SYMPHONY - A Comfort to hold for Long term?

Vinod,

Even I had an opportunity to attend that AGM along with Hitesh Bhai.

For Impco, the company had paid around Rs.3.0 crore of investments which they we were able to recover in the first year itself. Also, loans and advances given to Impco carry an interest of 9% per annum. What we need torealizeis that bcoz of Impco, the company has been able to make inroads into the foreign markets as well as get an understanding of Industrial Cooling segments. Some of the benefits that the company derives from Impco are reflected in Symphony’s standalone results. So if we see from that perspective, Impco wasn’t a bad acquisition as per management.

Adding to what Hitesh Bhai has already covered in the summary, three things stand out for me:

1). The management’s focus in growing the business conservatively.

2). Free cash flows that the company is able to generate with minimum capex and working capital requirements

3). Huge untapped market in retail as well as industrial cooling segment

Discl: Recently entered the stock post attending its AGM

Regards,

Ankit

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Hi Ankit,

Agree with you that Impco acquisition was a correct move.

They are building up technology and distribution for tapping the industrial cooling opportunity. How well do we understand this business potential apart from the local market size mentioned by the management? Railway stations, go-downs, ashrams, factories, marriage halls, exhibition centers… How is their industrial cooling solution solving the customer’s problems? How does it offer something substantially superior? Going forward is this one solution which will get similar other ventures interested** big time**? I am thinking on these lines to get a good understanding of the opportunity. Will be great if we can get some feedback from their customers. Lets check.

For the retail segment visibility is very strong - people are already using aircoolers from un-organised players. Higher income, higher aspirations and rising temperature will lead to a shift. The brand positioning and product range should help Symphony grow unhindered and that too without much capital - big picture looks good!

Cheers

Vinod

Hi Vinod,

Agree with you that we will have to dig more to understand the opportunity size for the industrial cooling segment. I think one advantage they will have over Air Conditioning which is mostly used for industrial cooling is the cost saving.

Regards,

Ankit

interestedbig time?

We have installed industrial coolers from M/s Kapsun Air Coolers in our factory and it gives significant cooling effect without raising humidity levels significantly in the summer. Though it seems to be a smaller company, but still can be helpful in tracking Symphony. They have shown different applications where these industrial coolers can be used. The following is their website to know more about it. http://www.kapsun.com/index.html

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Hi Ankit,

There is huge scope apart from local market, since they are now concentrating on south american markets after the initial sign up with Makro chain of supermarkets.

However local market is also providing hugeoppurtunity

1.The potential of Industrial cooling is close to 2000- 3000 crores as per management. We however do not know the growth rate for this segment. so even if it is as low as 10% on base of 2500crs takes us to 4000 crs market in the next 5 years which is a huge potential market for symphony. Green cooling with reduced CO2 emission is a plus.

As per management:

Only organized player in the IC. As per the Nrupesh shah, ED, "So thereis nothing like an organized industrial air cooler market, but if you talk about through thislocal fabricator or local players or another way to compare it total HVAC market of

industrial air conditioning because that is also to a major extent our potential market. Thenit is anything in the range of 2000 Crores to 3000 Crores potential market. "

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_2). _To cool an area of 2000-3000 sq feet - cost ranges from 1 - 2.5 lakhs which is 1/3 or 40% of centralized air conditioning. Electricity consumption is 10% of AC. The payback period is very less on this.

3.Ic not suitable for pharmaceutical market. Extremely useful in a workshop floor/factories where there may be open areas where AC cannot be implemented. (again niche market)

The after sales service and customer support is what the company should aggressively emphasis on, since this will be a bigger differentiator when compared to unorganized sectors.

I think window cooler is also a game changer for the company:

Window coolers. market of close to 0.8 - 1 mn units.( this is almost double to 5+ lakh total residential non window coolers they sold this year domestically).

symphony will adopt both exclusive and inclusive dealership. In some parts it will go alone creating seperate channels and in some will market through the existing distributors.

window coolers are like plug and play but could also be installed on windows with minimal efforts - simpler.

If they could capture 20% - 25 % market share of window cooler market from the unorganized market in the next 3 years at a realisation of 5890(current realisation per cooler), there is additional turnover of 100 - 125 crores from this segment alone.

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Latest from CEO itself - Industrial coolers

IC market growing at 25-30%.

http://retail.economictimes.indiatimes.com/blog/Industrial-Cooling-An-Emerging-Market/25

IC market is growing at 25-30%… Question is how fast can Symphony grow as compared to overall market? If it can grow higher than the overall market, there’s likely to be the disproportionate growth we were talking about in the relevant thread.

I have below queries

how much is the value of brand in case of IC.

A retail customer is willing to pay a higher price for a branded product. Also, symphony coolers are aesthetically designed and will appeal to retail consumers.

Why would a company like to pay a higher price for Symphony industrial coolers.

As I understand making of coolers should not be a difficult job - you need a strong exhaust fan, a pump to circulate water , cooling medium and ducting. What edge symphony has got over other players.

i) I am a little surprised at the bullish-ness attached to Industrial coolers. I may be wrong, but here is my line of thinking -

a) In FY13, the management indicated that IC business is still in single digits, although the growth has been 300%. Essentially implies, the number is around 9 cr. So, on average, even if this business increases by 100% every year from hereon (200% in initial years, 75% in some other years etc.), we are looking at IC being a 100 cr business only in 4th or 5th year (if they over-achieve, then it’s atleast 3 years away). By then, the domestic air cooler business, if they keep growing at 25% y-o-y would be worth 800 cr in 4 years. IC would still be only 12.5% of the entire business in 4 years.

b) For 3000 sq ft, it costs about 2.5L. So, we would need 1,20,000 sq. ft, for 1 cr of revenue. How many such large areas can you find? - and that too for 1 cr revenue.

c) It would be instrumental in learning about Bluestar (industrial AC division) and why their revenues/working capital went astray. Although the capital intensity is not so high, I think learning from one of the best competitors in a similar space would be very instructive. Briefly, Bluestar’s working capital got hit very badly in the industrial downturn, and although they have one of the best managements in the space, they are finding the going difficult.

So, what we have from the IC division is 100 cr opportunity in 3-4 years (if not more), constituting only 12.5% of the entire business and with risks of working capital management issues. I really don’t think, irrespective of the opportunity size that the management talks about (and management by the way has been overtly aggressive with spoken targets than targets achieved in the past, 1000 cr sales in FY16 notwithstanding), we need to attach much importance to IC. I would look at this more on a positive black swan basis, than anything explicit right now.

ii) The other aspect on IMPCO - does anybody have a clear idea what is happening here? I think most of us here are expecting ‘no profit-no loss ho to acha hai’ scenario than anything else in IMPCO. Is my reading right? Or are there fantastic opportunities at IMPCO that I didn’t get right away? (technological transfers aside).

iii) Last aspect - I was surprised nobody in the Q1 concall asked about how the going was with the Pakistan distributor as well as in the MENA region. I personally think this along with the window air coolers are the large triggers than the IC/IMPOC trigger.

Looking forward to your views.

Disc: Not invested yet. Studying this and it looks extremely interesting.

I think Blue Star’s problems are related to its big exposure to commercial realestate where there is a lot of oversupply & so delays in project completion/cash flow generation. From what I understand payments in other sectors are better(IT, Hospitals, industry). Also current mgmt did make some wrong calls by pursuing low margin projects in the boom period.

Disclosure: No holdings in Symphony. Blue Star was a big multibagger in the 2004-2007 bull run for me.

yes, the company is in nascent stages with respect to IC. However they are very aggressive in this area as can be seen from below:

In the year 2011-12, in IC range Symphony had about 15 dealers, now number of dealers has increasedto 44 and for 2013-2014, the plan is to have about 120 dealers.

In 2011-12 we do not haveany consultants, but now we have tied up with about 10 large HVAC consultants in the year2012-13.

Symphony did not have any tie up with the contractor in 2011-12. Now Symphony ishaving a tie up with two large national renowned contractors in this space and in 2013-14 the plan is to have about 20 such contractors.

so as can be seen IC dealers from 15 to 120 in 2 years. Already appointed 44.

0 HVAC consultants to 10 in a year.

0 contractors to 20 in 2 years.

Only thing we need to monitor is how they are able to convert these to sales and capturing the market share as they did for residential coolers during the initial years.

When symphony in nascent stage had 3000+ dealers in 2009, they had sales of 124 crores. when the dealers were more than trippled to 10000 by 2012, the sales were 313 crores(though sales got affected because of mild summer for 2012). All stand alone figures. Better product mix and innovations also contributed here. However it’s true the same cannot be expected from IC, but there is anopportunityfor Symphony. I feel it’s like TTK Prestige shifting from the cooker alone to cookware and kitchen appliances market in 2007-08. Similar to V-guard moving from stabilizers to other electrical appliances product and the amount of wealth created.

As per the CEO, the IC market is growing at 25-30%. So if it is true, then we are looking at IC market at 6000 crores in another 4 years. Can symphony garner 4-5% market share by that time is the big question. If so , then it can create wealth from here too.

In the AR they had mentioned “Going ahead, the Companyâs impetus on growing its industrial cooler business globally willincrease the proportion of exports â de-risking it from an excessive dependence on Indian markets.”

It’s true that they had mentioned of 20000 dealers but could reach only 16400. They targetted 500 crs revenue by FY13, which they missed but could achieve this year.

The real trigger would be implementing and walking the talk which can be seen in the coming years.

Also i agree with greyfool on the failure of bluestar to pick up in the HVAC segment. The same holds true to Voltas. The running cost is different here for symphony and that could be the differentiator here.

Nothing much on impco as IMPCO is catching up and have entered a new market in colombia and the management seems confident of it garnering market from other south american nations. It was a bad year as such for FY13 for impco which reported loss and they management seems to be confident of turning around this year.

Window coolers is a big oppurtinity in the medium term than IMPCO for symphony with a huge 1 mn units scattered across unorganized companies.

Disc : Invested.

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little old interview.

Symphony is the first and only branded player with a nationwide presence in I&C air-cooling business,a

http://www.oemupdate.com/Article.php?ItemId=1897

disc: invested.

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Breezair India is an old co. in Industrial Coolers based in Pune. It’s the nearest competitor to Symphony. It’s an exclusive dealer of Seeley International,an Australia based co.

I visited Big Bazar,Kolhapur where Breezair has installed its cooler system. It was a 33000 sq ft store. Initial investment was approx. 50 lac in 2007. The system requires 15000 ltrs. of water daily. According to the guys who take care of maintenance,it’s a pain to have coolers. The maintenance is very high,both cost wise and effort wise. The cooling pads require a lot of cleaning on a regular basis as it catches dust while sucking air. The parts have to be replaced often. They’ve spent 20 lac on replacements so far! Even now,half of the coolers were off. They had separate small units installed and not the duct system we get to see very often. All in all,these guys were very unhappy about it. The system worked fine initially and the cooing was also good but as time passed,problems started erupting. The guys said,a lot of customers even wrote lack of cooling in the feedback book.

One more thing,Big Bazar installed coolers from Breezair at 6-7 stores including Kolhapur and nearby,all are unhappy and didn’t care to install it at other places. Breezair’s after sales was also very sad,they said.

Caveat : The feedback was about Breezair IC and I don’t know if it’s true for coolers as a category. But yes,coolers do look like high maintenance.

We need more such feedbacks,especially Symphony. Some one in touch with HVAC Consultants can extract a great deal of insights about the industry and Symphony.

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I’ve an old report on Symphony which states places where Breezair has installed its systems. It’s majorly present in Pune and Hyderabad. Interested folks can go and check out places to get some feedback,I can forward the report.

Fantastic discussions Krishna and Nikhil. I wanted to take this a bit further.

Nikhil - Thanks for the scuttlebutt view on IC segment. Symphony’s after sales service in the retail segment is improving only off late, after soo many years in the business. Let’s see how they turn out in after sales. As I said earlier, when I am valuing and (probably) investing in Symphony, I am doing that by assigning value of ‘0’ for IC segment and ‘0’ for IMPCO. Only hope is IMPCO should not do a -ve figure :slight_smile:

Could you send the report to dkirand at gmail. I will see if my cousins in Hyd. can go and have a look.

Krishna - The comparison with TTK/V-guard is unfair for more than a few reasons. One of the primary reason though is, you are ignoring the effect of cannibilization. TTK, when it introduced cookware, the person buying cookware also bought a cooker. Similiar is the case with V-guard. However, with Symphony’s window coolers, a person buying window cooler will not (most probably, unless his rooms are very big) buy say a Storm cooler. I think in all our calculations on Symphony, we have to assume that window air coolers will cannibalize Symphony’s own sales (along with competitor/unorganized segment) rather than absolutely add to Symphony’s numbers. Other minor factors include seasonality of the business, price points of appliances etc.

The other point I want to discuss is about the number of dealers. As you rightly put it, from 3000+ dealers in 2009, Symphony was at 13000 dealers in FY13 (4x). But what was the increase in sales over the past 4 years (FY10 - FY13?) A measly 60% (absolute) - from 190 cr to 310 cr, a 15% CAGR (my data is from screener). What do you think are the reasons that while the no. of dealers has gone 4x, the sales are at 15% CAGR? (and since margins have been maintained, even profits have grown only by 15% CAGR - rest of price appreciation came through P/E multiple partly because of div. payout increase). And given the history, what gives us the confidence that with increase in no. of dealers from present 13000 to say 20000 in FY14-FY15, the sales would have a disproportionate increase?

Of course, I do understand that ‘visualizing the future’ is also part of valuation/investing. What I am trying to get is to increase the confidence level of ‘visualizing the future’ as much as possible.

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Fantastic discussions Krishna and Nikhil. I wanted to take this a bit further.

Nikhil - Thanks for the scuttlebutt view on IC segment. Symphony’s after sales service in the retail segment is improving only off late, after soo many years in the business. Let’s see how they turn out in after sales. As I said earlier, when I am valuing and (probably) investing in Symphony, I am doing that by assigning value of ‘0’ for IC segment and ‘0’ for IMPCO. Only hope is IMPCO should not do a -ve figure :slight_smile:

Could you send the report to dkirand at gmail. I will see if my cousins in Hyd. can go and have a look.

Krishna - The comparison with TTK/V-guard is unfair for more than a few reasons. One of the primary reason though is, you are ignoring the effect of cannibilization. TTK, when it introduced cookware, the person buying cookware also bought a cooker. Similiar is the case with V-guard. However, with Symphony’s window coolers, a person buying window cooler will not (most probably, unless his rooms are very big) buy say a Storm cooler. I think in all our calculations on Symphony, we have to assume that window air coolers will cannibalize Symphony’s own sales (along with competitor/unorganized segment) rather than absolutely add to Symphony’s numbers. Other minor factors include seasonality of the business, price points of appliances etc.

The other point I want to discuss is about the number of dealers. As you rightly put it, from 3000+ dealers in 2009, Symphony was at 13000 dealers in FY13 (4x). But what was the increase in sales over the past 4 years (FY10 - FY13?) A measly 60% (absolute) - from 190 cr to 310 cr, a 15% CAGR (my data is from screener). What do you think are the reasons that while the no. of dealers has gone 4x, the sales are at 15% CAGR? (and since margins have been maintained, even profits have grown only by 15% CAGR - rest of price appreciation came through P/E multiple partly because of div. payout increase). And given the history, what gives us the confidence that with increase in no. of dealers from present 13000 to say 20000 in FY14-FY15, the sales would have a disproportionate increase?

Of course, I do understand that ‘visualizing the future’ is also part of valuation/investing. What I am trying to get is to increase the confidence level of ‘visualizing the future’ as much as possible.

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Kiran,

Windows coolers are a different segment when compared to portable coolers. There is a huge untapped market which symphony wants to explore and expand by entering in to this new category. When TTK Prestige initially entered the market with only outer lid cookers and then in to inner lid cookers it was trying to expand the product base. They were targetting the customer base who had inclination on inner lid,though both served the purpose. My idea with comparing it with TTK Prestige was it changed from a cooker company to kitchen solutions company and V-guard converted itself from stabilizer company to electrical - digital/mechanical appliances company. So symphony is converting itself from cooler company to providing cooling solutions company. Kindly take this as my interpretation if i have not communicated well.

As per management lndia is a traditional Air cooler market with a huge unorganized segment dominated by window installed metal body coolers. we could foresee that by tapping into this segment we could achieve tremendous incremental growth in near future and launched india’s only branded window coolers

This is a separate segment where symphony would provide the intelligent features to it. Since they see as an untapped segment, don’t think it would have a great cannibalization effect.

If there was any cannibalization and no major growth expected, i am sure Symphony would not have introduced these models.

sales with respect to dealer increase is volatile, and i agree to it.

With respect to dealers, when the count increased from 3000 to 10000 from 2009 to 2011(3700 added in 2010-11 alone), the sales increased from 124 to 237 crores. The summer also played a part here. Like hitting the iron when hot !!!.

2012 had a mild summer and hence the sales increased to 257 from 237.The management too had confirmed the loss of growth due to this.

2013 - Last year was good. So seasonality played a bit here. This is the difference in Industrial cooling where it is not dependent on hot summer season. What i wanted to convey was when they have increased the IC dealers, contractors and HVAC and are aggressive on this in the future, the net effects would come sooner or later in the IC too.(though quantifying the growth at this time will not be possible)

Management is expecting to increase the dealers to 40,000 in residential coolers in mid term since they believe they have only scratched the surface and find more growth to come.

However i agree that the rate of growth of dealers is not linear to dealer expansion. There is still more scope for dealer expansion and growth to come.

Though i am also in the process of visualizing the future and learning, this company is giving me interesting graphs after each year in my visualizations!!! :slight_smile:

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Professor Bakshi had asked about questions about Symphony Ltd to his students in the Behavioral Finance exam at MDI. Here is the link

http://fundooprofessor.wordpress.com/

Seems professor is quite bullish about the company’s prospects.

Dear Hitesh and Others,






Jun-09



Jun-10



Jun-11



Jun-12



Jun-13
OPM 112,51% 66,65% 69,74% 72,50% 65,83%
Return on Equity 84% 43% 39% 28% 27%
Return on Capital Emp 113% 114% 41% 40% 51%

After going through the entire thread and have acquired first impressions of the business and prospects have couple of questions.
1. If the company has such strong distribution and pricing power why is the OPM coming down continuously?
2. The Same applies more or less for ROE and ROCE which has been going down over the past 5 years?
If the company has the innovation power by launching new products continously why doesnt this reflect in the margins and Returns? What is that I am missing here?
Thanks, Vamsi

vamshi

I dont know where you got your data from.

but the all important npm is at around 19-20% since past 4 years.

hitesh.