Symphony Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Soft quarter, structural confidence: India domestic sales were hit by unsold cooling inventory at the channel, but subsidiaries swung from a negative EBITDA margin to positive 3.1%, driving consolidated EBITDA from 15.7% to 17.6%.
• The inventory overhang is temporary: Unbilled collections are sitting with the company, and billing is deferred, not lost; management expects it to convert to sales in the current quarter as the season approaches.
• International turnaround is real: IMPCO Mexico delivered its highest-ever growth, while Brazil and GSK China moved into the black; only Australia remains a drag, and its model is being radically restructured.
• The North Star is 32% standalone EBITDA: Management has a road map to improve margins and explicitly named the FY18 peak as the target, but declined to put a timeline on it.
• What to watch next quarter: Whether the deferred billing actually converts to sales, the pace of Australia’s outsourced-model transition, and any gross margin signal as the product mix normalizes.

Domestic Demand & the Inventory Overhang

• What hurt Q3: Summer-end trade inventory of cooling products, air conditioners and air coolers, sat unsold with channel partners, weighing down on sales and preventing the company from billing.
• Deferred billing mechanics: Symphony’s model involves advance collections from channel partners, with billing executed as the season approaches from July/August. This year, downstream channels are sitting on large inventory across multiple cooling products, so many partners are not ready to get billings done. Billing has been deferred and is expected to execute in the current quarter.
• Unbilled collection cushion: A decent amount of unbilled collection was on the books as of 31st December, which management expects to transfer to sales in the ensuing quarter.
• Market structure tailwind: Over a 3-4 year timeline, the market size may show stagnation, but the last two years have seen momentum return after COVID-era degrowth. The conversion from unorganized and metal coolers into organized fibre-body coolers provides further thrust to the organized segment’s growth.
• Market share steady at ~50%: Symphony has broadly retained its market share close to about 50% over the last two years, with no material change on either side. Retaining that share in the organized category implies the company is gaining a reasonable share from the unorganized-to-organized conversion, and possibly benefiting from premiumization within the organized segment.
• Industry growth expectation: Management believes the industry should register at least about 10% CAGR on average, with organized sector growth even higher due to the shift from unorganized and higher value.

Amit Kumar: "When we take that out of the picture, then over the last 2 years, the market is getting its momentum back. So as we go forward, the market is likely to grow."

International Subsidiaries: Turnaround in Progress

• Consolidated profitability swing: Subsidiaries together moved from a negative EBITDA margin of 4.30% last year to positive 3.1% this year. PAT margin is still negative but showed decent improvement.
• IMPCO Mexico: Registered its highest ever growth for both the 9-month period and Q3, performing in line with or slightly better than its internal business plan. The summer season provided a strong tailwind.
• Brazil and GSK China: Both subsidiaries are now in the black.
• Climate Technologies Australia: EBITDA loss has narrowed substantially on account of various measures, but a demand headwind persists and is likely to continue in the current quarter.
• Australia model transformation: Starting next year, Climate Technologies Australia will move to a 100% outsourced business model, stopping in-house manufacturing completely. The company has added products it never sold before: coolers from India, portable air conditioners, general air conditioners, panel heaters, oil-filled heaters, and fireplaces.
• Cross-subsidiary leverage: Symphony has started leveraging the complementary strengths of overseas subsidiaries as a whole, with many products being outsourced to India and China for IMPCO Mexico and Climate Technologies Australia.

Achal Bakeri: "As far as Australia is concerned, we believe this is about as bad as it can get. Going forward, this would certainly be better."

Margins: The Climb Back to 32%

• Consolidated EBITDA walk: Q3 consolidated EBITDA moved from 15.7% to 17.6%, driven by tactical pricing, value engineering, softening input costs, and normalization of international sea freight.
• Standalone margin pressure: Gross profit margin percentage improved, but standalone EBITDA margin declined sequentially because fixed costs remained fixed while sales de-grew. That negative fixed-overhead impact is expected to be taken care of once sales normalize.
• Gross margin sequential dip: Management said not to read much into the Q3 vs Q2 gross margin decline, attributing it to product mix and sales mix, and emphasizing that 9-month and full-year figures are more relevant.
• Pricing strategy unchanged: Symphony will not do across-the-board margin reductions; it can use smart pricing more strategically rather than chasing volumes over profitability. The gap between unorganized and organized sector pricing is so wide it would be impossible to bridge, and the unorganized sector is a fact of life no organized company can price down to.

Achal Bakeri: "Also for us, our North Star is what we had back in 2018, which was ~ 32% EBITDA margin on a stand-alone basis."

Achal Bakeri: "There won't be any major change in strategy. Absolutely not. Besides, please remember that the gap between unorganized sector and any organized sector company, not only Symphony, is so wide that it would be impossible to bridge. That unorganized sector is a reality in our country, is a fact of life, and you can't do anything about it."

Guidance & Commitments

Key Metrics