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Domestic performance returns to pre?covid levels; upgrade to BUY

Result Synopsis

Domestic business has bounced back well with a strong summer season with channel inventory now at the normalized levels after almost 2 years. Company has witnessed strong summer in domestic business. International business has seen slight decline in revenue as some of the international markets were disrupted on account of Covid. Gross margins are expected to improve as commodity prices have corrected and SYML has taken a price increase ahead of new season. We believe demand recovery has been strong with a pandemic?free summer season after two years of lost summer sales and there is visibility of the domestic demand sustaining. Also, international business turnaround is expected to be gradual. Considering the above, we upgrade the stock to BUY rating from ADD earlier as correction in the stock price provides good entry point. 

We expect a strong recovery in domestic air?cooling market to continue in FY23, now with lower commodity prices margins are set to improve and return to pre?covid levels. We expect FY22?24E growth trajectory of 17% revenue CAGR. Considering higher operating leverage, we estimate FY21?24E EBITDA and PAT CAGR of 31% and 33% respectively. we upgrade the stock to BUY with the PT of Rs1,215 valuing it at 40x FY24EPS. Recent correction in stock price provides good entry point.

Result Highlights

* Quarter summary – Domestic business saw growth of 119% yoy on strong summer and favorable base; while international business recorded marginal dip of 2.1% yoy on disruption in some geographies.

* Margin – Gross margin at 45.6% continues to remain in the stable band of 45?48%. It is now returning to pre?covid levels. EBITDA margin of 10.3% was lower as company had incurred higher A&P spends to support its D2C initiatives. Higher logistics and warranty expenses also resulted in lower EBITDA margin

* Additional Expenses – Company has incurred additional expenses for various initiatives related to Direct to Consumer Sales (D2C), Large Space ventilated air cooler (LSV), exports to USA and new upcoming air cooler models resulting in lower EBITDA margin.

* International business – International business has seen marginal decline of 2.1% with EBIT of Rs150mn and EBIT margin of 10.6%. Some geographies in international business were impacted on account of covid.

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