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Symphony Ltd
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Ladies and gentlemen, good day, and welcome to the Q2 FY '23 Earnings Conference Call of Symphony Limited hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Aniruddha Joshi from ICIC Securities. Thank you, and over to you, sir.
Yes. Thanks, Rutuja. On behalf of ICICI Securities, we welcome you all to Q2 FY '23 Results Conference Call of Symphony Limited. We have with us senior management represented by Mr. Achal Bakeri, Chairman and Managing Director; Mr. Nrupesh Shah, Executive Director, Corporate Affairs; and Mr. Amit Kumar, Executive Director and Group CEO. We will have initial comments from the management, followed by presentation and then a question-and-answer session.
So now I hand over the call to the management for their initial comments as well as the presentation. Thanks, and over to you, sir.
Good afternoon, and welcome all participants to this conference call. My colleague, Nrupesh Shah will be making a presentation and giving his summary, after which we will take all questions together. Thank you.
This is Nrupesh Shah. So welcome to this Q2 September quarter conference call. And thanks to ICICI Security, Anirudh for hosting the call. So that is our presentation. Customary safe harbor statement is applicable.
So during the quarter on a consolidated basis as well as on a stand-alone basis, each has been the highest ever September quarter top line. As far as gross margin is concerned for 6 months, April to September, gross margin on consol as well as stand-alone level is marginally higher than previous year and same about EBITDA margin, more so on stand-alone basis in first 6 months.
However, consol performance has been impacted on account of subdued performance of Climate Technology because part of its sales has been deferred to December quarter, and in line with earlier years, in current year, more so, its performance is skewed to December and March quarter.
Coming to September quarter performance highlights. Just like for 6 months, for the quarter also on a stand-alone as well as consol basis, it has been the highest ever top line. We are really witnessing very robust off-season collection, absolutely in line with pre-COVID period and across the geography, the trade sentiments are quite positive and beyond.
However, our consol as well as stand-alone gross margin, has been impacted mainly because of some strategic reasons of value-accretive product upgradation in about full range of air coolers, all in all, 20-plus SKUs, that is models, we have upgraded them and on those models, we intend to take calibrated price increase.
As far as consol EBITDA and stand-alone EBITDA are concerned, they are down by 4% plus and 3% plus, respectively. Mainly on account of, we have incurred almost INR 6 crores of off-season market research and sales promotion and marketing-related expenses, which will have long-term benefits. Similarly, we have commence the sales to Brazil and that being on a CIF basis, there has been substantial increase in freight costs, about INR 3 crores, that is 1% of the sales in addition to increasing freight in domestic market and also incremental warranty expenses.
So all in all, close to 5% of the gross sales, EBITDA margin has been impacted mainly on account of these 3 items. And in line with pre-COVID, we are back to quarterly payout and Board of Directors have decided to declare INR 2 per share that is 100% all in all, amounting to INR 14 crores by second interim dividend in addition to first interim dividend of equivalent amount post 30th June.
So some of the financial graphs. On a consol basis, top line is in excess of INR 600 crores, up by 34% Y-o-Y while PAT is INR 61 crores, up from INR 36 crores Y-o-Y, up by 70%. Of course, we are fully cognizant of the fact that this is on low base as previous year and year before was low based on account of COVID. The breakup of consolidated performance like segment wise. So as it can be seen in first 6 months, India sales is contributing almost 63% of the consol sales about INR 378 crores, while the rest of the world sales is almost in line with previous year, about INR 225 crores. And almost entire EBITDA has been contributed, amounting to INR 63 crores from business from India sales.
About stand-alone financials. In September '23, for 6 months, it is up by 73% about INR 423 crores, while profit after tax is INR 70 crores, up from INR 39 crores. In terms of the percentage, slightly higher than previous year, mainly on account of the scale and also we registered a robust summer phasing June quarter.
Coming to consol financials for the quarter. Y-o-Y is up by 24% and profit after tax stands at INR 32 crores Y-o-Y, up by 6%. And earlier, I explain the reasons by lower increase in the profit. So this is the waterfall movement of EBITDA margin of previous year to current year. Most of them I discussed and explained earlier. And for the quarter, about the segment, just like for 6-month sales, most of the sales increased from domestic sales, which is quite healthy sign and contribute 69%. While rest of the world sales is again in line with September '21, about INR 84 crores.
Coming to average capital employed in terms of the capital efficacy, which is one of the USP of Symphony, we are back to tight control on capital employed. And for 6 months as a whole, India stand-alone and subsidiaries to weather, the average capital employed is INR 192 crores. About stand-alone financials. For September quarter, sales is INR 215 crores, up from INR 140 crores. While profit after tax, up from INR 32 crores to INR 45 crores and EBITDA margin movement by waterfall, again most of that explained earlier. For the quarter on stand-alone, our capital employed is negative INR 89 crores, mainly on account of robust off-season collection. Some of them have yet to be built in December quarter.
Coming to outlook. In air cooler, in domestic business, there is a decent visibility across our sales channels, across the geographies. And among the global markets, we are actively exploring some of the new global markets. Down the line as Climate Technologies performance will be more skewed to December and March quarter, we are expecting subsequent quarters to post much better performance.
However, in respect of global demand, we are keeping a close watch on evolving global economic headwinds and likely impact on demand especially in United States and maybe in Australia. And as always, we are quite committed to pursue our growth with responsibility towards the society. Thank you.
We invite questions now.
[Operator Instructions] The first question is from the line of Aditya Bhartia from Investec.
So my first question is on Climate Tech. Just wanted to understand what you mean by when you say that the sales have been deferred to Q3. Why exactly has that been happening? And what kind of visibility do we have on that?
Yes. So Y-o-Y as it can be seen Climate Technology has registered negative profitability, and that is mainly U.S.-related sales and some other sales has been deferred to December quarter and March quarter on account of reach in demand. But year as a whole, at this point of time, we are quite confident to maintain the momentum as well as sales by and large in line with last year. In fact, in United States, we are also launching some of the new models and also exploring new sales channels, including large format stores, e-commerce as well as D2C. And D2C and e-commerce have been already activated, of course, at very initial stage.
In Australia as well, both in U.S.A. and in Australia.
Understood, sir. My second question is on overhead expenses. It's been the fourth consecutive quarter wherein we have seen overhead expenses being slightly higher than what one would have imagined. And even in the last quarter, we saw warranty expenses being a little higher. So should we assume that warranty expenses from now onwards would be at a level higher than what we have seen in the past? And also related to question that A&P spends that we have had in this particular quarter, given that it's a offpeak season, we still have had fairly high A&P expenses. Should that be considered as a one-off? Or is there some change in strategy?
Yes, Girish.
Yes. So warranty is generally provided on the basis of historical data. So whatever we have provided in the financial year at '21, '22, there is a short provision because there is a huge treasury -- tertiary sales in the...
In nutshell, whatever is incremental warranty expenses in terms of the percentage in current quarter, that will continue in December as well as the March quarter. You are right.
Understood, sir.
Largely on account of the significant increase in tertiary sales. Secondary sales from the company -- primary sales from the company to the channel grew, but the growth in tertiary sales from the channel out to the consumer was significantly higher and because of all the pent-up inventory that had built up over the last 2 years also got sold out. So the warranty expense incurred to service that much higher tertiary sales is reflecting here.
Perfect. Understood. And about A&P?
Yes, advertisement and sales promotion as a percentage of the sales it may not be as high as in June quarter because in June quarter, we had to, again, clear of backlog of inventory line with the trade, which was unprecedented, accumulated over 2 years. And on top of it, we had to also sell from the company. However, year as a whole, by and large, in terms of the percentage, it may settle around historical average or slightly higher than that.
Secondly, we have to be also cognizant of the fact that for last 3 years, we are quite actively pursuing e-commerce and D2C. So certainly, vis-à-vis sales that advertisement and sales promotion expenses in addition to normal will be continuing.
Again, the ad spend will be there for -- especially for digital, but the corresponding increase in sales will happen gradually over time.
Understood, sir. So the spike that we have seen in advertising spends in Q2, vis-à-vis the typical Q2 numbers that we used to see. That may persist for the next few quarters as well as the strategic decisions that we are undertaking to kind of build new channels?
Yes. So in Q2, as such, there was no direct advertisement or sales promotion barring some negligible amount. It was more like some market research related expenses. And so -- and also somewhat marketing-related expenses related to trade channel. Again, are relatively long-term in nature, but we have to book as revenue expenses. And as conveyed earlier amounts to about 2.5% of the sales, about INR 6 crores.
Right. And this we should assume that at roughly similar run rate, it will continue even during off peak season?
No, no, no. This will -- some of these expenses are onetime expenses and they will not continue. They may -- we may incur them once every few years.
The next question is from the line of Onkar Ghugardare from Shree Investments.
My question was regarding, you just spoke about expanding the business in more territories. Does that mean expanding the business through product and e-commerce or like...
Your voice is breaking. Can you please repeat the question?
Hello? Is it clear now?
Better.
Yes. I was asking you about, you just spoke about expanding the business in other geographies, that is by the mean of expanding it through e-commerce and other ways or like what -- you are seriously looking for some acquisition in those late geographies.
No. At this point of time, we are not looking for actively any inorganic growth. That is not looking for growth through acquisition. It will be pure organic growth, and we are exploring and seriously evaluating some of the markets in Southeast Asia as well as in Latin America where initial traction is quite decent, including Brazil.
Okay. May I know what kind of sales percentage you have in UAE?
What kind of sales percentage?
In terms of overall revenue.
No, we are not giving a country-wise breakup of our international revenue.
I just wanted to know how big the presence is, that's it.
The presence is not significant in the UAE.
It's not significant, right?
No, no, no.
Okay. So are you planning to expand that also when you talk about Southeast Asia or like that doesn't include that?
No, certainly. Certainly, we are planning on expanding in the Middle East and North Africa, the MENA region.
Okay. The second question is regarding other subsidiaries. Can you talk more about that?
Yes. So as far as IMPCO is concerned, consistently, it is doing well. Just to talk about some recent development on account of increased international freight, it's residential air coolers, which we use to supply from India, those moulds and dye. We have shifted to IMPCO and local outsourced manufacturing of household air coolers meant for IMPCO has already begun over that.
So as briefly conveyed earlier, this is the benefit of some of the synergies of our overseas subsidiaries. And that will also help us to explore further in U.S. as well as Latin America. But in a nutshell, IMPCO is doing well. As far as GSK China is concerned, it's not doing well. It is in the rate. However, as shared earlier, about 2 quarters before, we have rationalized its overhead and they are down by almost 35%, and that is partly reflected in first 6 months. So in first 6 months, GSK China, at EBITDA level is breaking even.
And considering local geopolitical situation of GSK China, we are actively pursuing is having some of the valuable products and designs and patents, which are being used and benefited greatly in India as well as other countries. Actually, there is an indirect benefit say, for example, Movicool range of models, centralized air coolers, et cetera, et cetera. So how their complete benefit can be taken over, we are evaluating that.
Apart from the dividends which you have given so far in this year, what about the buyback program you are planning to do?
So as we have declared, obviously, it has not been as of now announced. But we believe that once we have a much better financial it's a question of time, and at the right time, Board of Directors will take appropriate decisions.
So what do you mean by much better financial sir? Can you elaborate on that. You already have good cash flows and cash making...
No. So we have come out of COVID only for the last 2 quarters. We wish to have much better actual performance, even though visibility and roadmap is much better. But irrespective of that, as far as our payout policy is concerned, that is 50% of the PAT that remains unchanged. So whether it is by buyback or dividend that is happening and we will keep on continuing.
But the plan of buyback is certainly on right? It's not up to that...
Yes, it may happen down the line. Immediately, there is no plan.
[Operator Instructions] The next question is from the line of Manoj Gori from Equirus Securities.
Sir, my first question would be like probably over the last 2, 3 years, if you can highlight like in percentage terms, what would be the net additions at dealer and distributor level that we would have done?
There has been a very robust addition but due to competitive reasons, number of distributors and dealers, we are not sharing. And some of the marketing-related expenses incurred in the current quarter or earlier also is in that direction.
Right, sir. Right. Sir, so my question would be when we look at the domestic revenues, the India revenues, and when we compare it versus pre-COVID levels, they are almost flattish. So somewhere around 2Q of FY '20, where I'm referring to. So when I look at the numbers when they are flattish, and we have expanded our distribution network. So how should we read this? Whether the old distributors have been lowering their inventory levels? Or how should we read that? So just some light on that.
So in first 6 months, India revenue is significantly higher, vis-à-vis, pre-COVID level. Secondly, it is also important to note that this company level sales has been achieved after almost fully clearing backlog of inventory lying with the trade pre-March, and that was much higher than the summer sales what we have registered from the company.
So our trade channel has contributed to sale not only what is reflected in our book, but at least 70 to 80 percentage higher than that. That's number one. And number two, company level sales overall, current year versus pre-COVID, year as a whole, we will have a much better understanding. But as of now, even in that respect also, we believe that we should have a robust growth.
So I completely take that point. But my point was like at the end of June quarter, so probably even during FY '20, at the end of first quarter, your inventory levels at the channel, with the channel would be far leaner, would be hardly anything because even that was a great summer. And this year, again, at the June exit inventory levels were almost like negligible. So the question was with regarding that, that despite adding distribution network. So I just wanted to get a sense on that. If probably, if there is something else you can add.
No, no what Nrupesh Bhai is trying to convey is, Manoj, that there was a lot of inventory lying with the channel, which has got clear. So the total sales of Symphony coolers to the end user is much higher than Symphony sales like the company sales to the channel. The accumulated inventory or unsold inventory from the previous 2 summers, got liquidated along with fresh purchase from the company.
Right. Right. Understood. Got it, sir. Sir, secondly, over the last 2 years, we have taken a very accommodative stance given that the channel was facing a lot of challenges by carrying inventories, and we were supporting them through some discounts or probably some offers. So do we still continue to offer them or support them or probably now we are back to our normal business.
So it is back to normal. But see, everything is -- whatever we introduce or whatever we sort of withdraw everything has to be calibrated. There should not be a knee-jerk reaction. So you have to sort of do it in a gradual calibrated fashion. So whether it's a price increase, and you have to do it in baby steps, similarly withdrawal of any sort of price support or any other support also has to be done in small bites.
Right, sir. Got it, sir. So that was very helpful.
So it will take maybe a couple of -- by the time the summer arrives in 2 quarters, we would have arrived at where we want to be in terms of both pricing as well as in terms of margins and trade support.
Great, sir. Great.
And there also, this is a continuous process. It doesn't end in the summer. Again, it's sort of -- we will see how things go. And then once again, come July -- June, July, we will sort of keep on moderating what needs to be done.
Because my point was like if you look at where things have normalized, probably this could be an extra lever where the margins can actually be improved. So I was coming to that.
No, you're right. You're right. Absolutely right. Absolutely right. But things have to be done a little gradually is my point. Yes, it is like somebody is on oxygen then you to wean away the oxygen. You can't simply pull away the tube.
The next question is from the line of Rahul Gajare from Haitong Securities.
Sir, I need a little clarity on this -- the onetime expenses that you all have had. So I believe the expense of INR 6 crores and INR 3 crores would have been taken at the stand-alone level. Is that correct?
Yes, that's right.
Yes.
Okay. Sir, in that case, if I were to just add that as a onetime expense, then the margins are probably similar to what they were last time, closer to 25%. In that backdrop, the consolidated performance or actually subsidiary performance are extremely weak. So I want to understand what exactly is happening at subsidiary level. So can you throw some light on maybe the performance of each of the vertical -- each of the entities, please?
So as explained earlier, you are absolutely right. As far as IMPCO Mexico is concerned, it's perfectly fine. GSK China Y-o-Y, in fact, it is slightly better even though overall impact will be insignificant. However, Climate Technology, particularly in September quarter, it's a lot of sales has deferred to December and March quarter.
But it's annual visibility in terms of the sales and profitability is not changing at all. It's at the most postponement of some of the sales especially with the U.S. and some other markets, including Australia to December and March quarter. So year as a whole, we expect Climate Technology to deliver and perform in line with or better than last year.
Okay. Fair enough. That's very helpful. So in the revenue, the decline of almost 26% on subsidiary performance can be attributed largely to the Australian business and American business. When you are saying Mexico is fine. Is there -- are there any numbers that you can share with us as to how the performance or revenue numbers have been? How the operating performance has been of Mexico and China? Because this negative operating performance at subsidiary level, I'm just trying to understand where is really the problem.
No. So as I mentioned, it's at Climate Technology level, where, in fact, Y-o-Y sales is lower, but there is a complete visibility of the sales and profitability down the line. And in terms of the annual performance of Climate Technology or IMPCO, you can expect to be in line with or better than '21, '22.
Okay. So I think Mexico had a very strong performance in '22. Fair enough. Okay. I understand this. Fair enough. And that is the first question.
Many times, you know, just quarterly performance may be skewed because many times due to a variety of factors and reasons, business doesn't happen just quarter-to-quarter. So the fair view is annual performance and that's what I'm trying to convey.
Sure. That's very helpful. Sir, the second question that I've got is on the price hike that you said. You did indicate that you are looking at taking calibrated price hikes. I want to understand how much price hike is it that you need so that the profitability will be at all your level?
We know how much price increase to make, but it is not to share, not in public domain, again, on account of competitive reasons.
And it varies from model to model, time to time.
No. But if you can give some sense in some range that you're looking at the 5% to 10%, something like that, that would be helpful. So we know that profit is...
So our estimation is to reach to pre-COVID level EBITDA margin percentage over a period of time and whatever needs to be done, it will happen over a period of time.
[Operator Instructions] The next question is from the line of Rakesh Wadhwani from Monarch Networth.
Sir, I just want to understand, in last 2 years, because of the COVID -- first COVID happened in 2021 -- '20, FY '21 and we could -- the sales were impacted and we didn't raise any plans. And in the 2022, again, COVID second wave came and the raw material prices also increased, so we didn't take the price hike. So that can be seen in the gross margin decline in FY '21, in FY '22. I'm taking on a stand-alone perspective. So we think the gross margin will improve in the coming quarters and will it be back to the FY '20 levels?
Yes. So again, it is probably the same answer what we responded in earlier 2 questions. So there is a good possibility to improve that. But again, it will happen in a phased manner.
Okay, sir. I understood.
Secondly, it's not like we haven't taken any price increase. In last 2 quarters, model to model, there has been a price increase. And that is why it is reflected even in the gross profit margin percentage, even though commodity prices, whether in March quarter, June or current quarter is substantially higher than pre-COVID, of course, lower than previous year. But that's how it is reflected in the gross margin percentage also.
Okay. Okay. Sir, one more question on the commercial air coolers. Can you talk about like what is the sales we are doing. If not, I don't want a particular number in general. And what is our view -- because how COVID has common, things are going to normalcy, now factories are setting up, your thought process on the commercial air cooler.
The sales of the commercial industrial air coolers have also been very robust. In fact, it has registered the highest sort of sales percentage amongst all our verticals also because the base is lower. But that is one sort of vertical, which is constantly growing. So that -- again, because the potential is huge, and we are merely sort of I would say we have just begun now, scratch the surface.
And sir, what is the margin profile in commercial air coolers, is it the same like the domain -- like a home...
Better. Better.
Okay. Okay. And what is the percent in total revenue by -- a ballpark number if possible from your side?
Under 50%. Ballpark, you've said so.
Okay, sir.
So it doesn't deserve segmentation reporting as per the guidelines. So obviously, it is lower than that guideline. On a stand-alone basis, of course, on a consolidated basis, it is in a robust double-digit percentage.
[Operator Instructions]
Yes, Aniruddha here, I had some questions. Sir, in case of fans now BLDC norms and finally, BEE norms are getting implemented from 1st of January. So the prices of fan itself will increase. So how do you see the situation as far as air coolers are concerned? Will that have any positive benefit for us considering the fan prices itself will significantly increase? So -- plus -- even some price hike is also expected in the prices of air conditioners, too. So in a way, the scope for taking price hikes in a way, to some extent, also increases for us. So sir, how do you see the situation panning out over the next 1 year? Considering the 2 regulatory changes that are underway.
So although it is unlikely that air coolers will be affected by any regulatory changes. As you said, yes, I mean fans and air conditioners are sort of in the cooling space. So that will sort of certainly help us in able to sort of increase prices. But more importantly, I think we are overall living in a sort of an inflationary environment where not only cooler -- fans and air conditioners, but overall, everything is going up.
So when the tide rises, it sort of lifts all boats and that also will apply to air coolers. So I think the overall inflationary environment is something which is in one sense conducive for any price increase because then there is less resistance from the market, from the consumers to a price increase. So it's just not these 2 categories of fans and air conditioners. But overall, everything is going up and going up significantly.
Does that answers your question, Mr. Joshi?
Yes.
Anirudh, are we audible?
There is no response from his line. [Operator Instructions].
So Anirudh, we can close the session. Anirudh?
Yes, sir. Sorry, my line only got disconnected. Yes, surely. Rutuja, thanks for participants, if there are any questions. Else, please hand over the call to management for closing comments.
Yes. Thank you all the participants for your valuable time during the season. And thanks to ICICI Security, Anirudh Joshi for hosting this conference call. Wishing all of you Happy Diwali after 2 COVID years. So have a good time. Thank you.
Thank you.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.