Symphony Ltd. - Strong order book provides high visibility - IDBI Capital

We attended the AGM and also met with the management of Symphony Ltd. The following are the key takeaways:

- The market share of the company in the organized air-cooler market in India has increased by ~500 bps in FY12 to ~50%.

- The company is witnessing high demand in the domestic markets for air-coolers from dealers. The demand is high as dealer's depleted inventory significantly due to unexpected surge in demand during May-June, 2012.

- Over the period July-Nov,2012 the company has received ~Rs1bn orders from its dealer/distributors. For these orders the company has received 100% cash advances. Of these orders ~Rs250mn worth was dispatched in Q1FY13 and the rest will be delivered during Oct,2012-Jan,2013 period.

- The company has taken a price increase of ~9-13% in various models and on a weighted basis ~10% for the entire portfolio from 16th November, 2012. The price increase has been taken due to additional cost for new models launched.

- In India, the company is seeing increased traction from modern retail format and it contributed to ~9% of revenue (~4% in FY11). The company is hopeful of this being an additional growth driver in coming years.

- The company is increasing its focus on export markets and believes its strategy of hiring country managers will deliver in the longer term. Exports contributed ~16% of domestic turnover in FY12.

- The management has re-iterated its stand to continue to focus on air-cooler only and not diversify the product portfolio.

- In order to address the seasonality factor it is increasing its focus on exports, creating demand in mini summer season (Sept-Oct) and also ensuring dealers buy inventory during the off season due to the discounts offered during that period (15%-18% annualized).

- The delivery of new models has started from Diwali. The delivery of new models has been delayed by 35-40 days due to ramp in production.

- STORM model launched in FY12 has seen high success with it being stock-out in peak season of FY12. The demand momentum continues and it has seen high advance orders for it in FY13.

- The company is planning to further increase its distribution network by ~33% to 20,000 dealers in FY13. Also it plans to increase its presence from ~4336 towns & cities in FY12 to ~5119 in FY13.

- IMPCO, Mexico will focus on consolidation this year in order to improve its working metrics. The management is targeting modest growth in FY13 from this subsidiary.

- Management expects high growth from industrial/commercial air coolers from both international/domestic markets in years ahead due to untapped market potential. It has seen high traction for this segment from newer geographies such as Saudi Arabia etc.

Outlook and valuation

We expect Symphony to witness earning CAGR of ~33% during FY12-14 and its strong order book provides earning visibility. We continue to be positive on the growth prospects and the space in which the company operates. The stock has corrected by ~21% since our last update (Oct16, 2012) and thus provides a good entry opportunity. We thus upgrade the stock from HOLD to BUY with an unchanged target price of Rs383 (14x FY14).

Source : Equity Bulls

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