Stock Pick from Consumer Goods Segment

Choice Scrip is a Blue Chip stock pick that is expected to give returns within a 6 months-1 year horizon. The recommendation is based on a fundamental analysis of the company.

Symphony
Underdog Turns Uberdog

HERE IS WHY

• Operating profit margin of 23.15 per cent, from 9.71 per cent in FY07
• It is a cash rich and debt free company.
• Trades at a PE of 18.72x, cheaper than its peers.

Established in 1988, Symphony got a good response for its air coolers and swiftly established a national presence in just two years. It then got listed on the bourses in 1994 and decided to diversify its product range, thus launching heaters, flour mills, water purifiers, air conditioners and washing machines among others.

Although these products had a touch of innovation to them, they all failed due to competitive pressures. The story quickly turned around and caused immense financial stress on the company. Dried out on funds, it turned into a BIFR company. It was then that it exited from all other ventures and decided to focus only on coolers and thus started the rocketing growth story of Symphony. The company has grown to a level where it now has a 50 per cent market share in India’s organised air cooler market.

There is a large chunk of people who is graduating from fans to air coolers aided by higher disposable income, greater urbanisation, improving standard of living and rising temperatures, among others. Targeting the rural and semi-urban areas, Symphony gets about 70 per cent of its INR 313.47 crore topline from here.

Best of Last One Year
	Price (Rs)	CMP(Rs)
Company Name	Reco.	05/02/2013	Gain
ING Vysya Bank	325.00	590.00	81.54%
Asian Paints	2985.00	4634.00	55.24%
M&M Financial Services	685.35	1055.00	53.94%
GlaxoSmith Kline Consumer Healthcare	2542.00	3730.00	46.73%
Strides Arcolab	729.05	1066.00	46.22%
Jammu & Kashmir Bank	976.00	1389.00	42.32%
Berger Paints India	141.00	192.00	36.17%
Yes Bank	381.00	514.00	34.91%

Symphony also exports its products to around 60 different countries, targeting places where the prospective market of air coolers would be humongous. What has helped them place a strong footprint in the international markets, is the acquisition of the Mexico-based company Impco, which it took over in 2008.

SHARE HOLDING PATTERN AS ON 31/12/12
Promoters	75
FII	0.1
DII	1.55
Others	23.35
GRAND TOTAL	100

Impco was bought at a good bargain, considering the fact that it was on the verge of bankruptcy. This proved to be beneficial to Symphony not only in terms of increasing its geographical presence but also towards the expansion of its product range. With the acquisition of Impco, came in large-scale cooling which Symphony introduced in India. The concept of cooling large industrial and commercial establishments using air coolers caught pace and today around 20 per cent of Symphony’s revenues come from this segment.

It operates an asset-light model with investments made only in moulds and dyes. It does not manufacture products but only develops the product and makes the tooling. Moulders provide for plastic components while all the other parts are sourced and assembled by Symphony. This helps it function at a healthy operating profit margin of 23.15 per cent which was just around 9.71 per cent in FY07. Moreover, the improved operational efficiency of the company comes from a strong operating cash flow. This is a result of the advance payment terms on sales to dealers, resulting in a healthy working capital cycle for Symphony. The larger picture thus, is a cash rich and debt free company.

LAST FIVE QUARTER( IN CRORE)
	Dec 12	Sep 12	Jun 12	Mar 12	Dec 11
Net Sales	87.67	24.31	87.06	78.03	56.18
Operating Profit	24.31	2.11	27.4	20.91	13.89
Interest	0.02	0.06	0.2	0.02	0.02
Tax	8.16	0	7.53	5.93	4.01
Net Profit	16.73	2.05	19.67	14.96	11.3
Equity Capital	7	7	7	7	7

Financially, in the last five years, the CAGR in revenues has been around 49 per cent. This growth has been triggered by gains on both, volumes and realisation. In the recent quarters, there has been a drastic pressure on export volumes caused by excessive inventory at Impco. It is, however, expected to dry out by June 2013. After this, export volumes are expected to come back to normal. In Q3FY13, it sold 6728 air coolers outside of India. This has been way lower than the 29330 units it sold during the same period last year. However, its domestic sales jumped from 82730 units to 148951 units, marking a growth of 80 per cent and reversing the lost volumes of exports.

Thus, considering Symphony’s past performance, the potential for growth, operational model and financial position, combined with a PE of 18.72x, which is cheaper than its peers, makes it a must buy.