Symphony Ltd

NSE:SYMPHONY

Earnings Call Analysis

Symphony's Optimistic Q2 FY'24 Performance

Symphony Limited's Q2 FY'24 earnings call, hosted by IIFL Securities, outlined a stable financial performance with consolidated revenue at INR 275 crores, a slight increase from the previous quarter. Domestic sales in India matched the prior year's Q2 at INR 196 crores. Enhanced gross and EBITDA margins were achieved through value engineering, cost reductions, and favorable product mix. The subsidiary in Australia faced demand challenges, whereas IMPCO Mexico saw record revenues, balancing out the former's underperformance. GSK China remained self-sufficient for 1.5 years. A dividend of INR 2 per share was declared. Standalone EBITDA margin jumped by over 5% to 26.8%, and PAT increased by 11%. Substantial improvement in EBITDA margin was driven by gross margin enhancement and other cost efficiencies. The Return on Capital Employed (ROCE) stood at 37% and Return on Net Worth (RONW) at 15% on a consolidated basis.

Symphony Limited Stands Firm Amidst Erratic Weather Conditions

With Q2 FY '24 in review, Symphony Limited sails through what could have been a tumultuous quarter given the erratic summer season. Steady revenues underline the resilience of the company, reporting consolidated revenue at INR 275 crores, which is modestly higher than the previous quarter and echoes the stability of the company's financial performance. Meanwhile, stand-alone sales for Symphony India holds the line at INR 196 crores with domestic sales at INR 191 crores, keeping pace with the corresponding quarter of the previous year.

Margins Reflect Strategic Success

The focus on value engineering and a persistent drive to develop and launch new products have contributed to improved gross and EBITDA margins. A strengthened product mix and easing input costs have borne fruit, resulting in EBITDA margins expanding from 21.6% to 26.8%. The profit after tax (PAT) for the stand-alone entity has climbed by 11% to INR 50 crores, while the EBITDA margin boosted by 13 percentage points to 26.8%, marking more than a 5 percentage point leap year-over-year. These factors collectively underline a strategic shift in the company’s operation, set to uplift Symphony Limited’s profitability.

Subsidiaries Show Mixed Performance

The international map for Symphony's subsidiaries presents a mixed canvas. Climate Technology Australia struggles against domestic demand pressures, while IMPCO Mexico emerges as the silver lining with a record H1 and Q2 revenue, offsetting Australian performance inadequacies. GSK China strengthens the international portfolio further with a steady performance, evidencing no need for support from Symphony India for the last one and a half years.

Strategic Dividend and Capital Allocation

In a nod of confidence to its shareholders, Symphony's Board of Directors has declared a second interim dividend of INR 2 per share, amounting to INR 14 crore. Capital employed slightly descended compared to the previous year, settling at INR 55 crores. With a robust return on capital employed (ROCE) at a staggering 296% in the core business, and a solid return on net worth (RONW) at 21%, the company's capital efficiency continues to impress, backing the executive’s decision-making prowess.

Looking Ahead with Confidence

Looking to the horizon, Symphony maintains an unwavering grip on the air cooler industry, securing approximately a 50% market share in the organized sector. The company's commitment to innovation and a strategic approach towards pricing and market penetration in semi-urban and rural areas is expected to sustain its leadership. A notable shift in sales strategy towards alternative channels is evident, now accounting for over 30% of total sales, up from a mere 10% pre-COVID times. Symphony's market foresight, innovative product development, and diversified distribution channels are poised to continue adding value. Moreover, transformation efforts in subsidiaries like Climate Technology Australia promise substantial cost reductions, with the cost of doing business (CODB) forecasted to decrease by 60% in FY '23-'24. They also anticipate a stabilization of operations as they revamp their product lines and shift towards a more profitable and lean business model.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to Q2 FY '24 Earnings Conference Call of Symphony Limited hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Renu Baid from IIFL Securities Limited. Thank you, and over to you.

[Renu Baid, analyst]

Thank you. A very good afternoon, everyone. On behalf of IIFL, I would like to welcome you all to the 2Q FY '24 Earnings Conference Call of Symphony Limited.

From the management, we have with us today Mr. Achal Bakeri, Chairman and Managing Director; Mr. Nrupesh Shah, Managing Director, Corporate Affairs; and Mr. Amit Kumar, Executive Director and Group CEO.

Without taking much time, I would now like to hand over the call to the management for their opening remarks. Thereafter, we can start the session with Q&A. Thank you, and over to you, sir.

[Unknown Executive]

Thank you very much, Renu and IIFL, for hosting this call and also a warm welcome to all the participants, and thank you very much for being here.

The customary safe harbor rules apply, which I will not repeat. And I'll hand over the call to my colleague, Nrupesh Shah, to take us through a short presentation, post which we are all here to take any questions that you may have.

Thank you very much.

[Nrupesh Shah, executive]

Hello. Welcome to everybody in Q2 conference call of Symphony.

Yes. So coming to performance highlights of Q2. So the revenue from operations at a consol level stand at INR 275 crores, marginally higher than September '22 quarter. Stand-alone sales, that is Symphony India, INR 196 crores, out of which INR 191 crores domestic sales in the country, which is in line with Q2 of last year. This is despite erratic summer season.

Gross margin and EBITDA margin percentage, in line with our continuous efforts and endeavors, have improved, which is mainly on account of value engineering, softening of input costs and continuous thrust on development and launch of new products and favorable product mix.

Coming to subsidiaries' performance. Climate Technology Australia, again, it has not performed up to the mark. Performance has been impacted mainly on account of domestic demand headwinds on account of macro as well as microeconomic situation, particularly in Australia.

However, IMPCO Mexico has delivered higher ever H1 as well as Q2 revenue. So in a lighter way, [Foreign Language] IMPCO Mexico [Foreign Language] Australia [Foreign Language] So ultimately, both put together has become a zero-sum game. While GSK China has delivered a steady performance and it doesn't need any assistance by Symphony India for last 1.5 years.

And Board of Directors has announced second interim dividend of INR 2 per share amounting to INR 14 crore.

Coming to Sankey chart of Q2 stand-alone financials. The revenue is INR 96 crores. EBITDA margin stands at INR 53 crore, which is despite lower top line Y-o-Y higher by 13 percentage. And in terms of the percentage, it is 26.8 percentage, that is in excess of 5 percentage Y-o-Y improvement. While PAT stands at INR 50 crores, that is 11 percentage up, and percentage-wise, it is 25.4 percentage, including treasury income that is up by 470 bps.

Coming to waterfall chart explaining the EBITDA margin movement, 21.6% to 26.8%, mainly on account of improvement in gross margin, favorable freight and forwarding as well as other expenses.

Capital employed on a stand-alone basis in Q2 stands at INR 55 crores, marginally lower than previous year. ROCE at 296 percentage in our core business and return on net worth stands at 21 percentage. While treasury is INR 589 crores, excluding equity investment and loans and advances guaranteed to subsidiaries.

Coming to consol financials, revenue is INR 275 crores. Coming to EBITDA margin, it is INR 42 crore absolute amount-wise, that is 16 percentage higher. And EBITDA percentage stands at 15.5%, that is up by 210 bps Y-o-Y. And PAT stands at INR 35 crore, up by 10 percentage while percentage-wise 12.70 percentage. Just stay for a while. Yes, yes.

And this is the waterfall chart of consol EBITDA margin percentage.

And on a consol basis, the ROCE in core business stands at 37 percentage while RONW is 15 percentage.

And H1 financials. Stand-alone stands at INR 368 crores. EBITDA stands at INR 59 crores, that is down by 19 percentage. And PAT stands at INR 64 crores, down by 8 percentage. And percentage-wise, it is 17.40, up by 80 bps. Just stay for a while.

Yes. And consol in the first half stands at INR 577 crores. While EBITDA almost in line with the previous year, INR 70 crores, and percentage-wise 12.2 percentage, about 40 bps higher. While PAT is, again, in line with the previous year, INR 59 crore.

And coming to outlook. Despite last few challenging years and season, Symphony has maintained it's numero uno position in air cooler industry, maintaining around 50 percentage market share in the organized sector. Of course, #2, 3 and 4, 5 players keep on changing internally while Symphony's market share, market leadership and thought leadership very much continues and that is reflected in innovative value-added products, calibrated strategic price hike and continuous thrust on semi-urban as well as rural area. And there is also a major emphasis on sales through alternate channels, which annually now accounts for more than 30 percentage of the sales, which pre-COVID used to be around 10 percentage.

We have successfully entered into adjacent product category and they have received a good traction. And they are not only adjacent product categories, but we have also diversified into other distribution channel as suitable to those products.

As far as international markets are concerned, apart from India, certainly, despite temporary challenges, the long-term structural drivers are very much played in overseas market on account of intensified heatwave and climate change.

And as far as Climate Technology Australia is concerned, as we updated earlier, there has been a major transformation going on and that has resulted into huge reduction in CODB. Now in FY '23-'24, the CODB will be down by 60 percentage vis-a-vis when we acquired it and next year it will be further stabilized. We are completely revamping the product category, and from existing product category of installed products now into completely mobile products offering much better value proposition as well as there is a better demand and better margins. And almost we have shifted from in-house manufacturing to outsourced business model as well as leveraging retail distribution channel.

Thank you. So opening the floor for question and answers.

[Operator]

[Operator Instructions] We have our first question from the line of Rahul Gajare from Haitong Securities.

[Rahul Gajare, analyst]

Many congratulations, Nrupesh bhai, on the promotion.

[Nrupesh Shah, executive]

Thank you.

[Rahul Gajare, analyst]

Yes. Sir, I've got a couple of questions. First, on the India business. After the first quarter, you had indicated that certain geographies had high inventory of channel. I want to understand how has the channel inventory progressed at the end of the second quarter on the domestic business? And if you can share financials of the CT Mexico and the China business? That will be the first question.

[Unknown Executive]

So Rahul, you rightly highlighted that at the end of the first quarter, we clearly in parts of the country we were sitting on high inventories. And that was a challenge that we were envisaging getting into this quarter. However, as we speak, as you would have noted during the presentation, the quarter this year, the billing that we have been able to do in the channel has been very close to what we did the same quarter last year.

And that was possible on the initiatives focused on expanding the network further and going a bit deeper into the rural market. So the net inventory that we have been able to place in the market at this point in time, compared to last year's same point in time, we are at a slightly higher number. But given the initiatives we have taken, we are certain that we'll be able to take this forward suitably.

[Nrupesh Shah, executive]

And coming to subsidiary company's financials for April to September, 6 months, Climate Technology Australia, top line is INR 91 crore, I'm mentioning in INR, versus INR 115 crore. While EBITDA-wise, it is negative INR 14 crore versus negative INR 11 crore.

For IMPCO Mexico, it is up from INR 69 crore to INR 107 crore. And EBITDA-wise, it is positive INR 18 crore versus INR 7 crore.

GSK China, up from INR 19 crore to INR 23 crore top line-wise. And EBITDA-wise, up from INR 1 crore to INR 3 crore.

[Rahul Gajare, analyst]

Yes. Sir, the next question I have is on the LSV business, that has been gaining traction. Is it possible you can give us some color on how -- what is the performance has been? And what is the kind of potential that you see in the rest of the year?

[Nrupesh Shah, executive]

No. So the color is there is decent growth. We are, by and large, achieving our internal target. And still, on a stand-alone basis, it hasn't touched double-digit percentage so as to report the segment reporting. However, on a consol basis, it contributes almost 15 to 17 percentage of the top line.

[Operator]

[Operator Instructions] We'll take the next question from the line of Hardik Rawat from IIFL Securities.

[Hardik Rawat, analyst]

Actually, I missed out on the EBITDA number for Australia. Could you please repeat that, the revenue and EBITDA numbers for both the current quarter and the previous quarter?

[Nrupesh Shah, executive]

Sure. So I have April to September number. For Climate Technology Australia for first half top line is INR 91 crore versus INR 115 crore and EBITDA is negative INR 14 crores versus negative INR 11 crores. While IMPCO Mexico, top line is INR 107 crores versus INR 69 crores. And EBITDA is positive INR 18 crore versus INR 7 crores.

[Hardik Rawat, analyst]

All right. All right. Apart from that, you mentioned that your market share currently stands at 50% of the organized market, right?

[Nrupesh Shah, executive]

That's right.

[Hardik Rawat, analyst]

I just wanted to understand as to what would be the share of the organized market of the overall market? If you have any indicative numbers that could help.

[Nrupesh Shah, executive]

So value-wise, it will be close to 27, 28 percentage -- sorry, volume-wise, it will be about 27, 28 percentage; value-wise, it will be close to 40 percentage of the total size.

[Hardik Rawat, analyst]

And with regards to your business in Australia, just wanted to understand like what is the status of the transition that we are undertaking to the outsourced model? Like do we expect that to complete in this fiscal or expected to spill over to FY '25?

[Nrupesh Shah, executive]

I think transition should be, by and large, complete by end of current financial year. And current -- next year, '24-'25, we should see the complete benefit and effect of transition. Currently, most of the manufacturing facilities have been outsourced. Reduction in CODB, to a major extent, we have already achieved.

[Hardik Rawat, analyst]

Understood. Actually, I wanted that number as well. Like the reduction in COBD, you said 60% has been achieved in FY '24.

[Nrupesh Shah, executive]

So I'm saying vis-a-vis pre-acquisition. So pre-acquisition, the cost of doing the business was close to $15 million. In current year, that is in '23-'24, we will end with less than $7 million. And next year, it will be further down.

[Hardik Rawat, analyst]

Understood. All right. That and one last question with regards to any new launches that you've planned in coolers and allocation during this -- in the remaining fiscal for the festive season?

[Unknown Executive]

In India?

[Hardik Rawat, analyst]

Both in India and the export markets.

[Unknown Executive]

For the current season, as we are going around with the [ primary ] right now, we have launched a new ranges in the desert coolers category, particularly, which are in terms of [ wind class ] and jumbo class AC. In addition, we have launched a product focus on the kitchen cooler segment, which is the Duet-i. So these are the 2 key products we have launched in the domestic market.

And for the global markets, an additional product on the cooler side is the -- actually what we call [ Buddy ], which is a smaller tabletop cooler, which we have launched in this quarter, particularly.

[Hardik Rawat, analyst]

Understood. Last question with regards to guidance. So with this quarter ending, what sort of guidance are we looking at in terms of revenue and EBITDA for FY '24, if you could help with that.

[Nrupesh Shah, executive]

Hardik, we have uploaded our new investor relationship policy. And as a part of the policy, in line with most of the consumer durable and consumer-facing companies, we are not going to issue any guidance whether short term or medium term. Let we be more focused on actual performance and delivery.

[Operator]

[Operator Instructions] We have a question from the line of Chinmay from Emkay Global.

[Chinmay Kabra, analyst]

Am I audible?

[Nrupesh Shah, executive]

You are.

[Chinmay Kabra, analyst]

Yes. Just wanted an understanding of why the margins have expanded despite the lackluster top line growth?

[Nrupesh Shah, executive]

Can you please repeat the question?

[Chinmay Kabra, analyst]

Yes, yes. I just wanted to get an understanding of the reason behind the expansion in the margins despite a slower growth in the top line, if I compare it. So just wanted an understanding of that.

[Nrupesh Shah, executive]

No. So as this waterfall chart explains, first and foremost, improvement in gross profit margin percentage by 3.30 percentage on account of steady price increase, also on account of decent sales mix and also launch of new models have helped in that respect, of course, supported by somewhat moderation in input costs coupled with better and efficient logistics, supply chain and also other overheads and expenses. So primarily these 3 reasons. So these 3 put together take care of almost 5 percentage improvement in EBITDA margin.

[Operator]

[Operator Instructions]

[Nrupesh Shah, executive]

Renu, even though you are the host, please feel free to ask the question because there can't be any conference call without your question.

[Operator]

We'll take the next question from Anupama Prakash Bhootra from Arihant Capital.

[Anupama Prakash Bhootra, analyst]

Yes. If you can quantify the price increase in this quarter vis-à-vis last year, year-on-year?

[Nrupesh Shah, executive]

I don't think on account of competitive reasons, we'll be in a position to share that.

[Anupama Prakash Bhootra, analyst]

So in percentage terms, can you share like how much percentage year-on-year?

[Nrupesh Shah, executive]

See, we have a large model portfolio, having more than 60 models in the country and more than 100 models across the world. So in some of the models, there may be a price increase. In some models, there may not be a price increase. So we won't like to comment on that.

[Operator]

We have a next question from the line of [ Prashant Sharma ] from Sharekhan.

[Unknown Analyst]

Just want to understand, sir, when do you expect the channel inventory to return to the normal?

[Unknown Executive]

So [ Prashant ], as we said, the channel inventory at this point in time is slightly higher than the last season. But clearly, we are working on plans to bring it to normal levels within this -- within the coming season or so.

So definitely, we are anticipating on the back of some focused initiatives that by end of this season, we will bring it down broadly to the what we call normal, obviously, subject to the seasons and how the weather pans out. But that's the plan right now.

[Nrupesh Shah, executive]

And having said this, there are many, many regions where inventory is almost normal where season was decent and inventory was normal.

[Unknown Analyst]

Okay. And which area are we seeing the issues? I mean is still like the high inventory?

[Unknown Executive]

This, [ Prashant ], would particularly be in select states in North and West, where the inventory is higher than what is the normal inventory.

[Operator]

We have our next question from the line of Rahul Gajare from Haitong Securities.

[Rahul Gajare, analyst]

Sir, following up on my earlier questions, can you also give us the revenue and EBITDA of the China business? And -- yes, so that's the first question.

[Nrupesh Shah, executive]

So about GSK China, in first 6 months, top line is INR 23 crore versus INR 19 crore last year. EBITDA is positive INR 3 crores versus positive INR 1 crore.

[Rahul Gajare, analyst]

Okay. Sir, also with respect to your export market, now I recollect because of the political uncertainty or turmoil, export business was impacted to some extent. Now given the recent disturbance that we are seeing in Middle East, given the Middle East is a large part of your export, how do you see the export business panning out? And -- yes, your thoughts on this, please?

[Unknown Executive]

So Rahul, the uncertainties are still a bit -- it would be a bit premature to comment on this from a season perspective. The market for Middle East particularly builds up somewhere towards the end of the year. And the core markets that we serve, especially the GCC countries, as of now, they don't seem to be impacted because of the ongoing situation there. We anticipate the situation will not affect much into our core markets where we export. So to that extent, we do not see or anticipate a major concern on the Middle East market, in particular.

[Rahul Gajare, analyst]

Got it. Sir, the Egypt market and Sri Lankan market, the business over there, is that normalized now or there is still -- that business is still slow?

[Unknown Executive]

So the traction is building. It's not -- I would not say it's normal, but we are seeing some positive movement and hopefully things should sort of move in the positive direction as we go forward.

[Operator]

Ladies and gentlemen, that was the last question for today. I now hand the conference over to management for closing comments. Over to you.

[Nrupesh Shah, executive]

Thank you all the participants for your valuable time. We are well aware that this is a busy season for the result and back-to-back many conference calls have been lined up.

And thank you, IIFL and particularly Renu, for hosting this call. Thanks.

[Operator]

Thank you, sir. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.