Buy Symphony; target of Rs 2150: HDFC Securities

HDFC Securities' research report on Symphony

Symphony, once an almost  bankrupt company, has risen from the ashes and become  the  global leader in air coolers. After suffering financial stress and restructuring, post 2005 the company focussed on a ‘one product, many markets strategy’.  This has worked out well and revenues/EBITDA/APAT grew at 35/49/54% CAGR during the last 10 years.  Symphony commands 50% value and 42% volume share in India’s organised air cooler market, but its overall volume share is still at ~14%. It will ride the post-GST shift in the market from unorganised to organised players. Its strong track record of product innovation and a unique distribution model will help cement further gains.  Our  bullishness  on  Symphony  is  based  on (1) Rising demand for cooling products  driven  by  growing disposable incomes, cheaper financing options and   increasing   up-country  penetration  of  electricity,  (2)  A  large unorganised  air cooler market, (3)  Symphony’s  consistent product innovation, (4)  Growing  distribution  reach (40,000 dealers targeted vs. 30,000  now) over the next 2  years (dealer reach grew at 24% CAGR over FY10-17) and (5) Untapped opportunities in RoW markets.

Outlook
We model revenue/EBITDA/APAT CAGR of 22/28/29% over FY18E-FY20E, driven mostly by premiumisation. Symphony’s high RoCE >100%, market leadership and multi-year growth visibility warrants  high  valuations.  The stock has consistently traded at a premium to AC/appliance companies. Our valuation is based on 45x Mar-20 EPS, yielding a TP of Rs 2,150. For all recommendations report, click here

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