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Demand to see gradual improvement on macro headwinds; maintain ADD

Result Synopsis

Symphony on consolidated basis reported flattish revenue for the quarter, while margin saw improvement on back of stable commodity prices, change in product mix and value engineering. Domestic business has been flattish as there has been higher than normal inventory in certain places. Gross margins have seen expansion on back of value engineering and softening of commodity prices, higher gross margin has resulted in expansion in EBITDA margin. The company expects higher than normal inventory in certain parts of the country is likely to get normalized. SYML’s domestic air-cooling market share continues to be at ~50% of the organized market, while in volume terms it commands market share of 27-28% and in value terms ~40% of the total air-cooling market. Management has already started to implement its strategy to turnaround its international subsidiaries especially that of CT Australia, where it has seen its substantial reduction CODB. We feel current in macro environment complete turnaround of CT Australia would take longer than anticipated. Considering difficult macro environment and gradual pickup in domestic demand we continue with our Add rating with PT of Rs996, valuing the company at 40x on FY25 earnings. We will be outwardly bullish once global macro headwind recede and domestic demand picks up pace.

We now expect recovery in domestic air-cooling market in Q4 ahead of next summer season. International business turnaround would be more gradual and would take longer than anticipated on back of global macro headwinds. We now expect FY23-25E growth trajectory of 10% revenue CAGR and EBITDA margin estimates of 14.7% and 16.0% for FY24 and FY25 and continue to maintain ADD with the PT of Rs996 valuing it at 40x.

Result Highlights

* Revenue – Revenue has been flattish for the quarter as domestic demand has been subdued and there has been higher than normal inventory in certain regions. On international front IMPCO Mexico delivered strong performance, while CT Australia has struggled on back of macro headwinds.

* Margin – Gross margin on consolidated basis stood at 46.2% expanding by 129bps YoY. Margin expansion was aided by favorable mix, value engineering and softening of input costs. EBITDA margin expanded by 141bps 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 has been in single digit.

Exhibit 1: Actual vs estimates

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