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Robust off-season sales drive growth in Q2

Symphony Limited, and its subsidiaries are engaged in the manufacturing and trading of residential, commercial, and industrial air coolers, both in the domestic and international markets. The company operates through two segments: Air Coolers and Corporate Funds. It offers air coolers in various categories, such as residential air coolers, packaged air coolers and central air coolers.

• Consolidated revenue rose 24.5% YoY to Rs. 274cr, aided by higher sales volume and robust off-season collection.

• However, the EBITDA margin fell 320 bps YoY to 18.6%, impacted by lower realisations and higher costs. PAT grew 10.0% YoY to Rs. 33cr.

• Company’s agile supply chain strategy, plus its cost and service level optimisation measures to aid growth over the long term. In the near term however, the topline and margins may come under pressure. We reiterate our ACCUMULATE rating on the stock with a revised target price of Rs. 944 based on 29x FY24E adj. EPS

Decent topline performance in-line with pre-COVID period

During Q2FY23, Symphony reported consolidated revenue of Rs. 274cr (+24.5% YoY) owing to robust off-season collection, even as trade sentiment remained positive and buoyant. Revenue from sales of air cooling and other appliances grew 24.8% YoY to Rs. 277cr, accounting for 96.2% of total sales. On a regional basis, revenue from domestic business surged 40.7% YoY to Rs. 190cr. On the other hand, abroad operations, however, registered subdued performance with revenue declining 1.2% YoY to Rs.84cr

Margins contracted due to rising input costs

Gross margin contracted 80bps YoY to 44.6%, primarily due to increase in prices of raw materials like polymer and metal, coupled with value accretive product upgradation undertaken by the company which resulted in higher cost of sales. EBITDA reached Rs. 51cr (+6.3% YoY), though the EBITDA margin declined 320bps YoY to 18.6%, impacted by incremental freight and warranty expenses due to highest ever tertiary sales during summer. Net profit for the quarter grew 10.0% YoY (+13.8% QoQ) to Rs. 33cr.

Key concall highlights

• Management feels Climate Technologies’ performance to be more skewed to December and March quarter, and expects subsequent quarters to post better results.

• The company plans to take calibrated price increases in the coming months across 4 ranges of air coolers, totaling to 20+ SKUs.

• During the quarter, company commenced sales to Brazil on a CIF (cost, insurance and freight) basis.

• Company declared second interim dividend of Rs. 2 per equity share for FY23.

Valuation

Evolving global economic headwinds may translate into demand headwinds in some of company’s overseas markets. Company’s agile supply chain strategy, coupled with cost and service level optimisation measures via leveraging its Indian and global outsourced manufacturing facilities, may aid margin growth over the long term. We expect earnings to grow at a healthy 38% CAGR over FY22-24E.Having said that, lower realisations and rising input costs may potentially impact topline performance and put pressure on margins in the near term. We reiterate our ACCUMULATE rating on the stock with a lowered target price of Rs. 944 based on 29x FY24E adj. EPS.

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