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Dalal Street Investment Journal - - CONTENTS -

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.

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