Hi Kiran,
I too am sailing in the same boat and has missed the bus precisely because I thought I did not have full hang of the business dynamics. And no regrets on the same either. I am inclined towards a school of thought where I would prefer the mistake of omission than that of commission, if I feel that there is hardly any margin of safety, I would rather give it a pass, notwithstanding the quality of business. So, in that sense, I will be far more comfortable buying Symphony at much lower levels where I am paying very little for growth. Having said this, I have over a period of time realized, based on my discussions with some well entrenched and senior investors that in-spite of paying decent price one can create tremendous value, if the business caters to large opportunity size, can sustain high rate of return on capital , can grow decently, generates enough cash flow and management deploys the capital ethically and efficiently. I feel Symphony largely meets all of these criteria. So, am willing to taste the waters by heeding to the advise to pay up!
Now coming to specific questions on assumptions
Let me talk about levers that I see (and you may have entirely different view)
)- Average growth rate of consumer durable industry is likely to be around 15% (number of reports indicating 15% and higher growth)
)- Typically when a segment is largely dominated by unorganized players (as is the case with coolers) the growth of organized players is likely to be higher than industry growth rate (as it has happened in many other industries)
)- I believe that 8% volume growth rate is coming in one of the most challenging environment globally as well as domestically. If the economy grow at higher rate, the growth in consumer durable can be much higher. So, I am not sure if 8% growth can actually be taken as a sign of pleatuing out. Not just yet!
)- Company has very recently started tapping organized retailers like Vijay Sales and Cromas of the world. Large retail stores are likely to drive growth of branded goods in years to come.I did a small scuttlebutt at Both Vijay Sales and Croma. Both the stores carry Symphony and Bajaj in cooler segment while other brands are non-existant.
)- At the heart of the growth I feel is the value proposition. Air cooler does present a value proposition and versatility with respect to AC and Fan. I also want to concur with Management here that the perception about limited effectiveness of air coolers is hindering the growth. Awareness about value proposition can actually generate lot of new demand.
)- Presence in 60 odd countries is no mean feat. Also some of these countries have large addressable market. Symphony is starting with very low base in most of these countries so in % terms, the growth can be significant. Alliance like Carreofaur in Indonesia and Walmart in SA have just happened. Both these countries have large addressable market. So if things work out there, not only will it create large volumes but also create an opportunity for similar alliance with same partners in other countries as well.
)- And lastly, though not in medium term, but in long term, there is going to be decent market for I&C segment and company is making focused effort on the same and there also I see good value proposition (Ref. Symphony website: they are hiring BD executives across the country for industrial sales)
So, with all these levers in place what are we implying with 2.6-2.7 million number 10 years down the line?
20% from exports: 550,000 units; They are already selling 100,000 odd units; So with even sales in some large countries clicking and in rest of geographies growing at decent 7-8% can make this number achievable
80% Domestic: Roughly 2.1 million units; If cooler industry volume growth is 10% Total size of the industry can be around 13 million in 10 years (which means 9% penetration of addressable market of 143 million (in 2011)). Unorganized:Organized split- 60:40 (Current 80:20) So, Organized market: 5.2 million : symphonyâs share 40% including I&C segment (Currently 45%)
Now is this a plausible scenario? or unlikely? or what is the probability one can attach to this or better scenario panning out? I think everyone will have a different view. So, one has to take develop oneâs comfort level.
Also, in this whole process and in excel sheet, I am not relying anywhere on management guidance. So, that factor is neutralized as such.
Though I will definitely agree with you and anyone that none of us know whether these variables will play out as assumed. Personally I am comfortable on following counts
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Management knows what it is doing and has been prudent since last disaster in deploying capital effectively and efficiently. Also management has shown willingness to return the additional capital through dividends. They have been sharing information generously through AR and concalls.
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inherent business model is asset light hence can continue to generate decent return on capital and free cash flow. So even in some bad years, company can sail through easily.
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General feedback from my very limited scuttlebut in Ahmedabad (Vijay Sales/Croma/Sales India/Some other electronics shops) is following
in terms of performance Symphony and Bajaj are at the top of the league
however in terms of features and design (and one can make out by just looking at it!), Symphony is significantly ahead of others and hence they are able to charge premium.
So, I am am ready for next round of questions:-)
However notwithstanding that, I still find this business and investment prospect very interesting. Many of the reasons are well documented in this thread. Recently, Prof. Bakshi has come out with excellent post on Relaxo as to how one can carry out rudimentary analysis of future values 5/10 years down the line based on some basic assumptions derived conservatively from historical performance.
channels.I quality.I