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Buy Symphony; target of Rs 1812: HDFC Securities

November 18
14:25 2019

HDFC Securities’ research report on Symphony

Domestic revenues grew by 33% (vs. exp. of 34%) in an off-seasonal quarter owing to low channel inventory and favorable base. Trade confidence is high owing to clearing of the channel inventory in Summer-19 after witnessing high inventory pressure over the last 2 years. We expect >30% growth in domestic biz in 2HFY20E. After a gap of 2 years, co. has returned to new launches in residential, commercial and industrial coolers. Co has developed industrial coolers for Indian conditions and is now manufacturing in India (shorter lead time) vs. earlier imports from China and Mexico. Standalone gross margins were down by 350bps to 47% (exp +82bps) owing to inferior product mix. Co expects product mix to be richer in 2HFY20 and does not anticipate deterioration in GM profile. We expect 50.2% GM in FY20E. Tight cost control led to 7% growth in other expense. As a result, EBITDA margins expanded by 88bps to 31.3% (exp 32.1%). EBITDA grew by 36% to Rs 610mn (exp Rs 633mn). RoW sales (31% mix of consol.) grew by 1% in an off-seasonal quarter. Co is now gearing up for summer in Australia and is launching Symphony range of portable coolers (pilot in 2019). These coolers will also be launched in US in Home Depot, Lowe’s and Amazon. We expect CT to turnaround after initial integration issues.

Outlook

Symphony continued its strong momentum in 2Q after a sharp recovery in summer-19. 2Q performance was in-line with expectations and further builds our confidence for a robust 2HFY20 show. We remain bullish on Symphony given its sharp recovery in domestic biz and scope to tap new opportunities (industrial and commercial cooling, portable coolers in Aus and US). We maintain estimates and value Symphony at 45x Sep-21 EPS. We believe the stock will re-rate owing to consistent outperformance vs. appliance cos. We maintain BUY with TP of Rs 1,812.

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