Symphony Ltd Q4 FY2022 Concall Summary

Key Takeaways

• International business proves its worth: Rest of World contributed 56% of Q4 topline and 64% of Q4 PBIT, driven by Mexico and the US, marking a decisive turnaround from years of underperformance.
• Domestic business poised for a normal summer: Trade inventory has fully normalized after two COVID years, April 2022 was a record month, and some models are already out of stock, setting the stage for a strong Q1.
• Margins under pressure but recovery is in sight: Standalone EBITDA margin fell 600 bps to 23% on profit sharing, provisioning, and high spending, but management expects Q1 margins to rebound toward historical levels.
• The US is a small base with a long runway: US sales tripled in two years to ₹133 Cr, yet market share remains "very, very small," offering significant headroom for profitable growth.
• What to watch next quarter: Whether the promised Q1 margin recovery materializes despite persistent raw material cost increases, and how much sales are lost to competitors from the demand-supply mismatch on popular models.

International Business Turnaround

• The numbers flipped: Rest of World revenue contributed 51% of FY22 consolidated topline and 56% in Q4; PBIT contribution was 39% for the full year and 64% for Q4, a dramatic shift from the drag it had been.
• Mexico is the star: IMPCO Mexico grew topline from ~₹75 Cr to ~₹103 Cr, delivered EBITDA of ₹13 Cr and PAT of ~₹8 Cr, and is now expanding into Latin America, competing effectively against Chinese players.
• Climate Technologies is finally earning its keep: Standalone EBITDA rose from ₹15 Cr to ₹38 Cr, with margin improving from 4% to 10%, making the acquisition clearly value accretive relative to its 7.33x multiple.
• Australia has turned the corner: After four years of post-acquisition underperformance, the business is finally value accretive; manufacturing is relocating from India to Australia to slash logistics costs that far outweighed Indian labour savings.
• China remains the one sore spot: GSK China delivered a topline of ₹38 Cr but was badly impacted, with a negative EBITDA of ₹2 Cr and a cash loss of ~₹6 Cr excluding interest.
• Manufacturing is moving closer to customers: Production previously shifted from China and Australia to India is now being reworked, with manufacturing relocating to Australia for its market and to Mexico for the US and Mexican markets, because logistics costs dominate the equation.

Bakeri: "The key takeaway that I would like you to go with is that our Symphony's international business or Rest of the World business has really sort of proven to a clean rates for Symphony this year..."

Domestic Business & Demand Environment

• A clean slate for summer: Complete normalization of trade inventory after two COVID-impacted years, driven by a good, COVID-free summer; excellent consumer sales across the country and models, with some now in an out-of-stock position.
• April sets a record: April 2022 domestic sales were higher than the historical highest-ever April, achieved on top of existing trade inventory being sold through, signaling genuine end-consumer demand.
• Demand is outstripping supply on key models: On some models, demand far exceeds production ability, resulting in a significant backlog; the company tries to convert consumers to other models but acknowledges some sales will be lost to competitors.
• Channel inventory is lean: Estimated at about 20 days at the distributor and dealer end, despite what Symphony itself holds, suggesting a healthy pull from the market.
• Inventory regret: Management built inventory ahead of a COVID-free summer but now regrets not having even more, as levels by the time of the call were very different from end-of-March.
• Distribution reach has years of runway: The potential to increase reach is significant, and the company can keep deepening its reach for years to come; GST and the pandemic have not triggered a major unorganized-to-organized shift, which remains driven by purchasing power and aspiration.

Bakeri: "...the worst thing is that our work also becomes a competitor's gain, so to some extent that would also happen."

Margin Structure & Profitability

• Consolidated GP margin held the line: Gross profit margin held at 45% in FY22 despite input cost pressure, demonstrating resilience at the consolidated level where management argues profitability is best assessed.
• Standalone EBITDA margin took a 600 bps hit: Symphony India's standalone EBITDA margin fell from 29% to 23%, driven by profit sharing with Climate Technologies on US business, a ₹5.5 Cr notional provision for trade schemes, high advertising spend incurred during the second COVID wave, and elevated overhead spending in Q4.
• Domestic GP margin was 47% and should improve: Q4 domestic GP margin was slightly in excess of 47%, impacted by commodity prices; absent that impact, it would have been 3–5% higher, and management expects a couple of points improvement in the June 2022 quarter.
• Price increases lag cost increases: The company is absorbing some cost because frequent repricing is difficult in a consumer business, and raw material costs kept rising even in April; taking price increases in the current quarter is difficult with material already in the market.
• Employee costs are rising for a reason: Sharp increases reflect new teams being built from scratch: D2C teams for India, Australia, Mexico, and the US, a parallel global e-commerce team, and strengthened marketing, LSV, and IT teams, all revenue expenses for future growth.
• Q1 margins should rebound: At the standalone level, the June quarter should register better profitability because it is the season, products are not discounted, and domestic sales will dominate with full price realization and operating efficiency from higher topline.

Bakeri: "You cannot just keep on changing your prices frequently in business like ours which is a consumer business."

The US Opportunity

• A three-year growth sprint: USA sales grew from ₹48 Cr in FY20 to ₹90 Cr in FY21 to ₹133 Cr in FY22, at an extremely profitable level, with excellent visibility of decent growth in the current year.
• Market share is tiny, and that is the opportunity: Management emphasized twice that US market share is "very, very small," so significant headroom for growth exists, and the market itself has also grown due to COVID.
• Growth is product-led and customer-led: Climate Technologies now has 51 SKUs to offer across different segments and price points, up from a limited range, and has been able to dislodge some other suppliers and manufacturers.
• E-commerce entry is imminent: The company will become active in e-commerce in the US in the current accounting year, and D2C is planned to launch very shortly.
• International mix will not keep rising: Despite decent growth in exports to CT and the US, that percentage of the mix will not increase; if anything, it will come down as the India business denominator grows.

Bakeri: "Even at this level, our market share in the US is very, very small, so there is significant headroom for growth and the market has also grown."

Product & Channel Expansion

• New launches span consumer and commercial: Surround and Duet launched, with Duet receiving an overwhelming response in the US; exclusive D2C products (6 products) offered to minimize general trade channel conflict; VENTI-COOL launched under LSV; Roof Mounted Air Coolers and MovilXL launched in overseas subsidiaries.
• Licensed ranges are coming: A Disney range (Frozen, Cinderella) and a Marvel range (Ironman, Spiderman) are launching very shortly, targeting new consumer segments.
• Tower fans open a new category: A tower fan has been recently introduced, and the company intends to grow categories like tower fans not only in India but across the world, seeing opportunity everywhere.
• D2C is rolling out globally: D2C has been launched in a small way in Australia and Mexico, with a US launch planned very shortly, supported by dedicated teams being built from scratch.
• Industrial cooling is small but growing: The industrial cooler segment grew significantly in FY22, reaching its highest ever, with good traction and momentum, though it remains a relatively small percentage of total revenue.
• Channel traction is broadening: Good traction in LFS and e-commerce channels, and LSV is also attaining good traction due to local outsourcing, the Movicool launch, and new models.

Capital Allocation & Balance Sheet

• Dividend payout at 52%: Total dividend payout for FY22, including the final dividend announced, amounts to ₹63 Cr.
• A buyback is on the table: The company is probably considering a buyback in the current year (FY23).
• Capex is modest and product-focused: Ongoing annual investment of ₹5–12 Cr for new products and models, not for capacity creation but for value proposition; capacity is fairly flexible due to the third-party manufacturing model.
• A ₹5.5 Cr provision will reverse: An extra provisioning taken in Q4 FY22 for a trade scheme offering air coolers is expected to reverse mostly in the current quarter (Q1 FY23) upon supply and delivery.
• Component sourcing is secure: The company is fairly well covered for component sourcing for the entire summer season, with no shortages expected that would adversely impact primary sales.

Guidance & Commitments

Key Metrics