Analysis Report: Symphony Ltd. (Sell; Estimated Price: Rs. 1180)

Analysis Report: Symphony Ltd. (Sell; Estimated Price: Rs. 1180)

Introduction

Symphony Limited was started in 1988 and is a joint stock, publicly held, listed company. It manufactures residential air coolers, centralized air cooling systems and packaged air coolers. Currently, Symphony Limited has four subsidiaries – two direct and two step down subsidiaries. Sylvan Holdings Pte. Ltd., Singapore, (Sylvan) and Symphony Air Coolers Inc. USA are the two subsidiaries. Sylvan has a subsidiary company in Mexico i.e. Impco S. de R. L. de C.V (IMPCO). Impco, in turn, has a subsidiary company in the USA, namely Symphony USA Inc. All these subsidiaries are wholly owned by Symphony Limited. With the help of these subsidiaries Symphony Limited markets its products in a total of 60 countries in North America, South America, Europe, Asia and Africa. The company’s sales team are present in 15 countries.

Shareholding Pattern

Cat Code	Category of Shareholder	Number of Shareholders	Total number of shares	Number of shares held in dematerialized form	Total shareholding as a percentage of total number of shares
A	SHAREHOLDING OF PROMOTER AND PROMOTER GROUP
1.	INDIAN
	Individuals/ Hindu Undivided family	6	18412910	18412910	52.64
	Bodies Corporate	2	6241600	6241600	17.84
2.	FOREIGN	1	1579360	1579360	4.52
	Total Shareholding of Promoter and Promoter Group	9	26233870	26233870	75
B	PUBLIC SHAREHOLDING
1.	INSTITUTIONS
a	Mutual Funds/UTI	11	730409	708909	2.09
b	Financial Institutions	2	5241	5241	.01
c	Insurance Companies	1	41309	41309	.12
d	Foreign Institutional Investors	34	1577192	1574192	4.51
e	Foreign Portfolio- Corporate	5	147593	147593	.42
2.	NON- INSTITUTIONS
a	Bodies Corporate(Indian/foreign/Overseas)	344	2375278	2346278	6.79
b	Individuals(Redident/NRI/Foreign National)
(i)	Individual Shareholders holding Nominal share Capital upto Rs.1 Lakh	7749	2902505	1928530	8.30
(ii)	Individual shareholders holding Nominal share Capital above Rs.1 Lakh	4	377604	377604	1.08
c	Others
(i)	Non Resident Repatriates	369	232544	97544	.66
(ii)	Non Resident Non repatriates	73	36449	35949	.10
(iii)	Trusts	1	600	600	.00
(iv)	Clearing Members	96	30401	30401	.09
(v)	Executive Director, Spouse, Father’s HUF and Independent Director	4	287505	287505	.82
	Total Public Share Holding	8693	8744630	7581655	25
	TOTAL(A+B)	8702	34978500	33815525	100.00

Business Description (Company Resources, Value Chain, Company People)

Symphony has developed a strong distribution network of distributors, dealers, direct dealers and retail chains. Achal Bakeri is the Chairman & Managing Director of the company with 28 years of experience in varied functions of the company. Nrupesh Shah is the Executive Director and looks after overall corporate affairs, strategy, finance, M.I.S., treasury etc. He has been with the Company since 1993. As of June 30, 2014, Symphony had on its payroll 400 employees compared to 375 a year earlier, an increase of 6.67%.

Products

Symphony has a product offering of residential air coolers and central air cooling solutions. It has divided its residential coolers into four segments which are Tower Coolers (eight models), Desert Coolers (five models), Room Coolers (three models) and Personal Coolers (five models). These segments are divided on the basis of consumer needs. Symphony is the only branded national player in Central air cooling solutions and there is a huge untapped market for this. Company executed the world’s largest central air-cooling project at the Hajj complex in Saudi Arabia, and India’s largest air cooling project at Patanjali Yogpeeth in Haridwar. Symphony keeps on innovating its’ products and has recently launched Diet 12T a cooler specially developed to tap personal cooler customers in coastal markets, Diet 35i and Winteri.

Manufacturing/Service Process Description

Symphony has outsourced the manufacturing of air coolers to about nine exclusive vendors in India and uses the cash and carry model for sales. However, the company retains the rights for product development, design and marketing function to maintain the exclusivity of products and technologies of Symphony from its vendors. Symphony has adopted a hub and spoke model which ensures near-to-market manufacturing to deliver products in a significantly shorter time. The company has a robust information technology infrastructure that helps it to integrate various processes, across functions and geographies thereby speeding up decision-making and reducing costs. An enterprise-wide web-based ERP platform with extensive applications is also implemented a few years ago.

Capacity of the Company to manufacture/provide service

Symphony has recently acquired a state-of-the-art manufacturing plant in North America for heavy duty metal air coolers. While domestic air coolers are manufactured in India, industrial air coolers are manufactured in North America. Impco- its subsidiary has a large manufacturing facility in Monterrey, North Mexico and a well established distribution network in the United States. Impco is primarily focused on centralised air-cooling.
Manufacture of residential air-coolers for the Indian market is completely outsourced to nine OEMs (plastic moulders) across Western and Northern India. These OEMs possess the capability to manufacture around a million air-coolers annually. For exports, the Company is manufacturing coolers at its Surat SEZ assembly plant (annual capacity of two lac units, operating at 60-70%).

Industry Analysis (Industry Value Chain, Industry Cost Structure)

Symphony is operating under the consumer durables industry which is expected to double at 14.8% CAGR to US$ 12.5 billion in FY15 from US$ 6.3 billion in FY10. Urban markets account for about 65 per cent of total revenues in the consumer durables sector in the country. The rural and semi-urban markets are likely to contribute a majority of consumer sales as the rural consumer durables market is growing at the compound annual growth rate (CAGR) of 25%.

Market Analysis 

Symphony is operating in the market of air coolers. The market for industrial coolers in India is estimated at around Rs 3,000 crores annually and estimated to grow at 25-30% every year. Domestic market for residential air-coolers, both organised and unorganised, is around 6 million units with an aggregate value of about Rs. 2000 crores. The unorganised segment accounts for 80% of the market share and 70% in terms of value. Its competitors in the organised market consist of Kenstar, Bajaj, Usha, Orient Fans and Havells. Air cooler market has a threat of substitute product i.e. Air Conditioner. As the disposable income of middle income group is increasing the demand for both the products is increasing and the competition between them as well. Climatic conditions of most of Northeast India and much of Northern India are subject to a humid subtropical climate, in which air coolers do not work and people prefer air conditioners. Symphony’s 97% business consists of air coolers, which makes its fortunes highly dependent on the air cooler market. This poses the risk of product concentration.

Financial Analysis

The financial year of Symphony Limited ends with the June quarter. Symphony Limited’s total liabilities stand at Rs. 393.33 crores in 2013-14 as compared to Rs. 316.30 crores in the previous year. There is zero debt in Symphony Limited and its current assets constitute 44.17% of the total assets in 2013-14 as compared to 73.51% in the previous year. This vast difference is due to the company’s investment in non-current assets in 2013-14. Increasing assets and absence of debt reflects that the company has been doing well.

Consolidated Balance Sheet for the last 5 years

(Rs in crores)	Jun-10	Jun-11	Jun-12	Jun-13	Jun-14
EQUITY AND LIABILITIES
Share Capital	7.00	7.00	7.00	7.00	7.00
Reserves and Surplus	79.43	145.50	182.15	215.21	268.78
Non-Current Liabilities	0.79	12.46	11.43	14.38	7.81
Trade Payables	9.19	18.68	13.46	17.75	25.76
Other Current Liabilities	13.33	29.56	63.68	61.96	83.98
TOTAL	109.74	213.19	277.72	316.30	393.33
II ASSETS
Fixed Assets	12.99	70.40	70.11	69.54	69.66
Other Non-Current Assets	2.98	4.14	27.66	14.23	149.94
Inventories	6.48	69.75	42.92	43.02	38.51
Trade Receivables	12.08	38.59	42.19	37.67	41.58
Cash and Bank Balances	2.83	4.71	22.64	44.74	5.69
Other Current Assets	72.37	25.61	72.19	107.09	87.96
TOTAL	109.74	213.19	277.72	316.30	393.33

Operating revenue for Symphony Limited was Rs. 532.70 crores in 2013-14 as compared to Rs. 378.02 crores in the previous year. Operating expenses amounted to 76.33% of the operating revenue in 2013.14 as compared to 79.14% in the previous year. Net profit is 19.85% of operating revenue for the year ending June 2014 as compared to 15.90% in the previous year. The company has shown good profit margins and their revenue has been increasing every year.

Consolidated Profit & Loss Statement for the last 5 years

(Rs in crores)	Jun-10	Jun-11	Jun-12	Jun-13	Jun-14
REVENUE
Revenue from Operations	190.23	290.56	313.47	378.02	532.70
Other Income	3.82	7.58	6.27	16.71	13.79
Total Revenue	194.05	298.14	319.74	394.73	546.50
EXPENSES
Operating Expense	137.12	221.35	240.87	299.15	406.59
Finance Costs	0.57	0.44	0.75	0.32	0.05
Depreciation and Amortization Expense	1.31	5.34	4.86	3.94	3.82
Exceptional & Miscellaneous Items	0.00	-4.61	0.00	0.00	0.00
Total Tax expense	18.06	24.43	20.14	31.09	29.57
Loss from discontinuing operations	0.00	0.00	0.01	0.12	0.73
Total Expense	157.05	246.95	266.64	334.62	440.77
Net Profit for the year	37.00	51.19	53.10	60.11	105.72

Cash conversion cycle for Symphony Limited was 57.58 days and the return on capital employed turned out to be 36.00% in the financial year 2013-14. The revenue of the company varies from season to season as is evident from the quarterly profit and loss statements of the last four quarters.

Standalone Quarterly Report of the Last 4 Quarters

(Rs in Crores)	Dec-14	Sep-14	Jun-14	Mar-14
Income from operations	151.41	102.71	150.63	113.29
Other revenue	4.13	7.69	2.09	3.00
Total Revenues	155.54	110.40	152.72	116.29
Total Expense	103.92	79.91	107.02	80.81
PBT	51.62	30.49	45.70	35.48
Tax	15.6	8.86	12.97	8.45
PAT	36.02	21.63	32.73	27.03

We believe that the even though the industry is huge, the market is already packed more or less. The financial statements of Symphony Limited in the last 5 years reflect astonishing growth and the market has huge expectations from it. Such positive results in the last few years have already increased the value of the company by four folds in the last one year. The market price of Symphony Limited escalated from

Rs. 705.00 on 3^rd April, 2014 to  Rs. 2672.55 on 1^st April, 2015 in BSE.

 

Even after assuming that the company will continue on its growth path, we value the company to be Rs.1180, which is almost 50% of its current market price, Rs. 2055.00. Current market price is possible if the company grows at 52% CAGR, which seems a bit unrealistic.

Consolidated Projected Balance Sheet for the next 5 years

(Rs in crores)	Jun-15	Jun-16	Jun-17	Jun-18	Jun-19	Terminal
EQUITY AND LIABILITIES
Share Capital	7.00	7.00	7.00	7.00	7.00	7.00
Reserves and Surplus	401.34	584.70	839.39	1194.20	1689.42	2208.33
Non-Current Liabilities	7.81	7.81	7.81	7.81	7.81	7.81
Trade Payables	30.45	42.63	59.69	83.56	116.99	122.84
Other Current Liabilities	83.98	83.98	83.98	83.98	83.98	83.98
TOTAL	530.58	726.12	997.87	1376.56	1905.20	2429.96
ASSETS
Fixed Assets	85.51	102.84	121.82	142.69	165.67	191.05
Other Non-Current Assets	149.94	149.94	149.94	149.94	149.94	149.94
Inventories	57.07	79.90	111.86	156.61	219.26	230.22
Trade Receivables	55.47	77.66	108.73	152.22	213.10	223.76
Cash and Bank Balances	94.63	227.83	417.57	687.15	1069.27	1547.04
Other Current Assets	87.96	87.96	87.96	87.96	87.96	87.96
TOTAL	530.58	726.12	997.87	1376.56	1905.20	2429.96

Consolidated Projected Profit & Loss Statement for the next 5 years

(Rs in crores)	Jun-15	Jun-16	Jun-17	Jun-18	Jun-19	Terminal
REVENUE
Revenue from Operations	745.78	1044.10	1461.73	2046.43	2865.00	3008.25
Other Income	10.00	10.00	10.00	10.00	10.00	10.00
Total Revenue	755.78	1054.10	1471.73	2056.43	2875.00	3018.25
EXPENSES
Operating Expense	569.23	796.92	1115.69	1561.97	2186.75	2296.09
Finance Costs	0.08	0.11	0.15	0.21	0.29	0.30
Depreciation and Amortization Expense	4.84	5.82	6.90	8.08	9.38	10.82
Exceptional & Miscellaneous Items	0.00	0.00	0.00	0.00	0.00	0.00
Total Tax expense	49.08	67.89	94.30	131.37	183.36	192.13
Total Expenses	623.23	870.74	1217.04	1701.62	2379.78	2499.34
Net Profit for the year	132.56	183.36	254.70	354.81	495.22	518.91

 

Price Performance

About the Author

This report has been authorized by Mridul, Sanyam Mittal and Kapil Khatri. All three are pursuing MBA from Institute of Management, Nirma University, Ahmedabad, Gujarat, India.

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The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidelines only.