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Maintain ADD on Symphony - Lost summer hampers domestic momentum - HDFC Securities

Posted On: 2021-07-28 07:11:31 (Time Zone: UTC)

Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities and Mr. Saras Singh, Institutional Research Analyst, HDFC Securities

Symphony's domestic business was impacted slightly higher-than-expected due to the absence of the usual peak season demand. Domestic revenue was at INR 860mn (HSIE INR 954mn), down by >40% on Q1FY20. While channel inventory is higher than usual, it is lower than the previous year. Exports were slightly above expectation at INR 180mn (HSIE INR 152mn). The RoW (ex-exports) revenue was up 11% YoY with CT, Australia, demand slightly impacted by the second wave. The company expects CT, Australia, to achieve FY20 revenue in FY22. Gross margin expanded 212bps YoY (-500bps in Q1FY21, -726bps in Q4FY21, HSIE 450bps) to 47%, but was down by 150bps QoQ. Higher operating expenses (despite a weak revenue) resulted in nil EBITDA (INR -80mn in Q1FY21, INR 240mn in Q1FY20). The absence of the usual peak season demand for two consecutive years has massively impacted the cooling products segment. The air cooler retail demand is highly skewed during April-June, resulting in a weak show for Symphony. While it is an industry-wide phenomenon, we do not see it having any impact on Symphony's market share in the segment. Given the company's leadership position and innovative product pipeline in residential and commercial /industry, we believe it is well positioned to gain from a strong season. We value the stock at 35x P/E on Jun-23E EPS and derive a TP of INR 1,200. Maintain ADD.

Domestic season lost again: Standalone revenue is up by 160% YoY (-75% in Q1FY21 and 38% in Q4FY21) vs HSIE 176% YoY. The company lost out on another year of peak seasonal sales. Domestic revenue grew by 153% YoY (HSIE +181%) while exports saw 200% YoY growth (HSIE +153%) on a low base. The company maintains its stance on supporting its channel partners to liquidate the inventory. The RoW was up by 20% YoY as most regions were not impacted by the second wave, except Australia, which saw impact.

Miss in margins: Standalone GM expanded 212bps YoY to 47.1% (-500bps in Q1FY21 and -726bps in Q4FY21) vs expectation of 450bps YoY. Employee/ASP/other expenses were up by 15/217/114% YoY, leading to nil EBITDA. Domestic business reported an EBIT of INR 20mn against nil in Q1FY21. The RoW margin was at 18% compared to an EBIT loss in Q1FY21 and Q4FY21. The RoW margin for Q1FY22 was INR300mn.

Con call takeaways: (1) While channel inventory is higher than usual, it is lower than Q1FY21. (2) The company has launched new products in the residential, commercial / industrial categories. (3) Product launches and selective price hikes will help the company overcome input cost pressures. (4) The company expects domestic sales to get back to ~50% gross margin level, going forward. (5) New dealers will be more impacted by this lost summer, while the company will continue to support its trade network. (6) It expects CT to clock revenue close to the FY20 level.

Shares of Symphony Limited was last trading in BSE at Rs. 994 as compared to the previous close of Rs. 1021.1. The total number of shares traded during the day was 24561 in over 4495 trades.

The stock hit an intraday high of Rs. 1033 and intraday low of 985. The net turnover during the day was Rs. 24615192.

Source: Equity Bulls

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