Symphony Limited (517385) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Symphony Limited Q3 FY '20 Earnings Conference Call hosted by HDFC Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Naveen Trivedi from HDFC Securities. Thank you, and over to you.

Yes. Hi. Good afternoon, everyone. On behalf of HDFC Securities, I would like to welcome the management of Symphony Limited to discuss the post 3Q FY '20 results. We have with us the senior management of Symphony Limited represented by Mr. Achal Bakeri, Chairman and Managing Director; Mr. Nrupesh Shah, Executive Director; Mr. Bhadresh Mehta, Global CFO; Mr. Milind Kotecha, IR and Treasury. I would now hand over the call to the management for their comments. Thank you, and over to you, sir.

This is Achal Bakeri. Good afternoon, everybody, and welcome to Symphony's quarterly conference call. The normal safe harbor rules apply. I won't repeat them again. If we were to talk about the broad outlook, last quarter, I spoke at length in very granular detail about Symphony as well as the 3 subsidiaries. I think I'll not go through all of that again. What I would say is that all the new products that were introduced last quarter, which I spoke about at length, have been very well received, and the market is very enthusiastic about that and result of that is the sales growth that we have witnessed in the quarter ending in December. The market is also very bullish about the prospects for the cooler industry in general because the winter was a fairly good winter. And all winter consumer durables, such as heaters, water heaters and room meters, have had a very good run. And the market has pretty much exhausted the inventory. So the expectations are also of a good summer, and the market is sitting on very low inventory of winter products. So that portends very well for summer products in general. As far as the overall sentiment in the market is also concerned, I would say that despite all the noise that we hear about a slowdown and all of that, what we hear, what we feel at the ground level is that nobody -- none of our channel partners have actually shown any -- registered any degrowth in sales. So all of them, no matter whether it's in rural Uttar Pradesh or metropolitan Karnataka or the NCR region or anywhere across the country, this is, I would say, fairly widespread. The channel does not -- has not really experienced any significant downturn in sales. So as far as coolers are concerned, we believe that if the summer is not even exceptional, but just a normal summer, we should see a fairly good growth going forward. So all in all, I would say, Symphony in India is looking good. As far as our international subsidiaries are concerned, in Australia, we have had a decent growth. Again, Nrupesh will take us through all the numbers in detail. But the Australia -- Climate Technologies in Australia, IMPCO in Mexico both have registered good top line growth. Our subsidiary in China, GSK, Kerolite, have registered a degrowth on account of the slowdown in China because of the trade war. And probably they will also be impacted because of the coronavirus going on at the moment. But overall -- but the Chinese subsidiary is a relatively small subsidiary. But -- so apart from that, I would say the other 2 subsidiaries have shown good growth. And all in all, the numbers are in front of you. But now I request Nrupesh bhai to sort of walk us through the numbers. Thank you very much.

Good evening. So to take you through stand-alone and consolidated numbers. For the quarter ended December '19 on a stand-alone basis, turnover -- gross revenue is up from INR 159 crore in December '18 to INR 207 crore. In fact, it is up, even vis-à-vis September quarter. So Y-o-Y, it has reached 30% growth. Coming to gross margin, it is at 49%, up from 47% in September quarter. The main reason for increasing top line and gross margin percentage are overwhelming response to launch of new models across the range, much better operating efficiency and model mix. Coming to PBT. On a stand-alone basis, it stands at INR 77 crore versus INR 57 crore, which translates into 35% PBT versus 33.7% last year and 34% in September quarter. And PAT stands at INR 58 crore versus INR 43 crore and INR 57 crore in September quarter, registering 36% increase and PAT percentage stands at 27%, almost in line with September '19. On a consol basis for 9 months, revenue stands at INR 854 crore, while gross margin percentage on consol basis for 9 months stands at 47%, while PBT to gross revenue percentage is at about 21% and absolute amount wise, which stands at INR 179 crore versus INR 116 crore in previous year. And consol PAT is 16% to revenue that is INR 142 crore versus INR 88 crore last year and INR 91 crore for the entire '18/'19. In terms of efficacy of capital employed, on a stand-alone basis, we maintained very tight capital efficiency. And for the quarter, the capital employed stands at negative INR 56 crore. And for 9 months on a stand-alone basis, it stands at negative INR 43 crore. And hence, PBIT percentage on capital employed for the quarter and 9 months on a stand-alone basis stands, as such, infinite. While capital employed on a consolidated basis stands at INR 174 crore, this is the capital employed in the core business, that is air cooling and other appliances. So for 9 months, it stands at INR 174 crore, which translates into PBIT percentage on capital employed about 90% on consol basis. The Board of Directors in today's meeting have decided interim dividend of INR 20 per share on the face value of INR 2, comprising of INR 2 normal dividend and INR 18 onetime special dividend. That is 1,000 percentage. And in terms of total payout, including DDT, is going to be INR 169 crores. This is in addition to INR 25 crore of dividend payout already made in last 2 quarters, leading to total dividend payout in 9 months, INR 194 crore. So this will take care of, not only our current year dividend payout policy, but also backlog of previous years. And hence, we will be very much in line with our given cumulative dividend payout policy of 50% PAT. Coming to specifics on subsidiary companies. Symphony AU, Australia, including Climate Technologies for the quarter, turnover stands at INR 91 crore while PAT is up from INR 4 crore to INR 8 crore. As far as IMPCO is concerned, there has been a loss, up from INR 2 crore to INR 4 crore during the quarter, but more importantly in line with earlier years on account of intercompany purchase of air coolers from Symphony India as well as GSK China. The profit thereon of INR 9 crore has been deducted and set off from consolidated numbers, and that sales happens mostly in March quarter and in subsequent quarter, and that profit will be realized in subsequent 2 quarters. And on 9-month basis for subsidiary companies' financials. Symphony AU has registered top line of INR 212 crore with EBIDTA of INR 20 crore versus INR 9 crore in previous year 6 months, while PBT from operations INR 12 crore and PAT is about INR 10 crore versus INR 4 crore of previous year 6 months. For IMPCO Mexico, EBIDTA for 9 months stand at about INR 3 crore versus INR 5 crore for 9 months, while PAT is almost 0 versus INR 4 crore of previous year, while for GSK China, the sales is down from INR 47 crore to INR 37 crore, and EBIDTA is negligible in absolute amount. And hence, at a PAT level, it is negative INR 4 crore. This is mainly on account of reduction in top line due to trade wars. Thank you.

Should we open the floor for question-and-answer?

Yes, please.

[Operator Instructions] The first question is from the line of Manoj Gori from Equirus Securities.

Sir, a couple of things I would like to ask on the Climate Technologies. So if you look at -- the summer has been strong, but if you look at top line, so can you actually comment like why it has not translated into the top line for Climate Technologies?

So as I say, for 9 months, Climate Technologies' top line is INR 212 crore, while for previous year, of course, consol numbers were for 6 months because we acquired effective from July 2018. And hence, for previous year 6 months, it was INR 141 crore. But even if we compare 9 months to 9 months, the top line growth is almost about 10%, 11%.

Okay. Because when I look at the Q3 numbers, it's roughly INR 91 crores versus INR 85 crores.

That's right. So that is for the quarter December.

The next question is from the line of Renu Baid from IIFL.

Sir, my first question is just asking regarding the impact of this coronavirus on the GSK operations, because not only it would impact GSK but also supplies to IMPCO. So in your view, what has been the impact so far? And what could be the material hit on both the entities? And is there sourcing coming in from China for our India supply chain as well from these entities or not? If you can elaborate a bit more on this.

So as far as supplies from GSK to, whether it's Australia or India or Mexico are concerned, those supplies have already happened for the coming season. So there is not much at stake over there. And -- but however, our subsidiary happens to be in Southern China, which is in the Guangdong province, and that has not really been affected by the coronavirus, which is up in central part of China in Wuhan. So fortunately, none of our people have been infected, nor anybody in their families have been infected at Kerolite. So as far as company itself is concerned, so far, we have been unaffected. And like I said, that most of the supplies for the season to come have already been dispatched from China. Then that leads us to the second part of your question, which is what about component supplies to India. There are 2. A lot of our supplies have already -- most of our supply is for the coming -- let's say, for the coming couple of months or 2, 3 months have already been received. So there is no immediate issue of whatsoever. And we believe that by the time we need to place fresh orders, I think the situation should be under control. I think most of our suppliers also happen to be in parts of China, which are unaffected. So we really don't foresee this to have any material impact on Symphony.

And upcoming season for Symphony India has been completely taken care.

Yes, exactly. So at least from a summer perspective, there is no impact on the supply chain or the product sourcing whatsoever in any part for the India portfolio?

Yes. That's right. That's right.

Okay. And by the time we see summer hitting in the U.S., any way through Australia, et cetera, the supply chain should by then get back in place?

Yes. See, again, for U.S., the dispatches have sort of been done. And for Australia, of course, now the next summer is many, many months away, almost like 8, 10 months away. So we expect things to have stabilized by then.

Okay. Sure. Second, if you can also elaborate a bit more in terms of on the quality of growth that we have seen this quarter in terms of which particular segments did we see growth. And how was the growth in terms of the end channel? So how would the trade grow versus the modern retail format, et cetera? And overall, you mentioned that there is improved optimism on the summer and offtake from the interactions with channel partners. So if you can elaborate a little more on that side, would be helpful.

Well, as far as modern retail is concerned, that sales will happen in the current quarter. So bulk of what happened in the previous quarter, one that ended in December, has happened to the general trade. And the sales growth that we are talking about is, again, primarily for the household coolers. Industrial coolers have also grown, but again, the base is small and the numbers are small. So the overall impact is not significant. And the sentiment across the general trade -- in general trade across the country, like I said, it's fairly positive. There is always noise that one hears about the slowdown and all of that. But like I said, that has not been evidenced on the ground. And like I said, again, the winter was strong, so heater sales has been good. So the channel is -- sometimes many of the channel partners are common between cooling products and heating products. And so they are fairly [indiscernible], have witnessed good sales. So all in all, the sentiment is fairly positive.

And this is coupled with launch of new models across the range with the residential range or even ducted cooler. And that has really given a sense each and in a way, for many, many models vis-à-vis peers, it's like a generation gap.

Okay. Right. And second would be on the gross margins. Yes, it seems that because of mix and the type of customer sales also, we have seen a 200 (sic) [ 50 ] point improvement Q-o-Q on the gross margin side. So does that mean -- sorry, 250 (sic) [ 50 ] basis points. So are we broadly on track to mention -- sorry, gross margins are broadly flattish, just 50 basis point increase Q-on-Q. I'm sorry for the mistake. So then you had mentioned that we were expecting gross margins to come back to healthy levels, close to 50% levels by the end of the year. So you think those numbers would be broadly there? Or overall, it would be more a volume-driven mix that will drive EBITDA margin improvement?

No. I think in the current quarter, the margins should be -- show an improvement over the previous quarter.

Okay. But for the year as a whole, by the time we end the year or by next year, do we see gross margins broadly coming back to that 50% levels? Or probably these -- close to 50% is what is more realistic as a number to look at it?

I mean I would say 50-ish percent is what we should be looking at. Precisely, it will be difficult to say. But 50-ish percent is what we should be talking about, yes.

See, already for 9 months on a stand-alone basis, our gross margin is 49%. And normally, in March quarter, one, because of the price increase, and secondly, also on account of launch of new models, we expect gross margin should be better than current quarter or first 9 months.

So for the year as a whole, because -- we are talking about in the vicinity of 50% -- 50%, 51% types.

The next question is from the line of Nitin Arora from Axis Mutual Fund.

Just drilling back to Australia subsidiary, it will be good if you can quantify what happened in this quarter rather than the 9 months because your Q3, Q4 generally is a heavier quarter in terms of weightage, about 55% to 60% as what you guided. So what is really going wrong there in terms of sales, even EBIDTA is somewhat -- not even able to achieve the previous numbers or what the other management had. So if you can quantify on that, that will be helpful, and I'll take the second question after that.

Okay. In fact, in my initial remarks, I shared the numbers of Climate Technologies for 9 months. Not only that, the data sheet, which we have shared, quarterly numbers, including top line versus previous year and PAT have been shared. Let me just repeat it. For 9 months, the top line stands at about INR 212 crore. And last year for 6 months, it was INR 141 crore, while EBIDTA stands at about INR 20 crore versus INR 9 crore for the previous year 6 months. And PBT from operations, that is before interest on acquisition loan, stands at INR 12 crore versus INR 7 crore, while PAT stands at about INR 10 crore versus INR 4 crore. So this translates into gross profit margin of 46% versus 43% of previous year, while PAT margin is at about 5% versus 3% and EBIDTA margin is 9% versus 7%. And I think even in earlier 2 quarters, it has been shared that we have initiated a series of strategies, whereby part of the benefit, as reflected in these number, we have already got the benefit, but annual financial benefit should be on the same numbers, anything in the range of around AUD 5 million.

So basically, what you are saying is contrary to what the numbers are. So I think there is a sort of a mismatch in your perception with the reality.

Hello?

Yes, Nitin? Hello?

Can you hear me?

Yes.

Yes. So this quarter was INR 91 crore versus last year previous quarter of? If you can share that number?

INR 85 crore.

INR 85 crores.

INR 85 crore same quarter last year.

So yes. So that's almost like a flat growth in a very -- environment, which is very heavy in terms of -- a quarter, which is very heavy in terms of sales in Australia?

No, no, no. We are talking about...

So my question was that...

No. We are talking about a 7% growth over the previous year in terms of top line, which for a market like -- in a market like Australia -- in a saturated or in a stable or a developed mature economy like Australia is, I would say, not too bad. And in terms of EBIDTA, it's up from 18 to 14. So that is almost like a 75% increase on the EBIDTA level. PBT is up from 7 to 13, nearly twice. So again, so for -- so I do not know where did you arrive at a negative number or a degrowth compared to the previous year. Hello, can you hear us?

Yes. Can you hear me?

Yes, now. Tell us.

Yes. So it was something AUD 55 going up to AUD 70. That was the range, which was given at the time of the presentation, which was given at the time of the acquisition. So it's not happening that. So that's why my question was that is it the market -- I understand it's a small population country, and it's very well -- that time also, you said that the penetration is higher. So it's just because of that and the numbers, which were given earlier was a little different. Because you said that you'll start marketing towards the U.S. and all. So that's why I was wondering why even in a strong season, the growth is only 6%, 7%. But got the answer. As you said, it's a pretty saturated market.

Yes. And the U.S. -- growth in U.S. as well as other initiatives that we have taken will start showing results from, I would say, 2021 onwards. So we have plans which I had explained in my previous talk in the previous quarterly con call. We expect value engineering itself to contribute about AUD 5 million, AUD 6 million to the bottom line. So all that will show results in the next financial year. However, already in the current year itself, current summer itself, coolers from India have gone to Australia and have begun to be retailed in Australia. Coolers from China have gone to the U.S. and will be retailed in the next summer -- coming summer in the U.S. So that kind of cross-selling opportunity, which was something -- one of the reasons why this company was acquired, have already begun to happen. So the various initiatives will start falling in place and will have a material impact in the next financial year. Hello?

Mr. Arora?

Can you hear me?

Yes.

Hello? Yes. Is it possible to give some color with respect to the secondary sales of coolers within this market? Or this is pure primary, which is done in this quarter? Also, I understand this must be the primary. I'm saying if you can give a little color on the secondary, if you have -- how that has responded?

So we are comparing this year's primary with previous year's primary. We don't have any visibility beyond that, neither for this year, nor the previous quarter, nor the previous year. So we are talking apples-to-apples.

Okay. And lastly, sir, on the supply chain perspective. If you can throw some light, how does the India -- so just wanted to understand what you supply or what you get in terms of supply chain from overseas to India? Which -- let's say, if corona extended, which can impact you, as you already clarified that you are very well saved in terms of the summer season. But just want a little clarity. What all gets in here? And even if you talk in terms of percentage, that will be helpful. That's my last question.

So some components at the moment come from China. But if the situation were to extend, then we would be able to develop alternative sources locally. So it isn't as if we are tremendously dependent upon sourcing from China. There are other alternatives available to us.

The next question is from the line of Prithvi Raj from Unifi Capital.

Sir, on your commercial and industrial cooler side, can you just throw a light on how is the traction now? And how is the initial feedback? Also, are we going to see higher marketing expenditure because of this and which would -- compared to our consolidated EBIDTA margins?

Didn't quite fully understand your -- your thing was not very clear. Could you repeat your question again?

This traction in the commercial and industrial air coolers and how is the feedback from the market? That's question number one. And then are we going to see higher marketing expenditure because of these products?

Okay. So the new commercial and industrial cooler range, which was introduced last quarter, has been very well received. So I would say the traction is very good. And the prospects for those ranges are beyond what we had expected. Although it will take time for the -- for everything to sort of to bear fruit and the volumes to scale up, but the products have been very well received in the marketplace. And as far as ad spend and marketing spend are concerned, bulk of that will be actually spent in the next quarter, quarter beginning April -- the April to June quarter. That is the peak season. However, there will be some advertising expense in the current quarter also, which will -- so some advertising campaign will begin in March. But the bulk of it will be reflected in the next quarter. And in terms of whether our ad spend is going to be significantly different from the previous year, I think that is still a work in progress. So that is, I would say, a little premature to comment on. But it will more or less in terms of percentages be in line with what we have spent in the current year or will be spent in the previous year.

Okay. And just on the India business, could you please help us on the market share numbers? I mean are we able to maintain the market share? Or is there any increase or decline in the market share numbers?

At the country level, I would say that our market share is absolutely intact. And there would be pockets where our market share would be significantly higher than the -- it would be reaching like 80%, 90%. And there would be pockets where the market share may be less than the average. But I would say, as a country, as a whole, our market share has been intact over the years.

An important part is in '18/'19, the year in which industry degrew, industry degrowth was about 36%. And despite being market leader, Symphony's degrowth was 24%. This is despite entry of many, many new players.

The next question is from the line of Mayur Parkeria from Wealth Managers.

Congratulations for a decent set of numbers. Achal bhai, we completely understand the budget has taken one more hit, and it's a difficult time for promoters in that situation who own larger shares, sir. But I think what you did was right by not giving a larger dividend this year itself. Finally that buyback and that situation, which you are looking for and now this larger dividend, at least it helps to reduce some of the cash, which we have on the balance sheet. Sir, the...

Yes.

Yes. So at least in the light of the changes, do we think there is a need to tinker with any of the dividend payout policy?

No. I think overall -- no, what do you suggest? What do you suggest? Let me ask that way. Let me turn the question on its head. What are you leading to? What do you want me to answer?

No, sir, because it absolutely becomes unfair when it gets taxed in your hand from the next year. And instead of company paying the smaller percentage, now it has to pay so much larger share from the company's hand. So I was just thinking that will it require -- will you look at changing any kind of dividend policy from the company's perspective? How you and the Board decides? I'm not --

No. I think, by and large, we are committed to our stated shareholder reward policy of around 50%. Question is we have to find the most tax-efficient way of doing that. So depending on what the tax regime is and how the government tinkers with it, we will have to adapt to that. So at the moment, we felt that what we've done this year was the most tax-efficient -- end-to-end tax-efficient. And so next year is another story. We will see what happens next year. But in terms of the overall payout, we are committed to a 50%. So this year's payout, if you were to consider, then sort of makes up for the shortfall of the previous couple of years. So end-to-end, we have restored the payout of about 50% for the last [ 3 ] years.

Sir, it will be heartening to know that, that you will continue to do the payout, 50%. That will be great news.

Sorry?

Sir, it will be heartening to know that you will continue with the 50% payout even in the next year. So it will be a great news. It will be great.

No, absolutely. No, absolutely, because the money is sitting on the books of the company, and there is no need for the -- company doesn't really need that cash. And so yes, so we are absolutely committed to it. But we will have to -- we will find what's the most tax-efficient end-to-end. And like I said, this year, what we have done takes up for the shortfall of the previous years. So yes.

And rather than just dividend payout policy, it is a shareholder payout policy. So it may be in the form of dividend. It may be in the form of buyback, but end-to-end what makes the most sense.

So we call it the -- we are actually defining it as a Shareholder Reward Policy. We're not really calling it as a dividend policy. One way or the other, we are putting money back in the pockets of the shareholders.

So that 50% payout will continue.

Sir -- Nrupesh bhai, second question was mainly from your [ Q1 ]. Given the fact that now a lot of cross transactions are happening within the subsidiary from China, Australia, India, Mexico and the external -- when we look at the segmental results from an -- which are the sales to external customers, that number and then the number which you gave on the sales and profitability, especially the sales part and the PBIT part of it, those are actually the country level sales. So from the -- for the sake of understanding better, if you can give that number also, which is in line with the external sales matching with that, it will help us to understand the numbers correctly because there is -- it becomes a little difficult to understand the overall impact of the -- because at the end of the day now it will becoming an integrated company where the sales are flowing from one to another. So just a thought that instead of matching -- if it can -- matches with the segmental results, it will help us to understand the real impact and the real numbers there behind it. Hello?

Mr. Parkeria?

Yes?

Sir, please stay connected. The line for the management is disconnected. Ladies and gentlemen, the line for the management is disconnected. Please stay connected while we reconnect them. Ladies and gentlemen, the line for the management is reconnected. Thank you, and over to you.

Yes. We are back. Sorry for the lag.

Can you please repeat the question?

Sir, the participant is off the queue. Just give me a minute. Mr. Nirav?