Hold Symphony; target of Rs 2900: Religare

Religare has recommended hold rating on Symphony with a target price of Rs 2900, in its research report dated April 21, 2014.

July 31, 2015 / 20:18 IST

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Religare's report on Symphony

We downgrade SYML from BUY to HOLD with a revised Mar’16 TP of Rs 2,900 (Rs 2,300 earlier). We don’t expect further re-rating of the stock (52x/39x FY16/FY17 earnings) as we model for 38% earnings CAGR over FY14-FY17 (upgrading FY16/FY17 earnings by ~3%). SYML has been our top mid-cap consumer discretionary pick over the last year (stock up ~4x since our Apr’14 initiation). We would recommend buying the stock on dips and re-entering it at ~Rs 2,500 levels (~30x FY17 earnings).

SYML Q3FY15 net sales grew 21.4% YoY to Rs 1.37bn with air cooler volumes rising only 13.3% (as against 27% in Q2) to 212k units due to unseasonal rains in March, even as average cooler realisations improved 5.7% YoY to Rs 6,328/unit. Given SYML’s superior product profile, strong brand and an extensive distribution network, we expect the company to outstrip industry growth rates over the medium term and model for 32% sales CAGR over FY14-FY17.

SYML’s EBITDA margin improved 120bps YoY (180bps below RCMLe) to 30.8%, with EBITDA up 26.4% YoY to Rs 424mn. Gross margins expanded 300bps YoY to 59.3% on a better mix, lower commodity costs and price hikes. Other SG&A expenses increased 90bps YoY led by higher sales and marketing spends, while employee costs were up 100bps YoY (+42% YoY) to 6.2%. Despite a 400bps YoY increase in the tax rate to 28% (off a low base), adj. PAT at Rs 365mn came in line with estimates led by a 192% YoY increase in other income to Rs 88mn.

"We raise our FY16/FY17 earnings estimates by ~3% to factor in higher margins that were aided by a better mix and lower commodity costs. We also revise our Mar’16 TP to Rs 2,900 (from Rs 2,300) set at 35x FY17 earnings. Given the stock’s strong outperformance and limited upside to our TP, we downgrade SYML from BUY to HOLD", says Religare Retail research report.