ICICIdirect.com's report on Symphony
Technical Outlook
The share price of Symphony, India’s leading evaporative air cooler manufacturer embarked upon its dream run on the bourses from the start of 2014. The stock emerged as one of the strongest performers from the consumer durable space by logging over four fold gains in a span of just a year. Over the last two months, the stock has undergone a healthy consolidation and a higher base formation and appears set to embark upon its next up move, thereby providing a fresh entry opportunity to ride the ongoing uptrend.
After hitting a high of Rs 2148 in November 2014 the stock entered a consolidation phase to work off the short-term overbought conditions. The price wise correction got arrested precisely at the 61.8% retracement of its October-November 2014 up move (Rs 1310 to Rs 2148) placed around Rs 1630. The presence of the 21 week EMA, which has provided cushion during intermediate corrections over the past one year placed around the Rs 1610 region attracted fresh buying in the stock. The firm up move above the November 2014 high of Rs 2148 in the current week’s trade signals the conclusion of the two month corrective phase and indicates resumption of the next up move.
Fundamental Outlook
Symphony is India’s leading evaporative air cooler manufacturer with a market share of more than 50% (value terms) in the organised product category. Over the years, it has been able to create a strong brand name, which has become synonymous with air coolers in India. With its focus on R&D and innovations, Symphony constantly innovates in its products to enhance design, technology and post sales services. The company has launched more than one new model annually for six years. Over the years, it has established a robust distribution network comprising ~750 dealers (152 in 2007), ~16,500 retail dealers (3,308 in 2007) and ~4,500 towns (1430 in 2007). We believe a visible evolution in pattern of rural areas consumption with increasing demand from overseas countries would help in driving Symphony’s overall volume at a CAGR of ~23% during FY14-17E.
Historically, during FY11-13, the stock commanded an average one year forward earning multiple of 15x with revenue, earnings CAGR of 14%, 8%, respectively, and average RoE of 30%. We believe Symphony would continuously post strong revenue, earning CAGR of 28%, 33%, respectively, for FY14-17E. The company declared a total dividend of Rs 13 per share in FY14. As a policy, Symphony would keep the dividend payout at more than 50%. Considering the continuous strong performance of the company and expectations of strong return ratios, going forward, we have revised our earning estimates upwards and value the stock at 39x FY17E earnings (in line with Page Industries, another consumption play) with a revised target price of Rs 2764.
Strategy: "Buy Symphony in the range of Rs 2180-2220 for a target price of Rs 2750.00 with a stop loss below Rs 1980.00 on a closing basis", says ICICIdirect.com research report.
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