CRISIL maintains fair value of Rs 1119 for Symphony

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CRISIL maintains fair value of Rs 1119 for Symphony

CRISIL Research has come out with its report on Symphony. The research firm has maintained the fundamental grade of 3/5, in its October 19, 2011 report.

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Symphony BSE | NSE 31/05/12 Are Mutual Funds betting on Symphony?

CRISIL Research has come out with its report on Symphony . The research firm has maintained the fundamental grade of 3/5, in its October 19, 2011 report.

Symphony Ltd's Q1FY12 standalone revenues were in line with CRISIL Research's expectations but EBITDA margins were lower on account of higher operating costs. Since air coolers are sold during hot weather, sales in the first two quarters are primarily on account of inventory build-up in the distribution channel. We believe strong y-o-y air cooler volume growth in the domestic market signifies confidence of Symphony's distributors and retailers in its brand, products and expected demand. However, the company remains exposed to the risk of climate changes (lower than average summer temperature). The company has not disclosed consolidated numbers and so we have not been able to analyse its Mexico-based wholly owned subsidiary's - Impco's - performance. We maintain our earnings estimates for FY12 and FY13, and the fundamental grade of 3/5.

Q1FY12 result analysis - Standalone
• Quarterly revenues increased 23.9% y-o-y to Rs 288 mn largely on account of volume growth (up 22% to 62,131). Volume growth was driven by air coolers in both domestic (up 36% y-o-y to 48,000 units) and export (up 61% y-o-y to 10,900) markets. Sales growth was impacted by decline in geyser sales volume (down 63% y-o-y to 3,231) due to the management's lower focus on the product line. Revenue declined by 49.8% q-o-q but considering the seasonal nature of the business it's not comparable.

• EBITDA margin declined y-o-y by 599 bps to 10.9% due to higher operating costs. Employee cost increased by 46% to Rs 38 mn as the company hired more employees both locally as well as internationally. Other expenses increased by 99% to Rs 22 mn due to increase in rental cost because of high inventory build up due to weak Q4FY11 sales.

• The company had foreign exchange gains of Rs 25 mn. This was primarily on account of unrealised gains of Rs 24 mn on export receivables and loans and advances to its subsidiary - Impco.

• PBT adjusted for foreign exchange declined by 14% y-o-y to Rs 39 mn.

• PAT margin increased by 508 bps y-o-y to 15.3% on account of foreign exchange gain.

• The company's inventory has decreased to ~Rs 330 mn (~120,000 units) from Rs 416.6 mn (~166,000 units) at the end of FY11.

• Adjusted standalone EPS increased by 85.3% y-o-y to Rs 6.3. The board has recommended a stock split in the ratio of 5:1.

Valuations: Current market price has downside
We continue to use the discounted cash flow method to value Symphony and maintain our fair value of Rs 1,119. Our fair value gives implied P/E multiples of 10.3x and 8.4x based on FY12E and FY13E consolidated EPS estimates of Rs 109 and Rs 133, respectively.

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

© CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"

To read the full report click on the attachment