Buy Symphony- A cool play:: IDBI capital

Please Share::  India Equity Research Reports, IPO and Stock News

Visit http://indiaer.blogspot.com/ for complete details �� ��

Symphony Ltd. is one of the leading domestic players in the air cooler market with a ~20% market share of the total
domestic air cooler market and ~45% market share of the organized market. Its main competitors are Kenstar, Bajaj
and Usha. Symphony PAT had a CAGR of 110% during FY07-11 and will witness a CAGR of 32% during FY11-13E.
Symphony has an asset light business model, low working capital requirement, generates free cash flow and has high
return ratios. It trades at a PER of 10.1x FY13. We initiate with a BUY and a target price of Rs1,522.
Investment Highlights
 Increasing temperatures & growing availability of power to boost demand
As per INCCA, the mean average temperature has increased by 0.51C/100 years during the period 1901-2007
and is expected to further increase by 1.7 to 2C by 2030. The rising mean temperatures will result in increased
demand for air coolers/conditioners. Also growing availability of power (India plans to add ~0.1 mn MW of power
in the 12th plan) will increase the demand for cooling equipments.
 Rising income + growing middle class + lower cost of purchase / maintenance = high demand
Air coolers will have a strong demand due to rising temperatures, increasing income and growing middle class in
the country. Also, as the cost of acquisition (~50% lower) and maintenance of an air cooler is lower as compared
to the air conditioner it will see increased off take from the mass market.
 Strong brand name with wide spread distributor network
Symphony is one of the largest air cooler producers in the country and has a strong brand name in this product
category. It has a widespread distribution network of ~550 dealers and ~10,000 retailers spread across the
country. The company plans to double its dealer and distribution network over the next 2-3 years which will result
in high growth.
 Asset light model + High OPM + low working capital = High Return ratios
Symphony outsources the production of air coolers to OEMs whereby capital expenditure is low. Also, it has high
OPM due to strong branding and lower cost of production. Symphony derives ~65% of revenues from traditional
distributors to whom it sells on cash basis whereby working capital requirement is negligible. Due to an asset
light business, low working capital requirement and high OPM the company has high return ratios. Symphony is
expected to have ROCE/ROE of ~37% in FY13.
 Revenues/ PAT CAGR of ~27%/32% during FY11-13
Symphony is expected to witness a Revenue/PAT CAGR of ~27%/32% during FY11-13E. The growth in
revenues will come from both domestic/export markets. Domestic market is expected to witness a CAGR of 32%
during FY11-13 due to increased demand and further widening of the distribution network. Export market will
have a CAGR of 25% during FY11-13 due to addition of newer geographies.
 Attractive Valuations: BUY with a price target of Rs1,522
Symphony is one of the leaders in the domestic air cooler industry and has enormous growth potential. It has
over the past decade built a strong brand name and a wide distribution network and is now in a position to see
high sustained growth over the next few years. Also an asset light business model with negligible working capital
requirement and high return ratios makes the company attractive. Symphony currently trades at a PER of 10.1x
FY13, which is a significant discount to its listed comparable electronic and consumption peers. We believe given
the growth prospects and superior return ratios the stock can trade at similar multiples to its peers. However we
have been conservative and have valued the company at ~40% discount to its peers. We initiate with a BUY and
a target price of Rs1,522 (12x PER FY13).

read core thesis and other company covered: click link below

Consumption - A play on the evergreen, resilient theme: IDBI Cap