Symphony has come up with its AR for FY14 (July 1 â June30) and as expected it is one of the best ARs I have read this financial year (they have regularly won awards for the best ARs). It starts of with Achal Bakeri, the chairman and MD, recalling the old days when companies was in shambles and as the company states there was ârevenue invisibilityâ for its products. The promoters were even suggested to go back to their more predictable real estate development business (Bakeris is one of the biggest and one of the very few real estate companies of Ahmedabad which has most of its dealings in white). The company has laid out few rules which helped them to come out of bad times:
Trust your vision: When most people were suggesting that cooler is a down-market product, the company was convinced that there is a large market for its products.
Transform your handicap into opportunities: The asset light model that we relate with Symphony now was because of decision that was taken when the company was going through tough times. During that time, it decided to focus on just design and marketing of its product and outsourcing the manufacturing to moulders.
**The only rule is break all rules: **The company over the years did opposite of what the sceptics told them like introduction of wider range of air-coolers, introduction of AC like coolers and entering into central air cooling through acquisition of IMPCO.
I didnât notice it earlier but one of the board members, Satyen Kothari, has worked in the field of strategy and user experience with several companies like Apple, First Data Corp.
The company has also tried to answers some of the apprehensions faced by it like
**Air Coolers vs AC argument: **Better mobility, higher acquisition cost, higher cost of electricity. The company puts an argument that it is targeting 246 mn households using fan or no cooling products. Even rich people need to install air coolers at open spaces like garden and terraces. Symphonyâs air-cooler exports to developed markets has increased by more than 100% in 2013-14.
Capturing the share from unorganised players: The share of organised air coolers in total air cooling market is not more than 20% and going forward the organised sector is expected to capture the market share of unorganised players as seen in air conditioning industry. Organised sector grew by 25% in 2013-14 while the overall cooler market grew by 15%. GST is going to be the game changer for the organised players with unorganised players coming under the tax net. The companyâs promotional activities and brand spending has also helped it in better recall. The company has 23 models currently while the nearest competitor has 16. During 2013-14, the company derived 50% of its revenues from models launched in previous three years. The companyâs sales through modern retail formats has been increasing at a high rate and it now contributes close to 11% of companyâs total sales.
**Industrial Air Cooling: **The company seems to be very bullish on this segment and economic upturn is expected to increase its demand. A mere decline of 3 â 4 degrees centigrade can potentially enhance productivity by 25 â 30%. The productivity payback of industrial air cooling is estimated at a mere nine months. A single turnkey central air cooling products could be equivalent to several thousands of standalone residential air coolers. The company is targeting a sales of 1 billion from this segment over the next few years from 80 â 100 million currently.
IMPCO Acquisition (one of the shareholders had asked them about the rationale of acquiring IMPCO at the AGM; I was there when he asked this question): IMPCO has old relationships with modern retail stores in North and Latin America and through the acquisition the company has gained an entry into the market. IMPCOâs acquisition has helped the company in leveraging its knowledge in central cooling solutions and large residential coolers. The company has rolled out more than 300 installations in central cooling in India post IMPCOâs acquisition. The company is in the process of being enlisted for a DGS&D (need to probe them about this during AGM) rate contract.
Residential air-cooler market
The domestic market for residential-air coolers, both organised and unorganised, is around six million units with aggregate value of about Rs.20 billion. Northern and western India report 60% of overall sales while Southern and Estern India account for 20% each. Unorganised segment accounts for 80% of volume and 70% of value. The company offers intelligent features like dura pump, full-functin remote, feather touch digital control and other features. During 2013-14, the company launched the first branded window cooler in India. The company has tie up with most of the large retail chains. The company enjoyed a market share of around 40% and 50% in organised segment in terms of volume and value, respectively in 2013-14. The company charges a premium of 10-12% for its products. The penetration of air-coolers in India is low at about 9% compared to other consumer durables. The organised sector is expected to grow at >20% in the medium term.
Overall, the management sounded pretty confident about its growth prospects. The key questions that one needs to get an answer for during the AGM is the utilisation of cash of Rs.200 crore (may be they can increase their dividend payout further) and the opportunity for export markets.
(Disclosure: I hold the stock)