BUY Symphony, :: ICICI Securities, PDF link

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Another stellar performance…
• Despite the off season, Symphony recorded another stellar
performance in Q1FY15 wherein standalone revenue increased
notably by 42.5% YoY to | 102.7 crore led by strong volume growth
of 38% YoY. Domestic sales witnessed strong growth of 43% YoY
whereas exports sales grew ~38% YoY. The company has an
organised market share of more than 50% with the top three brands
constituting ~40% of sales
• EBITDA margins increased 391 bps YoY supported by a sharp
decline in selling & distribution expenses by 340 bps YoY. This was
partially offset by an increase in other expenses by 116 bps YoY.
Advertisement expenses increased 69% YoY during FY14
• Net profit increased ~51% to ~| 22 crore led by a higher EBITDA
margin and sharp growth in other income (due to maturity of FMPs)
Leveraging on strong brand recall…
Symphony is India’s leading evaporative air cooler manufacturer with a
market share of more than 50% (value terms) in the organised product
category. Over the years, it has been able to create a strong brand name,
which has become synonymous with air coolers in India. With its focus
on R&D and innovations, Symphony constantly evolves its products to
enhance design, technology and post sales services. The company has
launched more than one new model annually for six years. Over the
years, it has established a robust distribution network comprising ~750
dealers (152 in 2007), ~16,500 retail dealers (3,308 in 2007) and ~4,500
towns (1430 in 2007). Also, Symphony has consistently invested in brand
building through advertisement campaigns (~4% of sales over the last
three years), strengthening its brand recall.
Asset light business model with zero debt strengthens balance sheet
Symphony operates through an asset light model wherein it outsources
manufacturing of air coolers to about nine exclusive vendors in India and
uses the cash and carry model for sales. It has maintained its return ratios
i.e. RoCE and RoE at 44% and 38%, respectively, in FY14 mainly due to
an asset light model and almost debt-free status since 2006. We believe
the zero debt status provides adequate room to fund Symphony’s organic
and inorganic growth opportunities whenever required.
Exploring industrial cooling segment
Symphony is exploring new opportunities in the industrial cooling
segment through its Mexican subsidiary Impco. The company started
leveraging the enduring relationships established by Impco with large
format stores like Wal-Mart, Sears, Lowes, Famsa and Costco, among
others, to widen its presence in North, South and Central America.
Upgrade to BUY: Revival in economy to bring cheer for leader in cooling
Historically, during FY11-13, the stock has commanded an average one
year forward earning multiple of 15x with revenue, earnings CAGR of
14%, 8%, respectively, and average RoE of 30%. We believe Symphony
would continuously post strong revenue, earning CAGR of 27%, 26%,
respectively, for FY14-17E. The company declared a total dividend of | 13
per share in FY14. As a policy, Symphony would keep the dividend
payout at more than 50%. This would increase return ratios for
Symphony, going forward. We roll over our valuation on FY17E
considering the revival in the Indian economy. We value the stock at 30x
FY17E earnings with a revised target price of | 1850/share and upgrade
our recommendation from HOLD to BUY


LINK
http://content.icicidirect.com/mailimages/IDirect_SymphonyLtd_Q1FY15.pdf