REDUCE on Symphony - Trade inventory to impact FY21 - HDFC Securities

Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities.

Symphony's 1QFY21 performance was weak but broadly in line with estimates. Domestic revenue saw a 77% YoY decline owing to COVID-led lockdown and high channel inventory (selling in non-seasonal quarters). Domestic EBIT was zero (loss excluding other income) due to negative oplev. Rest of the world (RoW) fared better, as subsidiaries saw the lower impact from lockdowns. However, CT (Australia) and China posted losses. With heavy channel inventory in the domestic business (40% of last year), we expect a weaker show in the coming quarters too. We cut our EPS estimates by 9/3/3% for FY21/FY22/FY23. We value Symphony at 30x P/E on Jun-22E EPS and derive a target price of Rs 810. Maintain REDUCE.

Weak but in-line revenue: Standalone revenue declined 75% YoY (+103% in 1QFY20 and +12% in 4QFY20), in line with our expectation. Domestic/Exports fell 77/50% YoY. RoW revenue declined by 17% YoY as subsidiaries saw a lower impact from lockdown. IMPCO was relatively unaffected up to May, after which revenue fell sharply. CT saw healthy demand for heaters and strong traction in the US. GSK China saw a marginal decline. While we remain confident about the long-term growth potential of branded air coolers in India and overseas, along with Symphony's ability to gain market share, near term pressure will continue.

A loss at EBITDA: Standalone gross margin dipped by 500bps YoY to 45% (-443bps in 1QFY20 and +729bps in 4QFY20) due to a high salience of spares sales, which have lower margins. Gross margin for air coolers was >50%, in line with 1QFY20. Employee expenses remained flat while ASP/other expenses declined by 79/53% YoY. Symphony recorded a loss in standalone EBITDA of Rs 80mn (HSIE Rs 27mn loss). RoW saw an EBIT loss of Rs 20mn due to high input cost, increased labour cost, and increased freight.

Call takeaways: (1) Channel inventory in India is at 40% of FY20 sales (similar to FY19); (2) inventory with Symphony stands at Rs 340mn; (3) gross margin for air coolers in FY21 is expected to remain stable YoY; (4) the US market is expected to grow to 50% of CT in 3-4 years (currently 15%); and (5) the company intends to maintain a dividend payout of 50%.

Shares of Symphony Limited was last trading in BSE at Rs.830.15 as compared to the previous close of Rs. 841.55. The total number of shares traded during the day was 6163 in over 651 trades.

The stock hit an intraday high of Rs. 844.4 and intraday low of 803.05. The net turnover during the day was Rs. 5113974.

Source : Equity Bulls

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