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Symphony Ltd
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Ladies and gentlemen, good day, and welcome to the Symphony Limited Q3 FY '23 Earnings Conference Call hosted by YES Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aakash Fadia from YES Securities. Thank you, and over to you, sir.
Yes. Thank you, Inba. So on behalf of YES Securities, we welcome you to Q3 and 9-month 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. Now I hand over the call to the management for their initial comments post which we will open the floor for question-and-answer session. Thank you, and over to you, sir.
Okay. Thank you, Aakash. Good afternoon, everyone, and welcome to this conference call. Thank you very much for being here this afternoon. The customary safe harbor rules apply. This is Achal Bakeri, by the way. And my colleague, Nrupesh Shah, will be making the presentation, after which we will be taking questions. Thank you very much. Nrupesh bhai, over to you.
Hello, good evening, and welcome to Q3 9 months Symphony call presentation. So customary safe harbor statement is applicable.
So as you know, we are in the place of 27 degree world and so far, cumulatively, Symphony has sold 25 million air coolers worldwide, at least 4x higher than the closest competitor. So happy to announce launching of high-tech BLDC air cooler. BLDC fans are available, but the air cooler. Symphony has achieved the breakthrough in terms of the technology leading to power savings up to 50%, whereby on an average, power savings amounting about INR 2,000 per annum. This has a feature of up to 8-hour night sleep mode and there are 7 speed options as such because of BLDC technology, one can set the speed at any level. But as of now, it is 7 level speed options and we have fully functional remote control. To start with, we have 3 models, Diet 3D 2 models and Winter. And obviously, in line with the technology, this will be premiumly priced with a decent profitability.
So coming to performance highlights. During first 9 months, that is April to December, it has been the highest ever stand-alone as well as consolidated sales vis-à-vis, historical high. Gross profit margin percentage as well as EBITDA margin percentage improved on Y-o-Y basis. Now stand-alone EBITDA margin percentage, excluding other income, stands at 19.9%, up by 270 bps Y-o-Y, while consolidated, it is 13.1%, up by 110 bps. This has been achieved on account of better model mix, decent price increase and softness of input cost. However, in many, many models, we have substantially upgraded in order to have competitive edge and better saleability.
And as far as our overseas subsidiaries are concerned, particularly Climate Technology, the performance has been subdued on account of demand headwinds in U.S. and Australia and in a short time is likely to continue that way.
As far as Q3 December '23 quarter performance is concerned, on a stand-alone basis, it has been the highest ever sales vis-à-vis, the historical high. There has been robust off-season sales and trade sentiments across the channels, across the geography, across the models and range, quite positive and beyond.
Again, gross margin as well as consolidated gross margin percentage, coupled with stand-alone EBITDA margin and consolidated EBITDA margin percentage are higher. Now stand-alone EBITDA margin, excluding other income, stands at 25% jump of 300 bps Y-o-Y for the quarter, while consol is 15.8% on account of the reasons I explained earlier.
Coming to reward to the shareholders. Symphony does follow consistent reward policy and we have a stated payout. So just to summarize, in last 10 years, until 31st March '22, 51% of the pack has been paid out in last 5 years. It amounts to 53%. And in last 3 years, that is until March '22, it amounts to 71% inclusive of special onetime dividend of INR 90 in February '20. And now, in today's Board meeting, the Board has approved and announced share buyback up to INR 200 crore at our share price of INR 2,000 per share. If it is fully bought back, it will amount to reduction in paid-up share capital of 1.43%. So these will lead to total payout of INR 250 crore including about INR 50 crore, buyback tax and incidental expenses.
Currently, our network stands at about INR 800 crore and this buyback and payout, will reduce the network in excess of 30%, which will lead to approx return on net worth and return on capital employed percentage in the first year by around 4%. And obviously, just like any buyback, this is EPS accretive.
Further, we have changed the shareholder reward policy. As many of you will be aware, until now, it was pay out up to 50% of the pack. Now Board has decided in today's Board meeting, we extend increase to payout ratio of 60%. This has been decided considering our asset-light, capital-light business model and we believe that we may not require any major treasury on hand. And of course, this includes dividends, special dividends and buyback.
So coming to 9 months stand-alone financials represented by Sankey Chart. So revenue from operations on stand-alone is up by 65% in 9 months. EBITDA stands at INR 129 crores, up by 92% versus top line increase of 65% and profit after tax stands at INR 122 crore, that is 19% flat margin, up by 79%.
So these are some of the detailed charts. So on 9-month basis, stand-alone turnover, up from INR 390 crore to INR 646 crore and profit after tax, up from INR 68 crore to INR 122 crore, about 19% of the revenue from operations.
Coming to December quarter Q3 financials. Top line is up by 52%, up from INR 146 crore to INR 223 crore. EBITDA is up by 73%, and now EBITDA, excluding other income, stands at 25% versus 22% last year, while including treasury income, EBITDA margin percentage on stand-alone stands at about 29% and profit after tax, up from INR 29 crores to INR 52 crores.
And this is the waterfall chart of movement of EBITDA for December quarter. So as it can be seen, gross margin has improved by 1.4% on account of higher sales. Percentage of employee cost has come down by 2.6%. However, in advertisement, freight and other expenses, there is a marginal increase ranging from 0.2% to 0.50%.
Coming to capital efficacy items. Capital employed during December quarter back to pre-COVID highly efficient. So in our core business, it is negative INR 31 crore on account of robust off-season collection and hence, EBIT percentage on capital employed periodically translates to Infinite, having total treasury of INR 637 crore as on 31st March '22. And on trailing 12 months, the return on net worth stands at 20%.
Coming to consolidated financials about Sankey Chart. Y-o-Y, the top line stands at INR 880 crore, up by 34% lower than stand-alone due to headwinds in U.S. and Australia, as I explained earlier. EBITDA is up by 46%, that is INR 115 crore while PAT is up by 76% stands at INR 100 crore on a consol basis.
And some of the key profitability and revenue chart. So top line on a consol basis for 9 months, up from INR 655 crore to INR 880 crore, while profit after tax up from INR 57 crore to INR 100 crore, up by 76%. And gross margin has increased on a consol basis despite headwinds in subsidiaries from 44.4% to 44.7%.
So about quarterly financial. For December quarter on full top line is up from INR 205 crore to INR 277 crore, that is 35% up while profit after tax is up from INR 21 crore to INR 39 crore, about 14% of the top line, and growth percentage is about 84%.
And this is the waterfall chart of movement of consol EBITDA margin percentage in Q3. So on a consol basis, gross margin percentage is reduced by 0.6%. However, on account of economy of scale, employee cost has come down percentage by 3.4%, while there is marginal increase in 3 expenses, and it stands at about 15.8%.
And coming to consolidated capital efficacy. The average capital employed based on the monthly opening and closing for 9 months. Consol capital employed stands at INR 235 crore, which translates into PBIT percentage for 9 months not annualized 17%, while return on net worth on trailing 12 months is 20%.
Coming to the outlook. As far as domestic market is concerned, there is a decent visibility of consumer sales, again, across the products, across the channel, across the geography. We see overall buoyancy. Symphony will keep on launching as just shared with you, BLDC and many other value-added products. Still there will be graded price increase, and there may be further advantage on account of softening of input costs, with an objective of reaching to EBITDA margin percentage of historical high.
The current global economic situation has already led to demand headwinds, especially in United States and Australia, and we are likely to see the impact of that in the short term. But we believe that some of our large customers who have curtailed the order maybe during the season, they may run out of stock.
And on account of our globalized operations, mainly because of multiple R&D and D&D facilities, outsourced manufacturing facilities, supply chain and very agile logistic arrangement, we are optimizing in various respects.
Thank you. So with this, open the floor for question-answer.
[Operator Instructions] We take the first question from the line of Manoj Gori from Equirus.
Sir, just for understanding, I would like to understand, like you highlighted various initiatives to improve the gross margins. But when I look at sequentially, gross margins have been impacted, especially on your consolidated base numbers as well. So is it largely because of extra discounts or schemes that we have rolled out for U.S. or Australia markets?
Yes. So as far as Q3 stand-alone EBITDA margin is concerned, it has improved from about 22% to 25% as far as Q3 is concerned.
Sir, I'm referring to gross margins over here.
And coming to gross margin percentage, even on stand-alone basis, for 9 months, it is up from 46.4% to 47.5%. This is about the stand-alone.
Now coming to consolidated, the gross margin is up from 44.4% to 44.7%. So only nominally higher while EBITDA margin is also up from 12% to 13.1%. On a consol basis, the impact is not as high as stand-alone basis on account of an increase in global demand due to economic situation.
Also, we have also been witnessing increasing costs, especially in Australia and which we have not been able to pass on to our customers. So I think the bigger problem in Australia has been that, but that is the situation which is being in the process of being corrected.
Sir, can you highlight, like what are those cost items? Because if you look at RM pressures are definitely behind us, plus logistic cost, if you look at, that has definitely has come down at global level. So can you highlight, like what are the costs that are actually impacting the margins over here for this Australia business?
So it's a variety of components, whether it is metal or plastics or even freight domestically within Australia. So I think those are the ones which have -- we have not been able to pass on. And on top of that, the market over there, we've also been -- not been able to sort of, in some cases, being able to sort of match our competitors who have been giving extra discounts. So it's a combination of factors within Australia.
Right. And sir, if we look at -- so probably, when we are seeing some demand headwinds as Nrupesh ji already highlighted, like some of the larger clients might see shortage of stock and there might be some buying again. But when we -- when do we expect normalization in the overall operations, at least from a U.S. or from Australia point of view because if you look at your Q4 was extremely heavy last year for your exposed business, even in your stand-alone entity?
So even this year, it will be significant sales in Q4 in the U.S. However, the overall business in the U.S. is going to be much lower than last year because our major customers over there, and primarily the largest of them all is the Home Depot, has cut down their orders in anticipation of a recession in the U.S. Now which we -- and I think from what we have gathered, this is something which they have done across the board for all products that they sell. They are trying to sort of de-stock and reduce their inventories in anticipation of a recession.
But our sense is that from summer, they will run out of inventory. And very honestly, there will be no way of filling up -- of fulfilling that excess demand, which they won't be able to fulfill because the entire cycle time is in excess of 3 months for us to ship -- produce here and ship coolers to the U.S. So that demand would be lost. So we don't expect us to recoup -- to be able to recoup that demand even if the summer is great and the recession is not so severe. So that is a certainty as far as this year is concerned.
Right, right. Understood. And sir, lastly, if I may squeeze in one more question on domestic business. So obviously, when we look at the Q2 and Q3 performance, domestic business has been back on track and obviously, margins have also improved over year. So with Q4, obviously, when we look at the base is favorable. And in Q1 also, though 1Q FY '23 growth number seems very high, but channel was still carrying some older inventories. So should we expect like there is a strong visibility and channel sentiments as Nrupesh ji highlighted, is very positive, should we expect strong performance during Q4 and Q3 -- sorry, Q4 and Q1 of next year?
That is something that we certainly expect. We certainly expect that internally with a much better performance in the current quarter and in the next quarter. We certainly, internally, do expect that.
Our next question is from the line of Renu Baid from IIFL Securities.
And congratulations for the strong performance. I have 3, 4 questions. First, coming back to gross margins. Now here I'm comparing the stand-alone gross margin in 3Q with the stand-alone gross margins in 2Q, and there has been a sequential drop of 120 basis points despite softness in commodity prices. So was just trying to understand that typically, sequentially, we see improvement in the gross margins as we start nearing the season in terms of pricing. So what has led to weakness in this India EBIT margin as well as gross margin at the standalone level?
Okay. Renu, let me answer that. See, you should not read much into sequential because it is a function of the sales mix and product mix, that's number one. Number two, you would have also seen that in December quarter, there is also major export sales, including sales to subsidiaries where margin is divided and hence, the real reflection is 9 months as a whole and Q3 versus previous year Q3.
Got it. Also when I compare the India, as in stand-alone India revenues like-to-like comparison, yes, that has improved relatively by 100 to 200 basis points there. So get your point.
Okay. Second question is last time when we spoke you had mentioned that there were significant cost-out actions undertaken in Australia to reduce -- in CTL to reduce the fixed cost of that subsidiary. So where are we in terms of turning around the performance of this business? And also in the backdrop that is very certain that U.S. sales, which last year were fairly strong, this season will be declining. So how are we gearing on the cost side for this unfortunate turn in revenues?
So the entire set of what we call business process transformation that we are working on in Australia, which we have embarked upon soon after we acquired the company is actually behind schedule basically, essentially, because of COVID. During COVID, nothing could happen. And that is something which we will only probably witness in the next couple of -- in next 2 years. So that is a process -- it's a process which is on, but what should have been done by now is actually a full 2 years behind schedule. So that's on the cost of doing business front, on the CODB front.
On the COGS front, again, there are -- a lot of measures have been undertaken. But unfortunately, those have been negated by the sharp increase in commodity costs. Commodity costs, although are lower now than they were at the peak, but they are still significantly higher than they were pre-COVID levels -- as pre-COVID levles. So for the year as a whole, both Australia and the U.S. together, the entire Climate Technologies company is not going to be a very happy -- not going to see a very healthy numbers.
Sure. And Nrupesh sir, can you also have some updates on the 9 month or 3Q performance of the subsidiaries, IMPCO, GSK China and CTL, at least the headline operating numbers?
Sure, Nrupesh bhai will go ahead.
So Climate Technology top line is INR 173 crore. I'm saying in INR. And at a PAT level, it is negative INR 17 crore. As far as IMPCO, Mexico is concerned, it is INR 80 crore and PAT is INR 1 crore. And in case of GSK China, top line is INR 27 crore and loss of INR 2 crore. This is what summary of 9 months subsidiary performance. So always keep the figure handy for you.
Thank you so much sir for sharing them, it helps to understand how the individual business we have done. Now coming back to the base India business, as you have highlighted that the summer advances have been fairly robust, which has helped working capital improve sharply. So can we expect -- if you go back 2019 or -- yes, 2019 -- December '19 quarter, pre-pandemic, we had a similar INR 200 crores kind of stand-alone sales and it's almost about 10% growth.
So given that in business, everything is back to normal and summer is good, can we expect, again, a robust growth coming back? And this time around, do you see a bit of focus on the economy segment also, which we had sharpened in the last 2 years with more SKUs should help widen our market share as well as growth in the domestic business?
Yes, Renu, on the -- both on the top line and the bottom line in the current quarter and in the next quarter, we expect a significant improvement in performance. And also the model strategy that you spoke about is also something which is very much happening. And so yes, all of those sort of levers are being used.
Sure. And last, if I can ask any updates on the industrial air cooling business, how is that progressing? And given that CapEx activities also is in generally improving at the factory level, how has this business performed for 3Q and YTD?
Certainly, the growth has been very, very high in sort of, I would say, a very high double-digit growth. However, the base being what it was, a relatively low base, in absolute numbers, it is still not something which may be worth talking about, but it is certainly growing very well, and it's growing in the -- I mean, that business is moving in the right direction.
And in terms of the product acceptance and as you know, the business model wise, that is terms wise, it is at par with residential air cooler, while it comes to the profitability is even better than residential.
Our next question is from the line of Omkar Gangurde from [ Shree's Investment ].
Yes. My question was regarding actually the subsidiary performance. If you look at the 9 months figure, the revenue is contributing around 35% to the top line but profit is here for everyone to see. I mean every quarter, there comes some headwind. So what do you think about the performance of the subsidiary and its overall impact on the profitability in the long run?
Since you specifically say in the long run, we will say that we are very confident about profitability in the long run. If we were to again break down the subsidiaries into 3 key components, which is Australia and the U.S., but actually 4, Australia, U.S., Mexico and China.
So as far as Mexico is concerned, it has remained profitable. We have had to take some haircuts with some sort of write-offs that we had to do with, some customers have gone bankrupt because of COVID, which has affected the profitability. But despite that, it still remains profitable.
China is -- has -- we've been able to bring down the losses significantly. We have not even been able to go to China for -- since 3.5 years -- 3 years and 4 months. So that is something which remains a question mark.
As far as the U.S. is concerned, yes, there was this sort of expectation of a recession, which has led to our major customers cutting down on their orders, which we believe is completely unfounded. And -- but nonetheless, that is something which is being witnessed across the board, across all retailers, across all products in the U.S. So that's something which we expect to correct -- the situation that we expect will be corrected by next year.
As far as Australia is concerned, I spoke about a little earlier. We are in the process of sort of changing the business model. And that should -- the entire benefits of that should be visible in about 2 years' time. Along with that, we have added new products and are in the process of adding new products over there, which have much better margins and are working hard on improving the margins on the existing products. And all of those should surely see effect in '23, '24.
So while I understand where you are coming from. But believe me, we are equally impatient, if not more, and we are, again, extremely concerned about it and working our best -- trying our best to sort of turn things around.
And just to add to that, in '21, '22, mainly on account of U.S. performance and IMPCO performance, '21, '22 year as a whole, rest of the world, that its subsidiaries and exports together contributed 50% of the top line, while rest of the world in terms of the PBIT contributed 40%. But on account of reasons just mentioned, current year, again, it's not doing well. But otherwise, last year, it was a significant turnaround.
But that's been only in 1 year sir, right? If you look at the history, say, last 3, 4 years, the performance -- the overall performance has been dragged by the subsidiaries.
That's right. That is true. That is true. But we also see the subsidiaries as an opportunity going forward, which is why we are hanging in there and making sure that the dragging down will be a thing of the past as we move ahead.
And I specifically asked this question, what would be the impact for the long run? Here you categorized long run as, say, how many years, 2 years, 3 years, 5 years?
2, 3 years. 2, 3 years. In the long run, as the saying goes, we'll all be dead. So what matters is the next 2, 3 years.
Okay. So you expect around like what kind of performance -- I mean, what percentage do you expect at least to add to the bottom line because of subsidiaries, a ballpark figure, I'm asking?
I wouldn't venture into that because I really don't know myself. I don't know what to expect. We don't know what -- how it is going to be. So I really wouldn't venture into hazarding again.
Yes. But as of now, if it is contributing around 30% to the top line, I mean there has to be a decent contribution to the bottom line as well, right? Otherwise, there is no use of doing those things, right?
We are on the same page, yes. Absolutely. Absolutely. We are very much, as an organization, philosophically focused on the bottom line. We just don't change top line for the sake of top line. We change top line, provided it generates the bottom line that we see. Otherwise, we are not here to cool the world.
A follow-up to that is, you had taken a loan for this Climate Technology acquisition. Do you think it would have been better not to take the loan and go ahead with the -- you should have gone ahead with the cash you had at that time to acquire them.
We can still do that. See, there is nothing like -- we can still do that. We can still pay off the loan. We still have the money on our books, but we have done that for a reason. And we also have to remember actually there's a part of the dragging down of Climate Technologies is because of the interest that we face on the acquisition loan, which in reality shouldn't be considered in its performance. But we've taken it for a reason, and the reason as of now still remains valid. If we want, we can pay off the loan. It takes us very little to pay off that loan.
As of now, how much loan do you have to pay to entirely clear of that?
AUD 20 million.
Acquisition loan outstanding is $20 million against original availed $25 million.
AUD 20 million, which is about INR 100 crores.
That is still to be paid, right?
Yes, yes, yes.
Okay. And what's your plan on that front? Like when do you plan to...
Half yearly repayment that's decided with the bank, and that is being done.
Okay. But like in how many years you plan to pay off that entirely.
Balance period is about 4 years.
4 years from?
From now. That is from now.
Okay, 4 years from now.
But irrespective of that, at any point of time from our treasury, we can always prepay, but there is a lot of sense and logic in having that loan because otherwise, Australian dollar fluctuates. And if we would have granted that loan from India, there could have been huge ForEx fluctuation. That's number one.
Number two, even in today's times, that is as of today, including hedging costs, the interest is just 3.85%, while today, the LIBOR is 4.5%. So just consider that the cost is lower than LIBOR. Otherwise, there is a spread of 2 to 3 percentage. That's number two.
And number three, the same amount we are deploying in the treasury in India and today, pretax, it is generating 7%. So by the way, end to end, it generates alpha in excess of 3%. And still there is an option as and when required, we can prepay that, but it doesn't make sense to us. And also partly in case of acquisition, it also needs some discipline at a level of local organization in terms of the performance and cash flow. So to an extent it serves that purpose too.
Okay, thanks for the detail answer. I just -- I have a suggestion or just thinking like instead of focusing 2%, 3% alpha over and there, I guess, management focus should be on to -- should be there on to doing a business, which is more profitable than generating 2%, 3% alpha, right? I mean focus should be there on that. I'm not saying it's not there. I'm just stating my views here.
Thank you very much for your advice.
The next question is on the 60% payout, which you mentioned. Earlier, it was up to 50%, right?
Yes, right.
And now it is 60%, not up to 60%?
It is up to 60%. Everything is up to.
Okay. Because in the policy, I mean, the dividend policy, you have stated at least 60%.
Yes, it is actually at 60%. You are right, earlier, it was up to 50%. Now it is at least 60%. Of course, subject to contingency, et cetera, et cetera. Because we believe that in our business model, being asset-light, capital light and as you would have seen that, on a stand-alone basis, there is a negligible capital input whether for the quarter or for 9 months. And similarly, on a consol basis, it's just about INR 235 crore. So we need not to keep much cash, whereby you track down the RoCE or RONW.
Okay. Just one question on the buyback front. If you say that management is -- or the promoters are also participating in the buyback offer, don't you think that would have -- if the promoter would don't -- or have gone ahead with the buyback, I mean participating in the buyback, that would have been more beneficial to the retail shareholders?
That decision, you should leave it to the promoter and concerned shareholders.
Yes. So, that's what I'm asking, right?
So here also, by the way, now to answer your question, minority shareholder as per their definition, shareholding is just 1.86% as of now, while their reservation is 15%. So against 1.86%, we are going to get 15%.
And can you please tell me why promoter should be penalized? And despite a minority shareholder getting about 8x to their share, why they should be rewarded even higher? And that too, after offering the buyback price of INR 2,000 against the current price of INR 955?
Sir, that is one point, but one thing also is that for last 6 to 7 years, there has been no return for the shareholders as well, apart from the dividends which you have picked, right?
But if you don't like, you need not to remain invested. There are more than 5,000 companies in the country. We are not asking anybody to marry with the company, even date. That is number one.
And number two, there are many -- see you should have patience to listen the answer fully. Please allow me to respond. So what you are comparing these 5 years to 6 years, there are the shareholders for 15 years, 10 years, 8 years and last 2 years also. So your perception may be deep, and there are shareholders who are giving us many, many complementary emails. So it depends upon that.
Sir, myself, I have been a shareholder for 15 years. So just to clarify that.
Fine. So...
Yes. So you have been handsomely rewarded on your investments.
Yes, I have, right?
So you have no reason to complain.
Yes. Yes. I'm just asking for your opinion, sir. There is no complaint and anything I'm talking about. I'm just asking for the...
If somebody is in a capital market, one should be ready for the up and down, only on the Excel sheet business just grows up and chart shows up, isn't? As you, yourself, being in the capital market for too long.
Yes, like the way I gave you the advice thanks for this advice as well, sir.
We'll take our next question from the line of Nikhil Gada from Abakkus Asset Management.
Congrats on a very strong set of numbers, especially on the stand-alone business. Sir, my first question is regarding the stand-alone business itself. And while our main season will start in the upcoming couple of quarters, we have seen certain amount of slowdown, if I can say, so in the other sort of consumer verticals. So what is your view in terms of how we can sort of get ahead by it by any chance? Or you do think that this might be one of the best summers we have?
So our category fortunately or unfortunately, is decoupled from the economy. What really matters is -- the only thing that really matters is the temperature in the summer whereas the temperatures are high enough and consistently high enough. Then regardless of how poorly the economy is doing, we will sell. And the converse is also true. So, so far -- and again, last year was a very good summer. So the channel has completely exhausted its inventory. So which is where the channel has been restocking since the end of the summer. And the channel is fairly upbeat about the prospects of the summer to come.
And I don't want to get ahead of myself, but we are already witnessing high temperatures across the country, although it just the start of the first week of February, we are seeing 35 degrees in Bangalore and 34 degrees in Pune, and right here in Ahmedabad is 33 degrees. So we are seeing sort of -- and then in fact, even has begun some tertiary movement in coolers in the market. So if all goes well, if this continues, if there are no surprises, then we should see a very good summer.
Got it, sir. Sir, you mentioned...
Please remember, I said if. There's a capital if.
Yes, yes. We understand that. Sir, just on the price hike that you've mentioned, can you quantify what kind of price hike we have taken in the quarter? And are there any further price hikes that you need to take? Or because since the commodity prices are now correcting, you are more or less okay with the current pricing that we have?
No, we have been increasing the prices every month in small measures from last year from about 6 -- 7, 8 months ago. And that is continuing even as we speak. So regardless of the commodity prices or -- because please remember that the commodity prices are still higher than what they were pre-COVID. It may have come down from the peak, but there's still -- overall, the material costs are still higher than what they were pre-COVID. So this is something which is going to go on. Our EBITDA margins, which are at, whatever, 19.9% were much higher a few years ago.
So our eventual goal is to be at those historical sort of EBITDA -- gross and EBITDA margins. So we are working towards that. So our price rise is something which is going to go on.
Got it, sir. And just 2 more questions. So just 1 on the margin front specifically once again to the stand-alone domestic business, if I can say so. We have done -- in the past, we have done margins upwards of 28%, 29% on EBITDA level. And now that a lot of business in the domestic also happens because we supply through exports. What kind of a realistic EBITDA margin would you internally target from that perspective? Is it 25% that we are already hitting the best margins we can do? Or you feel...
No, no, no. No way. No way. No way. We are looking at our historical high of 32%.
Including the export that we do to...
No, no, no. I'm saying as a stand-alone, on a stand-alone basis. Now without -- with exports or without export, it's a matter of detail, but one on -- I mean, comparatively, it can be on a stand-alone India business, let's say, we're looking at 32%. So on domestic sales, it will be 32%.
Domestic sales, yes.
Understood. Understood, Got it. And that as of now will be 80% of the overall stand-alone numbers, right?
About that.
Yes. Okay. Yes.
Understood, sir. And lastly, sir, regarding the Australia business that you mentioned that we had planned to turn it around and create a sort of a more enhanced sort of a business model or a differentiated business model. Sir, can you for just the benefit sort of highlight what you are trying to do over there because I might have missed that in the past?
So we haven't even elaborated on that in this call today. But what we are trying to do is there too, we have sort of have a vertically integrated manufacturing facility, which we are sort of converting into an asset-light third-party manufacturing kind of a facility. We are locked in to a lease, which goes on until June '25. So that is one other major cost, which we are trying to sort of exit from and changing the business model from an in-house captive manufacturing to a third-party manufacturing. So all of those are works in progress. It isn't as if nothing has happened. I mean, we are sort of halfway there, but there's still some work that remains to be done, which, as per our original plan would have been sort of behind us by now.
But in those 2 years of COVID really, nothing happened. And so that's one thing on the CODB front. And on the COGS front, like I said a little while before, we have done a lot, but that has also all been sort of washed out by the increase in costs. So that is broadly what we are attempting to do with the company in Australia. And on top of that, yes, on top of that, we are also adding products which are -- which have much higher gross margins than the current products that are being sold.
Got it, sir. Australia is -- how much of the total CT business, Australia region?
So Australia until -- see, all right. So until we acquired the company, almost everything came from Australia. They had really maybe about $5 million, $6 million worth of business in the U.S. How much was it? About INR 20 crore of business in the U.S. until we acquired it in rupee terms. And last year was INR 140 crores. So from INR 20 crores to INR 140 crores. That is what the swing that happened primarily because we acquired the company, we added products and all of that. So until that happened, it was INR 20 crores was U.S. and Australia domestic was maybe about INR 250 crores or so. Now last year, what was the total?
About INR 370 crores, out of which INR 140 crores was...
Was U.S. and INR 230 crores was Australia. So you can see what -- now again, this year, there is going to be a decline in both the U.S. and in Australia, but at least that is what we did, we were able to do last year.
And importantly, U.S. business at EBITDA percentage and X percentage is even more profitable than domestic business in India, considering everything that includes margin, which is retained in Symphony India and margin, which is retained by Climate Technology. But the point is U.S. business is generating that kind of profitability. And number two, apart from one large customer, we have also forayed into D2C as well as e-commerce on Amazon. Of course, it's a beginning. So initially, there will be a small sale and there is a good potential.
Our next question is from the line of Rahul Gajare from Haitong Securities. It looks like Rahul's line just dropped from the queue. In the meanwhile, we'll take our next question, that's from the line of Rakesh Wadhwani from Monarch AIF.
Sir, I had one question. So when you -- in the results section, we -- you -- the company has provided the revenue bifurcation based on the geography, India and rest of the world. So in rest of the world, the revenue for Q3 is INR 79 crore versus INR 84 crore. So is it because -- the decline is because we have shipped some products from India that's why the India revenue is higher? Is my understanding correct?
Yes, part of the production for IMPCO Mexico, which earlier used to take place in India that has shifted to Mexico.
So because of the high shipping costs, we sort of relocated from manufacturing from India to Mexico. So instead of shipping from India, it has been now produced within Mexico, both for the Mexican market and as well as we are using that to supply to the U.S. market.
Okay. Because the sales have come down. So I thought maybe the exports would have been done from the domestic market, Indian markets is my understanding. So just wanted to clarify further. So in FY -- so 3 months, INR 198 crore, India market share versus INR 121 crore and for rest of the world, INR 79 crores versus INR 84 crores. So is my understand correct? Because we have shipped more product from India for these markets. That's why the revenue from rest of the world has come down?
Can you -- we have not fully understood your question.
Can you repeat your question?
Sir, in the financial numbers, in the consolidated numbers, you have given -- a company has given the revenue bifurcation based on the geography. So in the revenue, INR 198 crores, should that -- is it -- just a second. I'll tell you the page number also for your...
Yes, yes, it is there, INR 198 crores.
Okay. So this is because of -- the higher revenue is because we have shipped the products to the export market from India?
No. So India INR 198 crores comprises only domestic sales from India, right? And, whatever, INR 79 crores, rest of the world is comprising of the subsidiary sales and India exports also.
But I believe your question is last year, it was INR 84 crores. Current year, it is INR 79 crores. And even in September, it was INR 84 crores. So while there is a decline?
So decline is the subsidiary sales.
Correct. So decline is there. We are explain -- some of the exports from India to IMPCO Mexico now that happens domestically in IMPCO Mexico on account of logistics cost mainly on account of that. Otherwise, 9 months as a whole, rest of the world is INR 304 crores for the last year.
And there is some decline in Climate Technologies quarterly revenue. So that's why the rest of the world is lower, if you see the consolidated quarterly results. So INR 84 crores versus INR 79 crores is due to the subsidiaries decline in the revenue in the quarter, mainly Climate Technologies.
Okay. And sir, one more point regarding the advertising expenses, they have gone to increase to 6% of the total revenue for the 9 months. And in the past, they have remained in the range of 4% for the consol and for the -- 5% for the stand-alone. So any guidance on that part in the coming quarters or years?
So Rakesh, as we have explained earlier also, this summer season that passed and in the 9-month data, you would see it includes the summer season for last year, calendar year '22, there was substantial starting inventory in the channel, which has to be pushed in the end to create enough pool for that. So increase in A&P mostly to support the channel inventories' liquidation in the market last year. And we intend to get back to our traditional 4.5% to 5% A&P expenses as we move forward.
And secondly, there is also a good amount of cost incurred B2C as it normally happens. So it is inclusive of that. And secondly, in current year, especially in September and partly in the December quarter, there has been onetime sales promotion and marketing on account of some of the market research -- of market business expenses. But we have fully treated them as revenue expenses.
Our next question is from the line of Aditya Bhartia from Investec.
I just wanted to understand on the Australia business. After the acquisition, we also had plans that we'll start shipping some products from India and Chinese facilities. So I understand that those plans have gotten disrupted during COVID. But as of now, we want to have completely local sourcing mechanism? Or are we still open to the idea of exporting a fair bit from India and China?
No. Aditya, we had, in fact, last year supplied everything from India. But then the freight rates went up so high that the cost of freight was much higher than the ceiling in the manufacturing cost. So we in fact relocated the manufacturing to Australia this year. And as I said to -- replied to an earlier question, in the case of Mexico also, we sort of began manufacturing some products in Mexico only to save on the freight cost.
But now going forward, if the freight rates come down to pre-COVID levels, it will still make sense to produce in India and ship directly from India. And our business model and our manufacturing process is fairly agile and fairly flexible. So for us to locate or relocate, it requires effort, but it is not something which requires tremendous cost because it's all third party. So we either -- whether we find an OEM in India or a third-party manufacturer in India or we find a third-party manufacturer in Australia is all that it takes and then relocating the tooling.
So -- but to answer your question, we had already begun to manufacture from India, and then we have to relocate to Australia.
Understood. And at the current freight rates, it makes sense to be procuring from Australia only, freight rates would need to come down meaningfully even from current levels for...
Yes. So that is also one of the things which I was referring to a little while ago in response to another question that many of the sort of measures that we had put in place were washed out by the increase in freight rates and increasing costs. So that was another thing that I was referring to.
Sure. Sure. That makes sense, sir. And sir, regarding our D2C business foray, if you could just kind of spare 2 minutes and explain to us how exactly is that progressing? How large that business could be today? What are the costs that we incur in respect of that and what are plans that we are having?
D2C?
Yes.
Okay. I'll maybe request Amit Kumar to respond to that, Amit?
So, Aditya, D2C business is still a nascent business. We are building the channel, both in India and in a couple of other territories, including Australia and U.S. As of now, it accounts for a very small percentage of the business. But what we are focused on is building it profitably and working it in a way that the average cost for sales on the channel remains in a pretty accessible range. So this is work in progress.
And between this year and next year, we will definitely sort of take it to the next level where this is integrated into the overall approach that we are building on the omnichannel front, where D2C also fits into our sales through the traditional channel. So that's the larger approach. And as the volumes become more material, maybe we'll be able to share the numbers also.
And Probably, as things stand, I mean, I believe in current year or at least in current season from D2C, we expect at least positive EBITDA despite this cost.
Absolutely.
There is going to be positive EBITDA in D2C despite it is at nascent state. That's how it has been standardized.
And just one last bit, if I may add. In semiurban areas and rural areas and versus unorganized space, there are some initiatives that you have taken. How exactly are those shaping up? And are you seeing an expedited shift happening from unorganized space?
Aditya, unorganized continues to be a large subsegment within the coolers market. And as we work into the market, we are working on two states. One is we will hit the dealer penetration, so there we are focused, Bharat is our product, which is in that, taking us deeper into the hinterlands and then deeper into the unorganized market sector. So that's one approach we are taking through a focus product and range going into the smaller retail and hinterland kind of market.
The second approach we are taking is also leveraging a couple of, again, particular products aimed at the rural market, which are designed bottom-up for that segment. And a few of those, we will launch here within the current year.
Our next question is from the line of Rahul Gajare from Haitong.
Sir, most of the questions have -- I've got some clarity, but I just need some more details on some of the areas. Now you talked about price hike that the company has taken over the last several months. Two aspects I want to understand. How much is the total price hike that you have taken in the first 9 months? And what is the gap or the price that you still need to take in order to be neutral on the increased input cost?
So Rahul, first of all, these have been -- I was -- very moderated price increases. So we're not attempting to take a big bite in any one go. So these are all small increases that we affect every month. And this will go on regardless of where the prices are. The price hike is actually not a function of the cost but is more a function of what we believe we can extract from the market.
Okay. Right.
So whether the costs go up or down, I mean costs may go up and price may have to go down in certain situations. You know what I'm saying. So the price and cost actually have no correlation with each other.
Okay. Sir, the second question I had was on the subsidiary sales. Now in the second quarter, I recollect there was some sales referral in Climate Technologies. What you've talked about with Home Depot deferring inventory stocking up. Now that deferral of sales in Climate Technologies in the second quarter, was it more U.S. centric or was it U.S. and Australia?
So the Home Depot thing was all U.S. And so that has been deferred, but that has also been significantly reduced. So what we had sold last year in December is to a great extent going this time in the new year, post January, but it also significantly reduced from last year. Overall orders are significantly lower than last year.
Okay. Fair enough. Because that deferral was expected to come in the Q3 sales. So obviously that has not happened, right? Okay. Sir, my last question on the other expenses. In the second quarter, we've had several...
Rahul, wait, wait, wait. It was supposed to come in Q3. It's happening in Q4. Our point was that.
Okay. Okay. So either Q3 or Q4, that deferral sales would have come through?
Yes, sorry?
So I'm saying that sales would have either come in third quarter or the fourth quarter. That's what you're basically saying?
Correct, correct, correct.
Right. Which is not happening this time around?
It is happening, but the overall sales is going to be much lower than last year.
Okay. Okay. Sir, my last question is on the cost. Apparently, there were several onetime costs, certain expenses in the second quarter. Now in the third quarter, also I see the other expenses is elevated, both at stand-alone level and consol level. So are there any such onetime costs which are sitting in the third -- 3Q number?
Which costs are you referring to, Rahul?
Sir, last time, there were off-season sales promotion. There was...
So in this quarter, there is no one-time type of expenses. Only the very few advertisement costs...
So these are all routine business expenses?
Right.
Our next question is from the line of Manoj Gori from Equirus.
Sir, a couple of questions. One, obviously, Amit ji have highlighted many things for the domestic market. So product innovation has been one of our many strengths over the years. So apart from this, in the long run probably, can you highlight like what would be the key focus areas, which would help us grow faster than the industry, whether it's unorganized or the total air cooler industry? Can you throw some light over there?
Well, it's going to be more of the same, Manoj. Yes. So it's not that we have any sort of magic wall or a magic bullet. It's going to be just more of the same, Manoj. Constant innovation, constantly [Foreign Language] this new markets or existing markets within India, Australia, U.S., Brazil, Mexico, China. So the same markets, maybe new customers in the case of U.S. and Australia, even adding new products. Even in Mexico, we are adding new products, looking at adding new customers. In India, it will be, again, continuous innovation as far as products are concerned, and grow industrial cooler business, grow exports from India. So it is just -- so it's more of the same. It's more of the same.
And keep up rapid -- increasing the marketing network continuously across the channel.
Correct. So all of those things which we have been historically doing, whatever has to be done or whatever it could be done, we've already done. We just have to keep on doing that and keep on doing that more of that and do it better.
Understood. Sir, last question. So if you look at the recently or probably some time back, we came out with this bladeless fan also. Are we seriously considering to get into any other categories? Or probably this was just a similar category of probably 2 air coolers and accordingly, we launched that?
Correct. This was a very good adjacency to coolers -- and which is why we sort of got into it. From our point of view, it is basically a cooler without water and a tank. Otherwise, everything else remains the same, it has the same plastic component, the same motor blower and all of that. So it was clearly an adjacency to cooler than it sort of -- like it was a natural extension of what we are currently doing.
But other than that, we are not -- and at least in -- at the moment, we have no plans of getting into any other product category within India, right? Whereas in -- as I said, in Australia, we are getting into -- we are into coolers and heaters, the build type, the installed type, but we are introducing the portable cooler, portable heater, air conditioners. And in the U.S., also, we have introduced air conditioners, which we are buying from a company in China and giving to our customer over there. And we'll continue to offer more products, which are in the air space.
In Mexico, again, these are all clearly opportunistic sort of moves in Mexico again, bulk of the business comes from cooler. We introduced heaters -- portable heaters a few years ago. That business has been growing at a good pace. But in the next few months, we are also going to be introducing washing machines in Mexico. Again, for various reasons, it makes sense to do that because there are tariff issues and most of the other players are importing. So we sort of manufacturing, that variety of washing machines locally, the only player so far. So there are these opportunities which we will keep on sort of speaking. But otherwise, as far as India is concerned, we are not looking at anything other than coolers and fans as of today.
Our next question is from the line of Renu Baid from IIFL Securities.
Just 2 quick questions, sir. One in IMPCO Mexico, how large is the non-air cooler portfolio for us today? And in your view, given the new category expansion that you're doing in the market, more credit goods. How large could it become over the next 2 years?
So the bulk of the business is still air cooler even in the U.S. -- sorry, even in Mexico. The heaters is a relatively low value product. So also that we've got reasonable numbers in terms of value, which is nothing significant.
The washing machine category is the only sort of relatively sort of higher value category that we are diversifying into in Mexico. How much is -- what kind of traction is it? How much it generates remains to be seen. So at least for now, you may consider that the bulk of the revenue will come from air coolers.
Around 90% even in IMPCO Mexico is from air cooler.
Got it. Secondly, as if -- because this portfolio typically was relatively a soft good portfolio and had seen a very swift recovery in '22. So can we expect because of the diversification in the other durable categories, IMPCO Mexico, should we be able to grow between 15% to 20% CAGR?
That is something which we are -- again, internally, that is something which we are -- that is the kind of the plan that we have. But we really don't make sort of forward-looking statements of that kind. So I'll refrain from giving a number.
Sure. And just soft check, you had mentioned in your comments that Home Depot and some of the large clients in the U.S. are going for de-stocking and have reduced the order pull through versus last year. So just to get a sense, so this typically, when it's a pull through then the order values have been declined. So it wouldn't be like a marginal 10%, 20% kind of decline? Or they're going for -- because last year also the season was a bit mixed for them or this kind of decline, like a 40%, 50% kind of drop. I'm just trying to get the magnitude of withdrawal or the shrinkage in business that we're seeing in the current year from U.S. markets.
So the decline is of a very high magnitude of the kind of order which you mentioned.
Our next question is from the line of Zeeshan Akhtar from [ Happy Gains ].
Okay. Sir, I wanted to -- Am I audible sir?
Your are.
Okay. So I wanted to know about the stand-alone entity. In India, what has been our sales distribution as far as India's geography is concerned, like North, South divide or East, West? Do you have any numbers on that?
Broadly equal. Broadly equal.
Equal. Okay. So is there any part in India that you are focusing on to increase your sales? Or is it -- or do we get some more profits from a certain region in India? Is it that way?
Not actually, Zeeshan. So the profitability is linked more to the model mix. Different models have different profitability. So profitability is linked more to the model mix than the region specific.
Okay. Now my second question is on -- have we added any channel partners or dealers this quarter? What is the status over there?
It's a continuous process. We do that every year. We'll be doing that every year and we continue to do that every year.
Okay. And one more thing sir, we have decided to do the buyback at INR 2,000 per share. Now just a view, I just want to know a view from you. How do -- how have we decided this INR 2,000 per share? Why not like 20%, 30% higher than the share price? Is there any specific reason for this?
We tossed a coin.
So essentially, the Board of Directors and the management believes in the strong growth potential possibility and opportunities down the line. So essentially, that was the case. And that's how this price was decided.
Okay, sir. That's great you are justifying that you are sticking to your asset-light model by giving that much money to the shareholders.
Basically, we think that these price is still at a discount to what we believe would be fair a value going forward.
Thank you, sir. Would you like to add a few closing comments? That was the last question for today.
Thank you. Thanks to all participants for sparing your valuable time, and thanks to YES Securities for hosting this conference call. Thank you.
Thank you, members of the management. On behalf of YES Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.