SYMPHONY LTD

Cmp-1361Rs

Symphony Ltd is a 32 years old Achal Anil Bakeri promoted company engaged in the manufacturing of cooling systems. The company manufactures products like domestic air coolers, industrial air coolers. Once on the verge of Bankruptcy , symphony has emerged as a market leader in the Cooling Systems with Symphony holding Guinness World Record for creating the world’s largest functioning air coolers.

History

Incorporated in 1988 as Symphony Comfort Systems the company is a part of Bakeri group. Commencing its business in 1991 with the introduction of room heaters with plastic bodies , a child proof grill and thermostat heat control it moved to manufacturing of Domestic flour mills. By 1994 company expanded its presences by offering products like water heaters, purifiers, washing machines, domestic flour mills, room heaters, and exhaust fans. It was only until 2002 the company realised that its inner strength lies in the manufacturing of the air coolers only. Thus between 2002-2004 company exited all the business and focused on innovating in air coolers and came out with products priced between ₹5,000 and ₹20,000, boasting of features such as touch-based and motion-based control sensors, and mosquito repellent and air cleaning technologies. 

During the year 2000, Symphony introduced the world’s largest air cooler, Sumo, which got the Guinness World Record certification. Company launched mid-segment coolers while for the costal markets company launched the H! Cool air cooler.

Products

Household Coolers

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The world’s first intelligent tower cooler that cools every corner of your room. That’s Storm 100i tower air cooler. With sleek looks, a 7-speed option, an LCD display and the entire gamut of intelligence functions thrown in, it is the celebrated combo of performance, style and convenience. It’s smart cooling for a smarter, comfortable life.

Some of the Key Features of Household coolers include-:

Other Features Include-:

• For rooms up to 142 m3
• Large 100 L tank capacity
• Consumes 270 watts* only
• Dura-pump technology
• 3-side high efficiency honeycomb cooling pads
• i-Pure technology
• System restore function
• Multi directional wheels for mobility
• In-built remote dock
• Cool flow dispenser
• Full function remote with on/off timer
• SMPS technology
• Empty water tank alarm

Industrial Coolers

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PAC 18 is a general all-purpose, single-speed air cooler with its own pump & motor and without any controls. Its optimized motor and fan are designed to deliver low noise and a powerful airflow. The high-quality air pre-filter of this industrial cooler protects its high-performance cooling pad.

Its Features Include-:

• High performance cooling pads
• Optimized motor and fan to deliver low noise and powerful airflow
• Easy installation and maintenance
• High quality air pre-filter to protect the cooling pad
• Single speed

Commercial Coolers

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The Movicool Tri series of commercial air coolers comprises of high-performance Honeycomb cooling pads on all three sides and water inlet on two sides. In addition, their rugged body and strong wheels make them suitable for outdoor and commercial usage. This range offers three adjustable fan speeds along with an auto-swing option.

Its Features Include-:

• Ventilation and cooling
• Connects to water supply system for continuous supply
• 9 adjustable fan speeds
• Auto-clean function available to keep the cooling pads clean and prolong the lifetime
• Strong wheels for easy portability
• Auto swing
• High quality air pre – filter to protect the cooling pad
• Automatic solenoid valves.

In order to fuel its Global expansion the next logical step company took was that it acquired businesses in four countries and extended manufacturing operations to five global locations.

Thus today company via marketing has presence in over 60 countries thereby fulfilling its vision to have global presence as well as to be global in mindset. Symphony has since gone on to become a global leader in providing air cooling solutions.

Promoter Background

Achal Bakeri is an Indian entrepreneur and founder, chairman and managing director of Symphony Limited. Son of Anil Bakeri, a real estate businessman , Achal Bakeri completed his diploma in architecture from CEPT University, located in Ahmedabad, and Master of Business Administration in the United States from the University of Southern California, located in Los Angeles, California. After returning to India he began working for his father’s company but later decided to start his own company Symphony Ltd with seed capital of just 1,00,000 Rs.

It was only in later 2002 the company went bankrupt without losing any hope he went on purchasing a majority stake in a Mexican company, which as he claims it became the world’s largest air-cooler manufacturing company only after that.

Acquisitions

In 2009,  Company acquired IMPCO (North America).

In 2013, Company announced that it had tied up with Carrefour in Indonesia for selling Symphony Air coolers through a local distributor. Carrefour, headquartered in France, is the world’s 2nd largest retail group having one of the largest retail chains in Indonesia.

In 2015, Company signed an equity transfer agreement (ETA) with shareholders of Munters Keruilai Air Treatment Equipment (Guangdong) Co. Ltd. (MKE), China to acquire 100% of the equity share capital of MKE.

In 2017, Company announced that Impco S de R L de CV, Mexico (IMPCO) – step-down subsidiary of the company, had bought back its entire shareholding held by Sylvan Holding Pte Limited, Singapore (Sylvan) and thus IMPCO, Mexico had become its direct subsidiary.

In 2018, Company entered into a Share Sale Agreement to effectively purchase 95% equity stake in Climate Technologies Pty Limited, Australia, through a newly incorporated Subsidiary Company viz. Symphony AU Pty Limited, Australia.

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The crash of 2018 

The crash of 2018 resulted in Symphony reporting its first sales de-growth in nearly two decades. Company believed that the Indian coolers market de-grew more than they imagined during the mayhem of 2018. Symphony (standalone) revenues from operations declined 24% in FY2018-19. Profit after tax declined 45%. However the Company did capitalise on a hot summer, eyeing an improvement in performance during the first quarter of FY2019-20, emphasising the Company’s capacity to ride through periods of sluggishness and rebound with speed as conditions revive. Most companies in our position would probably have taken the view that there was little that could be done since the situation – weaker consumer sentiment – was outside their control but the company perceived the situation differently. The company worked very closely with all trade channel partners to help them sell faster without completely compromising their realisations sales as well as introduced schemes that moderated the impact of declining realisations.

Symphony 3.0 (Strategy)

With the relative cost of an aircooler declining, compared to competing product categories, and disposable incomes increasing, the market for air‑coolers was expected to widen. Therefore in order to adapt to changes and modify the way company has done business, Company came up with the Strategy 3.0 believing that a combination of volume and value would work more effectively.

So what resides at the core of Symphony 3.0? 

One: The company will focus on widening its brand from residential to industrial and commercial applications across a widening global footprint, so that whenever anyone thinks of ‘cooling’, one would think only of Symphony, evolving from just a brand into a generic name. The focus will lie in proactively building markets .

Two: The company intends in doing what it has always done: by the time the consumer gets adjusted to a previous clutter-cutting product, Company reinvents the product to introduce a new generation of coolers comprising technology-led applications, addressing the vast demand that it expects will come out of increased incomes and the unprecedented growth out of the affordable housing Segment.

Thus with through R&D the company is currently gearing up for new launches in 2020. The company Expects that the robust product pipeline will manifest itself and excite a wanting-to-buy consumer into spending on new models.

FINANCIALS

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Quarterly

Q2FY20 consol. Revenues grew 13% Y-o-Y at Rs 272 cr Vs Rs 240 cr in Q2FY19 aided by healthy bookings in a seasonally weak quarter and channel replenishment following as strong summer season. The Gross margins stood at 47.4% during the quarter (vs. 46.3% in Q2FY19) on higher sales growth, aided by better product mix. The EBITDA margins improved to 23.2% (up 525 bps Y-o-Y) on higher GMs. The consol Net PAT increased by 57% to Rs 58 cr as against Rs 37cr in Q2FY19 on improved margins and aided by lower tax rate adopted by the company.

6-Month

On a consolidated basis; the top line is Rs.369 Crores to Rs.564 Crores that is up by 53%, while EBITDA is up from Rs.71 Crores to Rs.123 Crores that is 75%, again, higher than top line growth. PBT margin on consolidated basis stands at about 18% versus 17% and PAT growth on a consolidated basis is 77%, up from Rs.51 Crores to Rs.91 Crores, of course, inclusive of reversal of some of the deferred taxation. For 6 months, consolidated capital employed, which includes Symphony India and all 4 subsidiaries is just about Rs.176 Crores.

Apart from that company has Cash Equivalents of Rs 50 crore and Investments worth Rs 757 Crores ( excluding equity investments in subsidiary as on September 30 ).

Key Features-:

• Company has a solid Consistent ROCE over 5 year period of above 45% (Excluding 2019).
• Company has ROE of 17%.
• OPM of the company is consistent in range of 20-25% over last 5 year period. (Excluding 2019)
• Company has solid compounded sales growth of 20% and 24% over 3 and 5 year period respectively.
• Compounded profit growth of the company has remained subdued to nil and 12% over the period of 3 and 5 year respectively.

Holding

Key Institutional/Mutual Fund Holdings include-:

• Axis Mutual Fund Trustee Limited A/c. (Through various Schemes)
• Matthews India Fund
• HDFC Trustee Company Ltd – A/c. HDFC Mid Cap Opportunities Fund
• UTI Mutual Fund (Through various Schemes)
• DSP Blackrock Midcap Fund
• Mondrian Emerging Markets Small Cap Equity Fund, L.P.
• Ontario Pension Board – Mondrian Investment Partner
• Vanguard Total International Stock Index Fund
• Vanguard Emerging Markets Stock Index Fund, A Series of Vanguard International Equity Index Funds
• J P Morgan Funds

Future Outlook

India comprised ~247 million households with ~85% owning fans, but only 6% households owning air-conditioners and ~14% owning air‑coolers . Considering the lower cost of ownership and relatively low power consumption, air coolers are expected to enjoy a growing demand. Indian air‑coolers are among the most competitive in the cooling segment. They are also among the most preferred cooling products for those in the middle and low-income strata and co‑ exist with air-conditioners . The Indian air cooler market reported growth at a CAGR of ~10% from FY16-18. Indian air cooling production is estimated to be ~8 million units per annum, with the unorganised sector accounting for ~75%. In value terms, the total market size is ~ C3,000-3,500 Crores. The household cooling segment is established and is estimated to grow at a CAGR of 12-17%.

Driving Factors for Growth

Digital influence: Digital penetration in India is growing rapidly: 13% of the population uses a smartphone, 91% of smartphone-users search for products to buy using their devices and 54% complete a purchase. This level of digital maturity comes to a population with 37% internet penetration, growing at a CAGR of 31%, which is higher than that in China and the US. This bodes well for the e-retail sector and omni-channel players.

Young population: The growth of a young population that is enjoying rising incomes is creating a large emerging middle class in India. This segment of the population is expected to grow by 21% over the next decade, from ~470 million people in 2010 to 570 million by 2021, constituting ~42% of the country’s total population.

Rising incomes: India’s per capita income increased from C114,958 in FY2017-18 to an estimated C126,406 in FY2018-19, growing at a y-o-y growth rate of nearly 10%. The increased incomes catalysed consumption.

Urbanisation: India is arguably the fastest urbanising country. In FY2018, 34% of India’s population was urbanised (3% increase over 2011 Census) and anticipated to reach 36% by 2020 compared with a 51.3% urban population in China (2011). [Source: Census of India 2011, MoSPI, Technopak Analysis, Economic Times]

Working population: India’s urban middle-class workforce (over USD 11,000 annual income) stands at 27mn or 2% of its population with a large growth headroom. This growth is likely to be catalysed by an increase in the number of working women and youth, strengthening consumer durable offtake growth. (Source: Goldman Sachs)

Working population: India’s urban middle-class workforce (over USD 11,000 annual income) stands at 27mn or 2% of its population with a large growth headroom. This growth is likely to be catalysed by an increase in the number of working women and youth, strengthening consumer durable offtake growth. (Source: Goldman Sachs)

Rural market: The rural population, accounting for 66.86% of India’s population, represents a large relatively under-penetrated market, offering the potential of sustained consumption growth.

Growing middle-class: India’s wealth has grown 9.2% per annum, faster than the global average of 6% from the year 2000, even after considering an annual population growth of 2.2%, strengthening indulgence spending on consumer durables.

Air-conditioners versus air-coolers: Air-conditioners are a planned purchase while coolers represent an impulse lower ticket-value purchase with plug-and-play convenience, and depends on summer intensity.

Low penetration: Compared to developed nations, India’s consumer durables market is underpenetrated and offers growth potential. Electronic items, which were formerly considered a luxury, have become basic necessities. Financing schemes: Lenders’ kiosks have been set up in almost every electronic outlet to encourage purchase at minimal or no interest costs without collateral.

Easy maintenance: On account of an improved availability of spare parts and better aftersales service, glitches in air‑coolers items are addressed more easily than before at a reasonable cost (in most cases).

The Indian air cooler market is projected to grow at a CAGR of 1217% by 2022. Demand growth is likely to be catalysed by a rise in disposable incomes in the hands of the middle class and rapid family nuclearisation. Indian households have shown a trend of moving up the value chain by opting for premium air-cooling products. Substantial growth of e-commerce and retail markets, coupled with the government initiative of rural electrification, will also ensures stabilised growth of air cooler sales. 

Additional Notes-:

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Awards

• Symphony was awarded the Guinness World Record for creating the largest functioning air cooler in 2000. 
• Symphony won twice consecutively the Awards for “Excellence in Financial Reporting” by The Institute of Chartered Accountants of India for its annual report of FY2009-10 as well as for FY2010-11.
• Symphony bagged the prestigious “Best Presented Annual Report Award for Manufacturing Sector” for its annual report of FY2011-12,awarded by the South Asian Federation of Accounts (SAFA). 
• Symphony received recognition of Star Export House from the Government of India. l Symphony’s in-house R&D centre was accorded the certificate of recognition by the Ministry of Science and Technology, Government of India. 
• Symphony won the India Design Mark for the outstanding design of its Diet22i air cooler in 2013. l Symphony won the coveted Quality Mark Award in 2014 in the Home Appliances category, edging past all the major players in the segment. 
• Symphony bagged the ‘Best Innovative Company Award’ in 2015.
• Symphony won awards for Overall and Best SME – Manufacturing in 2015.

Note-: The market is at all time high , majority of stocks are trading near their 52 Week high so no matter what company one buys there will be some medium to long term correction. Therefore do keep in mind that 10-15% correction may be normal . So do not rush to buy immediately and if bought then make sure 10-15 downside should in no way effect you.

(10-15% correction is just an estimation which may or may not be the case or in worst case it can be even more. Please do not send unnecessary queries regarding the same.)

UPDATE – 26th August 2020

Cmp- 910 Rs

The stock is currently down about 33% since the suggested price.

Few points to consider to explore this stock for the long term.

On Annual Basis for the year ended Fy 2020.

Sale have grown about 30% as compared to previous year.

Operating margin has also expanded by 3% as compared to previous year.

Management is Sound and Trustworthy as far as we have been able to access.

The debt has increased slightly with decrease in cash levels.

Company had been having ROCE of above 50% until 2018 but since past two years ROCE has fallen to 20-30% which are still very high as compared to other industries.

On quarterly Basis for Q1Fy21 vs Q1Fy20

There was sharp fall in domestic revenue by 77% YoY was partly arrested by relative lower fall in oversees revenue by ~17% YoY. Hence, consolidated revenue fell ~47% YoY.

Gross margin declined 6.6% YoY due to change in product mix

There was sharp decline in PAT largely due to lower sales and operating profit

However going forward management is confident of reviving domestic and overseas subsidiary performance with further ease in lockdown restrictions.

Note-: Users are requested to do their own research. Darkhorsestocks or any of its member would not be responsible for any loss. The ideas are presented for mere informational purpose only . It should in no way be taken as any recommendation to buy or sell.

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