Symphony Limited (517385) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the conference call with Symphony, hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Renu Baid from IIFL Securities Limited. Thank you, and over to you, ma'am.

Thank you, Izan. Thank you, everyone, for dialing in. We have with us today the management of Symphony to discuss with us the recent business developments and the implications of COVID on the business. From the management, we have with us today, Mr. Achal Bakeri, Chairman and Managing Director; Mr. Nrupesh Shah, Executive Director; and Milind Kotecha, Manager, Investor Relations and Treasury. Without taking much time, I would now like to hand over the call to Mr. Bakeri for his opening remarks. Thereafter, we can start with the Q&A. Thank you, and over to you, sir. And also, this call is scheduled for 30 minutes. Thank you.

Thank you, Renu. So good afternoon, everybody, and thank you for being on this call. I'll start off with an overview of the current quarter and the current financial year, both India and on international subsidiaries. And then I'll talk about what we expect next quarter and the next financial year to be like. So as far as the current quarter and the current financial year are concerned, we are more or less on track with what we had projected and had expected. So we will be more or less at a similar level as in 2018-'19. So as you all know that...

2017-'18.

2017-'18. As you all know that '18-'19 was a bad year for us. So there was a dip. So -- but in the current financial year, we are reverting back to the 2017-'18 numbers. The year started off well with good summer of the April to June quarter and followed by very good off-season collections. And so every quarter, we have had -- we'll be more or less on track with the financial year of '17-'18. We would have lost some sales for the -- in the last -- for the last 1 week or 10 days, which would have maybe been about 10% or so of -- we would have done maybe 10% or so more than what we have -- what we will end up doing. But notwithstanding that, I think more or less, we are on track with 2017-'18.

And I believe that 10% for the quarter. So maybe...

10% for the quarter. No, 10% for the quarter, 10% for the quarter. And so this is as far as India is concerned. As far as our subsidiaries are concerned, there, of course, China was hit primarily first because of the trade war and followed by the COVID-19 issue in China. But China has sort of come back to normal. And so -- but that is -- so that will be -- the results of that will be seen in the months to come. So as far as the year that will end in March 2020, China has registered a degrowth over the previous year, and we will end the year with a bit of a loss in China. As far as Mexico is concerned, there too -- there has been no disruption so far. And so Mexico has shown reasonable growth over the previous year. And we will also end the year at a reasonable level. As far as Australia is concerned, there too, COVID-19 is just now sort of affecting the market. And more or less, there too, we are on track with what we have projected. We have also not witnessed any major supply disruptions, especially because in Symphony, we make sure that we order whatever we need to order for the summer before the Chinese New Year. So much before January, before the shutdown for the Chinese New Year, we had all our supplies over all ready, sort of all the components which we import from China were dispatched. And so we are -- we were very well covered. So we have not really seen any supply disruptions, and neither have our facilities in Australia or Mexico have experienced any sort of supply disruption so far for the same reason. As far as now the new financial year is concerned, as far as from April onwards is concerned, now that is going to be a huge question across the world, except China, which is now sort of getting back to normal. As far as India is concerned, I think all of us know what's going on. Things have suddenly escalated over the last weekend. Things appeared to be sort of normal up until Saturday. But with this Janta Curfew and sort of lockdown in 70 districts thereafter and Gujarat is now almost total lockdown since yesterday, the situation has sort of overnight turned into something very different than what was expected up until Saturday. So what is -- what the future has in store, how long this is going to last is anybody's guess. But as far as the summer is concerned, the expectations are that the summer is going to be there and the temperatures are going to be -- are expected to be reasonable and conducive for sales of coolers. But if the markets are not open, and as you all know, all malls are shut, all the major retailers are shut, modern retail is shut, even the small dealers in small towns as of today are shutting down. And even if they are open, customers are not venturing out into showrooms. So -- and even online is almost -- Amazon and Flipkart have sort of shut down. And maybe some of the grocery deliveries are going on, but as far as everything else is concerned, it's pretty much shut down. So it isn't as if any other alternate channels of sales also remain open. We had made arrangements for consumers to call, and a cooler will be delivered through a local dealer, if they don't go out, they don't wish to go out, but it appears that the logistics providers are also shutting down. So maybe that arrangement will also not sort of bear fruit. So it all depends on how this -- how long this is going to last. We all hope that -- so far India has seen about 300-odd cases. And before this thing really gets out of control, spins out of control, the government has taken strong action. And we hope that by end of April or middle of April or so, this is contained and sort of life goes back to normal. If that were the case, then we should be in a fairly good place because our material is out there with the distributors and dealers. Our supply chain is pretty much stocked. And the dealers would -- and as far as Symphony is concerned, most of our material is paid for stock, so the network would be very keen to unload Symphony stock first over others. So we would be in a fairly good place. But if this were to extend into, let's say, May or June, then despite summer and consumers wanting some relief through coolers, there may not really be -- they may not really be going out to buy coolers, in which case, the material will remain with the dealer. But now that is an extreme situation. We really hope that it doesn't happen that, that this COVID-19 thing doesn't extend into May and June, but that is just the worst-case scenario. But otherwise, internally, we have taken sort of measures to -- we see some opportunity in these circumstances, where coolers are -- there is a directive by the government that people should not be using air conditioner, people should not be in a closed environment where air is recirculated. So in this kind of a situation, air coolers are preferred because you can leave your doors and windows open with an air cooler. In fact, air coolers perform better when doors and windows are kept open. So we have begun a campaign across the country on -- in press, in television, in social media about this. And so that is something which is at least registering. It may not be able to result in sales because, like I said, if the markets are shut and consumers are not going out, there will be no sales. But at least we have taken this initiative. Moreover, another issue is that in the case of air conditioners, they need installation. So people don't want people -- the technicians to come and install air conditioners in their homes. So that's another thing going in the favor of air coolers and more specifically Symphony, which is a plug-and-play product. So you just go out, buy it and sort of start using it. So that's another thing in our favor. And so these are 2 things, which, sort of, I would say, favor air coolers and Symphony over air conditioners. As far as competition within the air cooler industry is concerned, if this situation were to -- if the COVID-19 were to extend into May and June and this were to be sort of a watershed summer, then it will also see maybe the exit of some of the newer players who would be fairly badly hit because they would have a lot of inventory, which would not have been sold and their dealers may also have -- their channel inventory will also be there, for which the companies may not have received money. So there might be some -- I would say, some consolidation that this crisis may lead to in the air cooler industry. So I would say that is, as far as India is concerned. As far as Australia is concerned, it is going into the winter months. And in fact, what we have witnessed in -- what we have seen now in Australia is that people are ordering more heaters because they are staying at home and they need their heating equipment. So in fact, there is a bit of a spurt in demand for our heaters in Australia. However, again, if this were to escalate in Australia and if there were to be a lockdown and a shutdown in Australia, then our heaters, they are all central heaters, so they need installation. So they might -- customers might not -- consumers may not -- might not allow technicians to come and install those heaters. But at least as of now, there is a spurt in demand. And like I said, if this were to extend and were to escalate into a bigger situation, then we might not really see the full benefit of this spurt in demand. As far as Mexico is concerned, there too -- so far, things are fine. Even manufacturing is going on. And the central government -- the federal government in Mexico is actually shying away from taking any major steps because they don't want to hurt the economy. But the states are more aggressive in Mexico and they are taking measures. So the nonstates where -- which are cooler markets, if they were to take some aggressive measures, it's a different story. But I think Mexico [indiscernible] is off. Peak summer months are May, June and July. So if the crisis were to blow over [indiscernible] available there, all the coolers [indiscernible] going on, components [indiscernible] so there are no logistics [indiscernible] what would happen. As far as China is concerned, things are sort of going back to normal in China. Most of our coolers sold in China are sold and bought by industries and installed in industries. So the industrial sector in China is going through a fair bit of pain because of the trade war and now this. So it remains to be seen how quickly industry is sort of reorganized and start investing again. But the summer is yet to come in China and also resume. So China, the situation is a little different, but we are still hopeful that China should be in a better place than Mexico or Australia or India. So with that, I think I've given an overview of...

Sorry to interrupt.

Yes, yes.

Hello?

Yes.

Sir, we are not able to hear you clearly. Your voice is breaking up.

Oh. For how much [indiscernible], I don't know?

Sir, the last 1 minute.

Okay. Nrupesh bhai, can you hear me?

Yes, but it's slightly breaking still.

I see. Okay. Did I miss anything, then maybe you can jump in and...

Sorry to interrupt. Sir, your voice is still breaking up?

Nrupesh bhai, can you?

Yes. Am I audible?

Yes, sir, you're audible.

Okay. Nrupesh bhai, why don't you carry on?

Yes. So I think Achal bhai has given a fairly good overview about the current year, current quarter of domestic business as well as international business. Just to add to that, as far as gross profit margin is concerned in the current year and in the current quarter, it's absolutely in line with 1 year, 2 year or 3 years before it was, which is on a variety of factors. That's number one. Launch of new models, which have been received really very well. And in many, many of those models, they are having path-breaking features and also performance and format and design. Number two. Also, on account of value engineering and also because of economies of scale and operating efficiently. Otherwise, I think Achal bhai has given a fairly good overview. So if nothing more to add, we can open it for question-answer, if there are any.

Yes, we can open the session for Q&A, please.

[Operator Instructions] The first question is from the line of Nitin Arora from Axis Mutual Funds.

First of all, thank you to every -- management for really taking out time and telling us what's really happening on the ground, so thanks a lot for that. 2 questions. One on the overseas business, China, Mexico and Climate Technology, Australia. Achal bhai, do you anticipate any risk or any anticipation in terms of risk where how much cash flow support we need to do there if things go worse because we just started reading, as you also highlighted Australia is going for a 5-month shutdown. These are all media reports, on a 3-month shutdown, borders are getting sealed. Just wanted to understand, not from a sales point of view, but from a supply chain and from a cash flow support point of view, do you see any anticipation there for the overseas business?

Achal bhai, are you there?

Hello.

Yes. Achal bhai, are you there? Could you listen to the question?

Yes, yes, I did, I did. So I was saying that it depends on sales. If there is no sales, then there will be pain in the cash flow in Mexico, Australia and China. In India, it will not be so bad because we have a different business model, and we have the cash resources. But as far as the other geographies are concerned, if there is a drop in sales and demand in the next quarter, there will be cash flow pain, but that is something which we will sort of have to -- sort of weather and find ways around.

Yes. And just to add to that, I think, Mr. Arora, you said that there has been a lockdown and shutdown of the factories in Australia as far as Climate Technology is concerned. As of now, it is fully functional. Not only that, it has been approved as an essential commodity and essential industry because most of the people are at home and these caters to their basic essential. So as far as Climate Technology operations are concerned, it is absolutely unimpacted and unaffected as of now. And I think if we really quantify financially even if it is going to be the worst, at the most we may have to fund to the extent of part of the overheads and some of the working capital requirement, which in totality, we don't expect really material.

Got it. The second question is with respect to India, can you quantify what could be the channel inventory at this point in time? Number one. And number two, what kind of measures you are taking to support your distributors, modern retail channel? And how much generally is modern retail for you as a percentage of sale? That's my last question.

So as of now, there is, I would say, a fair amount of materials in the channel. We would be able to quantify, but because we are at the beginning of the summer, so most of what has been bought in the previous months have all been bought in -- sell in the next 3 months. So because of the beginning summer, much or most of that would still be in line with the channel. And so that is one thing. And in terms of support, there is really, at this point, everything is shut. So there's no question of being able to do any support even if we were to wish to do something. So as of now, there is nothing special that we are doing. But once things reopen and once things sort of come back to normal, and at that time, depending on the situation, depending on what is the requirement, we will do whatever is required.

Yes. And as it was the beginning of the season, I think many, many distributors have also successfully placed good part of the inventory with the dealers. So it's not like entire inventory is lying just with the distributors, it has also gone to a next level.

Yes. So a lot of it -- but basically, it is still within the channel, distributors and dealer...

Channel.

Yes, yes.

The next question is from the line of Naveen Trivedi from HDFC Securities.

Sir, my question is with respect to -- you mentioned about in March, you lost around 10% kind of revenues. If you can just give us some flavor...

Of the quarter.

Of the quarter. If you can just give us some flavor about your Jan and Feb performance, why because typically, these are the time when the south market, you start building your inventories. So how has been the trend -- pre-COVID's time? I can understand the last 3 weeks' time, but if you can just give us some flavor about that?

No. So like I said, why -- not only Jan and Feb, I can tell you -- give you a flavor for the whole quarter. We are more or less on track with '17-'18, the same quarter of '17-'18. And we will end the year with more or less similar number as of '17-'18. So that's...

Sorry to interrupt, sir. Your voice is breaking up.

There's nothing I can do about that. Naveen, can you hear me?

Yes, yes, I can hear you, sir.

Okay. So that 10% of the quarter would have a little bit additional. But notwithstanding that, I think we will end the year with more or less similar level, '17-'18.

And also for the quarter March '20, even vis-à-vis March '18 quarter, top line-wise, we should be in line with that, despite this loss of about 10% of quarterly exchange. So of course, there is going to be a growth over March '19. But even vis-à-vis March '18 quarter, it should be by and large in line with March '18 quarter.

I just don't understand when you said the situation is more like 2017-'18, because that was a time when the season was very weak and our inventory was significantly high. If I look at now, season has just started, I think it's delayed by around 10 days. So when you're saying it is similar to '17-'18, you're talking about only the fourth quarter or you are talking about the upcoming season?

I'm talking about the fourth quarter, I'm talking about the financial year.

Financial year, FY '20?

FY '18.

No, but when you're comparing with the '17-'18, you're comparing FY '21?

Comparing what?

When you're saying the situation is like 2017-'18, when you're saying you're talking about the upcoming season performance because that we have seen around...

Financial year '17-'18, April, March '17-'18 to April, March '19-'20.

Okay, okay, okay. My next question is, I think if my understanding is right, for air coolers peak season is in May for the consumer offtake point of view?

No, no, no. It is -- in fact, it begins in March and then goes on. So in parts, it begins earlier in the south and begins a little weaker in the north. But it begins in March and sort of trails off in June. So the peak months are, I would say, April and May for secondary sales.

The next question is from the line of Ronak Vora from AUM Fund Advisors.

Sir, where are we in terms of raw material procurement?

In terms of raw material procurement, like I said in my opening remarks, so far, we have been able -- we had whatever material we had needed. So as far as incoming supplies are concerned, I think there is not much of an issue. Question is the local manufacturing is all shutdown. So raw material is not much of an issue, but -- we have a lot of imported components. Those are on the way because China has reopened, and domestic suppliers are shut down, domestic manufacturing is shut down, so our OEMs are shut. So at this moment, our production has ground to halt.

Okay. So do we see like the imports coming in on a normalized basis?

They've already begun. The question is now, where will the -- these containers will lie at the ports.

Ladies and gentlemen, that is the last question. I now hand the conference over to Ms. Renu Baid for a closing comment.

Thank you, Izan. On behalf of IIFL, I would like to thank the management for giving us the time and sharing the on-ground situation with investors. Thank you so much, sir. Any closing remarks from your end?

Nrupesh bhai, you want to wind up?

So I believe vis-à-vis the competition, we are much better placed. And once situation normalizes, I believe our age over competition will, in fact, further enhance. And ultimately, any business or any industry is not run just for a week or for a month or for a couple of months. So we are really looking at a very, very bright future in the medium term to long term. And of course, in a couple of weeks, if situation normalizes, I think there is not much to lose, but we need to keep the finger crossed. Thanks, and thank you, everybody, for your participation and sparing your valuable time.

Thank you.

Thank you, everyone. Stay safe.

Ladies and gentlemen, on behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.