We expect a strong recovery in domestic air‐cooling market to continue in FY23, now with
lower commodity prices margins are set to improve and return to pre‐covid levels. We
expect FY22‐24E growth trajectory of 17% revenue CAGR. Considering higher operating
leverage, we estimate FY21‐24E EBITDA and PAT CAGR of 26% each. we maintain BUY
with the PT of Rs1,223 valuing it at 40x FY24EPS. Current CMP offers good entry point.
YES Securities.
The brokerage remains positive on the domestic business outlook (led by low channel inventory); however, due to weak profitability for CT, it cuts FY23/24/25 EPS by 5/3/3%. It values the stock at 35x P/E on Sep’24E EPS and derive a TP of INR 1,150. HDFC Securities.
FY23Q2 concall notes
- Domestic business is doing very well, trade channel is very buoyant
- Australian business was muted because orders for USA was shifted to Q3 and Q4 due to shipping issues (no order cancellation)
- Launching new models in US and exploring new sales channels including large format stores, ecommerce & D2C
- EBITDA margins were lower because of additional costs for market research and trade channel incentives (6 cr.; one-time), higher freight expenses for exports to Brazil (3 cr.) and higher warranty expenses (because of higher sales from retailers and will persist going forward)
- Will reach pre-covid EBITDA margins over a period of time
- Commercial air coolers have higher margins vs domestic air coolers
Disclosure: Not invested (no transactions in last-30 days)
4 Likes
Company’s ability to take price hikes from here, will determine the future stock performance.
@rizulagg Agreed! Symphony has gained the highest ever quarterly revenue of Rs 250 crore by both licensing and device sales. If this number remains persistent, their stock will surely perform well in future.
The shares of Symphony are down more than 20% in a year’s period. The consumer goods stock has declined over 16% in 2022 (YTD) so far.
Q3 FY23 board meeting and results is on 8th Feb 2023. Apparently company might consider Share Buyback also.
15% upside from here. (CMP= 1121)
Notes from some recent calls.
09.12.2022 CNBC interview
- Targeting ambitious sales growth in H2FY23. Medium term goal is to grow sales at 20%
- Raw material prices have come down but are higher vs last year. Price hikes have been between 5-14% depending on models in last 6-months
- Should reach normal EBITDA margins by June 2023
- Witnessing pressure from USA, orders have been cut and this will get reflected in December and March quarters
07.06.2023 CNBC
25.12.2023 BQ
- FY25 promises to be much better, business is at trough right now and will only get better
- Australia fund infusion of 82 cr. is to largely repay debt
- Australian real estate business is improving which should positively impact Symphony, this is similar to transformation in Mexican operations after 2008 GFC crisis
Disclosure: Not invested (no transactions in last-30 days)
3 Likes
What is the collective opinion on this forum on how Symphony is growing? Below are some of the questions i am pondering -
(1) The market size is unquestinably big. With electricity costs rising, high humid climate every year, with 50% market share, I would assume that Symphony can grow easily by 20-30% or so each year in India, but that has not happened in the last 10 years… why?
(2) Their foray into International markets has not seemed to have gone well. Australia was a disaster in a way. They are recovering but in retrospect, was it a good bet and why they could not succeed? They did okay in Mexico but not in Australia.
(3) They are not having high debt which is good. Relatively decent inventory turns. How is their overall capital allocation strategy in your view in the absence of seemingly slow growth over a long term?
1 Like
Large part of India is humid and as such coolers don’t work well. Secondly, air conditioners have become cheaper over time. Thirdly, the competition is fierce in the cooler space and customers are more price conscious.
It is difficult to make a case for large sustained growth in the segment by any company in India.
10 Likes
With the price difference and ever increasing electricity cost, I assumed that air coolers will make a dent but all indications seems to prove me wrong. You maybe right.
1 Like
It’s more about electricity cost rather than one time buying price which matters for lower middle class people who creates volumes in air cooler space. That’s what my understanding is. Having said that competition is all over in the air cooler segment and there is strong chance of margin decline even though revenue can be incremental in double digit in near future. For symphony from 2020 onwards each summer they have new story to tell about the dismal performance. I’m still giving them benefits of doubt and looking for the current summer season for actual things to get unfold.
Disc: Invested
2 Likes
The big problem with Symphony has been Margin Compression.
This has happened because of inability of company pass on rise in costs, due to severe competition in domestic market.
Also growth has stagnated in international markets.
The only hope of light is recovery in volume growth in domestic market, with margins stabilizing. Also, recovery of demand in US Markets, will definitely help as this market has highest margins, which will reflect in March Quarter.
2 Likes
Hi, Have a doubt regarding the Strategy.
Whatever consolidated PAT company is reporting is less or equal to standalone basis PAT. Last 10 year data.
Only sales are increasing in consolidated basis. Their subsidiaries are not making profit. Anyone has any idea why they are still focusing on these non profit subsidiaries?
Share buyback of 0.41% equity announced at 100% premium
Also net profit of 88 cr for Jun 24 Vs 24cr for Jun 23
1 Like
- Domestic Limitations:
With around 50% of the domestic market already captured, Symphony faces challenges in generating significant new revenue from this segment. - International Expansion:
*The growth of Symphony’s international business will be crucial going forward. The company’s ability to navigate economic headwinds and adapt its offerings in these markets will determine its overall success.
Business Overview and Revenue Composition
Symphony Limited has strategically diversified its revenue mix between domestic and international markets, achieving nearly a 50-50 split in sales as of FY2022. This shift marks a significant evolution in Symphony’s revenue model, underscoring the company’s adaptability to changing domestic conditions by expanding into foreign markets. Symphony’s key international markets include the US, Australia, and Mexico, each with distinct growth dynamics and challenges.
Key Drivers of Growth
- Balanced Domestic and International Sales:
- Domestic Market Resilience: Symphony’s domestic revenue has been flat, with a notable reliance on summer seasonality. Recently, Symphony’s efforts to capture untapped rural and semi-urban segments are expected to strengthen domestic demand, balancing the seasonality factor.
- Expanding International Presence: Symphony has gradually increased its presence in the US, Latin America, and Southeast Asia. While US and Australian markets are experiencing some macroeconomic headwinds, Symphony is actively countering these through cost control, operational efficiency, and product adaptation in each market. Expansion efforts are also being pursued in Southeast Asia and Latin America, where Symphony anticipates strong demand for air cooling solutions in the coming years.
- Product Diversification to Reduce Seasonality Impact:
- Symphony’s expansion into adjacent products (e.g., tower fans, water heaters) and industrial air cooling solutions supports non-seasonal revenue and builds resilience against unpredictable summer weather patterns. In India, these products also help Symphony establish itself as a more comprehensive cooling solutions provider.
- Operational Efficiency and Cost Management:
- The company has adopted several efficiency initiatives within its subsidiaries, particularly in Australia, where it has optimized the Climate Technologies business through an outsourced production model, channel expansion, and product revamping. Additionally, Symphony’s strategy of using transfer pricing for margin sharing among Symphony India and its subsidiaries ensures cost efficiency at the consolidated level.
- Direct-to-Consumer (D2C) and E-commerce Expansion:
- Symphony’s investment in D2C and e-commerce channels aims to improve profitability and reach a broader customer base, especially urban consumers who increasingly prefer online shopping. This is complemented by Symphony’s strengthened rural and semi-urban distribution networks, which contribute to robust domestic demand.
Key Risks and Challenges
- Economic Headwinds in International Markets:
- Economic challenges in key international markets, particularly the US and Australia, have impacted Symphony’s growth in these regions. Retailers have reduced inventory levels, which has affected Symphony’s international revenue. Continued monitoring and adaptive strategies in these regions will be essential to mitigate any long-term impact.
- Seasonal Dependency and Weather Unpredictability:
- The air cooler business remains highly seasonal, and Symphony’s sales are vulnerable to fluctuating summer weather patterns, particularly in India. Symphony’s recent expansion into non-seasonal products aims to address this challenge, though it remains a key risk factor in the short term.
- Increased Competition in the Domestic Market:
- Symphony’s domestic market leadership is under pressure from both organized and unorganized players who have entered the air cooler segment, attracted by Symphony’s earlier success and profitability. Symphony’s emphasis on innovation and brand strength will be crucial in maintaining its competitive edge.
- Profitability Visibility Across Subsidiaries:
- Transfer pricing between Symphony India and its international subsidiaries can obscure profit visibility at the subsidiary level, which might lead to challenges in assessing profitability on a market-by-market basis. This factor highlights the importance of focusing on consolidated financials for an accurate picture of Symphony’s financial health.
Subsidiaries –
Opportunities and Challenges in Each Business Division of Symphony Limited
1. Climate Technologies (Australia)
Opportunities:
-
Market Access: Provides a foothold in both the Australian and US markets, leveraging established brand recognition with products like Bonaire and Celair.
-
Cost Reduction: Implementation of an outsourced manufacturing model aims to lower operational costs, enhancing profitability.
-
Sustainable Solutions: Growing consumer preference for sustainable cooling solutions presents growth potential.
Challenges:
-
Economic Pressures: Ongoing inflation and supply chain disruptions have negatively impacted profitability.
-
Inventory Management: Retailers in the US are reducing inventory levels, leading to revenue pressures.
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Restructuring Needs: The subsidiary requires significant restructuring to improve product offerings and distribution efficiency.
2. IMPCO (Mexico)
Opportunities:
-
Strong Growth Potential: IMPCO has shown robust revenue growth, with a 51% year-over-year increase, tapping into North and Latin American markets.
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Rising Demand: Increasing temperatures and demand for affordable cooling solutions bolster sales opportunities for residential and industrial air coolers.
Challenges:
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Economic Volatility: Currency fluctuations and economic instability in Latin America pose risks to sustained growth.
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Competitive Landscape: The market is becoming increasingly competitive, requiring continuous innovation and cost management to maintain market share.
3. GSK (China)
Opportunities:
-
Cost Efficiency: GSK provides access to lower-cost manufacturing, enhancing Symphony’s overall production efficiency.
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Urbanization Demand: Rapid urbanization and extreme climate conditions in China create significant demand for cooling products.
Challenges:
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Regulatory Hurdles: Navigating complex regulatory environments can hinder growth and operational efficiency.
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Demand Fluctuations: Recent economic slowdowns have led to fluctuating demand, impacting revenue stability.
4. Symphony Brazil
Opportunities:
-
Market Expansion: Brazil represents a growing market for both residential and industrial cooling solutions, supported by expanding distribution networks.
-
Record Revenue Growth: Recently achieved its highest quarterly revenue, indicating strong market demand.
Challenges:
-
Economic Instability: High inflation rates and economic fluctuations in Brazil present risks to profitability.
-
Seasonal Dependency: Revenue is heavily influenced by seasonal demand during the summer months, which can be unpredictable.
| Subsidiary | Revenue (₹ Crore) | Year-over-Year Growth | Percentage of Total International Revenue |
|---|---|---|---|
| Climate Technologies | 185 | -18% | 16% |
| IMPCO | 178 | +51% | 15% |
| GSK | 44 | +36% | 4% |
| Symphony Brazil | 26 | +178% | 2% |
1 Like
IMPCO refers to IMPCO, Mexico, a subsidiary of Symphony Limited. It is a key part of Symphony’s international operations and plays a significant role in the company’s overall revenue and profitability.
Here’s a comprehensive overview of IMPCO based on the provided sources:
Financial Performance:
● Consistently Strong Performance: IMPCO has been consistently delivering strong financial results, exceeding expectations and contributing significantly to Symphony’s consolidated profits.12
● Highest Ever Revenue in H1 and Q2 2023: IMPCO achieved record-breaking revenue in the first half and second quarter of fiscal year 2023, highlighting its robust growth trajectory.3
●Strong Profitability: The subsidiary has demonstrated strong profitability, consistently generating positive EBITDA and PAT. For instance, in the first half of fiscal year 2023, IMPCO reported an EBITDA of ₹18 crores, significantly higher than the ₹7 crores recorded in the previous year.4
Operational Highlights:
●Manufacturing Shift from India to Mexico: Due to the surge in international freight costs, Symphony shifted the manufacturing of residential air coolers for IMPCO from India to Mexico. This move involved transferring moulds and dyes to IMPCO and establishing local outsourced manufacturing operations.1
●Catering to Latin America: IMPCO is not only serving the Mexican market but also expanding its reach into other Latin American countries, leveraging its competitive advantage against Chinese players.5
●Product Portfolio: While the sources don’t provide specific details about IMPCO’s product portfolio, they suggest that it primarily focuses on air coolers, including residential and potentially commercial models.
●Synergy with Other Subsidiaries: IMPCO benefits from synergies with other Symphony subsidiaries, particularly GSK China, which supplies components and products at competitive costs. This collaboration enhances IMPCO’s cost efficiency and competitiveness.4
Strategic Importance:
●Key Driver of International Growth: IMPCO plays a crucial role in Symphony’s international expansion strategy, serving as a hub for growth in the Mexican and Latin American markets.5
●Contribution to Profitability: IMPCO’s consistent profitability makes it a significant contributor to Symphony’s consolidated earnings, helping to offset challenges in other international markets.3
●Demonstration of Symphony’s Acquisition and Turnaround Capabilities: IMPCO’s success exemplifies Symphony’s ability to acquire companies, integrate them effectively, and turn them into profitable ventures.67
●Synergies and Cost Optimization: IMPCO benefits from Symphony’s global sourcing and value engineering expertise, leading to cost optimization and improved profitability.8
Challenges:
While the sources primarily highlight IMPCO’s successes, they also allude to potential challenges:
●Economic Headwinds: Like any business, IMPCO faces potential headwinds from macroeconomic factors like inflation, currency fluctuations, and changes in consumer spending.
●Competition: The air cooler market in Mexico and Latin America is competitive, with both domestic and international players vying for market share. IMPCO needs to continuously innovate and adapt to maintain its competitive edge.