Maintain ADD on Symphony - All-round recovery, all eyes on seasonal pickup - HDFC Securities

Symphony clocked an all-round recovery with domestic, exports and subsidiaries revenues seeing beat in expectation. High trade inventory impacted domestic revenue during 9MFY21 (down by 50% YoY) while the strong 28% YoY growth in 4QFY21 (despite a firm base) reflects positive sentiment of trade partners. RoW revenue grew by 46% YoY, owing to robust exports (delay in shipment in 3Q) and recovery of CT, Australia (up 85% YoY). Thereby, consolidated revenue saw robust 36% growth. Domestic EBIT margin contracted by >650bps YoY, owing to high commodity inflation and delay in price hike. RoW EBIT margin saw sharp improvement (18% vs. 2% YoY) due to margin recovery in CT, Australia (EBITDA margin of 17% vs. -2% YoY). We are encouraged by an all-round recovery (key rationale for our stock upgrade in Jan-21); however, localised lockdown has raised concerns on summer-2021 performance for cooling products. As peak summer season is still left for Symphony, we would await further clarity on COVID-led restrictions before evaluating the potential impact on domestic business. With improving operating performance of subsidiaries, we increase EPS for FY22/FY23 by 5%. We value Symphony at 35x P/E on Jun-23E EPS and derive a TP of Rs 1,250. Maintain ADD.

Robust revenue recovery: Standalone revenue up by 38% YoY (+12% in 4QFY20 and -40% in 3QFY21), vs HSIE 23% YoY. Domestic revenue up by 28% YoY (HSIE +9%) while exports saw a 111% YoY growth (HSIE +125%) due to delay in shipment in 3Q. Positive trade sentiment and rising distribution reach supported domestic recovery. RoW was up by 46% YoY owing to recovery in CT, Australia and exports. CT clocked 85/21% YoY growth in 4Q/FY21. IMPCO declined by 19% (-25% in FY21) while GSK China posted 100% growth (-7% in FY21).

Miss in margins: Standalone GM declined by 726bps YoY to 48.6% (+729bps in 4QFY20 and -8bps in 3QFY21) vs expectation of -500bps YoY. Employee/ASP/other expenses up by -8/+100/0% YoY. EBITDA margin contracted by 350bps YoY to 28.3% (+211bps in 4QFY20 and -414bps in 3QFY21). Standalone EBITDA was up by 22% YoY (HSIE +25%). Lower other income and higher taxes resulted in 6% growth in standalone APAT. RoW posted EBIT of INR 300mn vs INR 20mn last year. CT, Australia recovered its operational margin (17% vs. -2% YoY).

Call and BS/CF takeaways: (1) Channel inventory in India is now at a normal level; (2) trade sentiment was positive up to Mar-21, with lockdown giving rise to concerns for summer-2021 but the lockdown is not as stringent as last year's; (3) company is still hopeful of recovery if lockdown eases out by mid-May; (4) focus is on expanding reach in rural and semi-urban market; (5) value market share is at 50% of branded air cooler; (6) commodity inflation and delay in price hike impacted domestic margin; (7) consolidated FCF was at INR 0.7bn vs. INR 1.4bn in FY20.

Shares of Symphony Limited was last trading in BSE at Rs.1218.6 as compared to the previous close of Rs. 1294.8. The total number of shares traded during the day was 14777 in over 1963 trades.

The stock hit an intraday high of Rs. 1308 and intraday low of 1205. The net turnover during the day was Rs. 18375434.

Source : Equity Bulls

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