement Figures in INR Million Exhibit: Balance Sheet Figures in INR Million Particulars FY16 FY17 FY18E FY19E Particulars FY16 FY17 FY18E FY19E Total Income 14,880.9 16,836.4 19,803.6 22,861.0 Share Capital 102.3 102.3 102.3 102.3 Growth (%) 17.1% 13.1% 17.6% 15.4% Reserve & Surplus 3,712.9 4,840.6 5,974.2 7,268.6 Expenditure 12,869.7 14,569.3 17,092.8 19,709.7 Shareholders Funds 3,815.2 4,943.0 6,076.5 7,371.0 Material Cost 9,538.1 11,729.5 12,439.0 14,359.3 Total Debt 4,402.6 4,158.6 4,066.8 4,026.6 Traded goods -53.1-821.5 237.6 251.5 Deferred Tax (Net) 314.8 391.9 391.9 391.9 Employee Cost 499.6 731.5 673.3 777.3 Total Liabilities 8,532.6 9,493.5 10,535.3 11,789.5 Admin & Other Exp. 2,885.2 2,929.7 3,742.9 4,320.7 EBITDA 2,011.1 2,267.1 2,710.8 3,151.3 Net Block inc. Capital WIP 4239.4 4777.5 5048.5 5285.1 Depreciation 241.2 315.5 329.1 363.3 Deferred Tax (Net) EBIT 1,770.0 1,951.7 2,381.8 2,788.0 Non-Current Assets 7,628.9 8,523.6 8,995.4 9,249.5 Other Income 233.0 224.5 197.6 228.1 Inventories 2,499.9 3,681.8 3,952.0 3,916.1 Interest Expense 570.0 611.0 573.4 541.3 Sundry Debtors 3,723.7 3,729.7 4,059.9 4,283.3 Profit Before Tax (PBT) 1,433.0 1,565.2 2,005.9 2,303.8 Cash & Bank Balance 498.0 249.3 193.7 266.2 Income Tax 481.7 450.2 680.0 781.0 Other Current Assets - - - - Profit After Tax (PAT) 951.3 1,115.0 1,325.9 1,522.8 Loans & Advances 907.4 862.9 789.8 783.8 Growth (%) 6.8% 17.2% 18.9% 14.9% Current Liabilities & Prov 3,335.7 3,807.7 3,508.6 2,745.0 Diluted EPS 9.3 10.9 13.0 14.9 Total Assets 8,532.6 9,493.5 10,535.3 11,789.5 Exhibit: Cash Flow Statement Figures in INR Million Exhibit: Ratio Analysis Particulars FY16 FY17 FY18E FY19E Particulars FY16 FY17 FY18E FY19E Profit Before Tax (PBT) 1,433.0 1,565.2 2,005.9 2,303.8 Earning Ratios (%) Depreciation 241.2 315.5 329.1 363.3 EBITDA Margin (%) 13.5% 13.5% 13.7% 13.8% Finance Costs 570.0 611.0 573.4 541.3 PAT Margins (%) 6.4% 6.6% 6.7% 6.7% Chg. in Working Capital 281.0 399.9 (365.4) (557.5) ROCE (%) 15.7% 15.5% 17.4% 20.0% Direct Taxes Paid (570.0) (611.0) (573.4) (541.3) ROE (%) 24.8% 22.4% 22.7% 22.3% Other Charges (481.7) (450.2) (680.0) (781.0) Per Share Data (INR) Operating Cash Flows 1,473.5 1,830.4 1,289.5 1,328.7 Diluted EPS 9.3 10.9 13.0 14.9 Capital Expenditure (941.0) (750.0) (550.0) (550.0) Cash EPS (CEPS) 11.7 14.0 16.2 18.4 Investments - - - - BVPS 37.3 48.3 59.4 72.0 Others - - - - Valuation Ratios (x) Investing Cash Flows (940.3) (753.2) (549.3) (550.8) P/E 15.1 14.3 15.8 13.8 Changes in Equity - - - - Price/BVPS 3.8 3.2 3.5 2.8 Inc / (Dec) in Debt 178.2 (907.6) (632.2) (511.0) EV/Sales 1.3 1.2 1.3 1.1 Dividend Paid (inc tax) (143.2) (163.7) (163.7) (194.4) EV/EBITDA 9.3 9.0 9.4 8.0 Financing Cash Flows 35.0 (1,682.3) (795.9) (705.4) Dividend Yield (%) 1.0% 1.0% 0.8% 0.9% Chg. in Cash & Cash Eqv 568.1 (605.1) (55.6) 72.5 Balance Sheet Ratios Opening Cash Balance 286.4 854.5 249.3 193.7 Debt - Equity 1.2 0.8 0.7 0.5 Balances with Banks - - - - Current Ratio 2.3 2.2 2.1 1.9 Closing Cash Balance 854.5 249.3 193.7 266.2 Fixed Asset Turn. Ratios 1.9 1.9 2.0 2.2 Source: SKP Research, Cash Balances with the bank Rs 356.5 mn in FY16 SKP Securities Ltd www.skpmoneywise.com Page 6 of 8

Notes: The above analysis and data are based on last available prices and not official closing rates. SKP Research is also available on Bloomberg and Thomson First Call. DISCLAIMER: This document has been prepared by SKP Securities Ltd, hereinafter referred to as SKP to provide information about the company (ies)/sector(s), if any, covered in the report and may be distributed by it and/or its affiliates. SKP Securities Ltd., offers broking and depository participant services and is regulated by Securities and Exchange Board of India (SEBI). It also distributes investment products/services like mutual funds, alternative investment funds, bonds, IPOs, etc., renders corporate advisory services and invests its own funds in securities and investment products. We declare that no material disciplinary action has been taken against SKP by any regulatory authority impacting Equity Research Analysis. 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