Symphony Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Domestic strength, global drag: Standalone domestic sales hit an all-time high, up 23% YoY in Q4, but consolidated PAT fell to ₹116 Crores for the full year because Climate Technologies losses wiped out the domestic gain.
• Climate Technologies is the story: The US and Australia subsidiaries swung to a combined EBITDA loss of –₹43 Crores for the full year as retailers halved orders ahead of an expected recession; management calls the performance "an understatement" of the disappointment.
• Gross margin recovery underway: Standalone gross margin jumped 600 bps YoY to 48.9% in Q4, helped by price hikes and softer input costs, though subsidiary margins collapsed from ~45% to 32%.
• Australia pivot is a bet, not a result: The business is transforming from installed gas products to portable electric products sourced from India and China, with a ₹21 Crore cost reduction expected in FY24 for Climate Technologies Australia, but the turnaround is unproven.
• What to watch next quarter: Whether the delayed Indian summer materializes into a prolonged season, whether US retailers run out of inventory in a normal summer, and any early signs that the Australia pivot is gaining traction.

Domestic Performance

• Record quarter: Domestic sales surpassed the pre-COVID historical high by 24%, with India market growing 21%, maintaining a 50% market share among national organized players.
• Channel shift accelerating: Alternate channels (modern trade, e-commerce, D2C) now contribute almost one-third of domestic sales, up from 21% in FY2020, a structural shift that continued through the quarter.
• Margin levers working: Standalone EBITDA margin reached 20% for FY23, up 210 bps, while Q4 gross margin touched 48.9%, the highest March quarter margin in three years, driven by price hikes and softening input costs, though input costs remain above pre-COVID levels.
• Ad spend experiment unwinding: Ad spend rose from the historical level because of experimentation last summer and excess channel inventory; management is now moderating spend and expects to revert to historical ad spend as a percentage of sales.
• Season off to a patchy start: North and West India seasons had not taken off as of the call, while South and East traded well in mid-April before softening; management expects the season to pick up between May 10–15 and cover for lost momentum.

Amit Kumar: "This year while it is an El Niño year, the summer has set in late, what we are hearing and getting to understand is the summer is likely to set late in most parts of the country and likely to continue till late. So that from weather perspective and heat perspective will be a prolonged summer as we see, till we are there it is more of a hope and prediction than actual materialization on the ground."

Climate Technologies: The Core Problem

• Scale of the miss: Climate Technologies revenue fell 38% to ₹225 Crores in FY23, with both EBITDA and PAT at negative ₹43 Crores; the lion's share of the slippage came in Q4, when the subsidiary posted an EBITDA loss of ₹28 Crores on sales of just ₹52 Crores.
• US orders halved: The Home Depot and other US retailers sharply curtailed inventories and purchases across all commodities in anticipation of a recession; orders were almost halved versus the previous year, and absolute degrowth in US-based sales was about ₹51 Crores comparing Q4 FY22 to Q4 FY23.
• Australia in actual recession: Many builders who installed Symphony's ducted coolers and heaters in new homes are going bust, dramatically dropping sales; management acknowledged the business has been a disappointment and that they "did not sort of acquire this company for the performance that we have witnessed so far."
• Profitability held in the US, not in Australia: Despite the sharp topline drop, the US business remained fairly profitable at both EBITDA and net profit level after all expenses.
• No bad debt yet: Despite builder bankruptcies in Australia, no bad debt has been incurred so far, and none is expected going forward.

Achal Bakeri: "To come back to your overall question Pulkit saying that Australia business has been a disappointment is an understatement. No doubt about it. We did not sort of acquire this company for the performance that we have witnessed so far, there is no doubt about that."

The Turnaround Plan

• Australia business model transformation: Three pivots underway: from installed products to portable products, from gas-powered heaters to electric heaters, and from captive manufacturing to third-party sourcing. Coolers will come from India; heaters, air conditioners, and other products from China, making the company largely a "box in, box out" operation.
• Cost base collapsing: The cost of doing business in Climate Technologies a year from now will be about a quarter of what it was when first acquired, while topline has actually grown over that period; a ₹21 Crore benefit from cost reduction is expected in FY24, with more in FY25.
• Product revamp: Management is proposing to launch new-age products (Symphony-style air coolers and portable heaters) in the current year with a much better margin profile, completely revamping the product category.
• Portable margins better: Shifting from installed/ducted air products to portable products, which are in demand and command much better margins, is a core part of the margin recovery thesis.
• Conviction, not proof: Management says it is "completely convinced" and has "full conviction" that there is a broad silver lining and the business will turn around, but the plan is still in early execution.

Achal Bakeri: "We are completely convinced, and we know it we have full conviction that there is a very broad silver lining at the end of this or around this cloud or light at the end of this tunnel."

US Market Dynamics

• The inventory bet: US retailers cut orders in anticipation of a recession, but management argues air cooler demand correlates with temperature, not the economy; if the US has a normal summer, The Home Depot is expected to run out of inventory, at which point sales would be lost because coolers cannot be shifted overnight from India.
• Market share intact: Management pushed back firmly on any suggestion of market share loss, stating the order cuts were "across every category" at The Home Depot, not specific to Symphony or air coolers.
• Export mix collapsed: Export contribution to consolidated revenue fell from ~50% in FY22 to ~34–35% in FY23, a drop of roughly 15 percentage points, reflecting the severity of the US and Australia compression.
• Standalone margin optics: The sharp uptick in standalone gross margin to almost 49% in Q4 was partly mechanical: exports to subsidiaries are at transfer prices governed by TP rules, so margins retained at Symphony standalone are much lower than they would be without exports; the lack of exports improved the reported standalone margin.

Achal Bakeri: "They have almost halved their orders in the current year versus the previous year and summer is yet to come and despite that assuming that the recession is going to hit and the sales is going to be poor, they have reduced their inventories and their orders, but though we do expect that the summer would be good and even if it is a normal summer in the US, we expect them to run out of inventory at which point there will be nothing that we can do, we cannot overnight shift coolers from India all the way across to the US so that sales would be lost..."

Margins & Profitability

• Standalone recovery: FY23 standalone gross margin up ~300 bps to 47.9%, standalone PAT up 49% to ₹165 Crores, driven by price hikes and softening input costs.
• Consolidated drag: Consolidated PAT fell to ₹116 Crores from ₹121 Crores because subsidiary losses, particularly Climate Technologies, consumed the standalone gain.
• Subsidiary margin collapse: Subsidiary gross margin fell significantly from ~45% to 32% because last year's higher costs could not be passed through in selling prices.
• FY24 margin outlook: Management expects subsidiary margins in FY24 to be much better than FY23; as of the call, margins were already better and improving. Standalone domestic margins should also improve, though a revival in exports might optically compress standalone margins while improving end-to-end consolidated margins.
• Shareholder payout despite earnings drop: Total shareholder payout of ₹284 Crores in FY23, including two interim dividends, a final dividend, and a share buyback of ₹249 Crores, far in excess of consolidated or standalone PAT.

Product & Competitive Positioning

• BLDC launch: Symphony launched the world's first air cooler with BLDC technology during the quarter, a landmark feature that saves 60% power consumption and water, with up to eight-hour night sleep mode.
• Brand investment: The company positioned itself as 'Thinker of Tomorrow' and continues to add market-leading innovative value-added products as its core strategy.
• Central air-cooling underwhelming: The vertical is growing at a respectable pace but has not lived up to original expectations of being a much larger vertical; management declined to share specific numbers.
• Volume disclosure denied: Management declined to share yearly cooler sales volume or percentage of export volume drop, citing competitive reasons as Symphony is the only listed company exclusively in air coolers.

Other Subsidiaries

• IMPCO Mexico: Revenue up 15% to ₹117 Crores, PAT at ₹2 Crores, while EBITDA at ₹8 Crores; Q4 sales ₹37 Crores with EBITDA of ₹5 Crores and positive PAT of ₹2 Crores.
• GSK China: Revenue down 14% to ₹32 Crores but achieved EBITDA break-even because of substantial reduction in cost of doing business; Q4 was off-season with sales of ₹6 Crores, EBITDA of zero and a PBT/PAT loss of ₹2 Crores.

Guidance & Commitments

Key Metrics