Symphony Ltd

NSE:SYMPHONY

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Q4 FY '22 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 Ms. Renu Baid from IIFL Securities. Thank you, and over to you, ma'am.

[Renu Baid, analyst]

Thank you. A very warm welcome to all the participants for Symphony's 4Q FY '22 Earnings Conference Call. Today, we have with us from the management, Mr. Achal Bakeri, Chairman and Managing Director; Mr. Nrupesh Shah, Executive Director, Corporate Affairs; and Mr. Amit Kumar, Group CEO. They're all here today to discuss the results and thereafter share the growth outlook of the company.

With these words, I would now like to hand over the call to Mr. Achal Bakeri for his opening remarks. Let me first start with the presentation and followed by Q&A please. Thank you, and over to you, sir.

[Achal Bakeri, executive]

Thank you, Renu. So good afternoon, everybody, and welcome to this call. Since we have a fairly exhaustive presentation to follow, I'll keep my remarks brief. I think at the end of this presentation, what I would like you to -- the key takeaway that I would like you to go with is that our Symphony's international business or business, which is out of the country, out of the rest of the world business has really sort of proven to be a saving grace for Symphony.

It is our -- this year and in the year, which ended in '21, '22, and in the quarter, we ended in March, the contribution of revenue has been 51% for the year and 56% for the quarter. But more importantly, the contribution in PBIT has been 39% for the year and 64% for the quarter. So -- and these are primarily driven by our 2 subsidiaries, 1 in Mexico and the other in U.S. and Australia. And this comprises of the sales of the subsidiaries, the sales of Symphony India to those subsidiaries and the sales of Symphony India to other markets, other customers in other geographies. So this is the entire international piece or all the revenue that Symphony generates from outside India together.

So the point is that all along, there have been apprehensions about the international subsidiaries, financial performance, and not in terms of revenue, but at least in terms of their margins. So finally, those apprehensions we believe can be sort of [ late ]. So the key takeaway that I would like you all to get is that -- so of course, the India business has bounced back because of the COVID being behind us, the summer has been good up to March, March itself was also very good. So the India business has bounced back. And then there are a host of other things, which we will talk about. But I just wanted you to sort of get this -- the big message about the international business having turned around.

Thank you. I'll request Nrupesh bhai now to take us through the presentation.

[Nrupesh Shah, executive]

Hello. Good afternoon, and warm welcome. So I'm presenting earnings presentation for FY '22. Of course, customary safe harbor statement applies. So we'll take you through these about 8 different sections in the presentation. So starting with the performance highlights and summary for '21, '22. So first and foremost, consolidated -- just excuse me. So consolidated gross profit margin percentage for '21, '22 stands at 45% versus EBITDA margin percentage of 19%, and despite input cost pressure, logistic cost pressure, GP margin remains at the same level, which was in 2021.

Secondly, I wish to really clearly highlight that gross profit margin and EBITDA margin are most relevant [indiscernible] structure to look at consolidated level and not subcompany level or subsegment level. The reason being large chunk of sales from Symphony India is heading to U.S. through Climate Technology and hence, margin sharing is taking place between Symphony India and Climate Technology.

But if we combine margin being retained by Symphony India on account of transfer pricing and Climate Technology, the profit of it is quite robust. Consol profitability stands at INR 177 crores, that is Y-o-Y growth of 25% and rest of the world, that is international business has contributed about INR 70 crores versus INR 11 crores last year. And this rest of the world of international business, as Achal bhai outlined, consist of exports from India and our overseas subsidiaries business. So this translates 39% of the consolidated PBIT from international business.

In FY '22, U.S. sales was INR 133 crores, that is up from INR 90 crores in FY '21 and up from INR 48 crores in FY '20. And still, we have excellent visibility of decent growth in U.S. business in the current year, and U.S. business is happening at extremely profitable level. The total dividend payout for the current year, including final dividend, which has been announced today is about INR 63 crores, translating into dividend payout of 52%.

So further highlights are, complete normalization of the trade inventory in India. So as all of you know, last 2 years were [ slightly ] impacted by COVID, but because of good summer and COVID-free summer, there is a complete normalization of the trade inventory. There has been excellent consumer sales across the country, across the models. And in fact, as of now, in some of the models, which is out of stock position. April '22 sales at a domestic level is higher than historical highest ever April sales, and this is on top of inventory, which was lying at trade level, means they successfully sold that inventory and on top of it, we have reached at highest level April '22 sales. There has been good traction in LFS and e-commerce level. And LSV also at last, which was earlier centralized and [indiscernible], is also attaining good traction. So whatever initiatives were taken, including local assets, outsourcing, launching of Movicool and few other new models, we are also getting very good response.

So now coming to specific financials. So FY '22 consolidated financials. At a gross revenue level, FY '22 gross revenue stands at INR 1,079 crores. Finally, we are back to INR 1,000 crores plus club, up by 16% Y-o-Y. EBITDA is INR 201 crores, and PAT is INR 121 crores, up by 13%.

As shared earlier, and has been shared in the specific data in this slide, there is a robust profitable of international business. So out of INR 1,039 net revenue, INR 527 crores, there is 51% of the top line has been generated from international business by INR 512 crores, up from INR 431 crores a year before, that is 49% is from domestic business. Coming to PBIT. Total PBIT is INR 177 crores, out of which, INR 70 crores is from international business, which is 39% versus just 7% year before, while INR 107 crores, that is 61% of total PBIT, has been generated from domestic business.

Coming to gross profit margin percentage, as conveyed earlier, it stands at 45% in line with the previous year. EBITDA margin is 1% higher at 19% versus 18% and PAT margin is 11% slightly lower mainly on account of deferred taxation, which is more like a notional accounting. Coming to ROCE percentage, that is PBIT percentage on capital employed in our core business of air cooler and other appliances is 42% versus 41%, while treasury is about INR 564 crores, excluding equity investments and loans and advances granted to subsidiaries.

Now FY '22 Symphony India standalone. So gross revenue is INR 679 crores, up from INR 524 crores, but big chunk is on account of business in U.S., there is exports from Symphony India via Climate Technology to USA. And EBITDA stands at INR 153 crores. The EBITDA is in line with previous year despite top line has increased, number one, as I explained earlier, the business in U.S.A. generates profitability in Symphony India as well as Climate Technology and Symphony India retail profit as per transfer pricing and the rest of the profit, good chunk is at Climate Technology level. So that impacts this ratio.

Secondly, we had to also take about INR 5.5 crores of provisioning in last quarter on account of some scheme granted, which is more about the notional provisioning as due to accounting standards that will be return back in the subsequent market most of it.

So EBITDA margin percentage stands at 23% versus 29%, and PAT margin, 16% versus '21. So the reason of lower EBITDA margin, which is impacted by 6%, apart from 2 reasons I mentioned, it's also on account of very high amount of advertisement and sales promotion expenses, mainly incurred in April '21 when suddenly second wave of COVID started and also, we had good visibility to March quarter, that is March '22 quarter. And in anticipation of the season, we have spent high amount. Secondly, higher amount of overheads as we have also [indiscernible] some verticals plus normal [indiscernible] and also leading to impact on PAT margin. On a standalone basis, PBIT that is ROCE on air cooling and other appliances stands at 132% by standalone treasury INR 511 crores.

Coming to FY '22 subsidiaries performance. So left-hand side is Climate Technology [indiscernible]. For the year, it registered top line of INR 371 crores, up from INR 338 crores despite challenges of COVID, but this is mainly on account of recent growth in U.S. business and in fact, Australian local business was to an extent impacted on account of COVID because Melbourne and many parts of Australia had major and extensive lockdown. And importantly, at Climate Technology standalone level, registered EBITDA of INR 38 crores, up from INR 13 crores. And many of you may recollect that we had acquired this company about 4 years before at a multiple of 7.33. So with this EBITDA and actually, the EBITDA what has been generated in Symphony India, now clearly Climate Technology is value accretive.

[Achal Bakeri, executive]

After 4 years, though.

[Nrupesh Shah, executive]

Coming to IMPCO Mexico. It has registered robust top line growth up from INR 75 crores to INR 103 crores and EBITDA of INR 13 crores, while PAT of about INR 8 crores. And GSK China, top line of INR 38 crores. It has been badly impacted. It is in the rate at EBITDA level, which is negative 2 versus negative 3 year before. And cash loss, excluding interest paid to Symphony India on the loan is about INR 6 crores. And below that, there are financial ratios for CT, IMPCO and GSK, which are, by and large, in line with previous year, but EBITDA margin in Climate Technology now stands at 10% up from 4%, and cash profit margin stands at 6% up from 4%. And we clearly believe and quite convinced that Climate Technology has still a great potential in terms of growth and performance.

So coming to March '22, that is Q4 quarter consolidated. Gross revenue is INR 400 crores up from INR 345 crores. EBITDA is INR 98 crores in absolute value. The gross revenue as well as EBITDA is the highest ever. And profit after tax, INR 64 crores is also the highest ever. So as I shared earlier, partly the profitability as well as EBITDA and PAT margin because of that accounting entry and sharing of the profit between CT and Symphony [indiscernible], they are impacted, but needs to be seen as consolidated.

So again, much of international business is skewed towards March quarter. And hence, in March, the international business contributed almost 56% of the top line amounting to INR 214 crores out of consolidated top line of INR 384 crores, while Symphony India top line was INR 170 crores, down from INR 174 crores. So this is INR 170 crores Symphony domestic sales and that contributed 44% of the top line at consol level, while PBIT out of INR 92 crores, INR 59 crores was generated from international business, while domestic business generated INR 33 crores, that is 64% of the consol PBIT in March '22 quarter. Coming to profitability ratio. Gross profit margin percentage stands at 46%; EBITDA margin, 24%; and PAT margin 16%. Symphony standalone.

So gross revenue is INR 263 crores, up from INR 220 crores, as I explained earlier, mainly on account of exports to U.S., EBITDA at INR 60 crores, and profit after tax at INR 43 crores. And at standalone level , gross profit margin stands at 42% versus 48% year before. The difference due to the 2 reasons explained earlier, EBITDA margin at 23% versus 31% and PAT margin stands at 16%.

Now coming to outlook and the visibility what we have. We are certainly quite upbeat on domestic as well as overseas business, not only in terms of the top line, but also the profitability. We believe that despite massive increase in input cost and logistic costs at current level of input costs, our standalone GP margin percentage in June quarter should be around historical level. Having said that, we are certainly keeping a very close watch and quite agile to fluctuating input costs, logistic costs as well as supply chain.

Because of our operational subsidiaries and grand results internationally, past supply chain challenges as well as logistic challenges has really helped us. Since some of the models, which are manufactured in India or Australia, we have started manufacturing those models in Australia because logistic costs from India to Australia was much higher, vis-a-vis saving in material costs. Same about IMPCO Mexico, and IMPCO Mexico is now also [indiscernible] within America. And in that respect, in fact, we are also quite competitive vis-a-vis many Chinese players. And there is increasing traction for LSV driven by new products, much better cost structure and above the line advertising spend.

So about new product launches, Surround and Duet. Duet, apart from India, has received overwhelming response even in U.S. These are exclusive D2C products, in all 6 products. So our D2C store offers different variant to minimize the conflict with [ GE ] and other standard. And very shortly, we are launching exclusive D2C products one, Disney range that is Frozen and Cinderella, and also Marvel range that is Iron Man and Spider Man. Under LSV, Venticool. In our overseas subsidiaries, roof-mounted air cooler and Movicool XL will be launched.

Advancing ESG agenda. So as such, our product itself is environment friendly. Our processes are also environment friendly. And we are quite convinced about the core belief in respect of the planet, business and the people. And there is unparalleled commitment in respect of energy conservation, energy-efficient product as well as improving carbon credit.

So also embracing socieconomics within Symphony by CSR for some of the important activities. Also, we believe people are the biggest asset. The company's sustained improvement is being attributed to the overall culture, ambience, ethics, dedication, energy and agility of the people. Work environment and HR processes are such so as to have continuous creativity and teamwork.

Coming to corporate government philosophy. Even before [ government ] became a buzzword, [ governance ] is in DNA and blood of Symphony. Very clearly we believe that corporate has a duty to adhere much compliances. So whether it is ethics, integrity, hygiene of financials, apart from that, despite [indiscernible], our audit committee as well as nomination and remuneration committee consists of 100% independent directors. We do have Board approved various major policies also uploaded on the company's website. And across the functions, we do have operational manuals, self-control checklist with the supervisory system of control.

So this is advertising campaign for summer '22. So these are print ads. Left-hand side, it conveys cooling at the cost of 1 cup of tea. Second one at the cost of Khaman, which is famous food item in Ahmedabad, Gujarat in [ gujju ] and so on and so forth. And this has really received good traction.

Then e-commercial in household category, if you can play it.

[Presentation]

[Nrupesh Shah, executive]

So these are not the television commercials. These are going to be used on social media by our dealers. So we'll be giving each of our dealers an ad, which says his name and then he will sort of circulate it in his sort of social network.

So this is for LSV.

[Presentation]

[Nrupesh Shah, executive]

So we do have D2C brand store, and it has been completely uplifted in all respect. And shareholder profile.

Thank you. So we are open for question answer.

[Operator]

[Operator Instructions] The first question is from the line of Nitin Arora from Axis Mutual Fund.

[Nitin Arora, analyst]

My first question is that when we look at the domestic part of the business, given what kind of temperatures country seeing right now, can you throw some light with respect to 2 things. One is obviously you said April is highest ever sales. But generally, in your view, what type of growth you are seeing for the industry, for the cooler market, as such? And how [indiscernible] positioning now in the system? That's my first question.

[Achal Bakeri, executive]

Amit, do you want to take that?

[Amit Kumar, executive]

So Nitin, thanks for asking the question. As you noted rightly, the April sales have been the highest ever that we see both in terms of our own history as well as the way we see the overall air cooling industry. And why only air cooling, even air conditioning, refrigerators. We are seeing all kinds of cooling products. It has been a very good season. Just to elaborate the nature of the season and what makes it very exciting for us. The summer this year have been early, they said early in March, especially in the South and Central part of the country. They have been consistent. They have not been much of intermittent [indiscernible] or any other sort of discontinuation in the temperatures, and they have been abnormally harsh in most of the parts of the country. We are hearing temperature breaking records for decades, in some cases, more than a century kind of.

So -- now taking this first part, in terms of the growth that we see, and last 2 years are, in any case, nothing much worth writing on about. But even if we look at, let's say, a 2019 summer season, which was also one of the recent years, when the overall air cooling product sales were pretty high. Our estimate, as of now, is this season is going to be substantially better than the 2019. If we talk about end consumer sales basis, the numbers we are seeing moving in the market, something like 40%, 50% excess for the entire season in terms of end consumer sales is something that we anticipate.

I would like to highlight that in terms of how it affects the companies like Symphony, we need to take into account the fact that there was a lot of pent-up inventory in the channel that is also getting cleared during the season. So sales to the channels over the last 2 years, some of that volume was sitting in the channel, which is getting cleared now. So the kind of growth I'm talking about will not reflect in the primary sales that the companies do, but this is the kind of the [ same sales ] that we are seeing happening in the market.

[Nitin Arora, analyst]

So inventory as of today would be down closer to, let's say, 15, 20 days given such strong sales or it is still like 1 month plus if one has to conclude on the inventory side?

[Amit Kumar, executive]

So overall, the way we see the inventory, possibly total inventory sale during the entire 3-month season, over that, today's inventory would be closer to about 3 weeks or so. So your guess of about 20 days is broadly relevant.

[Nitin Arora, analyst]

My second question is the export sales, which you are doing to Climate Technology from India. It looks like very margin diluted to the standalone because whenever your share of revenue goes up, your margin [indiscernible]. I understand you have to keep the profitability at the subsidiary level as well. So I want to understand two things here. One, is the understanding correct what I'm asking you on share of, proportion of Climate going up, [indiscernible] margin dilutes further? And second, in this quarter, any margin impact there? Or is it purely because of the mix, the margins have come down?

[Achal Bakeri, executive]

Yes. So we need to see that in '21, '22, including recent quarter, that is March '22 quarter domestic sales was subdued, and that was on account of back-to-back to COVID summer and COVID years. So certainly, international business has turn around, doing well now, but no way it is at the cost of domestic business, and domestic business now is poised for decent growth and performance. The point what we were driving home was hadn't be diversified and derisked internationally, and if we exclude that pie of the business in '21, '22, our profitability would have been almost 40% lower.

Secondly, even if we consider now a return on capital employed on international business that is also quite decent. Coming back to domestic business, as I mentioned earlier, in June quarter at a current level of input, raw material costs and logistic costs, our profitability margin percentage should be, by and large, in line with historic GP margin percentage as well as EBITDA margin percentage.

[Unknown Executive]

For the India business.

[Achal Bakeri, executive]

For India business.

[Unknown Executive]

And for, of course, for what we sell to our subsidiaries has to be a transfer pricing. So like you rightly said, the consolidated -- I mean, at the India level, when you add the sales to subsidiary, the margin may appear a little muted, but then you have to see the whole thing at the consolidated level. Whereas India alone, India might sell...

[Nitin Arora, analyst]

So I got it -- it's more of a mix impact, which we can see continuing. Obviously, our domestic will bounce back. I'm not saying it. But just from a calculation perspective, my share of revenue goes to CT from domestic, the margin eventually on a calculated basis will look optically lower.

[Unknown Executive]

At the India level, but you've to see at the consolidated level.

[Achal Bakeri, executive]

And secondly, what we -- secondly, what will happen, in FY '22, export to CT and U.S.A. percentage-wise was very high because India business was low. So despite decent growth in export to CT as well as U.S.A., that percentage will not increase, if at all, it may come down. So it's an impact of numerator as well as denomination. Denomination will obviously increase because India business will grow.

[Unknown Executive]

The higher-margin India business will grow as we go forward. So [indiscernible] the denominator will increase.

[Nitin Arora, analyst]

So let's say, if this mix would have been not there, what is your EBITDA margin in that case for a domestic business because this mix is impacting you. So what we are trying to understand are 2 things here. One, we understand there is a mix, right? Because you have to maintain the sales from here, profitability at the standalone as well as at the subsidiary level. So at a consolidated level, it's fine, the profitability still looks optically muted compared to the overall number. What I'm trying to understand is, is there a margin pressure also because of the commodity, which has impacted your domestic margins? Or will that impact will come in the next quarter? So if you can help us understand what would have been the margin in the domestic business at the current INR 170 crores of domestic sales.

[Achal Bakeri, executive]

The gross profit margin percentage, I'm just rounding off, it's slightly in excess of 47% for the quarter purely on domestic business. which too has been impacted by the commodity prices. Had that not been the case, it would have been higher by maybe 4%, 5% more. Having said that, at a cost of repetition, in June '22 quarter, it is expected to be a couple of points higher than 47% in June '22 quarter, all domestic business.

[Operator]

The next question is from the line of Rahul Gajare from Haitong Securities.

[Rahul Gajare, analyst]

I have a couple of question. Of course, given that strong month of April. Could you comment on the price gap, which is there now between your RM and the price that you're selling. So basically, have you passed on the price increase that you've had? Or there is still some cost that we absorbed? That is the first question.

[Achal Bakeri, executive]

No. We certainly are absorbing some costs. We haven't been able to pass on. The only reason being that you -- the price increases have been constant. So based on price, let's say, in February, we sort of do our pricing, cost increase in February, we do our pricing and then suddenly, the price also goes up. So you can't keep on changing your prices over and over again.

So primarily, that has been the reason why we have not been able to keep pace with even in this month or even in the month of April, there were cost increases. Commodity cost increases or basically raw material increases for us. You can't just keep on changing your prices and frequently in a business like ours, which is a consumer business. So we certainly have absorbed quite a bit of the cost increases.

[Nrupesh Shah, executive]

But on account of value engineering...

[Rahul Gajare, analyst]

Have got impacted. But do you think that during the course of the year, you will be able to catch up on the pricing or do you think that is something which is difficult once the season is behind?

[Achal Bakeri, executive]

So for the next year, it will only happen in the next quarter, if at all. And we have to see where costs are at that time. And there is a cooling off and costs go down, then it's a different story. But otherwise, whatever we do, we'll have to be basically now put into effect after the season. When we have such an inventory already available in the market, it's difficult to change the pricing.

[Rahul Gajare, analyst]

I understand. Sir, my second question is on your performance. We have seen an improved performance [indiscernible] and Climate Technology even as China business has earlier. But you have indicated that China -- sorry, the U.S. business has done exceptionally well. Could you just list down a couple of points, what exactly has led to that improvement? Because I have to understand we seen heatwaves in various parts of the world. But specifically, since you said U.S. has been at even, what is it that played well for Symphony in that market? Whether the market has grown or you've taken market share from the competition? Do you think this is a onetime move or you think this kind of growth is going to be sustainable both on the revenue and profitability? So can you just comment on this?

[Achal Bakeri, executive]

Yes, sure. So as far as the U.S. is concerned, Climate Technologies had the business relationships, but did not really have a very wide portfolio of products. So with some of the Symphony models being offered to them to sell in that market, they've been able to offer a wider sort of bouquet of products to the customers. So essentially, it's come from that. Just having more products to offer at different -- for different segments and at different price points. Whereas earlier, they were limited by a couple of sort of SKUs that they had for the U.S. market. Now they have got 50 more SKUs to offer.

So I think essentially, it's just that just having the product portfolio, the relevant product portfolio to offer in that market.

[Rahul Gajare, analyst]

And do you think the market itself has grown the -- U.S. market?

[Achal Bakeri, executive]

So the U.S. market we see -- I mean, we believe it has grown, especially because of COVID. But the important point is that we have been able to dislodge some other suppliers or some other manufacturers in that market. Again, even at this level, our market share in the U.S. is very, very small. But -- so there is significant headroom for growth. And the market has also grown. But even if the markets were to stay flat. The point is that our market share is so low that we have significant headroom for growth. And that too very profitable business.

[Rahul Gajare, analyst]

Okay. And then growth in market share will be a function of introducing more products or increasing your [indiscernible]. What do you think is going to drive the next leg of market share improvement in the U.S. market for that?

[Achal Bakeri, executive]

More combination of both products and new customers.

[Rahul Gajare, analyst]

So by the way, and you also mentioned that -- so you've also -- you've also mentioned that you started more manufacturing in Australia. So what is happening on the U.S. in large part of it in term of logistically from both U.S. and Australia were similar in terms of logistical cost. So just wanted your thoughts.

[Achal Bakeri, executive]

Yes. So we were -- last year, we, in fact, had relocated some manufacturing from China to India, from Australia to India for supplies to either Australia or the U.S. which we have had to sort of rework on that. So we have certainly now relocating some manufacturing to Australia for the Australian market and to Mexico, for the U.S. market and the Mexican market. So because of -- although the manufacturing cost, the overall manufacturing cost is cheaper labor in India is lower in India, but the logistic costs would far outweigh the savings in manufacturing costs. And now we are going back closer to the markets.

[Rahul Gajare, analyst]

Okay. Sir, my last question is on the provisioning. I think you mentioned about INR 5.5 crores of provision, I couldn't understand what exactly was the provision for?

[Achal Bakeri, executive]

No. So certain trade team has been offered whereby Symphony air coolers have to be supplied. But as per accounting standard and practice, we had -- we were asked by the auditors to make the provision for the entire value and not for the cost of tax. So that has resulted into extra provisioning of INR 5.5 crores in March '22 quarter. And that is on domestic sales. So as soon as those air coolers will be supplied and sold and delivered, it will be reverse.

[Rahul Gajare, analyst]

That will happen in the current quarter?

[Achal Bakeri, executive]

Yes, mostly in current quarter.

[Rahul Gajare, analyst]

This is a non-GAAP targets?

[Achal Bakeri, executive]

That's right. And coming back to U.S. -- coming back to U.S. and international business. We have already launched in a small way, B2C in Australia as well as Mexico. And very shortly, we are launching even in U.S. On top of it in U.S., we are also going to be active for e-commerce. So that will also happen in current accounting year.

[Operator]

The next question is from the line of Omkar Kulkarni from [ Shree Investment. ]

[Omkar Kulkarni, analyst]

Yes. I joined the call a little bit late. So I just wanted to know what are your expectations from the current summer, which is going on? It seems to be a much, much better summer.

[Achal Bakeri, executive]

Yes, we have already been through that. We already covered that fairly quite extensively.

[Operator]

Mr. Kulkarni, do you have any other questions?

[Omkar Kulkarni, analyst]

I just wanted to know what happens to the buyback which you have talked about earlier?

[Achal Bakeri, executive]

That is something which is -- probably we will be considering in the current year.

[Omkar Kulkarni, analyst]

Sorry, can you please repeat that?

[Achal Bakeri, executive]

We are considering that in the current year.

[Omkar Kulkarni, analyst]

Current fiscal year?

[Achal Bakeri, executive]

Yes.

[Amit Kumar, executive]

But in FY '22 itself, including the final dividend declared today, the total payout ratio is about 52% for FY '22 PAT. So payout is dividend and/or buyback. So payout is happening.

[Operator]

The next question is from the line of Shantanu Chatterjee from Mount Intra Finance.

[Shantanu Chatterjee, analyst]

I have a couple of questions, sir. I want to know what is the percentage contribution of your industrial cooler segment in the Q4 revenue and FY '22 as a whole? And how much growth you are anticipating in the next couple of years for industrial cooler segment?

[Achal Bakeri, executive]

So the industrial cooler segment has grown significantly in the current year over the previous year. It is at its highest ever. And so it has sort of gained momentum, very good traction, and we expect it to continue growing going forward. But however, at the moment, it is still a relatively small percentage of the total revenue. And so an exact percentage is something which we will not be able to share, but it is still -- is not a very, very significant percentage.

[Shantanu Chatterjee, analyst]

Okay. And sir, what is our present capacity utilization?

[Achal Bakeri, executive]

So in our case, capacity is a very sort of, I would say, a difficult term because our capacity is in one sense, fairly flexible. To increase capacity, we have to identify one new set of third-party manufacturer and invest in some new modes. So our capacity is fairly flexible. It can go up, it can go down. So the typical sort of measure of capacity utilization doesn't quite apply in our case because of our business model.

[Nrupesh Shah, executive]

That said, that's it on some of our models at this point in time, we are overbook. And to that extent, on them, we are running at more than 100% of the capacity at this point in time following to the good summer that we have been talking about.

[Shantanu Chatterjee, analyst]

Okay, sir. That means we need not to be investing anything in the CapEx in the upcoming quarter or year?

[Achal Bakeri, executive]

No, no. We keep on investing in CapEx more for new products and new models. So that is an ongoing process. If you look at our balance sheet for the last several years, every year, we keep on investing. But the investments are nothing sort of -- are not huge investments. They will be INR 5 crores, INR 10 crores, INR 12 crores kind of investment every year, so nothing significant.

[Amit Kumar, executive]

So ours is a capital-light, asset-light business model on account of OEM manufacturing. So it's just about single-digit percentage of the PAT. Right?

[Nrupesh Shah, executive]

And the investment in these assets are more about -- less about creating new capacity and more about creating new models, new features, building new value propositions to the market. So they are less from a capacity perspective and more from a value proposition perspective that we invest.

[Shantanu Chatterjee, analyst]

Understood. Understood, sir. And my last question, sir, as we all know that Symphony comment more or less 50% on value terms and 42% more or less on the volume share in India's organized air cooler market. But its overruns volume is still hovering around more or less 15%, 16%. Now in the post-GST sheet in the market from unorganized to organized players and ongoing tender scenario, how much volume growth we are expecting, sir, in the next couple of quarters?

[Achal Bakeri, executive]

So GST has not led to a major shift from the unorganized to the organized sector in our industry. So -- and neither has the pandemic sort of had a major impact on that. What we have -- remains to be seen is what does the commodity price increases and how do the commodity price increases impact the local cooler industry or the unorganized sector industry. That is something which we will know in the times to come. As far as market share is concerned, because sales hasn't grown significantly because the last 2 years, the pandemic -- the first and the second waves both hit during the peak summer. So not only Symphony, but the entire cooling industry has shrunk. But within that sort of shrunk industry, our share has more or less remained the same.

[Amit Kumar, executive]

And about unorganized to organize -- about -- shift from unorganized to organized. It is on account of other reasons like increase in purchasing power, rural prosperity, better aspiration, that is really driving shift from unorganized to organize and that's happening continuously.

[Shantanu Chatterjee, analyst]

Okay. Okay. And my last question is, sir, in domestic market, what is our present distribution reach? And how much growth you're anticipating in FY '23?

[Achal Bakeri, executive]

So in a country like India, you can keep on growing your reach. Even a company like Hindustan Lever talks about increasing its reach. So I think for companies like us, the potential to increase our reach is significant. So we can keep on deepening our reach for years to come. So I think that is a given.

[Operator]

The next question is from the line of Manoj Gori from Equirus Securities.

[Manoj Gori, analyst]

Sir, secondly, if we look at the domestic business, standalone business and we look at the export revenues, that is your rest of India, rest of World revenues. So those include sales done to subsidiaries as well. Is it understanding directly to 3 subsidiaries?

[Achal Bakeri, executive]

That's right.

[Manoj Gori, analyst]

And sir, so I would like to understand like how do we account for the subsidiary sales, like if something is sold to U.S., so that would be accounted in stand-alone business or it would be -- so ideally, it should be in Climate Technology, if it turned through Climate Technologists?

[Achal Bakeri, executive]

Okay. So say, we supply at INR 100 -- our sales will be in Symphony India will be booked at INR 100. Climate Technology sales at INR 140. In climate Technology, it will be booked at INR 140 and it will register a profit of INR 40. Having said that, when accounts are consolidated, that is Symphony India and subsidiary, the sales is INR 140. Symphony to Climate Technology, INR 100 is net of. Not only that, if there is any stock line, further with Climate Technology or stock in transit, even that is also deducted. So that's how it is to work out.

[Manoj Gori, analyst]

Yes, yes. That was very helpful. Sir, one question -- so you gave a lot of explanation about the demand and the -- so how should we look at the margins going forward? I think it would be better to look at the consolidated level. So should we expect like given that the -- it's a normal business environment, domestic markets are doing very well. So probably operating leverage and some price hikes from the -- from July onwards should lead to better profitability and margins for the next year?

[Achal Bakeri, executive]

That's right. In fact, in June quarter itself, as this being season and we don't discount the product. And at current cost level, June quarter itself at a stand-alone level also should register better profitability.

[Manoj Gori, analyst]

Right, sir. Sir, lastly, I would just like to touch upon. See, there are a few categories where we have started witnessing some supply challenges in terms of component sourcing as well. So do we -- are we covered for the entire summer season, probably until June, July is required? And there won't be any shortages at least that can adversely impact our primary sales?

[Achal Bakeri, executive]

That's correct, Manoj. You can buy and last, assume what you said. But at the same time, what Amit Kumar said a little while ago, there are some models, range of models where the demand is far greater than our ability to produce. So there we have a backlog, significant backlog but that's a different issue. As far as component sourcing is concerned, we are fairly well covered.

[Amit Kumar, executive]

And in fact, in last 2 years, we also need made in India. So many, many components we shifted from China to India in terms of the sourcing and at a comparable price and quality.

[Manoj Gori, analyst]

Got it. Lastly, you touched upon some of the models like witnessing strong demand and we have been facing supply challenges because we are not able to do meet the demand. In such a scenario, do we actually lose sales or we try to convert it into other models? Or how does it pan out at the ground level?

[Achal Bakeri, executive]

So we do try and convert as much as possible to other models, for sure. But there would also be some loss of sales. And I mean -- and the worst thing is that our loss also because our competitors gain in some places. So yes, to some extent, that will also happen to some extent.

[Amit Kumar, executive]

Right. Part of our [indiscernible] to let consumers from one model to the other also comes from our strength having such a wide range of models. So whether we talk personal coolers, desert coolers, any kind of sort of value offering, the 50-plus products that we have is simply unmatched by any competitor. So part of the conversion from one model to the other happens and however, like Achal said, in some cases, it ends up being a case of consumer loss.

[Achal Bakeri, executive]

And also Manoj -- also your question about the margins for the current quarter. In the current quarter, we will also not have significant exports to our subsidiaries. So by and large, the majority of the sales would be to India, within India and also to customers, third-party customers outside India. So not to subsidiaries. So our profitable, our margin will also, therefore, be a little higher than in the previous quarter, which was highly skewed towards exports to subsidiaries.

[Operator]

The next question is from the line of Aditya Bhartia from Investec.

[Aditya Bhartia, analyst]

So my first question is on the exceptional performance that we have delivered in the international business. So it seems that we have recorded pretty strong margins, both at the stand-alone entity, the exports that we made to Climate as well as we ended up recording good margins at subsidiary level as well. So how sustainable do you consider this performance to be? And as you mentioned that you are now relocating some manufacturing facilities back to their original locations, does it mean that there could be some more margin benefits, which may come through over the next few years?

[Achal Bakeri, executive]

So yes and yes. So to both your questions, yes. So first of all, this is absolutely sustainable. What was sort of, unsustainable was what happened in the last 2 years because of exceptional circumstances. This very honestly, is back to normal. And if you exclude the last 2 years, this is what it was. So for years and years, this is what it has always been. So we are just back to normal. So it's very much sustainable. And by relocating manufacturing closer to the markets, also, there will be some improvement in margins for sure.

[Amit Kumar, executive]

And in response to your specific question of international business profitability, now we are very much confident and there is excellent visibility of decent growth with good profitability coupled with domestic business. So we were -- when we acquired Mexico, IMPCO many, many years ago, we were able to turn it around fairly quickly. And it became value accretive very quickly. And of course, we also paid very less for it. But regardless, it became value accretive fairly quickly.

Australia, we've paid sort of top dollar for it. And then post acquisition, things did not quite sort of go as expected or as we were sort of like to believe before we bought the company. But as Nrupesh bhai said, finally now after 4 years, the Titanic has turned, and we are able to sort of put the company on track. And it is finally value accretive, 4 years after acquisition. And going forward, we believe that it will continue to just sort of improve on its current performance.

[Aditya Bhartia, analyst]

Perfect. That's great to hear, sir. Sir, my second question is on employee expenses, which have been going up sharply in the last few quarters. Just want to understand which are the new teams and capabilities that we are building.

[Nrupesh Shah, executive]

Right. So Aditya, thanks for noting that and pointing that out. It's something that we are very, very cognizant of and very purposefully doing. So some of the new teams that we have focused on building in the current year, they include, one, our D2C and this is D2C not working for India, but this team is also helping us start D2C in Australia and Mexico, which we already talked about. And going forward, even in the U.S. So this is 1 team we are building completely from scratch and a set of team members have been onboarded. They are working actively in this area.

We have also built a panel global e-commerce team. Again, a completely new vertical that we have built, which will help us expand business on e-commerce channels across the group. We have identified select countries for this financial year FY '23, where we will initiate e-com with the help of this team. In addition, we have strengthened our teams in marketing, and in LSV and in IT.

So all of these deals, again, given the kind of expansion we are seeing and the kind of future challenges we are anticipating, we have strengthened these teams substantially at the top.

[Achal Bakeri, executive]

Even international, whether it's Brazil or some other countries.

[Amit Kumar, executive]

So they are short of revenue expenses for the year, but might for future growth and expansion.

[Nrupesh Shah, executive]

Future, meaning we're not talking distance future. We're talking this year.

[Amit Kumar, executive]

Current year.

[Aditya Bhartia, analyst]

True, true. Understood, sir. That's good to hear. And lastly, sir, one thing that you are also noticing is that inventory levels have gone up in this particular quarter, which is very unusual for a company like Symphony. So just want to understand if that's a conscious call to operate with higher inventory, maybe keeping in terms with the rising RM costs?

[Achal Bakeri, executive]

No, in fact, now we are regretting. If we had a much higher inventory, it would have been better. So by the way, obviously, this was expected to be COVID-free summer and hence, there was inventory buildup in expectation of that whether at Symphony India level or at subsidiary company level.

[Nrupesh Shah, executive]

And again, the numbers that we are talking about are basically end of March. Since then things are -- today, as we speak today, things are very different.

[Operator]

The next question is from the line of [indiscernible] from Sharekhan.

[Unknown Analyst]

Am I audible?

[Achal Bakeri, executive]

You are.

[Unknown Analyst]

Sir, I just need 2 clarifications. One is that, what is the inventory days, how that would, say that it is about 20 days at the dealers end? So I just wanted to confirm that. And also that we would be taking any more price hikes in this particular quarter of April to June?

[Nrupesh Shah, executive]

Right. So for the first part, is an estimate as you would appreciate that given the kind of velocity we are seeing in the market, the distributor and dealer inventory seeking takes some time. But at this point in time, our estimate is that about 20 days, 3 weeks is broadly, what is the channel inventory out there in the market besides what we hold within our own warehouses. So that's the first part.

The second part we talked about the price pressure. So the cost pressure we are seeing on the raw material side. In context of that, a thought around whether to take further price increases is something we are contemplating right now. But at this point in time, I don't think we have reached a conclusion.

[Achal Bakeri, executive]

No. She is talking about the current quarter. This current quarter may be difficult because already there's so much material out there in the market. So what we are contemplating is little, yeah.

[Operator]

The next question is from the line of Chirag Lodhia from Value Quest.

[Chirag Lodhia, analyst]

Sir, can you clarify India business current profitability? It could be really helpful. And you mentioned that in coming quarters, we will be back to pre-COVID historical level of profitability. You alluded to gross margins, which will improve. But if you can just help us understand core domestic business profitability, how one should look now with revenue coming back to pre-COVID level, the situation improving after like 3 years.

[Achal Bakeri, executive]

Yes. So as such, we already answered that. But in March '22 quarter itself, Symphony India domestic sales, that is excluding exports, mainly to subsidiary company, our GP margin was about 47%. Secondly, in June quarter, current raw material and logistics costs, the visibility, GP margin should be a couple of points higher than this.

[Chirag Lodhia, analyst]

So what I'm trying to understand is operating profitability. So historically, we used to do, say, 28%, 30% domestic margin, now because of exports coming in stand-alone, it's very difficult to understand the core domestic profitability. And on top of it, last 3 years, we are very weak. So I understand that. So going ahead, what should be a sustainable range if you can help us understand?

[Achal Bakeri, executive]

Yes. So I believe in the current quarter, that is in June '22 quarter itself, One domestic sales in India itself will be a substantial business. Secondly, there will be a full price realization and thirdly, also on account of operating efficiency because there will be higher top line. So that should, by and large, an EBITDA margin when you say operating margin percentage should be, by and large, in line with historical levels.

[Chirag Lodhia, analyst]

Okay. Got it. And my second question was on international business. If you can help us understand in international business, what kind of growth we can achieve. And with 11%, 12% profitability which we have attained, is it a number we should look going ahead also, there is a lot of headroom to grow this margin also?

[Nrupesh Shah, executive]

So certainly, there is headroom to grow because -- as we sort of keep on improving our operations, especially in the Australia, U.S. subsidiary. As we keep on improve increasing the top line, reducing the COGS, reducing the CODB, the -- and we have specific sort of measures that we are in the process of taking. So those will all lead to improvement in the profitability. As you have seen, even from last year to this year, there has been a sharp increase from INR 13 crores EBITDA to INR 38 crores. So this is something which will further go up in the current year.

And total international business that includes subsidiaries and export from India has generated PBIT of INR 70 crores up from INR 11 crores. So almost 39% of the console PBIT and there is a good scope to grow in that respect? And secondly, -- this is despite massive increase in commodity cost and other costs, even in international subsidiaries. So it was also on account of several other initiatives and measures which were taken and implemented in the last couple of years, this has been achieved.

[Chirag Lodhia, analyst]

Sir, in terms of growth, if you can highlight how we should look at international business growth?

[Nrupesh Shah, executive]

No it will be difficult to sort of give you a sort of a forecast of growth but we expect that in different geographies for us to grow.

[Operator]

Ms. Renu Baid, over to you.

[Renu Baid, analyst]

Thank you. Well, I would, on behalf of IIFL Securities, I would like to thank the management for the detailed presentation and the patience with which they have answered all the questions. So with these comments, any closing remarks that you would like to give that for me close today's conference call?

[Achal Bakeri, executive]

So first of all, thank you very much to everyone, to IIFL and to all the participants for their interest and for their participation. We -- as I said in my opening remarks, this year sort of March, the turnaround of our international business and validation of our strategy of international diversification and derisking through international diversification. So as far as India goes, we sort of remain committed to the airspace air cooling. We have also recently introduced a tower fan, which was shown in the presentation. And we intend to grow these categories not only in India, but across the world.

So we're going to remain focused on this. And the opportunity exists everywhere in the world. It's a matter of entering new markets and offering new products for different segments and at different price points. So we've had a few torrid years, but not only us, but the world at large. And we hope that that's all behind us. And we can go back to cooling the word.

[Renu Baid, analyst]

Thanks much, and thank you all the participants for taking time out this sunny afternoon for the conference call with Symphony. Thank you, and all the best.

[Amit Kumar, executive]

Thank you. Bye.

[Achal Bakeri, executive]

Thank you.

[Nrupesh Shah, executive]

Thank you.

[Operator]

Thank you. Ladies and gentlemen, on behalf of IIFL Securities Limited, that concludes today's session. Thank you for your participation. You may now click on the exit meeting to disconnect.