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Improved performance 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)

Q2FY22 Results: The revenue growth was largely led by a favourable base of domestic business

* Revenue grew ~15% YoY to | 220 crore (down ~4% QoQ)

* Better gross margins (up 150 bps YoY) and cost saving measures in the overseas subsidiaries drove EBITDA margin up by 360 bps YoY to 18% YoY

* PAT increased to | 30 crore (2x jump YoY) on a favourable base and higher EBITDA margin

What should investors do? Price performance has stayed muted underperforming index in the last five years (from | 1300 in October 2016 to | 1038 in October 2021).

* We maintain our HOLD rating on the stock

Target Price & Valuation: We revise our target price up to | 1160/share, value Symphony at 35x 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 CGCEL in the consumer appliances space.

* Market share gains in the home appliances business, intact EBITDA margin and robust balance sheet condition

* BUY with a target price of | 525

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