Symphony Ltd Q1 FY2024 Concall Summary

Key Takeaways

• Domestic degrowth, but not a demand crisis: Standalone sales fell 14% YoY on a disturbed summer, yet the quarter was still the second-best June ever and 9% above the best pre-COVID June, with market share gains above 4% cushioning the blow.
• Gross margin jumps 400 bps, but EBITDA margin stays muted: Consolidated gross margin hit 49.7% on price hikes and softer inputs, while standalone EBITDA margin disappointed at 4.2% because Q1 carries the full year's advertising and promotion load.
• Geographic diversification proved its worth: While India softened, Mexico grew ~40% and GSK China turned profitable, together offsetting part of the domestic shortfall and validating the multi-geography strategy.
• The buyback is done, the balance sheet is cleaner: A ₹249 crore buyback was completed during the quarter, which should lift RoNW going forward as the net worth denominator shrinks.
• What to watch next quarter: Whether the semi-urban and alternate-channel push converts into December-quarter adjacent-category sales, the pace of Climate Technologies Australia's cost restructuring, and any resolution on Egypt's dollar repatriation block.

Domestic Performance & Market Position

• Topline hit, but relative strength: Domestic standalone sales declined 14% YoY because a disturbed summer compressed the season, yet the quarter remained the second-best June quarter ever and 9% above the best pre-COVID June quarter, driven by initiatives and market share improvement.
• Market share jumped: Pan-India market share gained in excess of 4% versus the organized market, with traditional trade and rural segments holding up better than online channels. Management noted share had hovered around 50% for the last couple of years and has now moved decisively higher.
• Channel inventory is manageable: Inventory at quarter-end is slightly higher than desired in pockets of UP, Punjab and MP because unseasonal rains limited tertiary sales despite good secondary offtake, but overall channel inventory across the country is lower than at the end of the previous year and each of the last three years.
• No post-season support extended: Management has not offered any additional schemes or support to the channel after July, since tertiary sales represent a very small share of the full year.

Nrupesh Shah: "So, if I can take you 10 - 12 years before, so 10 - 12 years before, our market share used to be, I'm talking value wise not volume wise, it used to be 43% - 44 %. For the last couple of years, it inched up and remained around 50%. Current year as on 30th June 2023, it seems higher in excess of 3%."

Margin Walk & Cost Structure

• Gross margin expanded sharply: Consolidated gross margin rose 400 bps YoY to 49.7%, and standalone gross margin rose 60 bps, helped by a combination of price hikes, value engineering and softening input costs.
• Standalone EBITDA margin was the disappointment: Standalone EBITDA margin came in at 4.2%, below the ~2-2.5% some expected, because Q1 is the culmination of the summer season and carries disproportionately large advertising, sales promotion, and scheme spends that support the entire year's business. These expenses get rationalized over the full year.
• Other expenses rose 9% as a share of standalone sales: The increase was driven by higher rent, a ₹3 crore notional forex loss on the loan to GSK China, and higher travelling expenses. Warranty expenses appear elevated in the quarter but are linked to full-year numbers and should normalize.
• Consolidated EBITDA margin dipped marginally: At 9.3%, it was slightly lower than last year because operating expenses of ₹122 crore include fixed costs that do not flex with a single quarter's revenue.
• Management targets a return to pre-COVID EBITDA margin percentage over time, with the Q1 standalone print explicitly not to be extrapolated to the full year.

International Business: The Diversification Payoff

• Mexico delivered a standout quarter: IMPCO Mexico registered ~40% growth and its highest ever EBITDA margin amount, driven by a consistent decent summer and catch-up on sales lost in the March quarter. Management explicitly cautioned this is not a new normal.
• GSK China turned the corner: Moved to positive EBITDA and PAT of ₹1 crore each, from a negative PAT of ₹1 crore in the corresponding period, marking a meaningful turnaround.
• Climate Technologies Australia is still a work in progress: Sales declined to ₹51 crore from ₹60 crore, EBITDA improved to negative ₹2 crore from negative ₹5 crore, but PAT worsened to negative ₹5 crore including interest and depreciation. A major business transformation is underway targeting ~40% CODB reduction by next year, alongside a product category revamp and a shift from outsourced to in-house manufacturing.
• Geographic spread cushioned the domestic softness: In Q1, despite Symphony India not doing well, the rest of the world made up part of the losses, demonstrating the benefit of geographic diversification.
• US sell-through is strong: The majority of goods bought by Home Depot have already been liquidated and sold to end consumers, with many models likely to be out of stock by end of summer, after Home Depot had cut back demand earlier due to destocking.
• Brazil preseason indications are optimistic and helpful, while Europe is moving in line with target and strategy but will take time to build up.

Amit Kumar: "something that would come closest to us saying this is like the new normal where given a good geographic diversification across the globe, some region or the other will always do good and maybe some of the regions for a given quarter or year will not do as good."

Strategic Initiatives: Channels, Products & Sourcing

• Semi-urban and rural thrust is a major priority: Management has planned several initiatives to enhance presence in semi-urban and rural markets, including expanding availability, dealer distribution networks, and continuous growth through alternate sales channels. This is expected to be helpful for the year as a whole and for next summer.
• Alternate channels are getting dedicated focus: A major thrust on sales through alternate channels is underway, with these channels mainly selling in the March and June quarters.
• Adjacent product categories are scaling: The company successfully entered the tower fan category last year with Duet and Surround products, which were well received, and plans to further enhance the range. Sales from these adjacent categories will generate more revenue from the December quarter onward, as the enhanced range will be in place in the next one to two months.
• Local sourcing strategy is pivoting: For household air coolers, it now makes sense to manufacture and sell from India, so local in-house manufacturing and assembling is being reduced substantially. In a few quarters, the model will be completely outsourced: residential household coolers from India, ducted coolers locally through an outsourced model, and some other products from China.
• GCC market approach upgraded: After over a decade of presence, Symphony has appointed a senior-level resource based in the Middle East to build relationships and business, moving from an India-based export team model.

Nrupesh Shah: "as far as household air coolers are concerned, now it makes sense to manufacture and sell from India so that's what going to happen."

Subsidiary & Market-Level Detail

Capital Allocation & Balance Sheet

• Buyback completed: The ₹249 crore buyback was completed during the quarter, which should improve RoNW going forward by reducing the net worth denominator.
• Dividend declared: A first interim dividend of 50% of face value was declared, amounting to about ₹7 crore.
• Collections are on track: Collections received so far in July are almost in line with last year, suggesting no post-quarter deterioration in receivables.

Guidance & Commitments

Key Metrics