CRISIL maintains fundamental grade of 3/5 to Symphony

Symphony’s Q2FY12 standalone revenues were below CRISIL Research’s expectations. Revenues grew marginally y-o-y due to dip in volume in the domestic market as channel partners remained cautious about building inventory due to the macro headwinds. However, internationally, the company posted strong growth albeit at a lower base. We expect volume sales to rebound in H2FY12 but will monitor the unfavourable weather risk, which had impacted the company last year. We lower our earnings estimates for FY12 and FY13, and maintain the fundamental grade of 3/5.

Q2FY12 result analysis – standalone
• Revenues increased marginally by 4.9% y-o-y to Rs 562 mn on account of increase in realisations (up ~6% y-o-y) as healthy export volume sales (up 382% y-o-y to 29,000 units) offset the domestic volume de-growth. The company has reported 18% y-o-y drop in local volume sales primarily on account of low demand from the southern and eastern regions. The improved product mix, which includes sale of newly launched high-end models, has supported the increase in realisations along with the price hike. The company has sold 10,072 water geysers in the first half of the current year. It has reported 10.6% increase in revenues during H1FY12 to Rs 850 mn over H1FY11. Due to the seasonal nature of the business, quarterly numbers are not comparable.

• EBITDA margin declined by 284 bps y-o-y to 24.5% due to increase in employee cost, which increased 43% y-o-y to Rs 37 mn. To increase its focus on exports, the company has hired 10 country managers.

• Foreign exchange gains of Rs 5.7 mn are primarily on account of restatement of advances to its subsidiary Impco.

• PAT margin increased by 87 bps y-o-y to 20.1% as the company got tax exemption on its production (which commenced in the current year and will be exported) from SEZ in Surat, Gujarat. PAT has increased 9.6% y-o-y to Rs 113 mn.

• Adjusted standalone EPS increased 4.1% y-o-y to Rs 6.3.

• We have not been able to analyse subsidiary Impco as the company has only reported standalone financials.

Valuations: Current market price is aligned
We continue to use the discounted cash flow method to value Symphony and maintain our fair value estimate of Rs 1,119. Our fair value gives implied P/E multiples of 10.8x FY12E consolidated EPS of Rs 105 and 8.3x FY13E consolidated EPS of Rs 135.

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