Symphony Limited (517385) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Symphony Limited Q1 FY '21 Earnings Conference Call, hosted by Equirus Securities. [Operator Instructions] Please note, that this conference is being recorded. I now hand the conference over to Mr. Manoj Gori. Thank you, and over to you, sir.

Yes, good evening, everyone. On behalf of Equirus Securities, I would like to welcome the management of Symphony Limited to discuss 1Q FY '21 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; and 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.

Thank you very much, Equirus, for arranging this conference, and thank you very much for -- to all the participants for being here this afternoon. The quarter that ended in June 2020 for Symphony was for obvious reasons dismal quarter, which is best forgotten. It is probably the lowest sales in this quarter in the last -- over a decade. But the way we see it, the worst is behind us. The current quarter and the quarters to come up to March 2021 will be much better than the last quarter. Although they will not match the performance of the same quarters in the previous year. Even as a year as a whole, we will certainly fall short of the previous year because we've basically not got any sales, practically no sales in the quarter ended in June. Moreover, there is significant inventory lying with the channel, most of which will only get exhausted in the next summer, which will be in the first quarter of the following financial year. So although this financial year will see a dip in top line over the previous year, however, in terms of profitability, we will be able to maintain it. And in terms of margin, we'll be able to maintain it. But basically, I would say that what -- this last quarter has vindicated our twin strategies of an asset-light variable cost business model, and that of geographical diversification. And let me explain what I mean. Because of our asset-light variable cost model, despite such a dismal sales of barely -- top line of barely INR 40 crores, we've ended the year at more or less at -- we have broken even. Although, of course, we had other income to sort of cushion that. So operationally, we have a minor loss, could have been far worse as in the case of several other companies had this been a fully vertically integrated manufacturing company. So it is at times like these that certainly the benefit of our business model of an asset-light variable cost model helps. Moreover, also our strategy of international and geographical diversification has helped, as is seen in the numbers where the stand-alone sales of Symphony India is down by 75% over the same quarter previous year, whereas that at the consolidated level, it is down by 47%. And the international subsidiaries together are down by just about 12% or 13%. In fact, the sales of international subsidiaries together is significantly higher than that of the stand-alone India revenue. And so -- and because we have the revenue, because we have the top line, going forward, there is a possibility of the bottom line also following. So in the last quarter, where India's revenue shrunk dramatically Australia's revenue was more or less on track with the previous year. In fact, at a marginal growth over the previous year. Mexico had a drop from June onwards, was doing all right until May, but from June onwards had a major fall. USA has done much better than the previous year although on a lower base. And China is more or less the same as the previous year. So sum total, as I said, the revenue from these international subsidiaries is significantly more than the revenue from India. And going forward with the measures that the company is undertaking, the bottom line would also be significantly better of the international subsidiaries than it has been in the past. In fact, even this quarter, in the June quarter, especially in Australia, the bottom line would have been significantly better, were it not for the fact that because of supply chain disruptions, we were compelled to buy products either locally, which we were normally sourcing from overseas. So buying locally at a significantly higher cost as well as we had to air freight some international components from international sources. And we also had to incur high labor costs. So were it not for these factors, the bottom line too would have been significantly better. Net-net, what I'm saying is that because of the revenue from the international subsidiaries, at least our -- all in all, total revenue has still not really fallen off the cliff as much as India stand-alone revenues have. And like I said, going forward, once our various measures to improve profitability, especially in our Australian subsidiary are in place, then the bottom line will also be significantly better. So to sum it up, I will say that we are fairly optimistic about the future. We have received fairly good response from our trade partners. Although it's nowhere close to what it was in the previous years, but considering the situation, in fact, I would say that the response has been significantly good. And as far as the company's basic core proposition is concerned, it remains unchanged. The prospects for the air cooler category as a whole remained unchanged. They are as good as they were in the past, if there is a good summer, we will sell. As far as the companies, I would say, innovation engine goes that keeps on churning out new products, new products will get added even in the current year, trading channel expansion will continue to happen and marketing and brand building will also continue to happen. So whereas this year, as a whole, will witness sort of a reduction from the previous year. We will still remain a profitable company. And this will be -- at the worst, I would say, is a year that we would all like to forget. And from next year onwards, once we are able to put this whole COVID situation behind us, Symphony should be back on track. With that, I hand over to my colleague, Nrupesh Bhai. Nrupesh Bhai.

Yes. Hello, good evening, and welcome to this conference call. So just to share and highlight of some of the key financials. On a consolidated basis, the top line from the quarter has been INR 154 crores, down from INR 292 crores. While on a stand-alone basis, it is down from INR 160 crores to INR 40 crores. Gross margin percentage on a consolidated basis is down from 45% to 39%. And on a stand-alone basis, it is down from 50% to 46%. There are 2 reasons. One, on a stand-alone basis during the quarter, there has been disproportionate higher value of spare sales. And on spares, the contribution in gross profit margin is quite low. As far as air cooler sales is concerned, the contribution in gross profit margin remains healthy as it was, which is in excess of 50%. While on a consolidated basis, apart from the Symphony India specific reason, there was a onetime exceptional higher costs, particularly related to climate technology, which was on account of COVID and the cost was higher, mainly due to increase in purchase costs, local purchases instead of imports and also higher freight costs, mainly air freight. However, we have succeeded in restricting these higher cost to June quarter. And because of a variety of initiatives and measures which we have taken we are quite confident to restore to almost normalcy in respect of this cost. As far as EBITDA is concerned, on a consolidated basis, it stands at about INR 2 crores versus INR 16 crores in June '19 and at PAT level, it stands at about INR 2 crores versus INR 16 crores year before. I'm sorry, INR 2 crores versus INR 33 crores a year before. As far as capital employed is concerned, on a consolidated basis, it stands at INR 320 crores versus INR 288 crores, there has been marginal increase in capital employed during the quarter due to higher amount of inventory as well as receivables, mainly in Symphony India. In fact, in overseas subsidiaries, the working capital has been further rationalized. And coming to geographical sales, sales in India have been INR 34 crores, while sales in the rest of the world has been close to INR 115 crores. So rest of the world has contributed close to 75% of the sales during the quarter, which includes sales from overseas subsidiaries as well as exports. And Treasury stands at about INR 410 crores as on June 30. Now some of the highlights of June quarter in respect of the sales and performance, they were discussed in previous conference call. But as they pertain to June quarter, even at the cost of repetition, company -- at a company level as well as at a trade level, there was negligible or 0 sales during April and May months on account of lockdown. However, once lockdown was lifted, since end of May and beginning of June, there were substantial sales and trade could offload almost 60% of the inventory. Not only that, some of the newly launched models during last couple of quarters were out of stock at a trade level as well as at a company level. In fact, during the June quarter, the company launched online to off-line sales and whereby the methodology was developed through which lakhs of consumers visited company's website, and many of them had confirmed the orders. However, on account of logistics constraints, there were sales of few thousands of air coolers from the dealer point and in respect of this online to offline sales initiative, this was unique, not only in air cooler industries but in entire consumer durable industry. Not only that on account of guidelines issued by WHO as well as several state governments and government of India, whereby open ventilation was recommended on account of pandemic, several high end AC customers in fact switched over to air coolers. Coming to international sales, there has been major reduction in terms of the exports from India, mainly on account of prevailing situation and many orders got canceled. However, as Achal Bakeri said, we are very confident to maintain even during current year, which is quite challenging year to maintain our gross profit margin as far as air coolers are concerned. And we expect it to be in line with previous year. In fact, on account of lockdown, we have initiated -- on account of lockdown as well as slowdown, we have initiated several measures on cost side and few other initiatives. And that should be sizable benefit once normalcy returns, again, considering the business model and some of the initiatives which we have taken. Current year, that is financial year 2021, our breakeven sales is expected to be around INR 150 crores on a stand-alone basis. That is roughly 20% sales of the previous year sales, which was about INR 720 crores. Of course, this is subject to advertisement and sales promotion, which may alter this figure. And as Achal Bakeri says due to off season collection we have received and the kind of visibility what we have, at least for current quarter as well as next quarter. Certainly, current year, we will be in black. And about subsidiary companies, their performance has been quite resilient despite COVID, all put together, their sales were down just by about 13% to 15% mainly on account of decline in sales in [ Impco Mexico ] and GSK, China. However, profitability was lower substantially mainly on account of increased purchase costs and local purchases instead of imports, as I said earlier, as well as higher freight costs, mainly air freights. However, they have been already corrected and starting current quarter itself, we expect normalcy to return in respect of those costs. Thank you, and we can have questions, please.

[Operator Instructions] The first question is from the line of [ Omkar Kulkarni ] from Shri Investment.

As you have mentioned that you will be maintaining the EBITDA, so how do you plan to maintain it like there would be significant reduction in sales. So what measures are you taking to maintain the EBITDA?

I think when we say the profitability margin it is in respect of the gross profit margin percentage, which on a stand-alone basis in air cooler is around 50%. EBITDA will certainly be a function of the top line, what we have achieved. However, one, on account of business model and secondly, even in current quarter, you would have observed that in respect of other costs, it is almost half vis-à-vis previous year, that is down from INR 15 crore to about INR 7 crore, one on account of freight cost, which is, of course, a sort of variable cost. But apart from that, other indirect fixed costs like traveling and conveyance and legal and professional costs, we have also seen significant reduction. And -- but because of our outsourced business model, we are not married to blue-collar employees or large factory overheads.

Okay. So in view of the current situation, you still are -- you're still having around INR 400 crores of cash on the books. So how do you plan to use that? Would you be reducing the dividend payout? Or like would you like to maintain it because there hasn't been any interim dividend, but you have given a large dividend last year?

Yes. So in March quarter, we have announced a bumper onetime dividend, which vis-à-vis last year profit, it was in excess of 100% payout. And as we have maintained in the past year, as a whole, we will like to stick to at least 50% payout. But obviously, in June quarter, it was not appropriate considering uncertainty as well as the performance, to declare the dividend.

So overall, you'll be maintaining the 50% dividend out, which you've already alluded to?

Yes. That's right. So total payout, we are saying will be around 50%.

[Operator Instructions] The next question is from the line of Renu Baid from IIFL Securities.

Renu, go ahead. Probably she may be on mute.

Manoj, can you hear us?

Yes, Milind Bhai.

I don't know, we can't hear Aisha or even the question from Renu.

Yes, just a minute.

The next question is from the line of Manish Agarwall from Edelweiss.

In the initial commentary, you mentioned about Mexico June sales is dipping sharply. So firstly, some color on, is there something -- some particular reason because it was intact and the second question is on the Chinese subsidiary. Since...

Can't hear you, please, can you speak a little louder?

Sure, sir. Is it better, sir?

Yes. Yes, speak up.

Yes. Sir, the first question is on the Mexico subsidiary. In the initial commentary, you mentioned that June as a month saw a sharp dip in the sales out there? So the first question is regarding -- is there something -- some issue going on in the subsidiary or the country that...

COVID, COVID, COVID because of COVID.

So the June sales -- so April and May were good, but June saw a dip because of the COVID issue?

Yes. COVID hit them a little later, which is why.

Okay. Okay. Sir, the second question is on the Chinese subsidiary. So, sir, we have already taken some markdown last year -- last quarter. And obviously with India China skirmishes are going on. So is there any possibility that we will be looking at, maybe selling off the subsidiary because it is still a loss-making subsidiary? So any thoughts or color on that?

See the subsidiary actually had turned -- had broken even a year before. But because of the trade war, and COVID, our sales took a dip, and we ended in a loss. Otherwise, the year before that our -- we had already broken even. And in the '19, '20, we would have actually made a profit but because of the trade war and because of COVID, our -- instead of a profit, we had a small loss. But in the current year, we expect to at least break even, and the India, China issue I don't think has much bearing on businesses because there are hundreds of Indian companies operating in China and Chinese companies operating in India. So I think as far as those are concerned, things are going on all right.

Okay.

And in fact, in respect of contribution percentage during June '20 quarter, GSK China as well as IMPCO Mexico, both have registered some improvement even in respect of the gross margin and contribution margin percentage.

Sir, one question on the stand-alone entity, sir, you mentioned that the inventory still remains high in the domestic market. Sir, if you could throw some numbers, maybe what would be the trade inventory right now, maybe a 1-month or 2-month inventory that we see in the trade right now?

No, it's difficult to quantify in terms of months. First of all, we don't even know because it is dispersed over thousands of retailers across the country. So it is, frankly, anybody's guess how much it is, but it could be in the region of about 40% of what -- of last year sales is still lying unsold with the channel is our guesstimate. But nobody knows for sure.

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

So the question -- the first question, which I was asking, I think you mentioned difficult to quantify inventory, but what is the kind of inventory in your view would be there across most brands as well as including Symphony, would it be similar at 50%, 40% or more? And how would that compare with the previous year because previous year also, there were similar issues of inventory being there in the channel, but at least it was mobilized.

So again, we really don't know how much inventory of our competitors is lying with the channel. But we believe it should be more than ours for various reasons. And in terms of comparison with the previous year of '18, '19, again, I would say this is somewhat similar to '18, '19, somewhat similar inventory with '18 '19.

Sure.

Second part of your question was inventory with the company. Of course, as on June 30, inventory with the company was higher than previous year. But we expect it to be normalized and mostly in some of the models, we will be out of stock in September quarter itself.

What is the value of the inventory that was sitting today?

Yes. So company level inventory is nonissue.

But what is the value?

As on June 30, the value of inventory was close to INR 40 crores or so.

INR 30 crores, INR 34 crores. INR 34 crores.

And in your opening remarks, you also mentioned that the capital employed also includes receivables, which -- in the stand-alone books. Typically, we have this cash-and-carry model of business, so these receivables will be pertaining to the modern retail format? Or what is the quantum and the risk related to these receivables to take on books?

Yes. So it was capital -- higher capital employed was one on account of higher receivables, mainly modern retail and partly export. In export also, there were receivables on our subsidiary company receivables which have been subsequently recovered. And also higher capital employed was on account of these higher inventories, which we just mentioned.

Correct. And sir now, the second part of the question is, we have this typical pattern of starting the bookings during off-season. I understand the market is not such that one would have anticipated similar kind of dealer events and off-season booking happening through, but based on whatever little assessment and interaction you had with the channel partners, what is the filler in terms of the order booking that we are seeing?

So order booking is, I would say, sort of on track with the previous year '18 '19.

So would this be comparable to financial '19 in terms of overall order booking or there would have been substantial contraction of 50%, 60% or so?

On '18, '19, just a second. Not substantial. There is a contraction from '18, '19, but not a huge, huge contraction from '18, '19.

Okay. Right. So basically, as a business strategy, how -- so should one look at probably just like any other normal seasonal products now, one would anticipate the bookings to pick up only towards third quarter once we are closer to the season and the pandemic issues are broadly behind by then? Or at least under control?

Yes, you can say that.

Sure. And sir, my last question is, if you can help us quantify what are the exact cost actions that you have initiated, both in the stand-alone business as well as in Climate Technology to reduce the fixed overheads and improve profitability?

Most of the cost initiatives are not towards fixed overheads, but on the bill of materials or the manufacturing cost, on the cost of goods sold. And so whether it is -- I'm talking about as a stand-alone level. We have taken several measures to reduce overheads in Australia, China and Mexico. And of course, there, too, we have taken measures to reduce the cost of goods sold. And so in Australia, our overhead will be -- from the year before, will be down by about 30%. In China also, will be down by about 20%, 25%. Mexico, so maybe about 10%, 12%. But the major impact will be on cost of goods sold. Now again, all of that will not be visible immediately because it will be effective only on what is produced and not on the inventory, and that too in a phased manner. So a lot of these steps will bear fruit over the next 12 months or so.

Sure, and last question to Nrupesh, sir. Will it be possible to share subsidiary wise, at least the turnover as well as EBITDA or PBT numbers? That's the last question.

So right now, I don't have them, I will share with you separately.

The next question is from the line of Abhishek Ghosh from DSP Mutual Fund.

Sir, first question is in terms of the vendor through whom we source, how is their financial health and other things? Because in light of no business and other things? And are you extending any kind of help to them? So how should we look at from that perspective?

Most of our suppliers are OEMs, as we call them, are very -- have healthy -- financially quite healthy and sound. Some of them are very, very large multinational companies. So there are a couple which are relatively not as healthy. But we are not really extending any kind of support to them. We don't really need to do that.

Okay. Okay. And sir, do you believe that since there is also competition also sources from a lot of these vendors. So sourcing from them in a season because one season has completely got washed. So given this scenario, how is the competition looking like [Technical Difficulty] after such a season. So how are you looking at the competitive landscape? I know it's a bad season, but I'm trying to understand the competitive landscape from that perspective.

Your voice was cracking in between, but talking about from a sourcing perspective, then we really -- our sources are not the same. Our sources are not common. Our OEMs are exclusive to -- as far as Symphony is concerned.

Yes, I too understand...

Second part of the question was competitive scenario.

So competitive scenario, I would say that what's happened to us I am sure that our competitors have faced much greater pain than we have as far as coolers go in the last quarter, and going forward too, we really, I would say, time will tell, but we think that some of them might be under severe stress as far as the cooler business is concerned with inventory lying, and some of them would have receivables from the trade. So there would be a fair amount of, I would say, mess that they might have to deal with.

Sure. Okay. And sir, just one last question from my side. In terms of the industrial coolers, what's the state there? And how should we look at that part of the business?

So as far as industrial coolers are concerned, we have invested in the previous year in developing a whole range of products, and it was last summer or this summer of 2020, where the products would have really been able to sort of demonstrate their performance in the market. But unfortunately, because of COVID, that did not happen. Even going forward, now because this is as far as industries are concerned, this is like a CapEx, although it's a small CapEx, it's like a CapEx. So people are sort of hesitant to sort of commit so even the inquiries that were there in our funnel before COVID have all sort of slowed down. So it is going to be a challenge for that vertical too. Again, as far as the company is concerned, the investments are made, the product is there. Now we will use this time to educate the channel, impart training, expand the channel and do all of that, so that we are place for next summer.

Okay. So essentially, what you're saying is, we'll continue to invest, but probably it will be a little delayed uptick in the overall industrial coolers is what the sense is, right?

That's correct. That's correct.

The next question is from the line of Hussain Kagzi from Ambit Asset Management.

So I just had one question regarding the international subsidiaries like last quarter -- I missed your first 2 minutes, so maybe if you highlighted them, if you could repeat. So you had said that mostly for most of them the sales would be almost flat as last year. So are we expecting the same scenario? Or is there any change in that in terms of sales and profitability for the 3 subsidiaries?

For sure, our Australia and Mexican subsidiaries will be profitable, although reduced profitability, our Chinese subsidiary may breakeven, may have a slight profit or may even have a small loss. But again, the numbers of the Chinese subsidiary are inconsequential in the larger scheme of things, I would say. So even at the consol level, the company will be profitable, stand-alone and consol. And like I said, Mexico will have a small profit. Australia will also have a profit. And so profitability is not going to be an issue again because of the business model. Mexico already has the asset-light variable cost model. Australia is in the process of adopting that model, and will take another year or 2 for the entire -- maybe 2 years for the entire model to be in place, but that's the direction in which it is headed. So profitability is not going to be an issue. I mean, it will be a small profit, but it won't be a loss.

Right. And in revenue terms, I guess it will be almost like slightly 5% to 10% only, okay. And also, sir, we import to U.S. through one of these subsidiaries. So is it the Australian subsidiary or the Mexican subsidiary that we import to U.S.?

No, it is a step down subsidiary of the Australian company.

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

Sir, in your press release, you mentioned that certain strategies taking the advantage of slowdown will result in sizable benefits going ahead. So what are the strategies you're trying to highlight? And what all benefits you expect?

Nrupesh Bhai?

Yes. So as it was mentioned earlier, mainly in respect of the dealer material, also on account of the value engineering, and some of them are major initiatives, and actually on account of lull in the business, and on account of this lockdown, we have initiated them. Very difficult to quantify specific strategy, also on account of competitive reasons, but there are a couple of initiatives. And once normalcy returns, it should substantially help in respect of rationalizing the variable costs and thereby helping the profitability margin. And as far as subsidiary companies are concerned, as Achal Bhai mentioned earlier, across the subsidiary companies including overheads and also bill of material costs, several steps have been taken.

Okay. And with respect to channel inventory, like you mentioned about -- it's very difficult to quantify. But considering North has seen a better summer this time, I assume that your inventory in the North region will be relatively lesser versus the other market. So if you can just highlight, if you -- the stress level with respect to inventories, and you mentioned that the trade behavior was better than the FY '19. So can we expect that during this time, the liquidation of the inventory will be as in this last time?

Again, it varies not only by region, but more by the entity. So there might be a distributor in the North who will have 0 inventory. But that again, might be another one in the same city who might be sitting on inventory. And the same is true for the rest of the country. So we really do not know to what level there is inventory lying and where because once it leaves our -- go down on our distributor's warehouses after that, there is -- we have no visibility of what's happened to that. And so as far as, as I said before, this year looks more like the year '18, '19 than anything else, maybe even a little shade less than '18, '19.

Okay. Just lastly on the -- you see this progress in U.S. You mentioned that this quarter you're seeing good traction in U.S. Just slightly longer-term question, what kind of revenues do you expect from U.S. over the next 2 to 3 years time frame?

I mean we have ambitious plans for the U.S., and we believe that the U.S. should be something like equal to half of the Australian sales in Australia in -- maybe in 3 or 4 years' time. So -- because the market exists, and our market share is very small. So it's just a matter of market share acquisition. And the potential is very much there. And we have the presence, we have the customer relationships. We have the brand recognition.

The next question is from the line of Jeetu Panjabi from EM -- Sandeep Singh from Sundaram Mutual Fund. The next question is from the line of Jeetu Panjabi from EM Capital Advisors.

Good to see you guys fighting at this time and chugging away. So 2 broad questions. One, in this road map to normalization, and I'm assuming the virus fades out, hopefully, by the end of the year. What time line would you put to a normalization of the business? And what metrics would you use to calibrate that and around that also, what do you think will be the one of the biggest challenges in this normalization?

Hello, Jeetu, good to hear from you. We are all sort of keeping our fingers crossed that the vaccine is rolled out before the year is over. And if that be the case then from February, March onwards, the temperatures will pick up across the country. Inventory will get exhausted in the channel, and we should be back to normal. So of course, everything depends on when this COVID goes. But other than that, if the COVID situation is behind us by -- before the next summer, then we are in good shape. Now in the worst case, even if it lingers into next summer, as long as there is no lockdown, and it doesn't -- we don't expect there to be a lockdown like we had last summer, again. So we should do all right. We should do all right. There might be some glitches of supply chain and issues like that. Some channel partners may not be able to open their stores, keep their stores open. But that won't be something in all pervasive kind of a situation. It will not be a lockdown like in the summer of '20. And so regardless of what happens, I think summer of 2021 even if there is no vaccine, and COVID continues, even then the summer of '21 should be much better than the summer of '20.

Okay. Okay, great. Now second question is a broader question. If we -- typically, there's an old saying that never waste the crisis, right? And I'm betting case in point exactly. You guys are superbly run, have a great business model, have executed beautifully over the last few years, what is the low-hanging fruit in terms of new opportunities and/or acquisitions and/or doing something completely different to monetize this crisis or to take advantage of this crisis and come out stronger, better or do something bigger beyond it?

Well, we've really scratched our heads to see if we can -- if there are opportunities here that we can cash in on. But other than the excess time that we all have, which we are devoting to cost rationalization or manufacturing cost or cost of goods sold rationalization, as I spoke about earlier. Other than that, we are not really doing anything very different. In terms of opportunity, I would say, Australia -- in Australia, we have been presented with an opportunity to grow our business because people are locked up at home, they had their winters going on. And so our heater sales were very strong because of that. But other than that, if you're looking for -- if you think that we're going to be doing something very dramatically different that -- or some dramatic acquisitions or something, nothing like that is actually on the anvil.

Okay. Okay, that's candid admission. Okay. And you don't see any brands that are available in India that you think you could feed and build around over time from an acquisition standpoint?

No, there are. There are. But then whether there is synergy with them, we get of an acquisition offer every week, but we have to see whether they make sense. There has to be synergy. There has to be opportunity, and we have so far not come across anything which offers any of those.

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

So I had a specific question regarding your commercial like the Movicool range that we have launched relatively recently. So just wanted to understand things. Firstly, is it something that is manufactured locally? Or is it in China?

It is entirely manufactured locally. Till last year, we were bringing it in from our company in China. But then based on the technology of the Chinese company, we developed a range of products, which we will -- we are now manufacturing in India. So we decided to go ahead and make those investments to save on freight costs, to save on customs duties and to overall improve our profitability. So yes, so basically, it was, to cut a long story short those coolers are being made in India now since last year.

Okay. Okay. So just a long-term sort of question here again. Just to get a view on this. So a few years from now, I mean, would we be targeting the commercial space and would it be a larger market in India or a size for us in India? Are we looking at exports as well to grow this business?

No. We are looking at both. I mean, international markets, we are certainly present in, but these have been produced in India -- being produced in India because the Indian market is very large. And of course, we will begin to offer them internationally too, normally whenever we introduce a new product for the first year or 2, we don't export it. We only sell it locally. So if there are any teething troubles, we sort of iron them out and only then do we export them. So going forward, we will begin to offer them to our international customers. And the market globally is also very large. In fact, for the next summer, it will -- it has been offered in Australia and in the U.S. markets as well.

Yes. So I want to actually dig a bit more into this. From what I understand, we have air cooler companies like Portacool, which is an American brand. All these kind of companies provide their dealers with additional funds or budgets to sort of support the advertising promotions locally. So is that something that we'll also be required to do over time?

We do that. We have been doing that historically. It is all built into the pricing. We give them a sort of a marketing budget as a percentage of sales, which if they spend and then we reimburse. It's not something that we haven't done in the past. It's something that we are doing across countries.

Okay. And when it comes to the credit period that we give them, are we looking to stick to the way we function right now? Or is something that we can dilute a bit to be a bit more competitive globally.

Dilute what?

In terms of the credit days that we give them?

Internationally?

Yes.

No, internationally, we don't give credit. Internationally, we're not really giving credit.

It is mainly again letter of credit that is LC. It is an assured payment, but in books of account until that amount is recovered it is reflected as receivable. So we wish to stick to that. And it is not only in respect of international business, even in respect of centralized and ducted air cooler, even though our -- many of the customers may be large corporates, even to them also, we have found the ways and means whereby we need not to have receivables. So in some such cases, we deal through the trade partner, and they grant the credit, but we receive 100% advance.

So now that we're manufacturing in India will there be a substantial price difference or advantage that we have versus, say, a similar type of powered cooler that is available in the markets that we are targeting specifically? Or will the price points largely be the same, like, say, around $200 or something of that sort?

See the price point varies from market to market. So U.S. product could be more expensive. We might be offering the same product in, let's say, the Middle East at a lower price. So it really depends on the market.

Okay. Okay. And even within this, can the spare parts consumable business become a sizable chunk over time? Or we don't see that -- I mean it can be other -- other parts can be available, so this cannot become a big thing for us?

No, there will be no local parts available. Those parts will have to come from the companies, will have to come from the company.

Okay. So that can possibly be a larger portion than was the current blend is right now?

Yes.

The next question is from the line of Manjeet Buaria from Solidarity Advisors Private Limited.

I had 2 questions. One, I just wanted to understand from a consumer behavior perspective, how long do consumers stayed before they switch out of their older cooler models into newer ones just in terms of replacement, if you have any data around that from your studies internally?

Unfortunately, no, we don't have data about whether they are going into the replacement market or into the -- into first-time buyers. But most of our cooler customers, many of our cooler customers, I shouldn't say most are not first time cooler buyers. They may have a cooler, this might be another cooler that they are buying. Many are repeat customers. They might not be replacing their old cooler, but they're certainly repeating -- buying a Symphony cooler for the second or the third time. Now whether they are disposing of their old cooler or not, we don't know. But -- so there are many, many repeat customers for sure.

Right, sir. Sir, my second question was a bit more longer-term perspective. Now while at Symphony, we really get to partner with a great team and a great brand and a great product. What happens or at least seems to be happening is there is one element which is completely outside our control. Right. And that is if something goes wrong in the summer months, whether it be weather or whether it be a really one-off situation like COVID, but it really sets back the entire year for us. Now even if we think about this over a more 5, 10-year perspective, how does the team think internally in terms of how can you offset this, where there are no years where we suddenly go to almost nil sales in the most critical period of our annual sales. And we have tried something like acquisitions overseas. But in context of the Indian size, they're really small to offset that. So unless we become a multi-product company or we really get a very big acquisition somewhere else, is it really possible you can avoid such situations?

Well, so like you rightly said, one thing that we have done is to -- is this international diversification through acquisitions. The other thing that we are doing is exporting from India. The third thing that we are doing is offering trade off-season discounts so that we have round the year sales even in the off-season months. When the consumer may not be buying, but the channel buys from us because of the extra discounts that we give to them. Now these are the 3 things that we are already currently doing, getting into another product entirely is something which has -- we've done that in the past, and we have -- we do discuss that many times, internally. But unless it's -- it is a market adjacency, it is something that we would really not venture into because we don't think in the -- that it is in our long term interest unless it's an adjacency.

And sir, we really appreciate that focus. But then I'm just trying to understand will the implication of that be that we'll have to live with this volatility at periodic intervals? And as a management team, you have aligned to that fact that the volatility is something which is just a part and parcel and I am coming from the fact that India is such a big business, and India will definitely keep growing much faster than anything overseas, which we are trying to do, right? So the overhang of India will really be there irrespective of what you are trying to do overseas. And even in context of, let's say, U.S., for example, becomes half of Australia in 3, 4 years, just in terms of percentage contribution on the profitability level, it's not going to be that meaningful.

Well, yes, I would say that to some extent, this volatility or the perception of volatility is also like an entry barrier, is a moat, and we've been able to weather it or manage it over the years. So not every company has been able to sort of surf this wave...

[Technical Difficulty] partnering with Symphony, right? I was just getting this, the broader question go out there, because that is something we have to tackle in the longer run. So just wanted to understand where you were coming from this.

And because of this seasonal factor, many, many companies in the past have entered in air cooling business and many of them, including some large consumer durable companies have exited. And apart from all other products, now because of centralized and chilled air cooler, which is more like enterprise solution, is also going to help us in medium term to derisk in that respect.

And, of course, we do sell heaters in Australia, which have helped our sales this year, the fact that Australian subsidiary sales has grown a little bit over the previous year, Y-o-Y is also because of the growth in heater sales. So that does exist too in Australia. And locally, of course, as Nrupesh Bhai said, the industrial and commercial coolers also will over time help us even out the seasonality.

The next question is from the line of Mythili Balakrishnan from New Mark Capital.

Okay. Just a couple of questions. First, I wanted to understand from you that while our current supply chain depends a lot on outsourced vendors. Given this COVID crisis and from a longer-term perspective, do you think that, that is something that will continue? Or do you think that you might want to look to change that over a period of time?

Do you mean to say change to captive manufacturing?

Yes, yes.

No, no, not at all. That's something which is completely against our philosophy. So I said at the outset that in fact, this current situation itself is the validation of our strategy of an asset-light variable cost business model. And so doing anything sort of resorting to captive manufacturing would go against everything that we have -- that we believe in.

Got it. But then in case of these kind of disruptions, so we still -- the robustness in the vendor supply is enough to sort of help us manage even these kind of disruptions, which has happened?

Your voice wasn't very clear, but I guess you're asking if the disruption -- could you repeat your question again?

Sure. I just wanted to check with you that we are seeing a kind of a big disruption with COVID, with the lockdowns, and stuff like that. I just wanted to check with you that, do you think that your vendor system, which you have built out is robust enough to sort of handle these kind of disruptions? Or do you think that it does have an impact in terms of your own ability to supply products in the marketplace?

Okay. So thing is that our products are -- see, we have OEMs who supply, who sort of - who assemble the final product. But then there are Tier 2, Tier 3, Tier 4 suppliers. So the supply chain in today's DNA age fairly extensive and global. So there is disruption. So there are maybe some components which are being imported by us directly or by our suppliers, some raw materials are also are imported. So there have been disruptions of all kinds. And so no amount of, I would say, centralization of manufacturing would have helped overcome that, in fact, would have actually made the situation worse, it is because the supply is so dispersed and there are alternatives, at every level there are alternatives. We are not dependent on any one supplier for anything. So it is a diversification of supplier base, which also helps us in, at times, especially like these.

Got it. I also wanted to ask you a little bit about the unorganized as well as your own market share in the market and the [Technical Difficulty] might exist. I just wanted to get a sense from you that are you seeing that some of the unorganized players might be exiting the market, some of the -- even the larger organized players might be looking to exit given the situation in the market? Or do you think that you are not seeing that kind of a situation right now?

So the thing is that there have been a lot of new entrants in the market, and most of them have taken away market share from the [ first ] while #2, 3, 4 players. So as far as Symphony is concerned, the market share hasn't changed. As far as the breakup between organized and unorganized too, there hasn't been a significant change in the last one year.

Got it. So it's still around 35% organized and 65% unorganized.

Yes, give or take.

Got it. I also wanted to check with you on your Australia acquisition. This is an acquisition that you have spent more money than what we have on the Mexico or the Chinese team. And so revenues are really not been in line with what our initial expectations were. So just wanted to get a sense from you on what do you think is the longer-term trend there a more like given the current situation and given what you have learned, obviously, about the business. Where do you see this headed and what are the key drivers for this business? Including the USPs and what are your views on this?

So the Australian market is not going to grow at 30%, 40% ever unless we get into new products. But we'll certainly be able to turn around the company and make it profitable. So that there is a respectable sort of return on capital employed that it generates but most importantly the Australian subsidiary is also giving us access to the U.S. market, which we spoke about a little while ago. And the growth opportunity is more in the U.S. markets than in the Australian market. But it is a subsidiary to -- totally, which is, I would say, because the U.S. market will be served by the Australian subsidiary. And so the company as a whole will grow, but not in the Australian market as much as in the U.S. market.

Got it. In terms of exports in general to countries which are a little more India like, which has this kind of an arid weather or you have not really seen that pick up in a very large way. So I just wanted to get a sense from you, do you think that can change with or is it more like a cultural aspect of people preferring air conditioners in those markets? For example, the Middle East or Egypt, North Africa, those kind of markets?

No. Globally, the market for air coolers is quite large. But either you have local players or there are imports from China. But we are, I would say, one of the -- probably the largest -- it's a very, very fragmented industry. So we -- I would say we would be probably the largest exporter of coolers in the world at this very small level. We'll probably -- we'll be exporting more than any Chinese company would be exporting but then we also compete with a lot of local manufacturers everywhere, especially in the Middle East and Southeast Asia. And so the markets exist. And also what has happened to us is in the past, we have developed Middle East markets. And then in the last few years, we have had this issue of the political situation, the ISIS and all of that. So some of our major markets, especially Iraq and all, Egypt, Iraq all suffered a setback. So it's been a sort of game of snakes and ladders, especially in the Middle East. So -- which is why the acquisitions have helped us in making inroads into new markets. So were it not for the acquisition in Australia, we would have never sold what we are going to sell or were it not for the acquisition in Mexico, we would have never sold what we are selling in Mexico and so on and so forth.

And acquisitions were also giving us an opportunity of market access for Symphony residential air cooler. So even though Climate Technology was manufacturing and selling air coolers, but the kind of residential air cooler range what we have, they were not present in to that. So starting last year, we have started supplying to local Australian market. And because of that, for Symphony residential air cooler, we have got an access even in U.S. and same is the case even for IMPCO.

Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments.

Thank you for participating. And thanks, Equirus for organizing the call. Thank you.

Thank you.

Thank you. On behalf of Equirus Securities, that concludes today's conference call. Thank you for joining us, and you may now disconnect your lines.