Symphony Ltd : Outlook robust for CY23; maintaining a Buy Says Anand Rathi Share and Stock Brokers
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Outlook robust for CY23; maintaining a Buy
Rising mercury levels could brighten Symphony’s fortunes. The inflationary contextin the USA and Australia and rising logistics cost could dampen prospects of overseas subsidiaries and are key monitorables. Keen competition from peers with strong brands and marketing networks in summer of CY23 would also be an important factor to watch.
Growth in lean season supported by standalone operations.Q2 FY23 consolidated revenue rose 25% y/y as standalone revenue rose 54% y/y to Rs2.15bn and revenue from global subsidiaries was 26% lower y/y at Rs590m. Lower revenue from global subsidiaries can be attributed to deferred revenue by CIT, its Australian entity which exports to the USA and caters to its local market. The EBITDA margin was 422bps lower y/y on the 56bp gross margin compression y/y led by upgrading several SKUs and higher freight costs (biggest cost element in other expenses) and Rs60m market research expenses. PAT increased 7% y/y as other income rose 56% y/y. The Q2FY23 tax rate was 26% (25% a year ago).
H2FY23 outlook still strong. Q2 is a lean season for durables. The outlook for H2FY23 looks strong as channel partners are not loaded with surplusstocks and advance collection from them is good. Deferred revenue for CIT is expected to be booked in H2FY23 and is an important monitorable.
Outlook & Valuation.Post Q2FY23, our FY23e and FY24e revenue are intact. However, we lower FY23EBITDA margin 14% and FY24, 19%. At the CMP, the stock trades at 29x/23x the FY24e FY25e EPS of Rs31.4/40.1.We retain our Buy rating with a TP of Rs1,194, 30x FY25e EPS of Rs40.1 (earlier Rs1,347, 35x FY24e EPS of Rs38.5). The PEcut is in line with the companies we cover. Risks: Keener competition and aggressive pricing by well establishedall-India brands can curtail growth. Rising inflation in America (export destination via global subsidiaries) can be a risk reducing growth of overseas subsidiaries.
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