Hold Symphony; target of Rs 300: SPA Research

SPA Research has recommended hold rating on Symphony with a target of Rs 300, in its August 03, 2012 research report.

“Symphony Ltd (Symphony) reported higher than expected Q4FY12 standalone sales of INR 900mn (up 53% YoY) and PAT at INR 197mn (up 68% YoY). Sales were boosted by 59% YoY jump in domestic air-cooler volumes and higher overall realization. EBIDTA margins at 30.59% were up by 242bps YoY on the back of improved product mix. For the full year FY12 company registered consolidated sales and PAT of INR 3,134mn (up 8% YoY) and INR 531mn (up 4% YoY) respectively. EBIDTA margin declined by 126bps YoY to 23.14% on the back of higher operating expenses. Going ahead, we expect company to report sales and PAT CAGR of 11% and 15% respectively. Adjusting for higher sales and margins in our DCF model, we revise our 2 years target price upwards to INR 300 (previously INR 275) and recommend HOLD.”

“Delayed summer resulted in back loaded sales of air-coolers in India which led domestic air-cooler sales (~64% sales contribution) to jump by 81% YoY (59% volume and 14% realization) in Q4FY12. However, for the full year domestic air-cooler sales remained flattish to 0.36mn units but gained market share by 5% to ~50% in organized sector. During the year, company expanded its distribution network by ~40% YoY to ~14,000 dealers. Going ahead we expect domestic air-cooler sales volume and value to register a CAGR of 10% & 13% respectively during FY12-14 on the back of expanded distribution reach, normal summer and higher demand for company's products.”

“Exports sales volume dipped by 37% YoY in Q4FY12 and 10% in full year FY12 on the back of global slowdown and limited availability of products in Q4FY12 due to higher demand in domestic market. However sales in value terms grew by 6% supported by improved product mix and INR depreciation leading to higher realization. Exports to USA & Mexico (~50% of total exports) impacted by lackluster housing market. Going ahead, we expect exports to pick up (~5% CAGR over next two years) on the back of company's expanded presence in 60 countries (from 25 in FY09) and dedicated focus on growing the export sales.”

“Symphony being the largest air-cooler company in the world with ~50% market share in India is expected to get benefited from growing distribution reach in India & abroad, focus on brand & quality enhancement and huge potential in industrial air-cooling segment in India in medium to long term. Improved product mix and pricing power owing to company's superior product quality and brand would keep the margin healthy. Further high cash flows, zero debt status, high return ratios and increasing dividend/share enhances the confidence in overall outlook of the company. After adjusting for higher sales and margins in our DCF model, we revise our 2 years target price upwards to INR 300 (previously INR 275), implying 15x FY14E EPS and recommend HOLD,” says SPA Research report.  

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