Hold Symphony Ltd : Slow recovery on favourable base - ICICI Direct
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Hold Symphony Ltd For Target Rs. 1,050
Slow recovery on favourable base…
About the stock:
Symphony is the world’s largest manufacturer of air coolers with a presence in over 60 countries and provides air cooling products in the residential, industrial and commercial segments.
* Symphony is the market leader in the air-cooling business with a strong distribution network of ~30,000+ dealers, ~1000+ distributors and ~1000+ authorised service centres across the country
* Asset light business model with strong RoE and RoCE of ~20% and ~21%, respectively (average in the past three years)
Q1FY22 Results:
Higher spends on advertisement and other expenditure in April 2021 impacted EBITDA margin.
* Revenue grew ~49% YoY to | 230 crore (down ~32% QoQ)
* Better gross margins (up 452 bps YoY) helped turned EBITDA positive at 4.3% vs. -3.2% in Q1FY21. However, lower-than-expected EBITDA margin is mainly due to higher advertisement expense (3x jump YoY)
* PAT increased to | 6 crore (3x jump YoY) supported by a favourable base
What should investors do?
Symphony’s price performance has remained muted underperforming the index in last five years (from | 1201 in July 2016 to | 1016 in July 2021).
* We maintain our HOLD rating on the stock
Target Price & Valuation: We value Symphony at | 1050 (33x P/E on FY23E EPS).
Key triggers for future price performance:
* The air cooler industry is dominated by unorganised players (~70% of total industry). We believe organised players would gain market share due to their strong balance sheet and robust supply chain network
* Increased rural electrification and urbanisation will augment growth in the Indian air cooler market. Residential air cooler industry will get a boost from ~1.7 crore new houses under PMAY
* Industrial air-cooling market is worth ~| 10,000 crore and Symphony being the only branded player in this segment stands to take advantage of it
Alternate Stock Idea: We like Havells in the consumer appliances space
* Trigger for Havells’ future revenue growth would be revival in the Lloyds revenues and improvement in margin
* BUY with a target price of | 1345
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