Symphony Limited (517385) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of Symphony Limited, hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kunal Sheth from B&K Securities. Thank you, and over to you, sir.

Thank you, Jakob. And I would like to welcome the management of Symphony Limited on the call, and would like to thank them for giving us this opportunity. And I also sincerely wish that everybody in the Symphony Limited family is safe and healthy. From the management today, we have Mr. Achal Bakeri, Chairman and Managing Director, Symphony Limited; Mr. Nrupesh Shah, Executive Director, Corporate Affairs; and Mr. Amit Kumar, Executive Director and Group CEO. Sir, I would request you to give us some opening remarks, post which we will open the floor for a Q&A session. Over to you, sir.

Thank you very much. This is Achal Bakeri. A warm welcome to all of you, and thank you for your interest and participation in this conference call. My colleague, Nrupesh Shah will give his commentary on the financial performance, after which myself, Nrupesh Shah, and Amit Kumar will respond to any questions that you may have. Thank you very much. Over to Nrupesh bhai.

Thank you, Achal bhai. So I welcome all the participants to the 9 months and December Q3 investor conference call, customary safe harbor rule applies. Hope all the participants are safe and healthy. So for 9 months, on a consolidated basis, the sales stands at INR 653 crores versus INR 560 crores a year before, registering top line growth of 17%, out of which, sales in India amounts to about INR 341 crores, while overseas sales, including exports from India and sales by respective overseas subsidiaries put together is INR 312 crores. So in 9 months, the ratio is about 55%, 45% between domestic sales and overseas sales. Coming to profit after tax. For 9 months, PAT is up from INR 44 crores to INR 57 crores, up by 29% versus top line growth of 17%. About gross margin percentage. On consolidated basis, stands at 44%, slightly up from last year, mainly on account of improved performance of overseas subsidiaries, and also EBITDA is up from 12% to 15%. For quarter ended December, the console sales is down from INR 216 crores to INR 204 crores, that is down by 5%. While PAT stands at INR 21 crores, down from INR 27 crores. Coming to stand-alone financials, the stand-alone top line stands at INR 388 crores for 9 months versus INR 275 crores last year. While for quarter ended December, it is INR 145 crores versus INR 123 crores. And PAT stands at INR 68 crores for 9 months versus INR 63 crores. And for the quarter ended December, it is INR 29 crores versus INR 35 crores. The company has declared a second interim dividend of 50%, that is INR 1 per share for December quarter on a face value of INR 2, total amounting to INR 7 crores. This is in addition to September quarter interim dividend of INR 2 per share, amounting to INR 14 crores, totaling for 9 months, INR 3 per share, that is 150%, and absolute amount-wise about INR 21 crores. For 9 months, the consolidated gross profit and EBITDA margin percentage as well as quarterly consolidated GP and EBITDA margin percentage are almost in line with last year, and we expect it to be maintained that way for current year as a whole. However, stand-alone gross profit margin percentage and EBITDA margin percentage are lower on account of a couple of reasons. The company has purposefully and strategically not taken any major price increase. And on top of it, it has taken various initiatives to support the trade channel as many of them are sitting on large inventories. Eventually, to ensure the improved performance during ensuing quarters, including summer of '22. Moreover, during quarter, there has been sales to Climate Technologies, which as it was guided earlier, the gross profit margin percentage is lower on stand-alone as part of the profit, in fact, major part is being retained at the level of Climate Technologies. And because of these reasons, the gross profit margin percentage and contribution are lower vis-a-vis last year. And we have also incurred certain expenses for various initiatives related to D2C, large space ventilation, that is LSV, and some of the initiatives related to exports to U.S.A. And all these expenses have been treated as revenue expenses, even though the benefits of most of those expenses will accrue down the line. Even in March quarter, we expect these initiatives and strategies likely to continue, basically trade handholding as well as by and large maintaining current level of pricing in the interest of growth as well as larger summer sales and subsequent growth. Coming to subsidiary companies. For IMPCO 9 months, sales is up from INR 49 crores to INR 66 crores, that is back to pre-COVID level. And profit after tax is INR 7 crores for 9 months versus negative INR 6 crores for December '20, that is a swing of INR 13 crores. And this has been achieved mainly on account of massive price hike, which IMPCO has taken almost 30% and still it has maintained a growth momentum. Coming to Climate Technologies. For 9 months, the sales amounts to about INR 197 crores versus INR 215 crores, that is down by about 10%. Despite that, EBITDA is positive INR 7 crores versus negative INR 7 crores in last year. But PAT is negative INR 8 crores versus negative INR 22 crores, that is a swing of INR 14 crores during 9 months. However, I wish to draw your attention that Climate Technologies' performance is highly skewed towards March quarter, especially in current year. Year as a whole, Climate Technologies, we are quite optimistic and confident that we will register not only healthy EBITDA, but also decent profit after tax, that too after providing interest on acquisition loan. This has become possible mainly on account of a variety of value engineering and other initiatives which were taken by Symphony India. And on top of it, robust sales of residential range of air coolers from Symphony India to United States. As of now, we have clear visibility that in current year, that is '21-'22, the sales to U.S.A., mainly of Symphony range of residential air coolers will be about INR 160 crores versus INR 100 crores last year. Before we acquired Climate Technologies in the year '17-'18, the Climate Technologies sales to U.S. was about INR 36 crores. And as these air coolers are being manufactured and supplied from India, overall profitability margin is quite healthy and mainly it is retained at a level of Climate Technologies. Even for next year, that is '22-'23, there is a clear visibility of robust growth in U.S. business, mainly for Symphony range of residential air cooler and the growth is likely to be in line with year '21-'22. However, Climate Technologies has not taken price increase for domestic sales, unlike IMPCO, Mexico. Thank you. With this, I open it for questions and answers.

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

My first question is regarding the domestic portfolio. In the stand-alone business, if you knock out export, then probably for the first time in the history, December quarter has seen a sequential decline versus September quarter. So can you share inputs in terms of what has led to this drop? Is it purely negative sentiments from the trade to stock or significant stock which is already lying with them from the previous season. And how do we foresee the impact of that in the coming March quarter? That's the first question.

No. So you are absolutely right, Renu. This is mainly on account of high level of inventory of air coolers with the trade, not only of Symphony, but also of PS. And hence as of now, they are holding their buy decision. And hence, as I shared in my remarks, we have taken various initiatives for their handholding and intentionally, even though we could have very well taken the price increase and hardly it would have impacted the sales of current quarter, but we have kept it on hold.

Okay. Right. So basically, are we expecting that this volume accretion should kick off somewhere towards March once the channel starts to restock again. Or you believe the restocking trend this time could be more towards the end of March or April only once the season is finally at the door.

Renu, it all depends on when the season -- the temperatures begin to rise. We have seen in the past that by February, we see a good temperature rise. If that were to happen, then there would be a sort of liquidation of channel inventory, and there would be replenishment. However, I would also urge you to look at not just this quarter, look at the overall 9 months period. There will be some sort of timing issue. Some products would have not been able to be billed in the last quarter because of logistics reasons or trades' sort of inability or unwillingness to lift up material despite them having paid for it. So there are those kinds of issues. I would actually look at it more from a long-term perspective of the 9-month period perspective rather than the quarter specific perspective.

Get it. Secondly, on the gross margin side, if I broadly look at, almost a 500 basis point compression in the gross margins on a sequential basis. That is almost in line with the overall EBIT margin drop that we have seen in the India sales on a stand-alone basis. So while this seems to be entirely because of mix, you also mentioned incremental cost headwinds and investments that you have done in the LSV and other portfolio. So only for understanding perspective, can you help us understand what percentage of the gross margins or how many bps was because of inflationary headwind, because of change in sales mix and other investments or special incentives which you have extended to the channel?

So there are 2 primary reasons. One is, if you were to compare with the same period of 2019. Then in 2019 or in a normal year, as you would know, that Symphony's sales realizations are the highest in the April to June quarter. Then they are the lowest in the July to September quarter, and then they begin to creep up again month after month up to June. Now for the last 2 summers, because of the pandemic, we really did not get significant sales in the first quarter of the April to June quarter. So the quarter in which our realizations are the highest is the quarter in which we did the lowest sales in the last 2 years. That would have a significant impact on the overall sort of gross margin and contribution for the entire year. So that is one. Secondly, as was explained by Nrupesh bhai, and as we all know, there has been severe inflationary pressure on all commodities, and our input costs have gone up significantly. And we have sort of had a very modest price rise on some models. And we have not really deliberately sort of passed it on. And that is why we have absorbed the sort of cost increase. So the combination of these 2 together has led to a compression in the gross margin.

Right. Any possibility of quantifying the split between 2, whether it was inflationary headwinds at 100, 200 or 300 basis point kind of impact?

I would say -- difficult to -- I mean, I don't have the numbers right here. But I would say, maybe the inflationary headwinds would constitute maybe about 3% out to those 5% and 2% would probably be towards, because of the lack of sales in the April to June quarter.

Right. Thirdly is on the portfolio. As now, while we have broadly said on the export side, residential AC portfolio sales in CTL has done well. And that is reflected in the sharp jump in exports that you have seen in this quarter. And in the opening remarks, Nrupesh bhai had also mentioned that we're expecting sales to the U.S. market also to remain fairly strong as you head towards the substituent quarters. So broadly, if you look at the overall export portfolio of Symphony India, both in terms of exports to the U.S. market as well as to CTL, how should we look at this share of the business? Do we see the export portfolio now continuing to grow and should become almost 1/3 or so of a business mix? Or what is a broad view in terms of the export business outlook?

Before I answer that question, in continuation of what I said before, the gross margin reduction is also partly due to exports, because exports has grown in the last 2 years, especially to the U.S. and to Australia. And those are at almost a marginal contribution. And just sort of transfer pricing contribution margins in India. And because of that also, which was not the case in 2019, we didn't have the exports in 2019 that we have in '20 and '21. So that is the third reason why there is a reduction in the gross margin. And now to come to...

Just to come back, because if I look at the EBIT margin for rest of world, the EBIT margin for rest of world is still 32% compared to 25% that we have for the India portfolio. So actually, the EBIT margin for the rest of the world or the export portfolio within the stand-alone financials are actually improved.

Yes. So Renu, there we have to see the break-up between real rest of the world and sales to subsidiary companies. So EBITDA margin or contribution margin to own subsidiary sales, especially Climate Technologies, is not material, but to the rest of the world, including to IMPCO, is material. And we will see the significant impact of that in the March quarter. However, if we combine the performance, because most of the profitability is retained at Climate Technologies level, so CT and Symphony put together, it is absolutely in line with domestic business.

And 1 last question, if I can -- yes, sorry.

Okay. Before you get into that. If you remember -- you might not remember, but 3 months ago, during the last quarterly con call, I had said that the way we look at the subsidiaries is as if they are branches. So because they are in a different country and because they are separate legal entities, so we have to treat them as subsidiaries. But if they were in India; in India, for example, we sell in, let's say, in West Bengal and we sell in Gujarat; we do not look at them as separate entities. We look at Symphony India as a whole. So because in the case of subsidiaries, they are in a different country, in a different geography, and separate legal entities, so we have to look at them separately. But in reality, because they are like trading arms of Symphony, in many cases, not entirely, but to a great degree. A lot of the products that are being sold by them are manufactured in India. So we have to look at the profitability of the 2 together. And as Nrupesh bhai said, once we see that, then they are to a great degree in line with what happens in India. This is not true for Climate Technologies Australia, but this is true for everywhere else, whether it is Mexico, whether it is the U.S., they're both countries to which Symphony exports significant volume from India. There if we were to look at the combined margins, we are about the same as the stand-alone margins of Symphony India within India.

Get it. And just last question on the subsidiaries again. If you can, I think you did comment about IMPCO and CTL, but there were no comments about GSK China. So how is that business doing? And how was the performance for the 9 months? And also aligned with this, Nrupesh Sir had mentioned that for CTL, there were no price hikes taken. And given that -- so is there any issue with respect to the demand offtake there, because now it would be summers in the current quarter in CTS. So should that margin be bunched up together in the 4Q profitability in terms of not taking price hike in those markets. So if you can also throw some insight there?

So as far as IMPCO is concerned, we had a 30% price hike this year on top of nearly a 10% hike in the previous year. So there I would say the credit goes to IMPCO management for having the courage to do that. And I think it is really more of a factor of having the conviction and self-confidence to be able to pull it through. Maybe, next year, CT management will also be more sort of, I would say, open to price increases as we have done it in IMPCO. But I think it's more a matter of, I would say, local considerations and the philosophy of the local people, the local team. But we feel that a year from now, things should be different, and we should be able to also sort of get price increases enough to cover the additional costs. And talking about GSK in China, there again, the top line has not been growing. That's a little better than last year, but overall, I would say it is still nothing significant. However, measures that have been taken and which should begin to yield results from the current year itself, from January onwards, are significant reduction in fixed costs. So we have essentially brought down the breakeven point significantly. So in the financial year '22, we should see at least a cash breakeven at [indiscernible], something which we had achieved in 2018, before things got out of control. But in 2022, we expect to once again bring it back to cash breakeven.

Get it.

Yes. So in line with other subsidiaries, just for your information for 9 months, the GSK top line is INR 31 crores, while EBITDA is negative of INR 1 crore and PAT is negative INR 8 crores after providing for interest on loans granted by Symphony India. So that has been a drag on overall performance.

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

Sir, first question on the gross margin. So you gave a brief explanation about the gross margin deterioration. And also, just I wanted to understand like in the fourth quarter, obviously, the schemes are likely to continue. And if I understand currently, we do not intend to take price hikes during the fourth quarter as well. So probably, the incremental schemes plus impact on gross margins because of RM should lead to similar kind of gross margin levels during Q4 and probably we can expect some improvement from Q1 onwards with regards to lower schemes and probably some price hikes. Is that understanding correct?

That's fairly accurate, Manoj. Your understanding is fairly accurate. Q4 should see more or less similar levels of margins as we have seen in the last 3 quarters. And Q1 onwards, things should improve. Again, once again, assuming that COVID is behind us and the summer is normal, then things should be back to sort of historical levels.

Second, on the subsidiary part, I'm sorry if I'm making this repeat. Like the sales were down significantly on Y-o-Y basis. So can you please highlight what was the reason for that?

Yes. So this is mainly on account of Climate Technologies. For IMPCO, in fact, for 9 months, there has been a robust growth in sales despite a price increase. In GSK, it is almost in line with last year. And in Climate Technologies, domestic sales has declined. However, there are robust confirmed orders for U.S. business. And there has been a spillover of that sales from December quarter to March quarter. And it will more than offset the decline in sales for 9 months, but mainly on account of U.S. business for Symphony range of residential air coolers.

Right. So the spill from Q3 to Q4 was due to some container issues or some logistic issues or was it a pure timing-related issue?

No, it is purely on account of those logistic issues, because there are confirmed orders, and that too some of the large customers who have their own supply chain management globally, including logistics, they themselves have to maintain it. But it has already commenced from second week of January, and we expect that spillover to finish in current month itself.

Okay. Thirdly, on the domestic market, obviously, because of the higher inventories, a bit of muted trade sentiments, the primary sales were definitely impacted during the current quarter versus what we normally do. So are we seeing any early signs where the trade sentiments are improving? Or do we need to wait for another 10, 15 days until temperature starts rising?

The trade sentiment, Manoj, will only improve once inventory offtake begins. And that will happen once temperatures begin to rise. And so hopefully, that should happen sometime next month onwards. Typically, we see that it is in the South that the summer is sort of setting in, in February. This time, although there might be a bit of a delay, looking at current temperatures, there might be a sort of delayed onset of summer, but we'll see. Let's see what happens. But unless that happens, unless there is an offtake, the trade sentiment will not improve. However, the trade is really confident about the summer. Their sentiment about the summer is fairly robust. It's just that at the moment they are sort of little diffident. And we are in touch with the trade across the country all the time. And everyone is very, very upbeat about the prospects of the summer. It's just that the immediate sentiment isn't all that good. But as far as the summer is concerned, everyone is quite hopeful that it should be quite a turnaround.

I was about to come over there that most of the AC companies also, like even the unlisted AC companies, have also been upbeat on this. Probably, they were also giving a feedback that probably full sales might turn into 1Q. But overall, first half of calendar year should witness strong summer and strong primary sales for cooling product categories.

That's nice to hear. Nice to hear. Thank you.

And Manoj, we should also keep in mind last 2 summers were impacted on account of COVID. So trade is also cognizant of the fact that there may be a pent-up demand and hence, by and large, once there is a reasonable summer, the inventory line with the trade, we will be in a position to monetize it, and that should kick start a different sales from companies and customers.

And that's exactly what we had experienced last year in the summer of '21. The second wave came only in April. Until then, the demand that we had was phenomenal. The pent-up demand, which Nrupesh bhai spoke about, was actually experienced by us. So that was the time when our sales team's direction to our production team was, "produce whatever you can, and we'll sell it." And then suddenly, of course, the brakes were applied because of the second wave. But otherwise, that pent-up demand was something that we actually did witness ourselves.

Right. Very true, sir. Sir, just to continue on this. So last year, obviously, probably from February last week till first half of April, your secondary offtakes were very, very strong. So do you expect similar kind of situation if temperatures normalize, probably it might be Feb end or probably March, but similar kind of demand would be expected given that consumers have been feeling some inflationary issues and there has been some impact on some of the other product categories as well in terms of demand. So just last on it, yes.

Yes. So what we gather from our trade partners is that the demand should come roaring back. If the summer is normal, nothing abnormal about it, if there is no sort of the pandemic is, there's no wave, we are not in the middle of a wave, if everything is normal, then the demand should come roaring back is what our channel partners tell us.

And that's the reason why we have taken a strategic call to hold a price increase and also to do a holding of the trade for a temporary period in the long-term interest and growth.

The next question is from the line of Aditya Bhartia from Investec.

It would help if you could explain what are the kind of investments that you've made in various streams that you spoke about, D2C, large space ventilated air coolers. And what's the kind of dealer support that you've extended this particular quarter?

The D2C is a platform which we have launched aggressively last year. And now we've launched a revised entire shop for Symphony. This is a platform which we are going to push aggressively on, especially for the coming season. At the back end, we've built an entire scheme focused on D2C. And we have now entered into partnerships with various third parties as service providers scope to add on to how we take D2C to the market, including the offers we are making, the way we are doing the performance marketing and so on. So that's something that we expect to give sort of a significant push to in the coming season as we move further. LSV is a business that we have been nurturing for a couple of years now. And while the last 2 seasons, despite being affected by COVID, we were able to build the entire sort of ecosystem around taking this LSV business to market, including not only the products which are now completely made in India, but also the entire accessories, the range of tools, low-side work and all that we provide. Also, we are expanding the distribution and dealership network for that. So the channel partnerships that we have in the partnership is something we are working on aggressively. You might have noticed that even the multimedia campaign, including the new TV commercials and all for LSV business were launched earlier this week. We are hoping that it will give us substantial traction in the market as we move forward.

In both these verticals, as well as in other verticals, at a top level, we have also made some recruitments. So that has also added to the cost. And even in LSV, there is going to be, starting current month itself, very high decibel media campaign also and business development.

Understood, sir. Sir, on the D2C side, are our products different from the ones that get sold in the conventional distribution channels? Do you think it will be creating a parallel channel which can potentially create a conflict for a dealer or a distributor? And how will we take them on board in this journey?

So there, Aditya, the strategy is actually omnichannel. To answer the first part of the question, a good chunk of the portfolio would be common. At the same time, there are a couple of exclusive products, which we would launch and introduce on the D2C channel as we are going to include building business on that channel. In terms of the conflict between channels, the approach is going to be more omnichannel. And what we're going to ensure is that one of the channels is sort of meted out a partial treatment. So to that extent, we focus on doing the right kind of pricing, ensuring consistency across positioning the offers we are making in different channels and it's not only let's say, D2C, but even whether it's LTE or RCS or GT, everywhere, we are offering the same value proposition is something we've ensured for products which are common across the channel.

And when we speak about D2C, it's through our own website as well as some of the marketplaces. Is that understanding correct?

Yes, that's correct. That's absolutely correct. So we have completely redone our shops online, and I would request all of you to visit experience in each of that. At the same time, we will be present across all the online marketplaces like Amazon and Flipkart and so on, as well as the online shops of all our MP and other partners.

Understood, sir. Sir, a lot of companies appear to be following online to offline strategy, wherein the end delivery actually gets done by a dealer in the close proximity, though demand may be getting generated through online channels. Is that something that we've also evaluated and why is it that we ultimately are offering through D2C route, because what I'm wondering is how will dealers be perceiving this strategy?

So that's very interesting perspective, Aditya, that you've brought up. And if you recall, in the first lockdown, I'm not sure whether you recall, but let me highlight, in the first lockdown, we started with the approach of dial-a-cooler, where it was a complete online to offline support system that we built. At this point in time, the work we've chosen is the control on D2C in terms of the service levels, the visibility and the user experience being seamless from the point of website to the point of delivery at home. We have sort of moved a bit in favor of being a thorough end-to-end supply chain control on D2C within our own fort. And that's where we have taken the approach of having D2C as a back-end channel. That said, over the long term, D2C would focus on reproducing rich models, and producing models which are exclusive? And to that extent, reduce what may be seen as a conflict part of the channel lever.

Understood, sir. And sir, last question from my side. Just trying to understand what is it that really stopped us from taking price hike? See, even if we would have taken the price hikes, dealers would have been having inventory which would have been at a relatively lower cost vis-a-vis the new inventory that would come into the channel. So that automatically would have given dealers the extra incentive that they require, possibly kind of handholding that they require. Is it that we are facing significantly more competitive challenge, competitive pressure, which is not really allowing us to be taking a price hike?

Because of the large inventory, the huge amount of inventory that's lying with the channel, which would have necessarily been sold at a higher price if we were to increase our price. So the price hike wouldn't have benefited us as much as it would have benefited the intermediary channel. So which is why we decided not to do it. We'll take a call when the channel inventory is at a lower level.

But sir, exactly my point. As it is, you want to support the channel, you want to handhold the channel. This would have been 1 way of possibly doing it wherein dealers and distributors could have made more money on the inventory that they are as it is carrying, and we could have also managed without having a pressure on the gross margin side, which is why I'm trying to understand our competitive pressures also playing a part in our pricing decisions. Because otherwise, I think that the price hikes could have been 1 strategy that we may have adopted.

No, no, no. Like I explained to you, price hike would have benefited us less than what it would have benefited the channel. So there were those reasons. And again, so I've sort of said as much as I can and I think that, that will have to suffice for this.

[Operator Instructions] The next question is from the line of Rahul Gajare from Haitong Securities.

Sir, continuing the earlier discussion, I understand margin was impacted mainly due to trade support that we have done and delay in price hike. Can you quantify how much percentage of price hikes you would need to even out the margin in FY '23? Because we think Q4 is when the dealers will also need the support. FY '23 will be a fresh start. So if we were to envisage the kind of price hike that you would have to take, what would be the quantum? That is the first question.

Yes. So Rahul, it's very clear that whatever is the difference in gross profit margin percentage vis-a-vis normal year, which is close to 5%, that is the kind of the price increase required on an average. However, we have to also keep in mind that the inflationary cost pressure is substantially higher than 5%. So despite we have taken very modest price increase, hadn't we carried out massive value engineering and some other product-related cost rationalization and some other initiatives, actually, gross profit margin percentage with this price increase would have been actually much larger. And also we have to keep in mind that this exercises pressure on us to a limited extent, but on many other players to a greater extent. So whenever we work out the strategy, we have to keep in mind many other factors.

And we have taken a 5% to 7% price increase anyway. It isn't as if we have taken next to nothing. We could have taken more, but we took it on select models, at the select time, in select geographies, looking at the channel inventory and all of that. And as Nrupesh bhai said, despite that we are left with a 5% gap between our swell margin and our current margin. And overall across the board, weighted average price increase of about 5% would sort of bridge that gap. But again, that is a call that we will take at the appropriate time. And as Nrupesh bhai said, if we had not undertaken the massive value engineering initiatives that we have, the margin erosion would have been significant, would have been much, much, much more.

And 1 may reckon that in that respect, the kind of the work what we have done is probably unique in the industry. And that also gives a competitive advantage and that's how we look at it.

And it's a series of time that we have done it. It's not just 1 major thing. It's 100 different things, little, little, little things that all add up to significant sort of cost reductions or cost controls rather.

Sir, my second question is on the trend that we are seeing in the industry. Given the difficulty in terms of supply chain logistics and all, I'm sure there is a significant shift which is happening from unorganized to organized. Can you throw some light on how has the organized industry moved over the last 2, 3 years? And how has your market share also moved in the last, say, 2 years. Because I remember last time it was around 50%. So just what your thoughts on this aspect.

So by and large, the shift from unorganized to organized has maintained at the steady pace that it has over a much longer period of time. So there has not been a remarkable change in the rate at which the unorganized has moved to the organized. So as of now, we reckon it should be about a 25% to 75% kind of a split between organized and unorganized. And of the organized, we have a 50% market share, and that hasn't changed either. The question is, many a times some analysis includes some players -- the denominator of what we consider to be organized has at times sort of been very liberal, which is why something like 70 players are considered as organized, whereas from our perspective, we consider only the sort of pan-India national players as organized, because every state or every district will have some of the other local player, none of them can be considered in organized. If we consider the same national players as organized, then our market share has remained pretty much at about 50%. But of course, in the last few years, a lot of new players in the unorganized sector have also come up and some regional players have also come up. So I would say, the overall competitive intensity has increased. However, that has not been entirely felt by Symphony. We have been sort of shielded from that by the 5 or 6 or 7 other players that exist between us and the tail end of the organized players.

And what may happen that once normalcy is restored, that is in post-COVID scenario, as many of those players themselves are sitting on inventory and that trade partners are also sitting on inventory, so it will also be known down the line to what extent, who are, how much serious, even some of the large players, midsize players and, of course, unorganized players.

The next question is from the line of [ Onkar Ghugardare from Shree Consultants ].

Yes. Just wanted to know what is your strategy on the capital allocation, as you are sitting on the amount of treasury and you are giving dividends of INR 1 and INR 2. And you have been talking about buyback from last 3 years, but nothing has materialized. So just wanted to know your exact view on this.

No. So in terms of the payout, until March '20, we have very much maintained the payout ratio of 50%. You can check that in '19, '20, to take care of that 50% payout ratio, we did announce massive special payout. Having said that, of course, we were talking about share buyback. But in between COVID came in and also some of the income tax regulations also changed. And some such decisions are also quite corporate in nature, they have to be done at a right time. So certainly, at a right time that will be restored, but no way that it is preventing from 50% payout, whether it is in the form of dividend and/or share buyback. And hence, now as we do have the reasonable visibility and confidence about the future, unlike last year, even though in December quarter, stand-alone and consolidated PAT is lower, we have declared interim dividend, which was not the case in December '20.

The special dividend you are talking about in March '20, this was given partly because the earlier years you were preserving the cash in order to...

That's right. So if you consider earlier years' PAT, that year PAT versus total payout, it was about 50% of cumulative free cash flow.

No. But don't you think that you are holding such a treasury at nominal rate, say of 5% or so. Isn't it deteriorating your ROE, instead of...

So that's how, in fact in our primary segment, we have defined capital allocation policy, unlike most other corporates. And there itself we give the specific details, how much is capital deployed in the core business, that is air cooler and related business and corporate fund. So that gives an idea about the efficacy of capital deployed. Secondly, in the business, one doesn't purely see that way. One has to also keep in mind other opportunities as well as likely contingency and also margin of safety or cushion. But having said that, that 50% will always be maintained and still if bought at a right time, we'll take a right decision.

Yes. So exactly how you plan to utilize those INR 600 crores of cash. At least you can tell me that. What type of opportunities you are talking about?

So out of INR 600 crores, we should keep in mind, that is a gross treasury, not a net treasury. So there are also acquisition loan as well as working capital loan at a level of Climate Technologies. So if we net it off, the net treasury is about INR 450 crores, it's not INR 600 crores. That's number one. And number two, last year and current year itself, there is a deficit in payout, which at a right time will be used. And we believe that at this point of time, this much pressure is required in the business. So I don't have anything more to answer at this point of time.

Okay. As far as the business is concerned, if you look at it, around INR 84 crores is from international business. And that's around 40% of the entire business, and 60% is domestic business. So out of that INR 84 crores, which is 40%, almost you have registered a loss over there. So I mean how does it work out? I mean, if your 40% business is posting losses, then how does the business work?

So for 9 months, if you look at it, consolidated PAT is higher than stand-alone PAT, right? So you might be making a limited comparison of just 1 quarter. And as we said, our significant subsidiary, which is Climate Technologies, is still towards the March quarter. So year as a whole, this ratio should see significant difference. That is number one. Number two, as we explained earlier, and you might have missed from the opening remarks, we export to our overseas subsidiaries and significant business in the current year itself is going to U.S.A., mainly residential air cooler from Symphony India and also to IMPCO Mexico. So on that, in Climate Technologies, as well as in Symphony India, as for the transfer pricing, there is a margin. And apart from that, all subsidiaries also explore each other's competitive strength, whether it is in terms of the market strength, technology, products. So there are direct benefits and indirect benefits both.

The next question is from the line of Pulkit Patni from Goldman Sachs.

Sir, my questions have been answered.

The next question is from the line of [ Onkar Ghugardare from Shree Consultants ].

I just wanted to know about the tax thing, which you were talking about, where you get a taxation benefit in doing buybacks and more taxation is done at when you pay dividend. So what's your thought on that?

No. They are the income tax regulations. Do we really need to discuss over here?

No, you in your remark only said that it limits you or it stops you from doing that.

Yes. So earlier, on buyback, income tax was being paid at the level of the shareholders. Now there is a buyback taxation at a corporate level. So that is the major difference.

But has your thinking changed on that -- I'm just talking about that.

So in that respect, it benefits the most to the promoter shareholder and other shareholders, but it is not beneficial to the institutional shareholders, because institutional shareholders, for your information, for income tax purpose wise, it is a pass-through entity. So they prefer dividend payout versus buyback. So ultimately, because of the change of the regulation, we have to balance between institutional shareholders 'expectation and perspective versus other shareholders.

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

So thank you all the participants for sparing your valuable time. And I also take this opportunity to thank Kunal from B&K Securities for hosting this call. Thank you very much.

Thank you. On behalf of Batlivala & Karani Securities India Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.