Symphony Limited (517385) Earnings Call Transcript & Summary

Hello. Good morning to everybody, and thanks for spending your valuable Monday morning to participate in Q1 earnings call of Symphony. So at this time we have attempted to make new conference presentation, so that we can convey in a much better way. And for conference calls, there are certain limitations with respect of the charts and graphs and certain pictures and also with respect of certain video. So hopefully, this should be a this-should-work-out matter. So there is a customary disclaimer safe harbor statement in respect of future estimates, and forward-looking statement applicable to Symphony India as well as overseas subsidiaries and consolidated financials. So this is the portfolio of global brands of Symphony. Of course, still almost 80 percentage of the volume by space comes under Symphony brand. However, MasterCool and Arctic Circle, both well established in Mexico and certain parts of Latin America. KI, that is KI, it is from China and also on exports from China. As far as [indiscernible] and [indiscernible] are concerned, they are for Australia as well as some part of U.S. and Arizona that is for U.S. So depending upon the territory and where which brand is established and well known, those brands are being used. So taking you through about the management comments and views on the performance and outlook. So as far as June '21 performance is concerned, as it is known FY '21 as well as Q1 FY '22 performance have been impacted on account COVID-19. Unfortunately, second wave of COVID-19 struck exactly during the summer of '21 along with extensive lockdown what we witnessed in summer of '20, both the peak season of air cooler. In fact, until middle of April, the sentiments and the demand were so robust that the complete focus was on production and the internal instruction to the operations team, and the tie-up with OEM was such as whichever models in whatever quantity they can produce, they should accelerate. And the proof of the pudding really lies in the performance of March '21 quarter, during which we registered highest ever top line as well as highest ever consolidated PAT. And considering the kind of the sentiments, we have also accelerated our advertisement and sales promotion expenses, and out of INR 19 crores, most of that has been incurred in April '21. And hence, despite our gross profit margin is about 48%, EBITDA margin has impacted by this. However, silver line is our export sale being robust and on top of it, e-commerce, whether B2C or large organized retailers mainly through e-commerce websites, there has been huge traction, and Y-o-Y it has registered a huge jump. At the same time, barring Australia, the COVID has not much impacted our Mexican subsidiary and Chinese subsidy. Even in Australia, there has been marginal impact. As far as the outlook of FY '22 vis-a-vis previous year or year [indiscernible], we are very confident to achieve much better performance in FY '22 vis-a-vis FY '21 due to a variety of initiatives undertaken by the management like we have launched a series of new models in last 6 months to 18 months, not only in the residential range, but also in commercial range and also in the overseas market. And some of those models are yearly pathbreaking having a huge edge over competition. Secondly, last year, our focus was also enhancing dealer and distribution network, not only in urban area, but also having a rural focus and semi-urban focus. Thirdly, again, huge emphasis, which is really yielding the result in terms of the e-commerce sales. Fourthly, we are substantially enhancing our capabilities for centralized air cooling, coupled with series of initiatives in the respect of the cost rationalization have been taken apart from operating by efficiency has also [indiscernible]. And because of all these factors, we are very confident that in FY '22, our gross profit margin percentage on domestic sales, that is the sales in India, should be back to normal margin of around 50%. Again, to reiterate whatever new models have been launched, we are having pricing power. In other models, we have taken a selected price increase. And because of the cost rationalization and operating efficiency, whatever input and freight cost increase has taken place in last 6 to 9 months, we are quite confident to compensate them. On top of it, in the current year, we are also going to witness huge jump in exports, and we believe that it should be easily in excess of INR 100 crores. And finally, as far as the highlight of overseas subsidiaries is concerned, the Climate Technology, Australia, which has not performed well until December '20, it was actually much below our expectation. But the kind of turnaround it has witnessed in March '21 quarter, that is not going to be limited just to that quarter. But current year as a whole, that turnaround will accelerate. However, this business is now skewed such as most of that performance will be witnessed in March '22 quarter. So now I will take you through new launches of Symphony India. In the interest of the time, I will not elaborate about its USP or features. So if anybody is interested, they can contact [indiscernible]. So just showing the images, this is live 3D about 5 models. New [ Sumo, ] one of the flagship series of Symphony; including Double Decker; HiFlo, newest series of cooling fan. So this is the product which will be sold around the year. As of now, we are selling only through e-commerce platform. And the unique niches it has a detachable additional for dual usage on the table as well as floor standing. And down the line, we are also going to come out with other models under the series. So this is the advertisement campaign. So we'll take you through one of the TV commercial. [Presentation]

So now coming to new launches in industrial and commercial air coolers. So 7 models under that range. And also we have launched a range of accessories for quick installation and standardization of industrial and commercial air coolers. And these are some of the new client addition in June '22 quarter of industrial air cooling, including BigBasket, Delivery, Welspun and Hawkins. So far, whatever new range of residential as well as commercial air coolers have been made, many of them have been developed and designed with the R&D help of GSK China. And in fact, in centralized and ducted air cooler, there has been a huge support from China. [Presentation]

So now coming to new launches in our subsidiaries. So in Climate Technology, roof mounted air cooler, which is the flagship range for sale in Australia, those models have been completely developed in India. Their toolings are real and starting from next month these products will be manufactured in India. And this will completely replace all the rooftop models production from Australia to India. So these are about new range, and in addition to this, there is also K-series, so -- meant for sale in United States by Climate Technology. However, these models have been developed and designed by Chinese R&D facility with some inputs from Climate Technology. New launches in IMPCO Mexico. HT series air cooler in Mexico, and GSK China developed locally, household are coolers. So if you may recollect, until 2 years before, GSK had negligible presence in household air coolers as [indiscernible], from whom we acquired the company had stopped the production of household air coolers, but we are relaunching and trying to establish in China. So coming to D2C brand. So in the summer of '20, as you may recollect, we had initiated direct sales to consumers from our own website, and it has attained some traction. In fact, in current year, it has attained substantial traffic, and it has been really appreciated by the customers. So I request [indiscernible] to take you through some of the features of D2C.

Yes. So D2C was launched as entirely the strategy was to launch a new channel for the convenience of the clients. And the main purpose was to give the sales for round the year so that we did not wanted to lose out on the spot of the -- somewhere in the regions of India. We wanted to cover that as well. So this was 1 of the ideas we handle D2C as well. And because of the COVID, it has accelerated this D2C campaign. Now it also gives us the flexibility to generate sales anywhere across the region in India. And the D2C is completely automated from purchase till sales. The entire channel has been completely automated, and there is minimal human intervention in this. And the -- and we have adopted global standard of e-commerce in D2C. Now the launch of the -- it is [indiscernible] to attract the end user experience and user interface. So we have completely aligned with the global standard. And this is the quick outlook of the D2C also. So -- and the sales can be made seamlessly. So -- and it has been well categorized across the requirement of the -- keeping in mind the requirement of the clients. So I'll just quickly show you the website as well. So how it is being -- so this is the categories. We have broadly identified the categories as well, household coolers, commercial coolers, industrial coolers. And it is unlike any other e-commerce purchase, it is seamless. So right from clicking on the coolers, you can get the quick overview of the particular cooler. So -- and the purchases are also made very seamlessly. So it's replicating the global e-commerce sites.

Yes. So now coming to quarterly financials. So this is about the consolidated sales. During the quarter, we have registered a top line of INR 238 crores versus INR 162 crores in June '20. Of course, June '20 itself, there was a degrowth. So that's not a correct competitor. And vis-a-vis June '19, which was a normal quarter, INR 304 crores versus INR 238 crores. About EBITDA, it is at INR 18 crores and profit before tax is just about INR 10 crores and profit after tax is INR 6 crores. So coming to stand-alone financials. Gross revenue has been INR 113 crores. EBITDA has been INR 9 crores, which could have been easily '21, '22. Even on the same performance, but unfortunately, we had to spend large amount on advertisement and sales promotion, and then after there was a second view and has generated profit after tax of INR 7 crores. As far as gross margin percentage is concerned, on a console level, it is 43% year as a whole. Certainly, this should improve because, one, as I said, year as a whole on a stand-alone India sales, Symphony will register about 50% gross profit margin, and overseas subsidiaries will register better performance down the line. So year, as a whole, it should be at least in line with it was in '18, '19 or around that much. And as far as stand-alone is concerned, it is at about 48%, which should be back to around 50%. And coming to EBITDA margin, it's about 8% for the quarter on a console basis and same is about stand-alone. And this is the geographical breakup of the sales. So domestic sales during the quarter has been INR 86 crores, and international sales, which includes exports from India and sales from our subsidiaries around INR 144 crores. So the breakup is about 1/3 in India and 2/3 rest of the world. Of course, rest of the world has to generate good profitability on which we are reasonably confident. But in a year like this, our geographical diversification really seems to be [ paid ] in terms of derisking the business. And it's not only geographical diversification, but also now a good part of the sales is coming from Southern Hemisphere, very our winter is their summer. And this is the treasury. So it's about INR 476 crores versus INR 392 as on 30 June '20, and about INR 532 crores as on June '19. And this excludes our equity investments in subsidiaries as well as loans and advances given to subsidiaries. Yes. So with this, I open the house for question and answer.

[Operator Instructions] Our first question is from Omkar Grade from Shree Investments.

My question was regarding -- am I audible?

You are.

Yes. If you look at the last 4 years of the Symphony performance, it looks like it is no longer a pure-play consistent performer, but more like a cyclical business. So what do you have to comment on that?

No, you are absolutely right. There are no two doubts about it. Unfortunately, last year as well as current quarter have been badly impacted by COVID. In fact, when we had silver lining, in my view, of March '21 performance, wherein, for the quarter, vis-a-vis any quarters, we registered the highest ever top line and profitability, but it could not be sustained post 15th of April. And before that, again, they went back to a bad summers. But all said and done, in last 4 years, I said there is no growth. But as I mentioned in the commentary and a way in the presentation, we have initiated a variety of steps and measures, whereby, in the medium to long term, despite this, we are reasonably confident to register decent CAGR growth in top line as well as profitability. But of course, my words will [indiscernible].

Yes. Is the question answered Omkar?

Yes. I have a second question as well. Yes. I wanted to know your -- thank you. How to -- how you are going up. And how the upcoming quarters...

[indiscernible] was breaking. Please carry on.

Yes, yes. My -- wanted your view on how you are going to use the treasury you have? And how has been the performance so far in the current quarter?

As far as [indiscernible] is concerned, we have stated shareholder payout policy, whereby we have declared that at least 50% of the PAT will be by paid way of either dividend or by way of share buyback. So that remains. It's possible that in 1 or 2 quarters, it may not be the proportionate payout, but you may recollect that in '19, '20, the payout was 109%. So we will ensure that in 1 or 2 quarters or as it happened in 2021, wherein we deem appropriate to be conservative considering the uncertainties, but certainly, it will be taken care of. As far as use of the treasury acquisition is concerned, as such in the immediate future, unless there is some compelling opportunity, we don't really intend to have it. And as far as current quarter, September quarter performance is concerned, it has begun well, but it's just about 3 weeks of the current market. But I gave a broad outlook as to how we are looking at FY '21, '20 with details.

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

Sir, is my voice clear?

Yes, yes.

Yes. So sir, my question was pertaining to the debt repayment. If you -- if I recollect from my last call, you had stated that the chances were good that the outstanding long-term debt that we are having up around INR 140 crores might be prepaid or maybe paid -- some part of it might be paid earlier. So I understand that these current situations are quite challenging, but do you -- are you still optimistic that this debt can be repaid earlier, or maybe by the end of FY '22 we see significant debt reduction?

We have already witnessed that reduction in working capital facility of climate technology to an extent it has partly taken from -- taken care from its own operations and cash flow. As far as its long-term debt, which was taken for acquisition, we don't anticipate any major reduction by March '22. What we were expecting and what we had conveyed, we have 5 years to repay. Starting next year, '22, '23, we see some ray of hope. And in that respect, whatever is the debt repayment schedule, still at this point of time, we feel that it is feasible. And thirdly -- as you may be aware, the objective of raising this debt was not really just meant for acquisitions, but #1, Australian dollar has a huge fluctuation. So first and foremost, to take care of currency fluctuation. Secondly, the debt we have raised at the most competitive rate and that acquisition loan currently is at about, all inclusive cost, less than 4%. And even in AAA instruments of Symphony, our average pretax return is in excess of 6%. So to that extent, there is an arbitrage. And #3, by raising debt, we are trying to enforce some cash flow discipline at the local level of management because we wish to ensure that, by and large, it is taken care from their cash approvals. Otherwise, our treasury is far, far excess of the long-term debt it can repay any point of time. And there is no prepayment charges also.

The next question is from the line of Abhishek Jain from Arihant Capital.

Sir, can you throw some light on the climate change right now, how the things are shaping up currently? And like what is your long-term view on the same? And I've joined the call late, so maybe if you have -- I'm sorry if you have been repeating also. Second, how the things are shaping up post COVID things are picking up right now on the domestic side of the market? That's it from my side.

Can you please repeat the first part of your question?

So how does climate change is shaping up the Australian business, if you can throw some light on this thing, Australian and U.S. business? Last quarter, we had 1 order. This quarter, how the things are shaping up? And domestic side, post COVID how the things are shaping up? The whole thing, if you can put up some light.

Okay. So as far as climate change is -- impact is concerned, as you may be aware, even in last week of June as well as in beginning of July, there was a heat wave in some parts of the country. And hence, despite a significant summer was lost in many pockets of the country, that is in Northern India, in some parts of Western India, the inventories back to normal and seasonal inventory. And in some parts, in fact, it is a stock out. Secondly, in United States, where we registered the business in excess of INR 100 crores in FY '21, there is a complete stock out because there also -- in some parts, there was a heat wave. As far as Australia is concerned, we are not witnessing any major change, but we are aware that in Europe, we couldn't export much either from India or from GSK China because international freight costs have increased substantially and they also wanted to keep it on hold, but they are repenting because in many European countries also there is a heatwave. And what our carryforward stock was, it was stocked out long before. So as it is known because of climate change, if we really see in the medium to long term, temperature is going to increase. There is going to be a severe summer, and to take care of the seasonality, we have tried to derisk by way of geographical diversification. Does this answer your question?

[Operator Instructions] We will take the next question from the line of [indiscernible] Singh from HDFC Securities.

Earlier, you were talking about the inventory. So can we get the overall Indian market sense on the inventory level for Symphony?

Sure. So as of now, inventory is certainly higher than the normal inventory. However, as I said earlier, in some pockets of the central of country because of heatwave, their inventories either normal or there is some stock out, but there are some few pockets. All said and done, the inventory now is lower than the inventory which was at the end of June '20. But certainly, higher than, say, June '19 or earlier normal year.

All right, sir. That helps. Sir, secondly, on the trade partners conference stake, how -- what are we seeing from the channel partners [indiscernible]? After another washout of seasonal demand what are their sense like how are they coping up with it? And how do we hope to help them out this year?

Sure. The veteran trade partners are, by and large, fine. The new trade partners who have joined in the recent past, they are quite cautious, and hence, I would put it mix bag. But I must say that the kind of handholding which Symphony has done and is going to do is far, far better than peers and, hence, despite the growth, the Symphony's market share, even in terms of the secondary sales, is at least in line with the earlier years, or, if at all, it might have improved.

That helped. And lastly, sir -- Yes, sorry...

Yes. And I think this is a question of time. Why it's a question of time? Say until November '20, sentiments were relatively low, but starting January, it improved. And since March '21, it improved so dramatic that other than sales, our complete focus was on operation and production, and that's how it was until middle of April. So where was normalcy restored, we don't foresee any reasons why that should not be repeated, not only in the [indiscernible] quarters, but [indiscernible] years also. And we should keep in mind the kind of models which Symphony has launched, that is seeing many, many models of generation gap. And that really commands the pricing power. And hence, we made the statement that at least called domestic sales, our gross profit margin will be back to normal for year as a whole.

And lastly, sir, for the CP revenue and margin, do we have any '22 numbers in -- like we are looking at right now?

So as I made in my presentation, certainly, FY '20, we are looking at much better than FY '21. And if there are no major hiccups, we are looking FY '22 in line with, or if everything goes well, maybe even better than '19,'20.

The next question is from the line of Varun Patney from Con Mutual Fund.

Am I audible?

Yes, you are.

So sir, my question was with respect to the advertisement expenditure. So do you have any plans further doing such expenditure in coming quarters? Or is it done for the year?

Any plans -- I think there is some background noise.

[indiscernible]

Varun there is slight background noise. Can you please repeat your question?

Is it better now? Is it better now?

It is. Yes. Please go ahead.

Okay. Yes, yes. Sir, my question was with regards to the advertisement expenditure plans for FY '22 as a whole?

As such in [indiscernible] quarters that is until December, barring some nominal amount, no major advertisement and sales promotion is incurred. So mainly it will be in March quarter, and on need base that will be decided. So as of now, we have not prefixed, but it will evolve.

Okay. And so you mentioned about the D2C sales. So what proportion of the quarterly sales was D2C sales, like what percentage is D2C?

So what I can say that total e-commerce sales register when [ robbers ] group, which includes all kind of e-commerce sales, and that has been in triple digit percentage.

It has been in?

More than 100%.

Okay. Okay. And so you mentioned you have got rising power in some of the new products that you have launched. So if you can tell something more about that, why do we have such pricing power in those products?

No, because as I saw in the presentation, many of those models do have not only unique features and aesthetics, but also unique format and better performance. And for any specific models or range, if you wish to know further, you can contact [indiscernible]. He can provide further details in the respect of those aspects.

The next question is from the line of Manoj Gori from Equirus Securities.

Yes. Am I audible?

You are.

Yes, yes. So basically, if you look at -- as per my understanding, what you have guided is roughly around like you're targeting 50% gross margin. So that would be on a controlled basis, right?

No, no, 50% gross margin minority is on a standalone basis. And in normal years what we used to have, console margins should be in with line last year or it may be better than last year.

Right, right, right. Understood. So sir, the Q4 gross margins, obviously, Q4 for subsidiaries is relatively heavier. And accordingly, we witnessed a sharp expansion in gross margins during Q4 of FY '21. So similar trend should be visible during Q4 of FY '22 as well?

Absolutely.

Right. And, sir, my last question would be, again, on the gross margin. So if you look at -- you're very confident about strong volumes going forward as compared to last year. And in fact, if you can surpass FY '20 numbers as well. So along with it, you are targeting 50% gross margins as well. So how the industry demand scenario shaping up that you are confident about prices getting passed on, or on the other side, you expect volumes to pick up as well? Some commentary on that, that would be very helpful, sir.

Sure. So one, in respect of the new models, which have been launched, not only in households, but also in molecule range, it has really seen a good traction. In fact, well within bad summer, some of those models were [indiscernible] out of stock. Of course, just over 3 models, not many. Number 3, the kind of response and the feedback and confidence that has been expressed not only internally, but also by the trade partners. And number 3, starting 1st July, we have new pricing, and so far in the month of July, the pricing has been accepted well. Secondly, as I conveyed, even in the respect of exports, we see that in current year we should across the milestone of INR 100 crores easily in the respect of exports considering overall international demand and some of the visibility that we have. Of course, on exports to our subsidiaries especially with regard to Climate Technology, margin will be low, but end-to-end margin will be maintained because substantial margin will be at the level of Climate Technology. But in the rest of the world, the margin should be maintained. So you may be aware that for the last many, many years, we were trying to break that milestone, and that seems feasible in current year.

[Operator Instructions] Our next question is from the line of Ashok Kumar as an individual investor. It seems as no response from the current participant. We will move to our next question, which is from the line of Hiren Trivedi from Axis Securities.

Sir, 2 questions. First is on the exports. How much was the contribution of exports for FY '21 as a whole? And Secondly, my second question is on the commercial air coolers. So if you could help me with the size of the commercial air coolers market, and your plans to grow this? And what is your share in that commercial air cooler market?

So as far as exports are concerned, in FY '21, it was close to INR 58 crores. In terms of percentage, it's not really much relevant because year, as a whole, otherwise also stand-alone sales was quite low. So result is that or even in a year, our highest ever export was about INR 63 crores also. So in that respect, as I say, we feel we should achieve in excess of INR 100 crores. And even in June '21 quarter, our export has been INR 18 crores, which is probably the highest ever in June quarter. But down the line, especially in December and March quarter, the kind of visibility what we have, we should see really a good traction. Coming to your second part of the question, centralized air cooling. So in centralized air cooling, as such, we don't have substantial sales. As far as the market opportunity is concerned, there is hardly any organized player, company operating, at a national or international level. And the kind of the product what we have is much, much better in many respect and offering many variants. As far as the size is concerned, it should be easily in excess of INR 8,000 crores or so, or you can define it slightly differently. Whatever is the size of air conditioner, it should be easily -- centralized air conditioner, it should be easily in excess of that. Because whatever can be cooled by centralized air conditioning, those and many other space can be air cooled by centralized air cooling. In fact, starting July '19, we had started local manufacturing of centralized air cooling. Until then, we used to import from Mexico and China. And coupled with that, we have launched many more suitable models, which may be -- which have been well accepted in India. And on account of that, the benefits are, #1, lead period has reduced substantially. #2, saving in custom duty. #3, saving in logistic costs and much better quality control and domestic handling. So we should have got the benefit of those initiatives starting summer of '20. Unfortunately, on account of COVID, so far, we have not been in a position to reap those benefits. But we are substantially trying to improve the capabilities in that respect. And starting current year, it should see some decent number.

[Operator Instructions] Ladies and gentlemen, as there are no further questions from the participants, we will now hand the floor back to Mr. Nrupesh Shah, Executive Director, for closing comments.

Thank you, Trust Capital, and thank you all the participants.

Thank you very much. Ladies and gentlemen, on behalf of Trust Financial Consultancy Services Private Limited. Thank you very much for your participation. You may now click on exist meeting to disconnect. Thank you.