CMP: Rs. 2,421.45; Market Cap:
Rs. 8,469.86 Cr; 52 Week High/Low: Rs. 3,275 / Rs. 1,650.00.
Total Shares: 3,49,78,500 shares;
Promoters : 2,62,33,870 shares – 75 %; Total Public holding : 87,44,630 shares – 25.00 %; Book Value: Rs. 82.96; Face
Value: Rs. 2.00; EPS: Rs. 38.67; Dividend: 700.00 %; P/E: 62.61 times; Ind. P/E: 50.83;
EV/EBITDA: 44.60.
Total Debt: ZERO Cr; Enterprise Value: Rs. 8,465.13 Cr.
SYMPHONY LIMITED: Symphony Limited was founded in 1988 and is headquartered in
Ahmedabad, India. The company was formerly known as Sanskrut Comfort Systems Pvt
Ltd and changed to Symphony Comfort Systems Ltd in 1995 and it again changed
its name to Symphony Limited in 2010. The company came out with an IPO on February 1994
with a premium of Rs. 35 per share and announced splits of its face value from
Rs. 10 to Rs. 2 per share in February 2012. The company
engages in manufacturing of consumer durables under the brand name “Symphony”. Symphony
Limited manufactures and sells consumer durable products in India. The company
offers domestic, commercial, and industrial air coolers. It provides desert,
tower, room, and personal coolers for residences, shops, showrooms, and offices
and various industrial coolers for factories, offices, schools, malls, assembly
halls, warehouses, and metro stations. The company also exports its products to
approximately 60 countries. Its products are
already being sold in U.S.A, Europe, Middle East, Africa, and South–East Asia
& shortly will be available in many other countries. It offers its products through a network of distributors and
dealers. Symphony coolers have plastic bodies unlike conventional metallic air
coolers manufactured by the unorganised sector, are UV Cooling pads which
combine cooling effects with elegant looks. The
company has wide range of products which includes Evaporative Air Coolers, Air
Conditioners and Water Heaters. The company offers products under Evaporative
Air Coolers are Desert Coolers, Room Coolers and Personal Coolers. The products
offered in Air Conditioners are Window Air Conditioners and Split Air
Conditioners. The product offered under Water heaters is only Sauna Heaters. Symphony Limited subsidiaries include Symphony
Air Coolers Inc, USA. Symphony Limited is
locally compared with Bajaj Electricals Ltd, Havells India Ltd, Khaitan India
Ltd and globally compared with Daikin Industries Ltd of Japan, Gree Electric
Appliances Inc of China, Lennox International Inc. of USA, Tabreed alias
National Central Cooling Company PJSC of UAE, Aaon Inc. of USA, Johnson
Controls Inc. of Wisconsin USA, Denso Corporation of Japan, Ingersoll-Rand Plc
of Ireland, Dover Corporation of Illinois, Mitsubishi Electric of Japan.
Investment Rationale:
Symphony
Limited Established in 1988, is a world leader in evaporative air coolers,
Symphony focuses on innovative design to create better and eco-friendly
products for domestic and industrial customers in 60 countries across the globe.
Symphony’s design-driven innovation and green engineering is a sustainable competitive
advantage. Company delivers market-leading products with engineering and design
innovation, improved energy conservation, distinctive styling and
customer-centric design. Symphony leverages a unique and successful asset light
business model for its residential coolers in India and in-house lean
manufacturing for its industrial coolers in Mexico to achieve sustainable and
profitable growth. Symphony is a global company committed to develop
sustainable and responsible products which means leading the air-cooling
industry's efforts to develop breakthrough green technologies to combat climate
change. Symphony is present in key retailers like Wal-Mart, Lowes, Carrefour,
Singer, Sears, Costco, Home Depot etc. Symphony provides domestic (plastic),
commercial (heavy duty metal coolers) and industrial (metal cooler-machine made
modular unit) air coolers across various models. Employing an
environment-friendly carbon reduction product strategy, Symphony air coolers offer
a superior value proposition to air conditioners. With increased global warming
and environmental degradation, people around the world recognise that
businesses must act responsibly and offer green products to customers. Symphony
enables people across the world to capitalise on eco-friendly, energy-saving air cooling
technologies as a serious alternative to harmful and inefficient
air-conditioners. Symphony believes an environment-friendly approach transcends
commercial considerations and a cleaner environment is the best legacy one can
leave behind for future generations. Symphony’s power-saving Technology is currently the only air cooling
technology in the market that complies with international standards for product
energy efficiency. Air coolers represent a low-cost, energy-efficient and an
environmentally-friendly alternative to air conditioners. Air coolers are
simple to use and cools air through the evaporation of water. Evaporative
cooling differs from typical air conditioning systems which use vapour-compression
or absorption refrigeration cycles. Evaporative cooling works by employing
water’s large enthalpy of vaporization. The temperature
of dry air can be dropped significantly through the phase transition of liquid
water to water vapor (evaporation), which can cool air using much less energy
than refrigeration. In extremely dry climates, evaporative cooling of air has
the added benefit of conditioning the air with more moisture for the comfort of
building occupants. They also filter dust and dirt without drying the air. Unlike
conventional air conditioners, evaporative coolers require fresh air and work
best with open windows and doors. They are best suited for residences,
showrooms, shops, offices, especially where doors are opened and closed frequently
which is major advantage over
conventional air conditioners. Besides, they consume significantly less
electricity and produce no emissions. Symphony offers a wider range of air coolers,
which find applications also where it is difficult or impossible to install and
use an air conditioner. Symphony’s air
coolers are easy-to install, relatively inexpensive, and can be easily maintained
by a layperson. The domestic air cooler segment is largely fragmented with
about 70 % to 80 % of sales accounted for by unorganised players. The branded
air cooler industry is competitive in nature with the top four players
accounting for more than 90 % of the branded air cooler market. Symphony is the
leading player in the space followed by Kenstar (Videocon Industries Limited).
Other players include Bajaj Electricals, Khaitan, Maharaja and Usha. Symphony
is India’s leading evaporative air cooler manufacturer with a market share of 55
% in value terms in the organised product category. Over the years, it has been
able to create a strong brand name, which has become synonymous with air
coolers in India. With its focus on R&D and innovation, Symphony constantly
innovates in its products to enhance design, technology and post sales services.
It has launched more than one new model annually for six years. Over the years,
it has established a robust distribution network comprising 750 dealers, 16,500
retail dealers and 4,500 dealers in towns. Also, Symphony has consistently
invested in brand building through advertisement campaigns. It spends around 4%
of its sales over the last three years and 6 % in FY16 in advertisement for strengthening
brand recall. Further, the company plans to grow its network to 40,000 dealers
over the medium-term for deeper penetration and a stronger presence in rural
and semi-urban markets. In spite of a bleak macro environment, Symphony clocked
overall volume CAGR of 13 % during FY11-15 supported by strong demand from domestic
markets led by launch of new models during the same period. Company introduced
six new models of ‘i’ series air coolers, the intelligent coolers with features
such as empty tank alarm, full Remote function, memory restore function, dura pump
technology, etc. With increase in spending in rural areas & with increasing
demand from overseas countries would help to drive Symphony’s overall volume at
a CAGR of 18 % during FY15-18E. Symphony operates through an asset light model
wherein it outsources manufacturing of air coolers to about nine exclusive
vendors in India and uses the cash and carry model for sales. However, the
company retains the rights for product development, design and marketing
function to maintain the exclusivity of products and technologies of Symphony
from its Vendors. Symphony, together with its subsidiaries, offers 87 models of
air coolers for almost all categories of customers. Outsourcing products to
nine different vendors and not sharing intellectual rights creates a strong
entry barrier for other players, providing an economic moat. Also, it helps
Symphony to concentrate on its core competence i.e. “innovation” in product development
and feature evaluation. The company has maintained its return ratios i.e. RoCE
of 35 %, RoE at 39 %, giving last three year’s average of 39 %, 34% mainly due
to an asset light model and almost debt-free status since 2006. The zero debt
status provides adequate room to fund Symphony’s organic and inorganic growth
opportunities whenever required. Symphony operates on a cash and carry model
with almost 95 % of domestic sales on advance payment terms with dealers and
distributors with the remaining i.e. 5 % through large format stores. In the international
business, about 40 % is through large format stores while 60 % is through
dealers and distributors. The receivable days last three year’s average is 45
days on the books of the company & are only a reflection of 5 % of the
domestic market and 40 % in international markets where Symphony has to provide
some levy on receivables due to bulk orders. The cash & carry model and
higher supplier days help the company to maintain lower working capital
requirements throughout the season. The company recently acquired Mexico based
Impco SDERL DE CV (Impco). Currently, Impco contributes 18 % to the
consolidated topline with a major chunk of revenues which is 65 % of overall
sales coming from centralised and heavy duty air coolers and the remaining 35 %
of sales from room coolers. Currently, Impco serves markets like the US, India,
Iraq and some of the Middle East countries. Symphony started leveraging the enduring
relationships established by Impco with large format stores like Wal-Mart,
Sears, Home Depot, Lowes, Famsa and Costco, among others, to widen its presence
in North, South and Central America. Besides, Symphony’s acquisition has
created a new opportunity in the category of heavy duty air coolers for outdoor
applications and industrial coolers, a project-oriented, non-seasonal business
segment. The company was the first in India’s organised sector to launch
industrial air coolers and establish a presence in a number of business spaces,
viz. food & beverages and religious establishments, among others. Symphony
has completed 109 installations. The company has executed orders for some
renowned brands namely Asian Paints, DHL, Dixon Technologies, Swaminarayan
Temple, Iskcon Temple, Marico, Tractor India and Shivam Auto Tech (part of Hero
Group). Symphony received its first order from Indian Railways to install air
coolers in waiting rooms of Kota and Godhra railway stations. Plans to improve
operational efficiency at Impco to have
a capital light and asset light business model same in line with Symphony’s
Indian operation. Impco can focus more on
sales & marketing, business development, research & development, product
innovation, etc. to improve operational
performance and provide flexibility in operations. As a result, by monetising surplus assets to become even internal
debt free company by paying off the parent company loans (Symphony’s) and also
further improving the profitability by savings of interest, depreciation, forex
fluctuation and other overheads Entry into Chinese market
through acquisition Symphony acquired a 100 % stake in China-based air cooling company
MKE for the consideration of a meagre Rs. 1.55 crore. During FY15, MKE recorded
sales of Rs. 50 crore while it recorded loss at bottom-line of Rs. 9 to Rs. 10
Crore. The acquisition will facilitate Symphony’s access into China which is second
largest air cooler market after India and other international market. The acquisition
will also provide Symphony the benefit of sourcing of raw materials for its
OEMs. MKE also has a strong R&D and test centre, which meets the quality
standards of the US and Australia. Symphony aims to improve its sales to the
level it clocked during its peak of Rs. 130 crore and turn around its business
following various strategic moves. Raising demand, rural consumption increase
and diversifying in emerging markets makes prospects of Symphony much bright
& regular cash flow in coming future.
Outlook and Valuation:
Symphony Limited has established itself as a world
leader in evaporative air coolers. Symphony is globally popular because of the
sensitivity to good design which is a universal phenomenon. In its
history of more than two decades, Symphony has gone through various stages of
development. The company was a pioneer in introducing cooler as a lifestyle
product for the first time in India and launched plastic body coolers compared
to the then available metal coolers and was a market leader in the air cooling
market. Symphony’s products are designed to give very high
air delivery at very low power consumption. Symphony Limited has a market
share of more than 50 % in Indian cooler segment. India’s air cooler market is
growing at 20 % p.a. with the organised segment growing faster at 25 %, given
low penetration levels of 5 % for the air cooler segment and a consumer shift
away from the unorganised market. Symphony Limited is a clear leader in the air
cooler market with 50 % share in the organised segment and which is 30 % of the
Rs 2,000 Cr air cooler market (organised + unorganised). Currently, the air cooler industry
is largely dominated by the unorganised segment 80 % volume market share. There
can be a shift from the unbranded to branded category due to rising aspiration
level provides huge potential for organised players. Hence, organized industry
is likely to grow at 25 % CAGR in FY15-25E. Symphony being the market leader is
expected to benefit the most from this structural shift in the long run. Symphony
will record 24 % volume CAGR in FY15-25E. Further,
as a policy, Symphony would keep the dividend payout at more than 50%. This
would increase its return ratios, going forward. On April 12, 2016, the honourable district court, Gandhinagar, Gujarat granted a stay order in favour of Symphony against Wim Plast Ltd, which has launched "Cello" Air Cooler models in India namely "Marvel",'Wave' and 'Tower' which were smiliar to registered designs of Symphony Ltd models 'Winter', 'Sumo' and 'Diet'. Symphony pointed out to the Court that Wim Plast's 'Marvel' model is identical and copy to Symphony's 'Winter' model, Wim Plasts 'Wave' model is copy to Symphony's 'Sumo' model and another 'Tower' model is copy to Sympony's 'Diet' model. The district Court of Gandhinagar Gujarat order stated that by way of ad-interim injunction, the Cello (Wim Plast) are restrained by an order of temporary injunction from manufacturing, marketing, advertising and publishing, selling the products which is having identical and deceptively similar design as of design of Symphony's models Winter, Sumo & Diet. Symphony will continue to take recourse to every legal option available to it to stop Wim Plast and such other imitators from launching, air cooler models in India which are copy-cats of Symphony's range of air coolers. Symphony's management is clear that they will leave no stone unturned to defend its Intellectual properties and will take all necessary legal action against all individuals and/or companies that infringe upon them. Symphony reported its
highest quarterly revenues of Rs. 160 Cr which was 20 % YoY growth during
2QFY16. The domestic revenues grew by 20 % YoY to Rs. 150 Cr while the exports
reported 13 % YoY growth at Rs. 12.80 Cr. The focus on incremental dealer
enrolments coupled with its dominant positioning in the air- cooler segment has
undoubtedly helped Symphony push the primary sales to record levels. The
company can report similar growth during 3QFY16. In the international business, Symphony has initiated measures to
convert the IMPCO business to an asset-light model by outsourcing its
manufacturing processes. It also concluded the acquisition of Munter Keruilai.
The China acquistion, which is now, became 100 % wholly-owned subsidiary
effective 1 Jan 2016. The EBITDA grew by 24.8 % YoY with margins improving 15.5
% YoY to 37 %. Margin expansion was led by 3.40 % YoY gains in gross margin to
53.9 %, offset by an increase in employee/other expense (as % of net sales) by 0.80
% to 1.00 % YoY to 5.8 %/11 %. Adj. PAT grew 32.5 % YoY to Rs. 47.7 Cr aided by
other income growth of 78 % to Rs 7.4 Cr and a 1.95 % drop in tax rate to 28.3 %.
Management maintained its mid-to-long term earnings guidance of 20-25 % CAGR. Symphony
can deliver strong earnings growth at a 34 % CAGR over FY15-FY18. At the current market price of Rs. 2,421.45, the stock is trading at a PE of 59.36 x FY16E and 54.11 x FY17E respectively. The company can post Earnings per share (EPS) of Rs. 40.79 in FY16E and Rs. 44.72 in FY17E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.
| KEY FINANCIALS | FY15 | FY16E | FY17E | FY18E |
|---|---|---|---|---|
| SALES (₹ Crs) | 545.66 | 586.03 | 641.12 | 818.10 |
| NET PROFIT (₹ Cr) | 164.44 | 198.88 | 218.27 | 261.10 |
| EPS (₹) | 33.28 | 40.79 | 44.72 | 74.60 |
| PE (x) | 74.97 | 61.18 | 55.79 | 29.30 |
| P/BV (x) | 30.08 | 24.18 | 19.42 | 11.50 |
| EV/EBITDA (x) | 52.37 | 43.10 | 38.92 | 23.20 |
| ROE (%) | 40.12 | 39.52 | 34.81 | 38.40 |
| ROCE (%) | 57.40 | 55.86 | 49.47 | 47.40 |
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*As the author of this blog I disclose that I do not hold SYMPHONY LTD in my any of the portfolios.
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