Buy Symphony; target of Rs 1850: Religare Capital

Religare Capital`s research report on Symphony

Net sales up 42.5% YoY: SYML reported net sales growth of 42.5% YoY to Rs 1.02bn with air cooler volumes for the quarter rising 37.9% to 163K. Average realisations for coolers also improved 2.5% YoY to Rs 6,183 per unit. Domestic business saw a strong ~40% YoY growth in air cooler volumes, partly led by higher demand in view of an extended summer in July and pre-festive buying by dealers. Given SYML’s superior product profile, a strong brand and extensive distribution network, we expect the company to outstrip industry growth rates over the medium term. EBITDA margins expand 390bps YoY: EBITDA margins improved 390bps YoY to 23.2% with EBITDA growing 71.4% YoY to Rs 238mn. Gross margins expanded 50bps YoY to 53.9% on a better mix and price hikes. Other SG&A expenses declined 210bps YoY on strong sales growth, leading to better operating leverage. Employee costs declined by 130bps YoY to 7.7% (while increasing 20% YoY). Adj. PAT grew by a strong 51% YoY to Rs 216mn. Other income increased by 28.8% YoY on higher cash balance. Tax rate was up 240bps YoY to 29.1%. Maintain BUY; Dec’15 TP of Rs 1,850: We raise our FY15E/FY16E earnings by 5%/7% while ascribing a PE of 30x to the stock given strong topline and earnings growth, higher return ratios and a robust balance sheet. We roll over to a Dec’15 TP of Rs 1,850 (from a Sep’15 TP of Rs 1,300 earlier) and maintain BUY on the stock. SYML reported an above-expected Q1FY15 with net sales/EBITDA/adj. PAT growth of 42.5%/71.4%/51%, as total air cooler volumes rose 38% YoY and realisations increased ~3% on price hikes/a better product mix. Margins expanded 390bps YoY led by better gross margins and operating leverage. We raise our FY15E/FY16E earnings by 5%/7% on a better topline, and roll over to a Dec’15 TP of Rs 1,850 (Sep’15 TP of Rs 1,300 earlier). BUY. SYML remains our top mid-cap pick in the consumer discretionary space,” says Religare Capital research report.

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