Symphony Ltd - It's going to be a 'HOT' summer - MarketsMojo

Page created by Denise Matthews
 
CONTINUE READING
Symphony Ltd - It's going to be a 'HOT' summer - MarketsMojo
Initiating Coverage

Symphony Ltd

               It’s going to be a ‘HOT’ summer…

                                                            27 FEB 2019
Symphony Ltd - It's going to be a 'HOT' summer - MarketsMojo
27 FEB 2019               Company Report

                                                                                                             BUY
                                                                                                              Target Price: Rs 1,680

                                                                                                              CMP                       : Rs. 1230
                                                                                                              Potential Upside          : 37%

                                                                                                              MARKET DATA

                                                                                                              No. of Shares             : 7 Cr.
                                                                                                              Market Cap                : Rs. 8,605 Cr.

Symphony Ltd
                                                                                                              Avg. daily vol. (6mth)    : 14,797
                                                                                                              52-w High / Low           : Rs. 1992/812
                                                                                                              Bloomberg                 : SYML IN
                                                                                                              Promoter holding          : 75%
Consumer Durables                                                                                                                       : N.A.
                                                                                                              FII

It’s going to be a ‘HOT’ summer…                                                                            Price performance
                                                                                                            140

                                                                                                             90

                                                                                                             40
                                                                                                              Feb-18         Jun-18          Oct-18        Feb-19
                                                                                                                            Sensex            Symphony

  Financial Summary                                                                                          Shareholding pattern
  Y/E                Net Sales        PAT             EPS       Change   P/E      RoE      RoCE      DPS                                              Q-o-Q Chg
                                                                                                                                 Dec.-18
  March               (Rs Cr)       (Rs Cr)           (Rs)        (%)     (x)     (%)       (%)      (Rs)                                                (%)
  FY17                  765          166             23.8        40.5     -      39.6      58.1      8.0      Promoters              75.00              0.00
  FY18                  798          193             27.5        15.8     -      34.6      48.7      2.7      FPIs                    6.20              0.02
  FY19E                 920          157             22.4       (18.5)   57.4    21.7      29.3      2.7      MFs / UTI               8.94              0.27
  FY20E                1,145         225             32.1        43.2    39.5    25.3      32.6      3.5      Banks / FIs             0.01              (0.29)
  FY21E                1,289         261             37.3        16.2    33.9    23.5      31.0      4.0      Others                  9.85              0.00
 Source: Company, Axis Securities      CMP as on Feb 27, 2019

                                     Pankaj Bobade – AGM - Research (Head)|  pankaj.bobade@axissecurities.in |  (+91 22 4267 1736)
Symphony Ltd - It's going to be a 'HOT' summer - MarketsMojo
27 FEB 2019      Company Report

                                                                                                  Symphony Ltd
Investment Rationale                                                                              Sector: Consumer Durables

Symphony Ltd, has established itself as the leading player par excellence in the evaporative air-cooling technology to
become world’s largest air-cooler manufacturer. The company offers wide range of air-coolers across residential, industrial
and commercial segment. Symphony Ltd has carved a niche for itself in the air-coolers market by offering various designs
along with innovative features to fit the pockets of variety of consumers and pander to their changing tastes. Having gone
almost bankrupt, Symphony Ltd emerged like a phoenix in the air-coolers market to become a global leader with ‘one
product, many markets’ theme and acquiring companies in Mexico, China and Australia to expand its footprint overseas
and into the industrial and commercial air-cooling market. It currently commands ~50% market share by value and
upwards of 40% by volume in the organized domestic air-coolers market.

                           Rising per capita income to enable improving demand for consumer durable goods

       Symphony
        would be           Increasing electricity penetration and rise in power availability esp. in rural India
    big beneficiary
 of rising temperature
 across globe due to       Under penetration of coolers coupled with hot summers offers untapped opportunity
 global warming and
        changing
         weather           Temperature variations is a global phenomenon making cooling solutions a necessity
         patterns

                           Industrial and commercial cooling opens up a big business opportunity

                We initiate coverage with BUY rating and a target price of Rs. 1,680 i.e. 37% upside.

                                                                                                                                    3
Symphony Ltd - It's going to be a 'HOT' summer - MarketsMojo
27 FEB 2019          Company Report

                                                                                                             Symphony Ltd
Investment Rationale                                                                                         Sector: Consumer Durables

             Air coolers- middle class             Changing weather, global warming                          Technological innovations, under-
        household’s solace in summers                   necessitates cooling solutions                           Symphony
                                                                                                                  penetrationdifferentiates itself
                                                                                                                                to drive growth
 India being a sub-tropical country, the
                                                  One of the most immediate and obvious               Technological innovations differentiates the
 summers witnesses scorching heat. Air
                                                  effects of global warming is the increase in        products; air coolers with smart looks,
 coolers have proved to be one of the
                                                  temperatures    around   the      world.     The    feather-touch digital control panels, remotes,
 superior alternatives to Air Conditioners
                                                  average global temperature has increased            auto swings, alarms and other intelligent
 (ACs); air coolers provide Natural or
                                                  by about 1.4 degrees Fahrenheit (0.8                features are gaining popularity over the run-
 Evaporative Cooling and score over ACs in
                                                  degrees Celsius) over the past 100 years,           of-the-mill   products      from       unorganized
 terms of lower life-cycle cost and enhanced
                                                  according to the National Oceanic and               segment. The air cooler market in India is
 flexibility. Being a low initial cost product
                                                  Atmospheric      Administration      (NOAA).        dominated by unorganized segment; current
 (about half the price of a 1 Ton window
                                                  Rising temperatures, coupled with heavy             size of market is estimated to be 80 lakh
 AC to cater to a approx. 200sqft room,
                                                  urbanization and delayed and/or short               units per annum growing at high single digit
 with a 10ft ceiling height), the Air Cooler is
                                                  monsoons,      make   summers      unbearable       to low double digit; 30% of the market is
 quite popular in the hot, dry parts of the
                                                  calling for effective cooling solutions viz.        catered by organized segment, balance by
 country. To top it, the running cost is only a
                                                  air coolers which are within the reach of           unorganized      players.    Improving      power
 small fraction of the power-guzzling ACs
                                                  the   general    population.    With       rising   availability, rising prosperity and increasing
 and since there is no refrigerant to leak or
                                                  mercury, the demand for air coolers rise            environmental consciousness is likely to
 compressor to burn out, the maintenance
                                                  especially in the hot dry parts of the              generate attractive air cooler market growth
 cost is also very low. The lower cost of
                                                  country during the months of April, May             over    the   foreseeable    future;     organized
 ownership and constrained power supply
                                                  and June before the rainy season arrives.           segment is expected to grow faster than the
 situation in India, air coolers are in high
                                                                                                      unorganized segment.
 demand in India.

                                                                                                                                                           4
Symphony Ltd - It's going to be a 'HOT' summer - MarketsMojo
27 FEB 2019            Company Report

                                                                                                         Symphony Ltd
Investment Rationale                                                                                     Sector: Consumer Durables

 Focused player, asset light business                      Centralized Air cooling- offers            Beating seasonality Rising
                                                                                                                          in the exports
                                                                                                                                 business
      model backed by strong brand                                   enormous prospects                                      opportunity
                                                                                                          by diversifying across  borders
                                                                                                     With acquisition of Climate Technologies
Having learnt hard lessons from rampant          In order to tackle seasonality             in the
                                                                                                     Pte., Australia, Symphony has widened its
diversification of product basket way back in    business, the company is now focusing on
                                                                                                     international footprint sticking to its ‘one
2004, Symphony management has now                industrial/ commercial segment by offering
                                                                                                     product,   many         markets’   moto.   The
directed all its focus on single product viz.,   cooling    solutions.   With    acquisition    of
                                                                                                     Australian acquisition not only provides
air coolers. Today, Symphony is the largest      IMPCO, Mexico in 2009, Symphony got
                                                                                                     Symphony Ltd. access to new geographies
air cooler company in India with ~50%            foothold in the industrial cooling systems
                                                                                                     viz., Australia and USA (one of the largest
market share of organized market in value        and entry into lucrative USA and Latin
                                                                                                     air cooling market is the world) but also an
terms and upwards of 40% in volume terms.        American market. Acquisition of M Keruilai
                                                                                                     opportunity of moderating its business risks
‘Symphony’ ranks amongst top trusted brands      Air Treatment Equipments (Guangdong),
                                                                                                     because     of      complimentary       weather
in air cooling segment and has become a          China (now known as GSK, China) was
                                                                                                     conditions prevailing in India and Australia
generic name for air coolers. It outsources      another step in the same direction. Both the
                                                                                                     along   with      the   presence   of   Climate
100% of its production to around 9 OEMs,         companies are pioneers in evaporative
                                                                                                     Technologies in both cooling as well as
thus following an asset light business model.    cooling systems and boast of a strong R&D
                                                                                                     heating segment. Climate Technologies
The    outsourcing    model    enables     the   team. The usage of cooling improves
                                                                                                     gets immediate access to Symphony’s
management to focus on innovation, design        productivity     at     work      place;      the
                                                                                                     international distribution network across 60
& development, marketing along with brand        development of commercial real estate in
                                                                                                     countries. Going forward, we expect the
building. No wonder the company enjoys           cities and rise in industrialization has
                                                                                                     synergies to drive the top line and bottom
excellent capital efficiency, the return on      offered    an   enormous       opportunity    for
                                                                                                     line growth for the consolidated entity.
capital employed (RoCE) has been 45% plus        centralized cooling/ industrial cooling.
for last 10 years.

                                                                                                                                                       5
Symphony Ltd - It's going to be a 'HOT' summer - MarketsMojo
15 Feb 2019                   Company Report

                                                                                                                                Symphony Ltd
Industry wide demand drivers                                                                                                    Sector: Consumer Durables

Increasing middle class population                                                  Increasing per capita income
                                                                                    4,000
  80
                                                                69                  3,000
  70
                                                                                    2,000
  60
                          52
                                                                                    1,000

                                                                                             1,482

                                                                                                     1,486

                                                                                                             1,610

                                                                                                                      1,639

                                                                                                                              1,749

                                                                                                                                      1,976

                                                                                                                                              2,016

                                                                                                                                                      2,188

                                                                                                                                                               2,380

                                                                                                                                                                       2,585

                                                                                                                                                                               2,803

                                                                                                                                                                                       3,040
  50
                                                                                        0
  40

                                                                                                                              FY16
                                                                                             FY12

                                                                                                     FY13

                                                                                                             FY14

                                                                                                                      FY15

                                                                                                                                      FY17

                                                                                                                                              FY18

                                                                                                                                                      FY19E

                                                                                                                                                               FY20E

                                                                                                                                                                       FY21E

                                                                                                                                                                               FY22E

                                                                                                                                                                                       FY23E
                        2012                                    2020

                               Middle ClassPopulation (%)                                                            India Per Capita Income USD

Air coolers Penetration vs. Other Consumer Durables                                   It is estimated that affluent middle class will constitute 69% of the
                                                                                       total population by 2020 and 64% will be living in urban clusters.
100%
                                85%                            89%                    India’s per capita income was $1482 in FY2012 which has
                                                                                       crossed $2000 in FY18 and is expected to increase to almost
 80%                                           70%
                                                          60%                          $3000 by FY23. Increasing per capita income will lead to higher
 60%                                                                                   spends on aspirational goods including consumer durables.
                                                                                      Air-coolers penetration, being a seasonal product, is very low
 40%            30%                                                                    compared to other consumer durable goods. But the sweltering
                                                                         25%
                           20%                                         17%
 20%                                        10%                                        heat witnessed in hot summer necessitates the need for cooling,
             4%                                                                        making air-cooler an essential consumer good.
   0%                                                                                 Low initial investment and variable cost makes air-coolers a better
           Room AC       Refrigerator       Washing        FPD TV      Air Cooler      alternative to other cooling appliance viz., air-conditioning units
                                            Machine                                   Government’s push of electricity for all is expected to provide an
                                                                                       impetus for increasing demand for consumer durables in rural and
                                    India     Global
                                                                                       semi-urban areas

Source: Company, IMF, Axis Securities, Amber Enterprises RHP

                                                                                                                                                                                               6
Symphony Ltd - It's going to be a 'HOT' summer - MarketsMojo
27 FEB 2019        Company Report

                                                                                                                             Symphony Ltd
 Industry wide demand drivers (cont.d)                                                                                       Sector: Consumer Durables

                                                                          Untapped opportunities:
                                                                                                           Rising temperature
                                       Increased electrification:
 Rising per capita income:                                                Rising   temperature     has     necessitates cooling
                                       Power has reached every
                                                                                                                                             Export opportunity:
                                                                          made coolers a necessity in      solutions:
 The per capita income,
                                       village & household in the         summer; nearly 55% of the                                          High      temperatures      in
 which is the crude indicator                                                                              India has been witnessing
                                       country. Densely populated         population lives in hot and                                        summer is not restricted to
 of prosperity of a country                                                                                rise in summer temperature
                                       states viz., Bihar, UP, MP         dry climatic conditions. Not                                       India, it has been a global
 has been reported at USD                                                                                  making      application      of
                                       etc have been beneficiaries        more than 15% of the                                               phenomenon.               The
 1964 and is expected to                                                                                   cooling solution a must.
                                       of the electrification. Rising     households own cooler thus                                         developed, developing &
 cross $2000 in 2018.                                                                                      Cost     effective     cooling
                                       purchasing power coupled           making it an enviable                                              under-developed       nations
 Study has shown that the                                                                                  solutions viz., air coolers
                                       with     electrification     is    growth          opportunity.                                       demand low cost (both
 discretionary spends rise                                                                                 becomes the first choice for
                                       expected to drive the              Moreover, a large part of                                          investment and variable)
 sharply as the per capita                                                                                 consumers        given     the
                                       demand       for     consumer      market (~70%) is still                                             solutions to beat the heat.
 income crosses $2000.                                                                                     seasonal need in 3 months
                                       durable goods like coolers.        dominated by unorganized
                                                                                                           of summers
                                                                          segment.

Residential cooling dominates (FY18)                               Having established ‘Symphony’ as a synonym to cooling, Symphony Ltd has now targeted the
                                                                    business opportunities outside the residential space into commercial and industrial cooling.
            Residential                                            Prior to acquisitions of Mexico, China and Australia, Symphony Ltd was exclusively a cooling
                Air                                                 product company focused on domestic sales and exports of coolers. With these acquisitions, the
             Cooler,                                                company has progressively evolved into cooling technology company with product agnostic
               92%                                                  approach.
                                                                   Currently, the residential air-coolers segment account for lion’s share in the revenues; going
                                      Industrial
                                                                    forward, the share of commercial and industrial cooling segment is expected to increase
                                      & Ducted,
                                                                   Low investment cost (40% of the cost required for centralized air-conditioning) and maintenance cost
                                         8%                         along with low power consumption (almost 1/10th compared to A/Cs) by Industrial air coolers
                                                                    makes them most sought after cooling solutions for commercial applications, thus offering immense
                                                                    business opportunity
                                                                   As per management, the industrial and commercial air-cooling business opportunity is likely to be
    Residential Air Cooler         Industrial & Ducted              more or less at par with the residential cooling segment as far as margins is concerned, though the
Source: Axis Securities, Company                                    opportunity is huge and more essentially, untapped.

                                                                                                                                                                      7
Symphony Ltd - It's going to be a 'HOT' summer - MarketsMojo
27 FEB 2019           Company Report

                                                                                                                   Symphony Ltd
    Air cooling Industry                                                                                           Sector: Consumer Durables

                                                          Bargaining Power of Buyers (High)
                                                                                                                               Symphony offers products
               The brand ‘Symphony’ has an
                                                         There are multiple brands across different                    across price points & various features,
                                                          price points, thus giving the consumer a wide                  offering the consumer a wide choice;
            excellent brand recall, thus creating
                                                          variety of choice.                                             efficient after sales service ensures
             a entry barrier for a new entrant.
            Efficient after sales service ensures
                                                         Low switching cost makes it easier for the                            minimum downtime thus
                                                          consumer to compare products on price,                             differentiating itself from the
                the stickiness of the clients.
                                                          features and post sales service.                                competition as well as unorganized
                                                         Increasing     competition    empowers    the                                 segment
                                                          consumer with substantial bargaining power

       Bargaining Power of Suppliers (Low)                      Industry Rivalry (Moderate)                            Threat of New Entrants (High)
   Air cooler is a technologically sound product        Intense competition among air cooler                 Seasonality of the product, low capital investment
    designed keeping in mind aesthetics, comfort          manufacturers                                         leads to dominance of local players in the overall
    and performance; vendors supplying parts that        Low entry barrier, technology adoption,               market
    goes into making of an air cooler have low            designs, distribution network and after sales        Unorganized players still control around 70% of
    bargaining power as suppliers are fragmented,         services differentiates the product amongst the       the market share
    lack wherewithal to design, market the product.       crowd of air cooler producer
                                                                      Symphony products have
                                                                 various features which enables the
                                                                 appliance serve more than just the
                                                                     air cooling function thereby
                                                                   commanding an edge over the
                                                                              competition                                   Symphony controls around 50%
                ‘Symphony’ brand has become
                                                                                                                         of the organized market (crowded by
               synonymous to air coolers, thus              Threat of substitute products (Low)                            more than 70 odd brands) despite
            helping the company capitalize on the
                                                                                                                             premium pricing in all the price
                increasing temperature every             Air cooler, being a low priced appliance
                                                                                                                            brackets. Extensive distribution
            summer; products across price points          compared to ACs, has great potential given
                                                                                                                              network & high brand recall
             makes Symphony a top choice to a             the under penetration in Indian market
                                                                                                                           differentiates it from both local &
                      marginal customer.                 Though seasonal in nature, the need for                                  organized players
                                                          cooling cannot be done away with in summer

                                                                                                                                                                  8
Symphony Ltd - It's going to be a 'HOT' summer - MarketsMojo
27 FEB 2019       Company Report

                                                                                                                Symphony Ltd
Warmer summers ahead…                                                                                           Sector: Consumer Durables

     Indian subcontinent climate is classified under ‘Tropical climate’;      Expected increase in global temperature anomaly
      though the tropical climate is marked by 12 month mean temperature
      of 18 degree Celsius, the extremes can be as high as 50.2 degree
      Celsius reported in Nawabshah, a city in southern Pakistan’s Sindh
      province on April 30, 2018.
     Global warming, a phenomenon caused by excessive emissions of
      greenhouse gases, is responsible for extreme weather be it hot, torrid
      summers or chilling winters or even excessive rains and melting of
      glaciers in Arctic zones.
     The UN Intergovernmental Panel on Climate Change (IPCC) published
      a report saying temperatures are likely to rise by 1.5 degrees Celsius
      between 2030 and 2052 if global warming continues at its current
      pace. The same was also confirmed by Berkely Earth, California, a
      US based non-profit organization.

Global Average Temperature 1850-2017                                               US-based NASA (National Aeronautics and Space Administration) has
                                                                                    said that Earth’s global surface temperature in 2017 ranked as the
                                                                                    second warmest since 1880 when global estimates became feasible.
                                                                                   But the real concern lies ahead as NASA’s analysis also emphasizes
                                                                                    that the decades-long warming trend continues—17 of the 18 warmest
                                                                                    years have now occurred since 2001.
                                                                                   As per the analysis, Earth’s average surface temperature has risen
                                                                                    about 2 degrees Fahrenheit (a little more than 1 degree Celsius) during
                                                                                    the last century (1900-2000) due to increased carbon dioxide and other
                                                                                    human-made emissions into the atmosphere.
                                                                                   Conclusion: The extremity in climatic conditions is going to persist in
                                                                                    coming future; the variations in temperature is going to be wider, thus
                                                                                    summers are expected to be more warmer while the winters would get
                                                                                    chilling and frosty.
 Source : Berkely Earth, Axis Securities

                                                                                                                                                       9
Symphony Ltd - It's going to be a 'HOT' summer - MarketsMojo
27 FEB 2019        Company Report

                                                                                                                                       Symphony Ltd
           Air cooling- a pressing need of the time                                                                                    Sector: Consumer Durables

                          Cooling has become a necessity; especially in the 3 months of         Climate zones of India
                           summer (in tropical parts of northern hemisphere) starting April to
                           May of every calendar year it is no more a luxury. The fans (which
                           has reached 65% of the households) just circulates the air; when                                 Srinagar
                           this circulated air touches the sweat on the skin, it makes us feel
                           cool. Thus, fans fail to cool the surroundings necessitating an
                           additional but cost effective appliance which could cool the
                           surrounding to beat the hot summer.
                          Air coolers which work on evaporation of water technology are
                                                                                                                           New Delhi
                           very effective in areas which witness hot and dry climate. Air
                           coolers become relatively ineffective in areas with high humidity.
                          Thus air coolers would be effective in the states of UP, Bihar,                   Jodhpur
                           Chhattisgarh, MP, Jharkhand, Maharashtra, Gujarat, Rajasthan,
                           Punjab, Delhi, Northern Karnataka and western Telengana.
                          Evaporative cooling (the principle on which air coolers work) is
                                                                                                                                                     Kolkata
                           effective in low humidity. As relative humidity increases, the
                           difference between the air temperature (LHS) and the achievable
                           temperature (yellow & green boxes) keeps decreasing.

Temperature decrease chart for Air coolers
Air Temperature (deg. F)

                                                                                                                                                                   Hot & Dry
                                                                                                                       Bangalore                                   Hot & Humid
                                                                                                                                                                   Composite
                                                                                                                                                                   Cold
                                                                                                                                                                   Moderate
                                                                                                 Source: Axis Securities

                                                                                                                                                                          10
27 FEB 2019          Company Report

                                                                                                                        Symphony Ltd
 Air coolers- highly underpenetrated, light on pocket                                                                   Sector: Consumer durables

     Summer is restricted to 3 months viz., April, May and June for majority of the hot & dry parts of India. Hence, Indian consumer looks for
      cooling solution that is within his reach both on initial capital investment and operating cost. Fan- either ceiling or table fan, happens to be
      the first choice given the low price, power consumption and lifetime maintenance cost.
     An air cooler happens to be the first cooling solution that people purchase as and when they graduate from a fan; centralized air cooling is
      used in the homes of ultra-rich, even in homes and hotels/ commercial complexes that are centrally air-cooled.
     Unlike air conditioners, air coolers are light on the pocket both at the time of purchase and the power consumed in running the appliance; it
      is environment friendly, portable and doesn’t overcool. Rising disposable incomes, hot summers and improved availability of electricity are
      likely to support the burgeoning demand for sophisticated cooling solutions, coolers being the first choice.
     Symphony will benefit from the likely shift in demand to the branded category after GST implementation. The long-term prospects of
      Symphony are quite positive with the company having multiple growth and earnings drivers

~14.3 Cr HHs (~58% total HHs) reside in                 Air coolers score over air-conditioning units for both capital and variable costs
hot & dry climate areas                                                                              Fans                    Air cooler                   AC
                                                         Initial Investment (Rs.)                  500-3,000               4,000-20,000              25,000-50,000
                                                         Power cost per hour of usage
                                                                                                Rs 0.38@ 75W               Rs 0.5@ 100W             Rs 10.5@ 2100W
                                                         (Rs/hour) (assuming Rs 5/unit)

                                                         Refrigerants                                  No                       Water            Air polluting refrigerants
                        AC: 0.9 Cr
                                                         Decrease in temperature                       No                        Yes                        Yes
                       Air Coolers:                                                                                                               Re-circulates same dry,
                                                                                                Circulates same air,  Fresh filtered clean, cool
                                                                                                                                                  stale air; needs regular
                       2.7 Cr HHs                        Indoor Air quality & air              inefficient & not very   air with powerful air
                                                                                                                                                 cleaning, unclean filters
                                                         circulation                         effective in hot summers delivery of 1500 to 2000
                                                                                                                                                   may cause respiratory
                                                                                             esp. in spacious rooms            cu.mtr/hr
                                                                                                                                                          problems
             No Fans: 8.3 Cr HHs
                                                                                                                                                 Environmentally harmful
                                                         Emission                                      No                        No
                                                                                                                                                   greenhouse gases

                                                                                                                                                     Complicated and
                                                         Maintenance                         Smple & Cost effective    Smple & Cost effective
                                                                                                                                                        expensive
               Fans: 16.4 Cr HHs                         Portability/ Ease of installation            No                         Yes                       No
                                                         Usage                                 Indoor & Outdoor           Indoor & Outdoor             Only indoor
Source: Industry, Company, Axis Securities

                                                                                                                                                                    11
27 FEB 2019       Company Report

                                                                                                         Symphony Ltd
     What differentiates Symphony from its peers                                                         Sector: Consumer Durables

 After Sales service is crucial for                                                                         Symphony products feature extensive
  customer retention. Timely and           Leader in customer                          Leader in terms        usage of technology and innovation to
  resourceful after sales service makes    centric issues                                of innovation        keep the products ahead of the
  Symphony a formidable player in the                                                                         competitors. At the same time, the
  air cooler segment.                                                                                         company ensured low per unit cost
 Being a crucial appliance to beat the                                                                       and improved efficiency to protecting
  hot summers, the management has to                                                                          its margins
  ensure as little downtime as possible                                                                      The products provide more value for
  at customer’s end.                                                                                          money invested vis-à-vis competition,
 An efficient and timely service helps                                                                       thus ensuring satisfied customer .
  the company create goodwill and                                                                            The company sells any of its SKU for
  gives word of mouth publicity, thus                                                                         around 2-3 seasons after which it is
  not only retaining its customers but                                                                        upgraded; company generally derives
  helping enhance the customer base.                                                                          20-30% of revenues every year from
 Company has 1,000 plus service                                                                              the newly launched products.
  centers to serve 19,000 pin-codes
 Symphony enjoys around 50% of the                                                                          Symphony has highest brand recall
  organized air cooler market; the                                                                            amongst its peers, thus helping them
  management                  outsources                                                                      position its products differently than its
  manufacturing thus concentrating on                                                                         competitors.
  the R&D, designing and marketing.
                                                                                                             Rich brand recall coupled with wide
 Sticking to its core DNA of producing                                                                       network of ~30,000 dealers covering
  coolers, the company focuses on           Leader                               Leader in brand and          5,000 plus towns helps the company
  producing        innovative   products
  keeping competition at bay                in management                            category status          reach the nook and corner of the
                                                                                                              country

             Innovation in products, high brand recall coupled with wide distribution network and efficient after sales service makes
                                          Symphony a formidable player in growing air coolers market

                                                                                                                                              12
27 FEB 2019    Company Report

                                                                                                               Symphony Ltd
One product- many functions                                                                                    Sector: Consumer Durables

   Symphony has distinguished its product basket from the competitors
    using technology and adding more punch, value to the product than
    run-of-the-mill cooling function, thus making it more of a consumer
    lifestyle or digital product.
   The company has been successful in positioning the cooler which
    used to be considered as peripheral cooling product into a
    ‘neighbours’ envy, owner’s pride’ by marrying       technology,
    aesthetics and utility into their product

   Symphony has been pioneer in developing never heard of premium
    range of cooling products (> Rs 10,000 per unit) and selling like hot
    cakes, thus raising bar for the competition

   Quality innovations helped the company position air coolers as
    perennial product; various novel features are integrated into the
    latest range of Symphony Air coolers. It includes:
          Digital touch screen
          Voice Assist
          Ultrasonic Mosquito Repellent
          i-Pure Technology- multistage air purification
          Electronic humidity control
          Wall mounted Air cooler resembling an air conditioner
          Magic fill- automatic water filling
          Removable tank
          Cool flow dispenser
          Power saver technology

   Despite creating a differentiated product, Symphony Ltd has ensured
    that their products are priced low enough to trigger an upgrade from
    fans to coolers and attractive enough with air-conditioner like
    features to generate value addition.
                                                                            Source: Company, Axis Securities

                                                                                                                                           13
27 FEB 2019        Company Report

                                                                                                Symphony Ltd
 Centralized Air-cooling – a BIG opportunity                                                    Sector: Consumer Durables

   The ideal temperature at workplace, according to a research study, should be
    between 24-30°C. The average ambient temperature has been rising steadily over
    last couple of decades. Although the difference is only a few degrees, it can
    change the work environment drastically. Countries across the globe have
    mandated temperatures for workers. E.g. South Korea has mandated a
    temperature of 24°C for its workers, New Zealand laws recommend a
    temperature band of 18-24°C while US recommends a range of 20-24°C.
   These days shop floor workers wear more protective gear— helmets, masks or
    other apparatuses because of heightened attention to employee safety. As a result,
    high workplace temperatures make the same task more onerous and sometimes
    more exhausting. Even a reduction of 3-4°C in shop floor temperature can
    enhance productivity by 25-30%.

                                                                                         Central air cooling solutions- a long runway
                                                                                          Opportunity and Size
                                                                                          Factories                  Universities
                                                                                          Warehouses                 Lecture halls
                                                                                          Shops and Showrooms        Service Stations
                                                                                          Religious Institutions     Offices
                                     Central Air cooling Solution
                                                                                          Club House                 Poultry and dairy farms
                                                                                          Residence                  Departmental Stores
                                                                                          Lounges                    Diesel Generator Rooms
                                                                                          Canteens                   Laundry
                                                                                          Guest Houses               Kitchens
                                                                                          Banquet Halls              Malls
          Range of Packaged Air Coolers                   Windows Air Cooler range
Source: Company, Axis Securities

                                                                                                                                        14
27 FEB 2019            Company Report

                                                                                                                    Symphony Ltd
 Centralized Air-cooling – a BIG opportunity (cont.d)                                                               Sector: Consumer Durables

Packaged / Central Air Cooling Solutions                                  Central air cooling solutions- facts and figures
                                                                            Effective Temp ©          24         27        29        32         35        38         41

                                                                            Loss of work
                                                                                                      3%        8%        18%       29%        45%       62%         79%
                                                                            Output

                                                                            Loss of Accuracy          0%        5%        40%      300%       700%          >700%

                                                                           Source: Study of NASA. “Comfort conditioning the Plant with Evaporative Cooling” Plants
                                                                           Engineering July 8, 1976

    Excessive heat in a manufacturing or warehouse environment has negative effects on workers, the production levels and even the quality of
     goods produced or stored goods. An increasingly hot working environment can result in severe slowdown in production, the impact can be
     either tangible or intangible. E.g. Employee sickness/absenteeism are tangible results while low productivity or defective job work due to
     uncomfortable working conditions are the intangible outcomes.
    Heat can affect the health of employees and also impact the health of the equipment. According to Arrhenius Equation, an electronic device
     can operate for 32 years at 45°C but will last just four years at 80°C. Frequent replacement of equipment could lead to higher capex and
     operating costs, thereby hurting company’s bottom line.
    Machinery too produces extra heat and poor ventilation or cooling mechanisms can exacerbate the issue. Excessive heat can hurt production
     levels by causing equipment to operate less efficiently or break down frequently. When equipments fail due to excessive heat, it becomes
     difficult to identify the cause as the damage is often internal and prima facie, the damaged components appear to function correctly. It takes
     detailed testing and analysis to locate the damage leading to more downtime and lost productivity, thereby adding to the cost.
    Evaporative cooling systems have the potential to reduce temperatures by 10-15°C, thus making it an ideal, cost effective way to address the
     rising temperature issue on shop floors. Only caveat these coolers work effectively in dry climates, humidity should be below 60% for these
     types of coolers to work best. In order to benefit from this increased productivity, companies are bound to spend on air cooling solutions for
     their factories, thereby opening up a multi-million units market for Symphony Ltd which happens to be the only branded player in the organized
     space. As per the company, the opportunity size of centralized air-conditioning market in India is estimated to be worth approx. Rs 4,000 cr.;
     the value of centralized air-cooling market is undefined (potentially higher than Rs 4,000 cr.).

                                                                                                                                                                     15
27 FEB 2019    Company Report

                                              Symphony Ltd
 Marquee customers- Centralized air-cooling   Sector: Consumer Durables

Source: Company, Axis Securities

                                                                          16
27 FEB 2019        Company Report

                                                                                                                                  Symphony Ltd
          Milestones                                                                                                              Sector: Consumer Durables
      Acquired
 Climate Technologies       Launched world’s                         Unveiled the world’s                            Recognition from the Government
  Pty Ltd (Australia) 1 st wall mounted air cooler                  1st packaged air cooler                               of India for R&D center

                                                                                                 Established foothold in
                                       Acquired Keruilai (China)                                                                                  Started offering central
                                                                                              all formats of modern retail                      air cooling solutions in India

   2018                  2017                        2016                    2015                        2013                       2012
                                                                                                                                                           2011

                                                                                                                                                     Acquired IMPCO         2009-
                                                                                                                                                     (North America)        2011

                                                                                                                                                                     2009

                                                            1995-                    Pre-                       2002-                       Post-                    Scaled up
       1988                     1994
                                                            2000                    2005
                                                                                     2000                       2005
                                                                                                                 2007                       2005s              international presence

Symphony born with                       Ventured into the manufacture of ACs,                             Suffered financial
 one air cooler model                     washing machines and other durables                           stress and restructured

                           Got listed on                                        Positioning:                                            Strategic Focus:
                         stock exchanges                                ‘Many products – One market’                              ‘One product –Many markets’

                                                                                                                                                                           17
27 FEB 2019      Company Report

                                                                                                        Symphony Ltd
Global warming – an International Cooling opportunity                                                   Sector: Consumer Durables

  Knowing fully well that the Indian market is underpenetrated for air
                                                                          Comparison of temperatures from 1880 till Oct.2018
   coolers, Symphony management did not restrict themselves to
   Indian markets; they made overseas foray as the opportunity came
   their way, be it exports or acquisitions (at reasonable valuations),
   as the temperature variations are not country specific problems.
   Today, Symphony has a presence in over 60 countries.
  Extreme and unpredictable heat waves brought on by climate
   change is not limited to India. Shift in weather patterns leading to
   climate changes is a consequence of man-made global warming.
  The chart besides shows the average global temperatures
   throughout the year starting 1880 till Oct.2018; it must be noted
   that the blue lines are for the temperatures in early part of 20th
   century while the red lines are for last 18 years after year 2000.
   The global average temperatures are higher anywhere around 1°C           Temperatures crossing 28°C (82.5°F) (the definition of overheating
   in 21st century compared to the same period in 20th century.              under modern UK building rules) makes it unbearable for the UK
  According to the World Meteorological Organization's (WMO)                population. According to a study, heat-waves in the UK are up to
   observations, 2016 was the warmest year on record (indicated by           three times more frequent now than at the end of the 19th century,
   red line at the top in the chart beside) with a central estimate of       the duration of heat-waves has also increased two to threefold. UK
   1.15°C above the average calculated since 1850. 2018 is likely            is now an important overseas market for Symphony coolers.
   to be the fourth warmest on record (indicated by dark red line) with     Middle East, Africa are Symphony Ltd’s core market in addition to
   the Earth's average temperature hovering close to 1°C above the           India. Air coolers working on evaporative cooling technology can
   levels recorded in 1850-1900. UK Met Office has predicted that            cool huge open spaces and even outdoors. Symphony’s has
   the global average temperature for 2019 will likely be 1.1°C              successfully undertaken its biggest cooling project at Mecca — the
   higher than the pre-industrial average period from 1850-1900.             biggest air cooler project anywhere so far. Symphony has air-
  In 2010, Russia was hit by an unprecedented and deadly heat               cooled entire Mecca complex by installing 50,000 units in the
   wave, the temperatures in Moscow had crossed 37°C. Soon after,            residential section; it also has installed 200 giant coolers on the
   Russia has been an important export market for Symphony.                  Jamarat Bridge, Meena, Saudi Arabia which is crossed every year
                                                                             by millions of pilgrims.
Source: NOAA, Axis Securities

                                                                                                                                           18
27 FEB 2019    Company Report

                                                                                                       Symphony Ltd
International acquisitions to drive earnings                                                           Sector: Consumer Durables

 In 2009, Symphony acquired the Mexican assets of International         IMPCo Distribution presence
  Metal Products Company (IMPCo), Phoenix, US based company
  that has been producing coolers since the 1930s. Its manufacturing
  facilities in Mexico have opened up new markets in USA & Latin
  America.
 IMPCo was acquired because of the deep knowledge that it
  possessed in industrial coolers, a segment where Symphony was
  absent. Marrying the knowledge and experience from IMPCo with
  the design, style, and aesthetics of Symphony has been a
  synergistic fit.
 Further, IMPCo adopted an asset light model of Symphony by
  outsourcing operations to third party and focusing on brand
  building and marketing. It has successfully made transition to asset
  light, outsourced based manufacturing model in FY18 (Project
  Renovation started in FY15) and reported profit before tax of 39.6
  mn Mexican Pesos.
 IMPCo has wide product basket including commercial / industrial
  cooling systems which are suitable for workshops, restaurants,
  gyms and indoor stadiums etc. The acquisition helped Symphony
  get enlisted with marquee US based large format retail clients viz.
  Walmart, Home Depot, Lowes, Costco, Coppel, Soriana, Sears,
  etc. The acquisition has helped Symphony to leverage IMPCo's
  relationship with these large format stores to market its popular
  residential air coolers in US.
 During the year, the Mexican subsidiary developed     and launched
  a first “All Plastic” window cooler in the Mexico     market which
  received a very good response. The company has        charted out a
  new vision which seeks accelerated growth in the      next 3 years,          Presence
  mainly with the incorporation of new product lines.

                                                                                                                                   19
27 FEB 2019            Company Report

                                                                                                                        Symphony Ltd
International acquisitions to drive earnings (cont.d)                                                                   Sector: Consumer Durables

   Symphony acquired China-based Munters Keruilai Air Treatment                Share of revenue of overseas operations to increase in future
    Equipment (MKE), Guangdong for Rs 1.5 crore ($234,000) in 2016.
    MKE produces energy-saving and environment-friendly evaporative air          100%
    coolers under brand ‘Keruilai’, a market leading brand in China.              80%
    Renamed as Guangdong Symphony Keruilai (GSK) Air coolers Ltd. China,
    the acquisition boasts one of the world’s best repositories in industrial     60%
    cooler knowledge, patents and product development.
                                                                                  40%
   Post acquisition by Symphony, the Chinese subsidiary has developed and
    introduced several new products for industrial, commercial as well as         20%
    household applications, and, also developed several new markets - both         0%
    domestic as well as international.
                                                                                           FY16            FY17         FY18          FY19E         FY20E        FY21E
   GSK products have also been successfully introduced to Symphony’s                    9 months
    already established markets of India and Mexico, and, are very well
    received in these markets. The acquisition also helped Symphony increase                     Domestic Operations               Overseas Operations
    exports of its air coolers, especially to ASEAN markets via China which
    has FTAs in these markets.
   The company MKE, China, which was loss-making at the time of                Revenues & profitability of overseas operations expected to improve
    acquisition, has already broken even in 9M ending Dec.2018 (9MFY19);
    both the top-line and bottom-line is improving and is expected to provide     600                                                                            530
                                                                                                                                                      485
    steady growth in future
                                                                                                                                         364
   Symphony acquired 95% equity stake in Australia based Climate                 400
    Technologies Pte. Ltd. in 2018. The acquired company is one of
    Australia’s most recognized manufacturers of cooling and heating              200                                        148
                                                                                                                  127
    appliances; it commands 35% and 29% market share of the domestic                     79           54
                                                                                                                                 9.2           16           30         41
    Australian evaporative air coolers and ducted gas heaters markets,                                     4.6
    respectively.                                                                   0
   The acquisition of Climate Technologies Pte. Ltd. would help Symphony                     -0.5                  -5.7
    Ltd to moderate its business risks as Australia has complementary weather    -200
    conditions compared to India i.e. when there is summer in northern                   FY15          FY16        FY17        FY18      FY19E        FY20E      FY21E
    hemisphere, Australia or Southern hemisphere experiences winter and
                                                                                                     9 months
    vice-versa. Moreover, Climate Tech. manufactures both heating and
    cooling appliances thereby supplying products required round the year to                               Revenues (Rs cr.)          PAT (Rs. cr.)
    the target market.

                                                                                                                                                                       20
27 FEB 2019        Company Report

                                                                                                      Symphony Ltd
 Asset light business model scores over the competition                                               Sector: Consumer Durables

Asset light business model ensures robust return ratios                Symphony operates on asset light business model requiring low capital
80                                                                      investments; it outsources almost all its production to nine different OEMs
                                                                        thus ensuring that it is not dependent on any one vendor.
60                                                                     This asset light strategy enables the management to concentrate on
                                                                        design, development and innovation along with marketing the product
40                                                                      thus generating high return on capital employed (RoCE)
                                                                       Focusing on single product viz., air-coolers helps them to keep away
20
                                                                        from the other product related distractions and deliberate their energies
                                                                        on developing variants of air-coolers with different features to suit the
  0
                                                                        changing needs of the consumer.
      FY16 (9     FY17       FY18    FY19E       FY20E    FY21E
      months)                                                          Company boasts of 50 plus models of air-coolers and wide range of
                          RoE (%)     RoCE (%)
                                                                        industrial and commercial coolers

High Inventory turnover                                           Sales to Fixed assets have been improving consistently
9.0                                                                14
8.5                                                                12
8.0                                                                10
7.5                                                                 8
7.0                                                                 6
6.5
                                                                    4
6.0
                                                                    2
5.5
5.0                                                                 0
        FY16      FY17      FY18     FY19E       FY20E    FY21E             FY16           FY17      FY18       FY19E       FY20E       FY21E
      9 months                                                            9 months
                      Inventory Turnover ratio                                  Sales to Gross Fixed Assets         Sales to Net Fixed Assets

                                                                  Source: Company, Axis Securities

                                                                                                                                                21
27 FEB 2019          Company Report

                                                                                                                  Symphony Ltd
 Stabilizing margins and stable WC cycles to boost profitability                                                  Sector: Consumer Durables

Margins are stabilizing…                                                       Stable working capital cycle
 35%                                                                             75

 30%
 25%                                                                             55

 20%
                                                                                 35
 15%
 10%
            FY15       FY16   FY17        FY18      FY19E    FY20E    FY21E      15
                     9 months                                                           FY15       FY16      FY17        FY18      FY19E    FY20E       FY21E
                                                                                                 9 months
                  EBIDTA margins (%)             Net Profit Margins (%)                 Inventory Days    Debtors Days     Creditors days   Cash Conversion Cycle

 Consistent spends on advertisements                                              Given the brand recall commanded by the company with its customers,
                                                                                   the distributors keep purchasing the air-coolers even in off-season paying
 50                                                                       6%       100% in advance to take benefit of discounted prices offered by the
 40                                                                       5%       company in the off-season i.e. quarter Q2 and Q3 of every financial
                                                                          4%       year. Company follows the plan of increasing its prices every fortnight
 30                                                                                as the season approaches.
                                                                          3%
 20                                                                               The cash conversion cycle for Symphony Ltd was around 42 days at the
                                                                          2%       end of FY18. The cycle has stabilized post the change in the accounting
 10                                                                       1%       year made in FY16. The company enjoys debtors days of 28 days but
                                                                                   payables are paid in 37 days a testimony of faith reposed by the dealers
   0                                                                      0%       and distributors in their products.
          FY16         FY17        FY18    FY19E       FY20E     FY21E
                                                                                  The margins are stabilizing post change in accounting year and
        9 months
                                                                                   improving profitability of the acquisitions.
                       Advertisement spends (Rs cr.) (LHS)                        Company has policy of consistent advertisement spends esp. in the
                       Advertisement spends as % of Sales (RHS)                    season which acts as an investment in long run and helps it protect its
                                                                                   market share.
Source: Company, Axis Securities

                                                                                                                                                          22
27 FEB 2019           Company Report

                                                                                                                             Symphony Ltd
 Turnaround in acquisitions to help improve profitability                                                                    Sector: Consumer Durables

     Overseas acquisitions would help Symphony Ltd to chart path of growth           Steady growth in revenues and earnings of overseas acquisitions
      both on topline and bottom-line. The acquisitions has brought industrial/
      commercial air cooling technology with them, thus helping Symphony Ltd to       600                                                                             530
      spread its wings beyond residential air-coolers and bid for the business                                                                             485
      opportunities in this untapped space in India. Moreover, these companies
      also offer Symphony Ltd with an entry into lucrative American market with       400                                                    364
      widely diversified product portfolio ranging from residential cooling to
      commercial cooling.
                                                                                      200                              127       148
     The overseas acquisition done by Symphony Ltd in the past are showing                       79
      trends of profitability. The Mexican subsidiary is reporting profits from                             54                                                   30         41
                                                                                                                 4.6                   9.2         16
      FY16 onwards while the Chinese subsidiary has turned around in 9 month               0
      ending Dec.’18. The recent acquisition of Australian subsidiary is already a
      profit making entity and offers Symphony Ltd an opportunity to cross sell its
                                                                                                   FY15      FY16       FY17       FY18       FY19E        FY20E      FY21E
      products in both Australian and American continent. Similarly, it enables                            9 months
      de-risking of business as Australian weather is complementary to Indian
      sub-continent weather.                                                                                      Revenues (Rs cr.)        PAT (Rs. cr.)

Debt/Equity ratio (x)                                                                         Symphony Ltd has been net-cash (almost debt free) company in FY18.
  0.25                                          0.23                                           The recent Australian acquisition has led to debt on the books of the
                                                                                               Australian subsidiary which would be serviced using the proceeds from
  0.20                                                      0.18                               Australian operations; even post acquisition, the company is in net-cash
                                                                                               position.
                                                                        0.15
  0.15                                                                                        The debt/equity (D/E) has consistently been far below 1x; the interest
                                                                                               coverage ratio is in mid twenties indicating better financial health of the
  0.10                                                                                         company
                           0.05      0.05
  0.05                                                                                        The cash on the books is deployed into Debt MFs and arbitrage funds
              0.01                                                                             yielding upwards of G Sec yields for the company.
  0.00                                                                                        The management plans to deploy the cash for any good acquisition
              FY16         FY17     FY18       FY19E       FY20E       FY21E                   opportunity or distribute it among the shareholders through dividends
            9 months                                                                           and share buyback at appropriate time.

Source: Company, Axis Securities

                                                                                                                                                                        23
27 FEB 2019        Company Report

                                                                                                               Symphony Ltd
Weak quarter but the core competency remains…                                                                  Sector: Consumer Durables

Quarterly Performance (Q3FY19)                                                  Symphony Ltd reported a weak set of quarterly results for Q3FY19, which
                                              Quarterly Performance              happens to be an off-season. Company reported 9% YoY growth in
                                                                                 consol. Sales, 41% YoY de-growth in EBIDTA and 43% YoY de-growth in
 (Rs.Cr.)                                           % Change        % Change
                                   Q3FY19 Q3FY18             Q2FY19              profit after tax for Q3FY19 on back of high channel inventory owing to
                                                      (YoY)          (QoQ)
                                                                                 two back to back weak summers.
 Sales                              240     219        9        223      8
 Other Inc                          13.0    13.1      NA        9.0     NA      Cashing on its core competency- the product, brand and product range,
                                                                                 the off season sales over last 6 months has been done on 100% advance
 Total Revenue                      253     232        9        232      9
                                                                                 and the company has maintained its leadership with 90% plus market
                                                                                 share in off-season sales.
 Expenditure
 Net Raw Material                    85      12       597        55     55      After two consecutive bad summers in 2017 & 2018, the channel
                                                                                 inventory has now normalized in majority of the domestic market except
 Purchase of goods                   44      87       (50)       60     (27)
                                                                                 few pockets like Karnataka.
 Personnel                           29      19        55        29      0
 Other Exp                           39      20        95        36      8      The business for overseas subsidiaries is improving- China has posted
 Total Expenditure                  197     138        43       180      9       marginal profit for the first time in 9MFY19 thus ensuring that the
                                                                                 company is on path of recovery and steady growth. GSK, China
                                                                                 reported topline of Rs 47 cr, EBIDTA of Rs 2.7 cr and PAT of Rs 0.36 cr.
 EBIDTA                              56      94       (41)       52      8
                                                                                 for 9MFY19
 Non-operating Income               0.0     0.0       NA        0.0     NA
 Interest                           3.0     0.8       280       1.0     200
                                                                                Q3 is an off season for Mexican subsidiary- IMPCo; for 9MFY19, IMPCo
                                                                                 reported revenues of Rs 60 cr, EBIDTA of Rs 4.7 cr (excluding
 Depreciation                       2.0     1.8        10       3.0     (33)
                                                                                 exceptional income) and PAT of Rs 3.94 cr (excluding exceptional
 Exceptional Item                   0.0     0.0       NA        (4.0)   NA
                                                                                 income).
 PBT                                 51      92       (44)       44     16
 Tax                                14.0    27.3      (49)      13.0     8
                                                                                Symphony Ltd had acquired Climate Tech. Pte, Australia on July 1, 2019.
                                                                                 Hence at the end of 6 months ending Dec.’18, CT Australia reported
 PAT                                37.0    64.6      (43)      31.0    19
                                                                                 revenues of Rs 141 cr, an EBIDTA of Rs 9.23 cr and PAT of Rs 4.13 cr.
 Oth. Comprehensive Income
                                    (1.0)   (0.8)               (4.0)
 (net of taxes)                                                                 All eyes would now on be the upcoming summer season given that the
 Total Comprehensive Income         36.0    63.7      (44)      27.0    33       last two summers were failures as far as the cooling and air-conditioning
 EPS (Rs.)                          5.3     9.2      (42.7)     4.4     19
                                                                                 sector is concerned.

Source: Company, Axis Securities

                                                                                                                                                     24
27 FEB 2019      Company Report

                                                                                                   Symphony Ltd
Valuation Charts                                                                                   Sector: Consumer Durables

One year forward P/E fan chart                                       Valuation
                                                                      Symphony Ltd is well positioned in the air-coolers industry owing to
2000
                                                                       its well established brand with high recall, asset light business
1500                                                                   model, substantial market share and growth in demand for the
                                                                       product on back of improving affordability.
1000
                                                                      We estimate the company to grow at a CAGR of 17% and
 500
                                                                       earnings at CAGR of 11% over FY18-FY21E (FY19 is expected to
     0                                                                 show de-growth). When computed over FY19E-FY21E, we estimate
                                                                       the company to post robust growth of 18% CAGR in revenues and
           Jul-14

           Jul-15

           Jul-16

           Jul-17

           Jul-18
         Mar-14

         Mar-15

         Mar-16

         Mar-17

         Mar-18
         Sep-14
         Nov-14

         Sep-15
         Nov-15

         Sep-16
         Nov-16

         Sep-17
         Nov-17

         Sep-18
         Nov-18
          Jan-15

          Jan-16

          Jan-18

          Jan-19
         May-14

         May-15

         May-16

          Jan-17

         May-17

         May-18
                                                                       29% CAGR in earnings.
                                                                      We value Symphony Ltd at 45x FY21E to arrive at price target of
              Price          20x      30x        40x      50x
                                                                       Rs 1,680 giving an upside of 37%

12mth forward P/E band                                               Key Risks
90                                                                    Single product with seasonality: The business of Symphony Ltd is
                                                                       highly dependent on single product viz., air-coolers which has
70                                                                     seasonal sales i.e. the end-users purchase the air-coolers only in
                                                                       summer.
50
                                                                      Competition from unorganized segment: Air-cooler market is
                                                                       dominated by unorganized with 70% market share who are local
30
                                                                       players with contained costs. Entry of more players in organized
                                                                       segment where Symphony is a leader can create more
10
                                                                       competition.
     Mar-14
     May-14

     Mar-15
     May-15

     Mar-16
     May-16

     Mar-17
     May-17

     Mar-18
     May-18
       Jul-14
     Sep-14

       Jul-15

       Jul-17

       Jul-18
     Nov-14
      Jan-15

     Sep-15

       Jul-16
     Nov-15
      Jan-16

     Sep-16
     Nov-16
      Jan-17

     Sep-17
     Nov-17
      Jan-18

     Sep-18
     Nov-18
      Jan-19

                                                                      Unfavourable forex movement: A big chunk of consolidated
                                                                       revenues are sourced from overseas market. Unfavourable forex
         PE           Mean         Mean+1Stdev         Mean-1Stdev
                                                                       movement may impact profitability of consolidated entity.

                                                                                                                                      25
27 FEB 2019     Company Report

                                                                                                         Symphony Ltd
 Financials                                                                                              Sector: Consumer Durables

Profit & Loss                                                      (Rs Cr)   Balance Sheet                                              (Rs Cr)
  YE March                         FY17    FY18    FY19E   FY20E    FY21E     YE March                 FY17     FY18    FY19E   FY20E     FY21E
 Net sales                         765     798     920     1,145    1,289
                                                                             Total assets              497      653     945     1,146     1,380
 Other operating income             0       0       0       0         0
                                                                               Net Block               75.6     77.9    97.9    97.0      95.5
 Total income                      765     798     920     1,145    1,289

                                                                               CWIP                    0.0       0.0    7.5      5.0       5.0

   Cost of goods sold              525     546     691     806       907
                                                                               Investments             110      177     299     299        299
   Contribution (%)                31.4%   31.6%   24.9%   29.6%    29.6%
                                                                               Wkg. cap. (excl cash)   265      376     405     412        420
   Advt/Sales/Distrn O/H           41.2    32.8    33.9    41.6      41.3
                                                                               Cash / Bank balance     47        23     135     333        560

 Operating Profit                  199     219     196     298       340

  Other income                      43      54      39      41        50
                                                                             Capital employed          497      653     945     1,146     1,380
 PBIDT                             242     273     234     338       390
                                                                               Equity capital          14.0     14.0    14.0    14.0      14.0
   Depreciation                     7       7       10      11        12

   Interest & Fin Chg.              0       2       7       13        13       Reserves                451      598     735     936       1,169

   E/o income / (Expense)           0       0       (4)     0         0
                                                                               Minority Interests      0.0       0.0    4.0      4.0       4.0
 Pre-tax profit                    235     265     213     315       366
                                                                               Borrowings              26        33     175     175        175
   Tax provision                    69      72      56      90       104

 Profit after Tax                  166     193     157     225       261       Def tax Liabilities     5.3       8.9    16.4    17.4      18.4

Source: Company, Axis Securities

                                                                                                                                           26
27 FEB 2019      Company Report

                                                                                                             Symphony Ltd
 Financials                                                                                                  Sector: Consumer Durables

Cash Flow                                                             (Rs Cr)   Ratio Analysis                                               (%)
  YE March                         FY17     FY18     FY19E    FY20E    FY21E     YE March                  FY17     FY18    FY19E    FY20E   FY21E

 Sources                           129      100      291      212       245     Sales growth               71.6      4.4    15.3     24.4    12.6
                                                                                OPM                        26.0     27.5    21.2     26.0    26.4
   Cash profit                     173       201     174      248       286
                                                                                  Oper. profit growth      46.0     10.4    (10.8)   52.2    14.4
    (-) Dividends                  105       56       19       19       25        COGS / Net sales         68.6     68.4    75.1     70.4    70.4
                                                                                  Overheads/Net sales      5.4       4.1     3.7     3.6     3.2
   Retained earnings                68       145     155      229       261
                                                                                Depreciation / G. block    3.8       5.1     6.1     6.3     6.3
   Issue of Equity                  7.0      0.0      0.0      0.0      0.0
                                                                                Effective interest rate    0.2       NA      6.9     7.4     7.5

   Change in Oth. Reserves         (12.2)   (10.6)    4.0      0.0      0.0     Net wkg.cap / Net sales    0.19     0.40    0.42     0.35    0.32
                                                                                Net sales / Gr block (x)   4.2       6.0     5.6     6.6     7.0
   Borrowings                        0        0      132       0         0
                                                                                RoCE                       58.1     48.7    29.3     32.6    31.0
   Others                           66       (34)      0      (17)      (16)      Debt / equity (x)        0.05     0.05    0.23     0.18    0.15

 Applications                      129      100      291      212       245       Effective tax rate       29.2     27.3    26.4     28.5    28.6
                                                                                RoE                        39.6     34.6    21.7     25.3    23.5
   Capital expenditure             (6.3)    (47.9)   174.6     7.5     10.0
                                                                                  Payout ratio (Div/NP)    33.5     10.0    12.7     11.3    11.1
   Investments                     (71.0)   67.0     (14.9)    0.0      0.0     EPS (Rs.)                  23.8     27.5    22.4     32.1    37.3
                                                                                  EPS Growth               40.5     15.8    (18.5)   43.2    16.2
   Net current assets              206.1    105.1    19.3      6.3      8.5
                                                                                CEPS (Rs.)                 25.0     28.1    22.9     32.7    37.9
   Change in cash                   0.1     (24.4)   112.4    198.2    227.0    DPS (Rs.)                  8.0       2.7     2.7     3.5     4.0
Source: Company, Axis Securities

                                                                                                                                              27
27 FEB 2019              Company Report

                                                                                                                                                       Symphony Ltd
Disclaimer                                                                                                                                             Sector: Consumer Durables

Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the Regulations, is engaged in the business of
  providing Stock broking services, Depository participant services & distribution of various financial products. ASL is a subsidiary company of Axis Bank Ltd. Axis Bank Ltd. is a listed public
  company and one of India’s largest private sector bank and has its various subsidiaries engaged in businesses of Asset management, NBFC, Merchant Banking, Trusteeship, Venture Capital,
  Stock Broking, the details in respect of which are available on www.axisbank.com.
2. ASL is registered with the Securities & Exchange Board of India (SEBI) for its stock broking & Depository participant business activities and with the Association of Mutual Funds of India (AMFI) for
  distribution of financial products and also registered with IRDA as a corporate agent for insurance business activity.
3. ASL has no material adverse disciplinary history as on the date of publication of this report.
4. I/We, Pankaj Bobade– AGM, Research, CFA (ICFAI), author/s and the name/s subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect
  my/our views about the subject issuer(s) or securities. I/We also certify that no part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or
  view(s) in this report. I/we or my/our relative or ASL does not have any financial interest in the subject company. Also I/we or my/our relative or ASL or its Associates may have beneficial
  ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Since associates of ASL are engaged in various
  financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. I/we or my/our
  relative or ASL or its associates do not have any material conflict of interest. I/we have not served as director, officer or employee in the subject company in the last 12-month period.
Any holding in stock – No
5. ASL or its associates has not received any compensation from the subject company in the past twelve months. ASL or its Research Analysts has not been engaged in market making activity for the
subject company.
6. In the last 12-month period ending on the last day of the month immediately preceding the date of publication of this research report, ASL or any of its associates may have:
            i. Received compensation for investment banking, merchant banking or stock broking services or for any other services from the subject company of this research report and / or;
            ii.   Managed or co-managed public offering of the securities from the subject company of this research report and / or;
            iii.  Received compensation for products or services other than investment banking, merchant banking or stock broking services from the subject company of this research report;

ASL or any of its associates have not received compensation or other benefits from the subject company of this research report or any other third-party in connection with this report

Term& Conditions:

This report has been prepared by ASL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered in
any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ASL. The report is based on the
facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from publicly available
media or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy,
completeness or correctness. All such information and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not constitute an offer document
or solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this
report at the same time. ASL will not treat recipients as customers by virtue of their receiving this report.

Instead of a company visit, we have done a conference call with the company’s management.

                                                                                                                                                                                                         28
27 FEB 2019                  Company Report

                                                                                                                                                                             Symphony Ltd
Disclaimer                                                                                                                                                                   Sector: Consumer Durables

                                                                                                                  DEFINITION OF RATINGS
                                    Ratings                       Expected absolute returns over 12-18 months
                                    BUY                           More than 10%
                                    HOLD                          Between 10% and -10%
                                    SELL                          Less than -10%
                                    NOT RATED                     We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation
                                    UNDER REVIEW                  We will revisit our recommendation, valuation and estimates on the stock following recent events
                                    NO STANCE                     We do not have any forward looking estimates, valuation or recommendation for the stock
                                                                                                                 Disclaimer:
Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to the recipient’s specific circumstances. The securities and strategies
discussed and opinions expressed, if any, in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific
recipient.
This report may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this report should make such investigations as it deems necessary to arrive at an independent evaluation of
an investment in the securities of companies referred to in this report (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. Certain transactions,
including those involving futures, options and other derivatives as well as non-investment grade securities involve substantial risk and are not suitable for all investors. ASL, its directors, analysts or employees do not take any
responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds,
changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. Past performance is not necessarily a guide to future performance. Investors are advice necessarily a guide to future performance.
Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements
are not predictions and may be subject to change without notice.
ASL and its affiliated companies, their directors and employees may; (a) from time to time, have long or short position(s) in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other
transaction involving such securities or earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or investment banker,
lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. Each of these entities functions as a separate, distinct
and independent of each other. The recipient should take this into account before interpreting this document.
ASL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the recipients of this report should be aware that ASL may have a potential conflict of
interest that may affect the objectivity of this report. Compensation of Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ASL may have issued other reports
that are inconsistent with and reach different conclusion from the information presented in this report.
Neither this report nor any copy of it may be taken or transmitted into the United State (to U.S. Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in
Japan or to any resident thereof. If this report is inadvertently sent or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This report is not directed or
intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to
law, regulation or which would subject ASL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of
investors.
The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. The Company reserves the right
to make modifications and alternations to this document as may be required from time to time without any prior notice. The views expressed are those of the analyst(s) and the Company may or may not subscribe to all the views
expressed therein.

                                                                                    Copyright in this document vests with Axis Securities Limited.
  Axis Securities Limited, Corporate office: Unit No. 2, Phoenix Market City, 15, LBS Road, Near Kamani Junction, Kurla (west), Mumbai-400070, Tel No. – 022 – 4050 8080 / 022 – 6148 0808, Regd. off.- Axis House, 8th
                  Floor, Wadia International Centre, Pandurang Budhkar Marg, Worli, Mumbai – 400 025. Compliance Officer: Anand Shaha, Email: compliance.officer@axisdirect.in, Tel No: 022-42671582.

                                                                                                                                                                                                                                       29
You can also read