Maintain REDUCE on Symphony - Beat in 4Q, seasonal worry remains the same - HDFC Securities

Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities.

Symphony (Q4FY20): Beat in 4Q, seasonal worry remains the same. Maintain REDUCE
(TP Rs 867, CMP Rs 897, MCap Rs 63bn)

Symphony's 4Q performance was better than expected. India business clocked 13% growth in 4Q as Jan/Feb saw pre-buying benefits leading to 30% yoy growth (favourable base too). Lockdown in the last 8-10 days of March impacted revenue for the quarter by 15-17%. RoW revenue was down by 2% yoy in 4Q as IMPCO/CT/China/Exports clocked 7/2/-43/0% yoy. Gross margin surprisingly jumped by 729bps yoy and 650bps qoq to 55.8% but was maintained at 50% for FY20 (similar to FY19 and medium term guidance). Lockdown will have massive impact in 1Q for India business and high trade inventory can even impact 2Q performance. Co is taking various measures to lower the trade inventory (push from online channel, prioritising on liquidating trade inventory than primary push) prior to end of the season. We cut our EPS estimates by 4% for FY21 and FY22 (31/26% cut in our 4QFY20 Preview) to factor-in consistent extension of lockdown. We value Symphony at 30x on Mar-22E EPS, deriving a TP of Rs 867. Maintain REDUCE.

Robust growth pre-Covid: India business clocked healthy 13% yoy growth ( -3% in 4QFY19 and 27% in 3QFY20) led by strong growth pre-Covid. India revenue grew by 39% yoy (-25% in FY19) in FY20 and co was on the track of showing healthy performance in summer 2020. There was a record new launches in 2019 owing to low trade inventory and anticipation of strong summer 2020. However, extended lockdown in the peak season spoiled the demand for air cooler in April/May. With high channel inventory and disruption led by lockdown, we model 80% yoy dip in 1Q revenue for India that will impact FY21. IMPCO revenue growth of 7/12% for 4Q/FY20 is healthy. CT clocked flat revenue growth in 4Q and FY20 (at annualized FY19). We model consolidated revenue growth of -11/+20% for FY21/FY22E.

Strong operating margin: GM expanded by 729bps yoy in standalone and 524bps yoy in consolidated. GM was stable on annual basis at 50% for standalone business and 47% for consolidated for FY20. Standalone EBITDA was up by 20% (-17% in 4QFY19 and +40% in 3QFY20) and Consolidated EBITDA up by 48% (-38% in 4QFY19 and +58% in 3QFY20). Higher other income and low taxes result in 40% growth in standalone APAT to Rs 464mn and 53% yoy growth in consolidated APAT to Rs 428mn in 4QFY20.

Call & other takeaways: (1) Inventory level with the co is ~1 month, (2) Channel inventory has been lowered by 40% so far, (3) Co's focus on online sales and delivery through its dealers has helped boost sales, (4) Co has begun manufacturing most components within India to reduce reliance on imports, (5) No major capex is expected in FY21, (6) Cash conversion cycle has improved to 35 days vs 38 days in FY19.

Shares of Symphony Limited was last trading in BSE at Rs.896.55 as compared to the previous close of Rs. 815.05. The total number of shares traded during the day was 18298 in over 1850 trades.

The stock hit an intraday high of Rs. 896.55 and intraday low of 820. The net turnover during the day was Rs. 15946013.

Source : Equity Bulls

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