Recommendation From Consumer Electronics Sector

This column gives you script chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

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Symphony

THE 'COOL' SYMPHONY FOR INVESTMENT 

HERE IS WHY
Expected recovery in sales post GST
Asset light-low debt business model
Expected Restocking by dealers

Symphony Ltd, arguably the world’s #1 air cooling company, has been cooling the world since 1939. It manufactures products such as domestic air coolers, industrial air coolers and water heaters. The company has been at the forefront of innovation with 108 trademarks, 49 registered designs, 7 copyrights and 8 patents related to air cooling. 

The company has a global presence across 60 countries. Symphony has a strong network of over 30,000 retailers and 1000-plus distributors. The company has its headquarters in Ahmedabad. Symphony acquired Munters Keruilai Air Treatment Equipment Co. Ltd. (MKE), China, to get access to the Chinese market which is the second largest air cooler market after India. 

Industry Overview: Air coolers represent a low-cost and energy-efficient alternative to air conditioners. The air cooler industry is highly dominated by unorganised players with contribution of 72 per cent in volume terms. The top four players account for more than 90 per cent of the branded air cooler market. Symphony enjoys about 50 per cent share of the organised segment. Other players include Kenstar (Videocon Industries Limited), Bajaj Electricals, Orient, Maharaja and Usha. 

The government’s key reforms such as implementation of GST and pay hike are likely to benefit the consumer durable companies. The Seventh Pay Commission boosted the disposable income of 1.4 crore government employees, while lower indirect tax due to GST would benefit customers.

Successful Business Model: Symphony 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 to maintain the exclusivity of its products. This in turn enables Symphony to concentrate on its core competence: Innovation. This business model has turned Symphony into an asset-light and zero-debt company.  The zero-debt status provides adequate room to fund its organic and inorganic growth opportunities, whenever required. 

Financials: Due to weak summer, Symphony Ltd. reported net sales of  `129.75 crore in Q1FY18 with a decrease of 29.5 per cent QoQ and 15 per cent YoY. Its EBITDA for Q1FY18 stood at  `19.44 crore, a de-growth of 60.8 per cent QoQ and 50.2 per cent YoY mainly due to high raw material cost during the quarter, the raw material cost being higher by 58.2% YoY. The PAT for Q1FY18 stood at `22.95 crore, declining by 23.8 per cent YoY. The new products were launched at introductory prices which impacted the profitability as well. Symphony has maintained strong RoCE and RoE at 43 per cent and 36 per cent, respectively. The company is currently trading at a P/E of 53.69x. 

With its strong brand image, the company is building strong distribution network to penetrate the rural markets which will lead to robust growth. Also, recovery in sales post GST is expected. Taking all these factors into consideration, we recommend our reader-investors to BUY this stock.