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Higher domestic channel inventory leads to below than estimated performance; downgrade to ADD

Result Synopsis

Symphony on consolidated basis reported lower than expected revenue on back of subdued domestic sales. Lower off take was on account of high channel inventory of the cooling products resulting from the poor summer sales. Gross margins have seen expansion on back of tactical pricing, value engineering and softening of commodity prices, higher gross margin has resulted in expansion in EBITDA margin. Subsidiaries on the other hand has seen 12% yoy revenue growth on back of strong summer tailwind in Mexico and Brazil and improving performance of CT Australia and GSK China. The company expects off-take to improve in Q4 as advance collections continues to remain strong and inventory levels have normalized. Management has already started to implement its strategy to turnaround its international subsidiaries especially that of CT Australia, where they have will be moving to outsourced model vs In-house manufacturing, introduction of new product category and increasing offering in existing products. We feel improvement in performance of CT Australia will be more gradual. Considering lower than expected demand in the domestic business and gradual improvement in international subsidiaries, we downgrade the Stock to ADD. We will wait for improvement in domestic demand before we get positive on the stock.

We expect strong Q4 for air-cooling industry and SYML as channel inventory is light and there will be some spillover of revenue from Q3. International business turnaround would be more gradual especially in CT Australia where management focus is on improving revenue and efficiencies. We trimmed our growth expectations in the domestic market as rural economy has still not recovered from the effects of high inflationary environment. We downgrade the stock to ADD rating with PT of Rs1,028 valuing the stock at 40x Sep’25 EPS.

Result Highlights

* Revenue – Revenue miss for the quarter was on account of decline in domestic sales resulting from lower channel offtake. International subsidiaries have delivered better performance on back of demand tailwinds in Mexico and Brazil.

* Margin – Gross margin on consolidated basis stood at 47.2% expanding by 369bps YoY. Margin expansion was aided by tactical pricing, value engineering and softening of input costs. EBITDA margin expanded by 193bps on back of improvement in gross margins.

* Other highlights – Large scale venti cooling (LSV) business continues to deliver robust performance, however LSV business contribution to the overall revenue is still miniscule.

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