Symphony Limited (517385) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Symphony Limited Q4 FY '20 Earnings Call hosted by Kotak Securities Limited. [Operator Instructions] I now hand the conference over to Ms. Garima Mishra from Kotak Securities. Thank you, and over to you, ma'am.

Thanks, Inba, and good evening, everyone. On behalf of Kotak Securities, I welcome the management of Symphony Limited to discuss their 4Q FY '20 and FY 2020 results. We have with us senior management of Symphony Limited represented by Mr. Achal Bakeri, Chairman and Managing Director; Mr. Nrupesh Shah, Executive Director; Mr. Bhadresh Mehta, Global CFO; and Mr. Milind Kotecha, Manager, IR and Treasury. I now hand over the call to the management for their opening comments. Thank you, and over to you, sir.

All right. Thank you very much. Good afternoon, everybody, and welcome to the Symphony conference call. I'm sure all of you are safe and healthy. The fact that you are here is proof of that. I'll start the safe harbor. Normal safe harbor rules apply. So I'm not going to repeat those. And so I'm going to start with the subsidiaries first. That's easier to get it behind us. Our subsidiary in China, which is GSK, Guangdong Symphony Keruilai Limited, the sales -- for the annual sales for '19-'20 are down to INR 42 crores from INR 56 crores the previous year, with a cash loss of about INR 6 crores from breakeven the previous year. If I were to refresh everybody's memory, we had acquired the company in 2016. And when we acquired the company, there was a loss of about 6 -- INR 17 crores, which we had brought down to a breakeven in 2018 -- in 2019. And from '20 onwards, it was supposed to make a profit. But because of the U.S.-China trade war, to begin with, and subsequently, the pandemic, the sales were severely impacted. And finally, the company's sales reduced from INR 56 crores to INR 42 crores and ended up with a loss. But we are hopeful that, in 2021, despite it being a challenging year with the residual effect of COVID, we believe that we should be at least breaking even, if not profitable in that -- by March '21. Coming to our subsidiary in Mexico, which is IMPCO, the sales of IMPCO for the year ended in March '20 was INR 100 crores, up by about 13% from the previous year, which was at about INR 88 crores, but the net cash profit was down from about INR 8 crores to INR 4 crores on account of foreign exchange losses. Because of the trade war and subsequently the pandemic, the Mexican peso depreciated significantly, resulting in a steep increase in the raw material costs which it imports and payments for its other imports, including finished goods from India. And that had an impact of about INR 4 crores on its net profit. So like I said, it ended the year with a net cash profit of about INR 4 crores. But along with this, we have to -- we have to bear in mind that Symphony made a profit of about INR 10 crores on the coolers that it exported from India to Mexico. So if we were to add that, it really is about INR 14 crore profit on a sale of about INR 100 crores, which -- and the company has 0 debt, and there is no investment in that company by Symphony whatsoever. So we really view IMPCO as a distribution arm of Symphony, and so we don't really think of it as an individual company, though it is. So if you look at it in that light, the total picture emerges better. Our subsidiary in Australia, which is Climate Technologies, it ended the year with sales of about INR 278 crores, which was about INR 206 crores for the previous year, but the previous year was a 9-month year because we had acquired the company in July 2018. So from July '18 to March '19, the sales were about INR 206 crores. And April '19 to March '20, the first full year of operations and the sale was about INR 278 crores. So if one were to annualize it, it is more or less the same as the previous year. However, in the previous year, whereas we had a loss of about INR 4 crores, INR 5 crores, in this year, at profit after tax, we ended the year with a profit of about INR 12 crores, which is excluding interest that it pays on the loan that we have acquired in that company -- to acquire that company. But -- so -- but even if we were to include that, the interest, the net profit is about INR 5 crores, whereas the cash profit is about INR 5 crores, which was INR 9 crores in the previous year. So the swing is about INR 14 crores at the cash profit level. Now again, if I were to refresh people's memory, we had acquired the company for about INR 215 crores -- INR 220 crores in July 2018, but we had taken a loan -- acquisition loan of about INR 135 crores. At the company, at the subsidiary level, the interest of which is paid by the subsidiary, which is a tax deduction in Australia. So the real investment in that company by Symphony is about INR 80 crores. So that INR 80 crores has -- that's our real investment. And like I said, there has been a significant improvement in the performance of the company in terms of its profitability from a negative INR 4 crores to a positive INR 12 crores. This is primarily on account of major initiatives embarked upon to reduce its cost of goods sold and reduce its cost of doing business. And those initiatives still continue. And in the current year and going forward, we expect this pace to continue. Moreover, there is significant emphasis on increasing the top line, both in Australia and the U.S., both of which are bearing fruit. And just like Mexico, we also sort of view Australia in the long-term as a distribution arm of Symphony. So it will sell coolers produced in India and sold by Symphony and -- in Australia and in the U.S., whereas it will continue to produce heaters locally, which Symphony India does not produce heaters. So apart from heaters, the entire cooler business will basically be sourced from India, and -- so it will also be like a distribution front for Symphony India. Coming to Symphony Limited stand-alone. As we have conveyed in the past, the previous year, 2019 was an aberration because we had a very bad summer of 2018, the April to June quarter of 2018, because of which the sales in that financial year were significantly lower than in the previous financial year. But as we have said that in -- by '19-'20, the company will revert back to its normal levels, which it has. So the sales is INR 716 crores versus 524 as of last -- INR 522 crores over last year and INR 687 crores of 2018. And the profit after tax is also INR 186 crores against INR 101 crores of last year and INR 183 crores of 2018. So both at the top line level, at the bottom line level and at the margin percentages level, we are more or less back on track with 2018. My colleague, Nrupesh Shah, will be delving further into the numbers. So I will not repeat those at the moment. At the consolidated level 2, for the first time, Symphony Limited has crossed the INR 1,000 crore turnover mark, and it ended the year with a turnover of about INR 1,100 crores. Once again, my colleague, Nrupesh Shah, will go into further details of the specific numbers. If we -- I were to quickly sort of cover the immediate situation, because of COVID, up until the middle of March, the company had -- was doing extremely well. In some time in 2019, the company had introduced several new models, which were very, very well received by the market and business was pretty good. And then, of course, in the last fortnight of March, because of the lockdown, the company, we estimate that we have lost sales of about 15% to 17%, about INR 20 crores to INR 25 crores. Because we -- because of the lockdown, we couldn't sort of carry out those deliveries. In many cases, we had actually dispatched the goods, but they couldn't reach the destination. And because of that, because of -- by accounting standards, we could not recognize that as revenue. So all told, our estimate is that we have lost about INR 20 crores to INR 25 crores of sales, both domestic sales as well as international. Coming to the current quarter, this COVID couldn't have really come at a worse time for Symphony because it has hit the country bang in the middle of the summer, which is when bulk of the -- and buying of consumers for air coolers takes place. The Symphony does sell coolers to the channel around the year, but the channel essentially sells their entire inventory to the end customer only in the summer months. So for us, for our channel, this couldn't have come at a worst time. Nonetheless, because we knew that the channel was sitting on significantly high levels of inventory, we did embark upon a very ambitious initiative which we had called the Dial A Cooler, which was essentially an online to off-line campaign during the lockdown whereby we launched a digital media campaign which generated lakhs of inquiries on our website and which were redirected to the local area dealers depending on the consumers' pin code, and the local dealers sort of connected with the customers and carried out the deliveries. This did give us significant sales, which we estimate it to be about a INR 15 crores to INR 20 crores, which -- but it could have been significantly higher were it not for the hurdles that our dealers faced of not being able to open their stores or not being able to send their -- carry out the deliveries because of the lockdown rules. But nonetheless, we believe that this was truly a pathbreaking initiative by the Symphony team, and so this has -- to whatever measure it helped our dealers, it did. And then in the last fortnight or so post the partial lifting of lockdown, sales has been very brisk. Fortunately, the weather gods have been kind. Temperatures are fairly high across the country. And in most parts of the country, our dealers are experiencing significant sales. And if this continues for another couple of weeks or so, then our dealers -- our trade inventory should be at a very, very comfortable level. So as far as the company is concerned, in the current quarter, we don't expect much sales, but what our greater concern, like I said, is channel inventory. And if the channel inventory gets exhausted, then that is something which we will consider ourselves to be lucky about. As far as the company is concerned, we don't expect it to be fraction of last year's sales, maybe 20% or something like that of last year's sales. Again, it's a little too early to tell. The summer is still on. We are -- and our dealers are also experiencing inventory reduction, and they are sort of buying fresh inventory from the company. So if all goes well, by end of June, the sales could be robust, but it really is anybody's guess at this moment where we will end the quarter. But if the quarter ends well, then we will once again have robust collections in our off-season months, which begins in July. And so July to September onwards, we should be back on track as far as sales is concerned. We might have some challenges in deliveries because some of our OEMs may or may not be able to resume production because of labor shortages, supply chain and logistic bottlenecks, but those are things which we will sort of be able to manage gradually. And we believe that, certainly, towards the end of next quarter, production should get streamlined. So we might, again, not be able to sort of convert all that preseason collection into sales in that quarter, but we'll certainly be able to sort of deliver all of that in the quarter thereafter. So on the financial front, the company has been -- should not really be affected despite these troubles because we have no debt and we have sort of a low breakeven and the business model offers a significant sort of cushion from financial swings. So I think, on the financial front, the profitability would be impacted next year because we will essentially lose 1 quarter's sales and a quarter's profit, but it will still be something which we can take in our stride. But all the effort that has been put into the new product development, new campaign, the distribution initiatives, all of that, which was meant to bear fruit in this quarter will now really get pushed back to sometime towards the end of this financial year. So sometime in towards the last fortnight of this -- sorry, last quarter of this year onwards, all of that should bear fruit. As far as the impact of COVID on our subsidiaries are concerned, the company in Mexico isn't really significantly affected. Sales so far is more or less on track with last year. Keruilai will be affected. The GSK subsidiary in China will be affected. But like I said before, despite that, we believe that we will be able to end the year with better sales than '19-'20 and at least breakeven, if not make a profit. And the subsidiary in Australia and its step-down subsidiary in the U.S. should also do reasonably well in the current year. If the -- there is some impact of COVID, but even if the top line does not move significantly, the bottom line should surely be better than the previous year. Having said that, I ask my colleague, Nrupesh Shah, to take over and explain -- give his views. Thank you.

Thanks, Achal. So coming to specific financials, of course, stand-alone and consolidated top line details as Achal have shared, but in terms of the quarterly performance, for March quarter on a stand-alone basis, company sales stands at INR 154 crores versus INR 138 crores after losing about INR 25 crores of [ machining steel ] but still this reached about 12% Y-o-Y growth. On an annual basis, the stand-alone growth is about 37%. Coming to EBITDA to gross revenue percentage. For the year as a whole, EBITDA stands at about 32% versus 26%, which is one of the highest in last many, many years. And at a price level, on a stand-alone basis, for the quarter, it stands at about INR 45 crore after booking exceptional item versus INR 19 crore. And for the year as a whole, it is INR 186 crore versus INR 101 crore, which, by the way, is a record PAT historically on a stand-alone basis. And this translates into PAT to gross revenue percentage approximately 5% versus 18%. And importantly, in terms of the requirement of the capital and capital efficacy for the year, our rated average capital employed in the business was negative INR 16 crores versus INR 45 crores, which use again the strength of our business model, which is asset-light, capital-light and price-cost-conscious company. And this translates into a denominator is negative, actually, PBIT percentage on capital employed infinite. And in terms of domestic and international growth for the year, the domestic business grew by about 40% while rest of the business, that is exports from India, grew by about 14%. And at the year-end, the company stood on treasury in excess of INR 433 crores, which is in addition to our equity investment in subsidiary companies. And coming to consolidated financials, Y-o-Y, the growth is 31%. Of course, starting to March '19, Climate Technologies was for 9 months. So it's not really a comparable figure. But consolidated gross margin percentage stands at about 47%, while EBITDA margin percentage on consolidated revenue is about INR 22 crores, which is again one of the highest. And PAT stands at about INR 182 crores versus INR 91 crores of previous year, which is about 16% versus 10% previous year. And on a consolidated basis, the capital employed in the air cooling business stands at about INR 197 crore, and that translates into PBIT percentage on capital employed about 104%. And as far as the return on net worth is concerned, it's about 27% for the year ended. And on a consolidated basis, the domestic turnover went up by about 40% while rest of the world at about 20%. Coming to some of the specific aspects. During the year, there is an exceptional item of about INR 4 crore, which, according to us, we look at indemnity view about our investment in GSK China. So INR 1.5 crores of equity investment we have made, the provision on stand-alone. And in addition to that, the goodwill of INR 2.5 crore growth impaired on a consolidated basis. All in all, INR 4 crore and went static post that. During the year, including interim and special dividend, company's distributed all in all INR 193 crore, including dividend distribution tax of about INR 33 crore, which is in excess of 100% payout to take care of our dividend policy, including year-on-year gaps in terms of the payout. And considering this robust payout during the year, we have deemed it appropriate not to declare the final dividend. And for the first time, we deem it appropriate to share with you the data sheet and financial subsidiary company wide with all the given information and also the relevant ratios. Thanks. So with that, you are invited for question and answer.

[Operator Instructions] Our first question is from the line of Naveen Trivedi from HDFC Securities.

Congratulation on a good set of numbers. Sir, my first question is, as consumer demand was healthy in the last 8 to 10 days in the North market. Have you seen any primary revenue in those markets?

Have we seen any what? Primary what?

Primary revenues -- primary sales.

Primary demand.

Primary sales.

Primary sales from the company. Yes, we have seen some. We have seen some. But what we are trying to do is, first, trying to clear our distributors' -- our channel inventory. So even if a channel partner comes to us asking for inventory, but if we know someone else has some inventory, we'd rather have them sell amongst themselves than from us. Thereby, we are trying to make sure that the channel inventory is as low as possible.

I think there's typical policy that by the June end, your trade inventory has to be cleared out. So do you think that even in such a scenario also, your policy will remain same?

Sorry, sorry. What's -- will you speak a little louder? We should be clear. So what about it?

I think you have typical policy of clear out your trade inventory prior to the next season.

Yes.

By June end, you'll typically resolve towards 0 trade inventory, assuming the season will be healthy in June quarter. I'm saying, would you have the same policy even in such situation?

Yes, yes. We surely intend to. We intend to, yes.

Okay. And my last question is -- yes, yes, right.

So in that respect, whenever trade is not having any specific model, from a company level, we are supplying. So even currently, it's happening that. In case of some of the newly launched models, the trade is not even at a company we are having an inventory. So in fact, even in current situation, there is stock out. But the point is first and foremost, we've been likely to clear of the inventory at the plain and then at a company, okay? And secondly, what has happened because of the unique theme of Dial a Cooler, which were online to off-line, which was a pathbreaking initiative, not only vertically industry, but across the consumer durable and white goods industry, trade has received a lot of confidence because no other company could do that kind of handholding which Symphony could do.

And my next question is on your gross margin expansion. So this quarter, we've seen a sharp margin expansion both on Y-o-Y basis and the quarter-on-quarter basis. So what are the reasons for the change?

Yes. See, I think we should be more concerned about the annual gross margin percentage. In some quarter, it is possible that it may be on account of the sales mix. And also, it's possible that some of the advances we would have received earlier, that we could have delivered in this current quarter. But more importantly, on an annual basis, we have maintained the gross margin. And secondly, at the same time, in Symphony Philosophy, there is a continued value engineering and always a variety of strategies to move to high-value and hence, high-contributing models. So ultimately, that has helped and likely to continue. But in medium to long term, our guidance on gross margin would be whatever we have achieved on an annual basis. We should be comfortable to maintain that.

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

Yes, am I audible?

Yes. Please go ahead.

You mentioned about the gross margin expansion, it being on a basis of sales mix and advantage of crude. So can we fairly assume that this will continue going ahead?

No, no, we did not say advantage of crude. We said continuous value engineering. So really speaking, we haven't really yet experienced the advantage of crude because much of that happened after our production was done. So by and large, because of the sales mix and continuous value engineering.

Okay. Okay, got it. And are we selling any commercial air cooler now? We are supposed to launch that, right? How is that shape -- how is that segment shaping up now?

So those were introduced at the beginning of -- sometime in middle of 2019. And those have been received very, very well. In fact, as we have conveyed in the note released yesterday, because of this pandemic, many commercial establishments are moving from air conditioners to air coolers and -- because they don't want to use the same recycled air, which a conditioner circulates, whereas an air cooler actually brings in fresh air. So they are preferring air coolers, and the commercial air coolers have, in fact, received a big flip in the current times.

Okay. Okay, got it. Sir, last question was that, we understand our competitors wouldn't be able to do the sales just before the season and we pan out over the year. So can we assume that, in the secondary sales, there will be more of Symphony products over the competitors?

That is what we do believe -- what we do believe, and it will be presumptuous of us to say how the competition is doing. But if you do go to markets yourself, you will see a tremendous presence of Symphony models as against the competition. So that probably is a result of what you just said.

We'll take our next question from the line of Manoj Gori from Equirus Securities.

Sir, 1 question would be on the upcoming quarters. So currently, when we look at -- obviously, you are also talking about like your channel partners are looking to liquidity in inventories. So what gives you that confidence? Or are you getting any feel from the market that, in the subsequent quarters, your distributors would be filling the same level of inventories, even the liquidity issues in most parts of the country? So can you throw some light on that?

It's a good question, Manoj. But if you know, this current summer has been fairly good. And despite the lockdown, despite all the challenges, if our trade channel partners are able to liquidate their inventory, that will only boost their confidence going forward. And it is an assumption that should result in good collections and sales in the subsequent quarters, but that's a judgment call that we are taking at this -- making at this moment. Final thing will -- only time will tell.

And probably, we helped created a moat because, again, as we said earlier, this online to off-line initiative, which was a unique initiative, are short of major handholding and confidence building today. And when, I mean, in 2 years, when season was bad, we had done and initiated a variety of initiatives. So in fact, even in that respect, probably vis-à-vis the competition, Symphony's well placed.

That's right. Sir, secondly, looking at the current raw material prices, so if there is any favorable impact for us, maybe for the next year is that we would be doing during the quarters to come, so are we looking to provide any incremental discounts? Or we will try to retain the benefit so it does not worry the distributors?

No. See, Manoj, what -- the selling price is really never a function of the cost price. It is always determined by competitive end-market situation. So whether the cost goes up or down, what happens to the price, price then may go up when costs go down and the converse may also be true, depending on market conditions. So the cost really is no bearing on our selling price.

Right, right, right, sir. Sir, can you throw more light on Australia? Like what's the current situation, like on the lockdown, how those markets are opening? Or whether they still continue to remain close?

No, they are not closed. In fact, they are -- most parts of Australia are open. At the moment, in fact, because of part of the lockdown in the past few weeks, and it being winter in Australia, our heater sales have received a significant boost in Australia. So -- but other than that, I think Australia is also coming back to normal. Our people are attending office and going to the factory and all of that. So Australia is not really as badly affected as we are here.

By and large, in the current year until 1st of April, current year sales is almost in line with last year.

And the step-down subsidiary of Australia, which is one in the U.S.A. and U.S.A., in fact, has seen significant uptick in cooler sales. And more so, the portable cooler sales, which go from India, basically because people are sitting at home and they need comfort cooling. What applied to heaters in Australia is applying to coolers in U.S.A. So I think, in both these places, the COVID has been a bit of a, I would say, boon.

Our next question is from the line of Nirav Vasa from Anand Rathi.

Sir, I wanted to understand, from the channel partners' perspective, last 2 years have been severely impacted [indiscernible] in this year, it is COVID-19, plus there is...

Mr. Vasa, sorry to interrupt. You are not clearly audible, sir. If you're on a hands-free speaker, switch to a handset mode. We'll take our next question from the line of Shrinidhi Karlekar from HSBC.

Congratulations on good set of numbers. Sir, I just wanted to -- do we tell how much volumes do we do annually? I know we have done some like INR 650 crores of India business. Can you roughly tell how much it translates in terms of volume numbers?

We would not -- we have traditionally not shared that number.

Okay. Fair enough. But sir, would it be possible to give a business mix in terms of how much of there our annual volumes come from, say, top 10 cities and how much is the rest of India? Some sort of classification between urban and rural?

Again, for competitive reasons, we would really not like to share that number.

Fair enough, sir. Sir, my question really is, we talked about that predominantly our secondary sales happened in summer period. Would it be broadly possible to tell how much is there at all? Any secondary sales apart from the summer season? Because we know for AC, there is at least some sales that does happen in non-summer period. There's a typically second summer that we talk about during October, November. So I just want to know how much is the non-summer sales, secondary sales do happen for the air cooler category.

See, the sales, the case in Southern India, starts picking up sometimes in late January or February onwards. So there is significant sales that also happens at the secondary level, tertiary level actually is how we call it, in the January to March quarter. But the big -- the weak belt of Northern and Central India, which is a big market for air coolers, and Eastern India, they are the ones that pick up in the April to June quarter.

But sometimes, occasionally, during the September, October, especially in India and Rajasthan, et cetera, when there is a rainy season, air coolers are being used for [indiscernible]. So there is some such additional change. And apart from that, in the past years, when there was an extended summer, not only in the month of June, but even in July also, secondary sales have happened. So it really depends how summer is.

All right. Okay, sir. And last one, sir, so we did talk upon that May sales has been quite brisk at many of our retail points. Would you say, sir, generally, that the demand, would you say, it's more of a pent-up kind of demand supported by like hot summer? Or would you say, even if going into July, we would say the secondary sales would be the level what we've seen in the last year? I just want to understand, is the consumption back to a very normalized level?

No, no. Can you -- I didn't quite understand your question.

Okay, sir. So we talked about our May sales have been quite brisk at many of the retail points. I just want to understand, is the consumption for the air cooler category is back to the normal levels, like pre lockdown or, say, what we see in the 2019 levels?

Yes.

So just -- is that the right way to interpret? Or you would say it could be a function of pent-up demand and more of a hard summer season? So just your view on that, sir. That's my last question.

So sales going forward could be pent-up demand also. Okay. Why don't you -- you understood the question.

So no, you are right. One is a partly pent-up demand because whatever demand could not be satisfied within 2 months, but on top of it, and cooler is such a product, where there is a lot of instant buying. Secondly, what's also happening, even during this time we're in a lockdown situation. So at home, when people don't fell comfort, they seek to buy the air cooler. And as we have circulated in the note yesterday, there is a government advisory, there is a WHO advisory, whereby there is strong recommendation that air has to be -- air circulation, and for that, air cooler is the best product, not air conditioner. And on top of it, air conditioners, most of the models are rarely plug and play. So very simple to install. In current situation, people don't wish the service provider for installers to come to the home and then disturb it. And combination of all these factors as we book summer, maybe the hard summer is helping. So it is a combination of all those factors apart from pent-up demand. But I mean taking in many of the industries, so the pent-up demand, which is due for 7 days to 10 days. It's not the case in case of Symphony. At the ground level, it's temporary.

Our next question is from the line of Ravi Naredi from Naredi Investments.

Sir, GSK China will not come in profit and what says, we are learning from rest of the other subsidiaries. So just want to know why your magics are not working in China -- competition in the business, really. I tell you...

Thank you very much for saying that, means a lot to us. But in fact, now that you have said this, we will have to work harder to fulfill your words, and we will have to sort of see to it that we also do something magical in China. We will try our best. I really don't have another answer other than just saying that we will try our best.

And except up to March '19, you would have seen that, post acquisition, every year, we could improve our performance. And when we acquire, the loss was INR 16 crores. And in marketing, seen at the cash level, we have broken it even. Unfortunately, in '19-'20, we had good plans, and many initiatives were taken, but once the U.S.-China trade war and then after this COVID-19, then it disturbed it. And hence, on a conservative basis, we decided to impair the equity and commit. But once apart from hardened financials, China has many other advantage. One is its R&D facility's state of the art, helping to develop some models for Symphony India. In fact, in the current year, that is '19-'20, some of the models we're keeping are good. That's also because of the help of R&D facility of China. Even for Climate Technologies, some of the value engineering and other initiatives, even in that respect's in [ seniority ]. And even in respect of sourcing also, it is -- but of course, we need to live up to your words.

Okay, okay. And sir, one more thing. Commercial and centralized air cooling system gives continued business, and top line revenue, bottom line revenue versus individual cooler. So any such certainty in our business to give more weight as to centralized air cooling system or commercial air cooling system versus individual air cooler?

We are putting in all our efforts to scale up those 2 product categories. But so far, in India, it is still a relatively newer concept. So for us, it is more of concept selling and educating the market about the availability of this product or rather the solution. We believe that if -- if India goes the way of many other countries in Southeast Asia, not only China, but even countries, smaller countries like Vietnam and Thailand and Malaysia, then India could be -- the market for commercial and industrial air coolers in India should really explode. I think it's just a matter of the market catching onto this solution. And now we have the entire product range. So far, we were also, in some sense, constrained by the fact that we were importing our products. We were not manufacturing these products locally. But in 2019, our -- the manufacturing of these products began in India with a whole new range developed specifically for India. So now the entire supply chain and logistics is very much under our control. Earlier, we used to have situations where we had the product and we didn't have demand or we had the demand and we didn't have product. Now those mismatches will be history. And now it's just a matter of actually educating the market. Other constraints have been removed. And our marketing team is leaving no stone unturned to do that, but we are very sure that -- these 2 categories should also scale up and be significant categories for us. The potential exists. The product is there. It's just a matter of -- just a matter of removing the excess stone and making the whole thing shine. So I think that's just a matter of time.

And in that respect, as we have shared earlier, repeatedly, the preemptive long term, we really expect it to be a growth engine.

Our next question is from the line of Nandan Vartak from Wealth Managers.

Congratulations on good results. So my first question is on breakeven point. So I do understand that operating -- our breakeven point is very manageable and -- but my question is on more side of that our below gross profit, other expenses and A&P spend that could be controlled, and what would be our strategy there? Or what is thought behind controlling those 2 lines of expenses?

Are you referring to advertising?

Yes, A&P and even other expenses. So I'd like to -- yes.

So you are asking why are they -- why aren't we controlling them. Is that what you are saying?

No, no, no. I'm watching them...

No. Their impact in this current year.

Nrupesh, if you have understood the question, maybe you can answer.

Sure. So of course, our breakeven sales at current level of overhead, if I exclude advertisement and sales promotion, is close to INR 175 crores. And our bulk of the overhead constitute salaries, et cetera. But in current scenario, we have taken a call, whatever controllable or redundant costs are, we would like to control them. But as of now, we don't have specific numbers in mind. Maybe post June or July, we will take specific call, and we have some alternative plans in that respect. As far as advertisement and sales promotion, essentially, below gross profit margin, one is fixed overhead, we're talking of advertisement, sales promotion, et cetera. So in current season, we haven't gone for any major advertisement and sales promotion. Last year, we have incurred INR 38 crores, INR 39 crores. In current year, I think it will be substantially lower than that. And third component of the cost is some other variable costs like CSA costs and transportation costs, et cetera, which is -- it will link to the sales.

Okay. And similarly, other subsidiaries. So if you look at consolidated basis, breakeven sales would be double of stand-alone?

It's very soon, subsidiary company to subsidiary company. But we have carried out some sensitivity analysis in currency behavior for subsidiary company. And as earlier shared, as of now, at least in 2 major subsidiaries, that is Symphony EU and secondly, IMPCO Mexico. As of now, there is not much from the impact of COVID-19. In fact, currently -- starting [ first of 18 days ] in both the companies, sales is almost in line with last year. So we need not to take any dramatic measures which can impact the sales or whatever. As far as GSK is concerned, of course, we are keeping our fingers crossed. Just to add the other expense also includes CSR expenses.

Good point. Yes. We have to bear in mind that CSR also goes into other expenses.

Yes. But we now -- we believe that is linked with the profit.

We'll take our next question from the line of Manoj Gori from Equirus Securities.

A couple of follow-up questions. So one thing, the like we stated like we would be looking to take measures to drive better profitability from Climate Technologies. So can you just elaborate something like what would be the measures that we would be taking or any change in strategy over there?

We have done or like -- or in the process of doing multiple things. One is we are rationalizing the SKUs. We are working on reducing the variable costs, the manufacturing costs. So we are negotiating better, buying from different sources, changing the materials that we are using, et cetera, et cetera, to basically reduce the manufacturing cost. We are also reducing the overheads of the cost of doing business. So there, too, there is a significant reduction, and more reduction will be felt in the current year. So by and large, I would say we are working on 3 fronts. One is increasing sales. Second is reducing cost of goods sold. And third is reducing cost of doing business. And so essentially, this is what we are doing. On the sales front, we are adding model products, categories which they never sold before, namely, portable coolers from India are being now sold in Australia and in the U.S.. This company had never sold portable coolers before. So that's another thing we have done on the sales front. On the cost reduction, like I said, manufacturing front, we are making -- taking various initiatives to reduce the cost of goods sold. And on the overhead front also, we have done significant work. And going forward, in about 3, 4 -- 2, 3 years, 4 years' time, this company will look completely different than it does now. And it will be a very, very lean and mean profit-making machine.

Right. Well, that's great, sir. Sir, secondly, if you look at in the current Indian market, like many markets are doing extremely well because of the harsh summer. Can you just give a qualitative answer, like what would be the inventories that would have been liquidated over the last 10 to 15 days? So suppose if at the end of March, your entire channel was carrying roughly around 100 units, so what would have been liquidated in last 10 to 15 days?

Maybe about 40%.

Okay. So suppose current scenario remains for another 15, 20 days, so we might see maybe around another 30%, 35% of inventory liquidation, so which should be a very positive picture for us?

That's correct. That's correct. That's correct. Although this time, summer has been delayed. So the expectations are that it will -- might even spill over into July. So that happens, and the situation will be very, very comfortable. And whatever little inventory the company is also sitting on should also get cleaned out.

We'll take our next question from the line of Hitesh Taunk from ICICIdirect.

Sir, pertaining to the last question only. I just wanted to know, how many of inventory do we have at company level.

At the moment? Or are you talking about in March?

No, at the moment.

At the moment, depends on how fast it sells. Normally, for under normal circumstances, this would have been what we have now would be less than a month's inventory.

Okay. And you're saying like 40% of inventories are liquidated in the channel front, right?

Yes.

Okay, okay, sir. And sir, second thing, I wanted to know like for the -- how many -- hello?

Yes. We can hear you.

Sir, how many channel partners or dealers have we added during the quarter -- during the year, sir?

Have we added?

Yes.

Again, does it really matter from an investor's perspective? Again, that is sort of confidential information.

But if for continuous profit, numbers are not being shared.

Okay. Just -- if not number, then would it be 10% over the last year or 12% over the last year kind of?

Again, we would really refrain from disclosing that information.

Our next question is from the line of Devanshu Sampat from Yes Securities.

Just 2 questions. One is a follow-up on your comment on your -- the aspiration we have or the plans that we have for the commercial industrial side of the business. So we have been pushing this business for a while. I think we got -- we sort of changed gears after we bought the IMPCO assets, and the plan was of seeing good growth. From then, it's been a couple of years. So what exactly is the feedback from the end user to this segment not meeting our internal targets? Or we will?

Frankly, whoever has actually installed those coolers are extremely happy, and they are wondering why they did not use this before. So -- but it's -- again, it's a question. It's a cultural thing. I think, in India, say, as far as factories go, most factory owners don't want to spend anything on providing comfort to their workers. Whereas in places like China or Southeast Asia, unless the working environment is comfortable, worker will not even come to work. Or in fact, they will ask for an allowance, a hardship allowance. So I think our -- I think it's more a matter of having a more aware and a more conscious management or a culture about providing better comfort to their employees, especially at the factory level. So I think it's a cultural thing. It's a transition, which is a work in progress. And we are seeing that people are becoming more aware of that. So I think it's just a matter of time. I think it's just a matter of time. But again, this COVID has helped us because the kind of inquiries that we are seeing now is certainly better than we had seen in the past. So I think this is also probably something which is going to be the tipping point.

Yes. In fact there are reports from NASA, there is a report from IM, whereby clearly proves that there is a correlation between the productivity and temperature inside. So also there is a clear-cut commercial benefit.

Okay. Okay. So on an average, what -- I mean, what can be the average investment that will be required for setting up such units? I mean, if you can just give me a ballpark figure.

Again, we wouldn't want to venture into that. But suffice it to say that whatever money we have invested in these verticals, commercial and industrial coolers, has already been recovered.

No, I'm asking in terms of a company that may want to set up manufacturing.

So it's again very, very widely, it can be as low as 1 lakh of rupee or could be as high as INR 1 crore. It depends on how big an area you want to air cool. But at the square foot level, it costs us about INR 20, INR 25 -- INR 25 a square foot. And it costs about INR 5 a square foot -- sorry, INR 5 per hour to run.

And vis-à-vis air conditioner, it's about 1/3 in terms of the CapEx. And when it comes to the recurring cost, it's about -- just about 8% to 10%. So even just by way of saving of electricity, the payback figure is less than 12 months.

Versus an air conditioner. Versus an air conditioner.

Yes, yes. Okay. And second question, just for -- if you can just help me understand this. So out of the 4 regions that we are basically have our asset side of China, South America, Australia and India. So over the years -- or what has been the plan in terms of shifting to manufacturing hubs? Are we moving to or looking at consolidating to India and China largely? Or even the other 2 businesses have manufacturing assets in place?

Good question. We are -- as far as coolers go, for Mexico and Australia, a lot of it is going to come from India. It already is, for Mexico, there are some models which are unique to Mexico, which India does not produce are being produced locally. Otherwise, in terms of units, about 3/4 of their units come from India. About 3/4 of their units come from India. Similarly, in Australia, at the moment...

For Mexico, is it -- is there a bifurcation on going in between the residential and nonresidential area, say, for India?

The ones that go from India are purely residential. And the ones that they produce locally are the larger ones, commercial. And all the formats are unique to Mexico. They are not -- for those kind of formats are -- they are more in metal than in plastic, and they are only -- the formats are only sold in Mexico. So we don't produce them here. So those are produced locally in Mexico. But again, not by the company, they are produced by third-party, by OEMs. Similarly, in Australia, there is only a small percentage of their coolers are currently being sourced from India. But gradually, a lot of their manufacturing will be brought to India. And all their coolers in a period of a couple of years will be sourced from India. Like I said before, the heaters will continue to be sold -- sorry, produced locally because we don't produce heaters. Just like in Mexico, the format that we do not produce in India is done locally. But other than that, all coolers will come to India. And China will keep on producing for its own market, own domestic market, as well as the export market. And largely, the export market for China is Southeast Asia.

Our next question is from the line of [indiscernible] from Roha Asset Managers.

Sir, my question was that, currently, how much revenue comes from the e-commerce platform?

It is not -- it is not very, very high. But I would not want to specify a number, again for competitive reasons, but it is growing very rapidly. But in terms of the absolute percentage, it is not a very, very large enough percentage, but it is growing very rapidly.

Okay. Okay, sir. And as in the domestic industrial and commercial coolers, so can you give us the breakup in terms of value? What percentage of that is in industrial and in commercial?

Again, there, we do not provide a breakup. But suffice it to say that, as far as commercial and industrial are concerned, that we have almost the entire market. There are very few other players. Similarly to your previous question about online, if you go on Amazon or Flipkart even now, the majority of the coolers that you will see are from Symphony. And the -- even the sales from there, we know that our market share is a very, very dominant market share of the online sales. So that's how it is.

Okay, okay. And can you give us any margin in the industrial and commercial?

The margins are, I would say pretty much on par...

EBITDA margin.

Pretty much on par, on par with residential coolers.

It is also at par in terms of the business model that is asset-light and working capital-light is also in line with that.

Okay, okay. So my next question is on the inventory side. So out of the total inventory, how much is industrial and commercial?

Industrial and commercial is not very, very much. Most of it is residential.

Okay. So from a longer-term perspective, how this market will become more bigger? So going forward, what are your thoughts that this percentage of our revenue comes from the industrial or -- and the commercial in the next 3 to 4 years, 5 years?

So how are -- you're saying how will this market grow?

Yes, actually.

The size of industrial and commercial air cooler in 3 to 5 years.

For commercial and industrial coolers.

Yes.

So again, how -- it will be difficult to give numbers. But if you're talking about what process that we are doing to help it grow, then we are -- our sales and marketing team are taking various measures to make it happen. And they are really evangelizing the concept across the country. But in terms of number, how -- what they will be like in 3 or 5 years is difficult for me to say.

Okay, okay. So then my question is on cost side. So in the current year, due to the pandemic and all, how much -- in terms of quantity, how much do you think percentage will reduce basically overall?

In terms of quantity, what will reduce?

So how much percentage of the cost you will be able to reduce in the current year FY '21?

Cost?

Yes, cost. Yes.

You're talking about manufacturing costs or other costs.

So overall, all the costs like raw material and all the other expenses, other operating cost.

Well, see, raw material cost is a variable cost. If we sell less, we'll produce less. And therefore, it'll cost less. Similarly, on advertising, we have significantly scaled down our advertising for the current quarter, which is normally the peak advertising quarter. So we have done that. And on the other costs, because of the pandemic, travel is anyway not happening. So there is a natural sort of a saving in cost over there. On the human resource costs, also, we are sort of being very cautious in terms of hiring and incurring any new sort of investments there. So I think those costs will be under control.

And if you are referring to the bill of material cost percentage to the sales price, it's likely that because of low oil prices and also low price of other commodities, we should get the benefit. So that may be an incremental benefit, which may translate into gross margin.

Okay, okay. And for the current year, how much CapEx you are looking for? Any ballpark figure?

Nothing significant. Regardless of current year or last year, if you look at what CapEx that we have incurred, compared to our turnover and all of that, our CapEx is not very high because of the nature of our business and the business model that we have adopted. So we actually introduced many models last year, and we did a significant investment in new models in the last year and the year before that. So in the current year, we believe we have more than enough happening as far as the product range is concerned and not significantly more is required to be done. So in the current year, we don't foresee any major CapEx.

And last 2 years -- and last 2 years, we break even for all new models. So it's more like in other CapEx, it won't be in excess of INR 10 crores, 2 years put together. And typically, our more than 90% of the PAT is a free cash flow. So that's how the business model is and it will continue that way.

That brings us to the end of the call today. We thank the management Symphony Limited for giving their valuable time. Ladies and gentlemen, on behalf of Kotak Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

Thank you. Thanks, everybody, thank you for joining.

Thank you very much, Goodbye.