Ladies and gentlemen, good day, and welcome to the Symphony Earnings Conference Call hosted by Investec Capital Services. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing Star, then Zero on a touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Aditya Bhartia from Investec. Thank you, and over to you, sir.
Thank you, Zico. Hello, everyone. Good afternoon. I would like to welcome the management of Symphony Limited to discuss Q3 FY 2024 results. We have with us today the senior management of the company, represented by Mr. Achal Bakeri, Chairman and Managing Director; Mr. Nrupesh Shah, Managing Director, Corporate Affairs; and Mr. Amit Kumar, Group CEO and Executive Director. I would now like to hand over the call to the management for their comments. Thank you, and over to you, sir.
Yes. We will have a brief presentation. I welcome all of you to Symphony Q3 and nine-month Earning Call Presentation. Customary safe harbor statement applies. Yes, the key highlights for this quarter on our console as well as standalone businesses, India domestic sales has impacted for this quarter, mainly on account of summer and trade inventory of cooling industry. That is of air conditioner and air cooler inventory of the peers. However, as our subsidiaries have performed better than previous year, it has more than made up the loss of profitability of standalone and overall gross profit margin as well as EBITDA margin percentage have witnessed decent rise on account of tactical pricing, value engineering, softening of input costs. Now, as many international factors, including shipping costs, are also getting normalized, we have started leveraging the complementary strengths of our overseas subsidiary companies.
Large space ventilated air cooling continues registering the robust performance and growth, and the Board of Directors have announced third interim dividend of INR 2 per share, in all amounting to INR 13.80 crore. Coming to subsidiaries. Subsidiaries as a whole, for nine months, have registered top line growth of 12%, which stands at INR 321 crore, while for December quarter, it stands at INR 92 crore, top line growth of 15%. EBITDA margin percentage-wise, now subsidiaries are in a positive zone. Earlier, subsidiaries put together last year for nine months, it was negative by about 4.30%. Now + 3.1%. At a PAT margin, still negative, however, decent improvement.
The major highlights of subsidiaries are IMPCO Mexico for nine months as well as for Q3 has registered highest ever growth, and it is performing absolutely in line with or slightly better than our internal business plan and summer season has been a strong tailwind. Same goes about Brazil as well as GSK China, and all three of them are now in black. As far as Climate Technologies Australia is concerned, on account of various measures, its EBITDA loss has reduced. However, on account of demand headwind persist, which is likely to continue even in current quarter, still there is a EBITDA loss, but it has narrowed substantially. This is the Sankey chart of consolidated performance. At a console level, revenue from operations for nine months stands at INR 824 crore, which is lower by 6% YoY.
However, cost of goods sold, that is mix of material cost and variable cost, is lower by 12%, resulting into improvement in gross profit margin percentage by 320 basis points, which stands at almost 48% and leading to EBITDA margin percentage improvement of about 40 basis points, that is 13.5%. Despite lower sales, console EBITDA stands almost at a same level, that is INR 111 crore, and PAT is about INR 100 crore, marginally higher than previous year. Coming to December quarter consolidated financials. Top line is lower by 11%, mainly on account of Symphony India. However, gross margin percentage has improved by 380 basis points and it stands at 47.5%. EBITDA margin percentage has improved by 190 basis points, that is at 17.6%, and PAT is up by 6% at INR 41 crore. This is a waterfall chart of December quarter consolidated EBITDA margin movement.
As it can be seen, it has moved from 15.7% to 17.6%. Some of the key financial metrics, capital employed in core business on a consolidated business stands at INR 248 crore, leading to ROCE of 18% and return on net worth of about 15% on trailing 12 months. Coming to standalone, that is Symphony India performance. For nine months, there is a de-growth of 16% on account of reasons as mentioned earlier, and it stands at INR 545 crore. Gross margin has improved to 49.3% and EBITDA is lower by about 2 percentage points, mainly on account of impact of top line, and it stands at 18.0%. PAT for nine months is at INR 107 crore, that is 19.6%, marginally higher than previous year. For December quarter, top line is INR 177 crore. Gross margin is 46.3 %, that is INR 82 crore, lower by 19%.
PAT on a standalone basis stands at INR 43 crore, which is 24.2%, about 1 percentage point higher than YoY, but absolute amount-wise, 17% lower. This is waterfall chart of EBITDA margin percentage movement from 25% to 23.3%. Some of the fixed overheads show negative, mainly on account of lower top line, which we expect to be taken care down the line when sales normalizes. On a standalone basis, capital employed for December quarter is INR -11 crore. RONW is 19%, and treasury stands at INR 455 crore versus about INR 637 crore year before. On account of negative capital employed on a standalone basis, there is infinite ROCE. Coming to outlook, Symphony very much remains [Non-English content] , number one in air cooler industry. It very much maintains market share around 50% on account of variety of reasons as discussed and explained from time to time.
Now in current scenario, we see a major opportunity of leveraging the complementary strength of our international business, mainly for IMPCO Mexico as well as Climate Technologies. Many, many products are going to be outsourced from India and China. For Climate Technologies, starting next year, it will be 100% outsourced business model. In-house manufacturing will be stopped completely. Now we see even normalization of international sea freight by and large. There also seems to be long-term structural drivers in overseas as well as domestic market on account of intensified heat wave leading to strong tailwind of air coolers. As explained in the past, the transformation of Climate Technologies Australia is going on, and it is as per schedule, except currently there is some slowdown in the demand on account of local factor. Thank you. We can take the questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star and One on the touchtone telephone. If you wish to remove yourself from the question queue, you may press Star and Two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Ladies and gentlemen, you may press Star and One to ask a question. The first question is from the line of Manoj Gori from Equirus Securities. Please go ahead.
Yeah. Thanks for the opportunity. Yeah. I just have two questions. One, if I look at probably on the domestic business, on sequential basis, we saw some decline in revenues. Obviously, this was not expected by me. Probably I would have gone wrong somewhere. Can you highlight what led to this decline on sequential basis? Because ideally, it should move in the upward trajectory. Can you throw some light over there?
Manoj, that's a good question, and like we said earlier also in the presentation, there are two core reasons for this. One is that at the end of the season, given the seasonality of the business, part of the channel had a heavy stock of all kinds of cooling products. So July, August 2023, air cooler, air conditioners, in many cases, in parts of north, there was high season ending inventory. So the buildup of inventory across the channel, in early parts of this quarter has been low. That's the core thing.
No, my point was, like higher the inventory levels-
As I believe, your question is regarding September quarter, why in December quarter domestic sales is lower even though the same situation was prevailing in September quarter, right?
Right.
Yeah. The point is, even though we do have a decent collection, as conveyed earlier, but on account of cooling products inventory lying with the trade is not intending to release them and hence we are unable to bill them. Even as on December 31st, we do have the decent amount of unbilled collection, which we believe should be transferred to sales in the ensuing quarter.
Right. Sir, should we expect like as of December, probably as compared to last year, the inventory level should be normal or are they still higher?
By cooling products inventory, what we mean is not only air coolers, but all cooling products including air conditioners, which are lying unsold with the channel, which is weighing down on sales of our product as well.
Right, sir. Got it. And sir, on the subsidiary front, obviously it was a very encouraging performance probably when we look at on the profitability side. So, Climate obviously would be doing better in the coming quarter as well. But should we expect like this kind of, or the quantum of improvement that we have seen on the subsidiary side is more sustainable in nature? And probably if you can throw some light like how the demand scenario pans out in U.S. market and even in Australia, and how should we expect during fourth quarter and also, if you can throw some light on FY 2025 internal estimates.
Yeah. So, as far as the U.S. is concerned, things are much weaker this year than they were last year. As far as Australia is concerned, we believe this is about as bad as it can get, and going forward, this will certainly be better. We have also added a range of new products which the company had never sold before, including products like coolers from India or portable air conditioners, general air conditioners, panel heaters, oil-filled heaters, etc , fireplaces. We have added a whole range of products which should also gather momentum in the times to come. So all told, with a wider range of products as well as having hit probably what I believe is rock bottom, things can only be better from here in Australia.
As far as IMPCO Mexico and Brazil and GSK China are concerned, they have delivered well, and it is expected to perform in line with what it is delivering.
Right, sir. Got it, sir. Thanks a lot and wish you all the best.
Thank you.
Thank you. Before we take the next question, a reminder to all participants, you may press Star and One to ask a question. Our next question is from the line of Pulkit from GS. Please go ahead.
Sir, thank you for taking my question. Sir, I think my question is-
Thank you. I request you to use your handset, please.
Okay. Is this clearer?
Yes, sir. Thank you.
Okay. My question is a follow-up to the previous question, more in line of the end market demand. While obviously we've had these erratic summer seasons, but when I look at the last few years, we've not really seen any growth in the domestic market. While obviously internationally, there were hiccups, but we are trying to fix things. Just want to understand how should one look at the domestic end market demand environment and is coolers as a category becoming less favorable?
That's a fair observation, that if you look at three, four-year timeline, the overall market size there may give a picture of stagnation. But what we need to keep in mind that the market has regrown during the COVID years, and the peaks of the COVID was precisely during the peak season of the business. When we take that out of the picture, then over the last two years, the market is getting its momentum back. As we go forward, the market is likely to grow. We are also seeing a conversion from the unorganized and metal cooler market into organized fiber body cooler. That will provide further thrust to growth of the organized segment of the market. That's our reading of how things are likely to pan out in the short to medium term.
If I was to assume a normal summer, then over a two, three-year period, what is the kind of CAGR the industry in terms of volume could see in your view and what you are sort of preparing for?
As per our IR policy, we are not giving any company specific guidance for the ensuing quarter or year. However, as I understand, your question is about the industry growth and sustainability. We believe that industry seems to register on an average, at least about 10% CAGR growth. However, when it comes to the organized sector, the growth should be even higher than that because it is gradually shifting from unorganized to organized, plus higher value as far as organized sector is concerned. As you know, Symphony commands almost 50% market share.
Sure, sir. That's helpful. Thank you so much.
Thank you. A reminder to all participants, you may press Star and One to ask a question. Our next question is from the line of Siddhant Dand from Goodwill. Please go ahead.
Yeah. Hi. Can you hear me?
Sorry to interrupt, sir. May I request you to use your handset, sir? Your audio-
Hello?
Yes, sir, this is better. Please go ahead.
Yeah. I just wanted to ask, we have seen that in ACs the EBITDA margins have come down to mid-single digit across the industry, including for the market leaders. What justifies the 20% + margin in coolers, and can we expect it to get competitive on the price front in the market?
No. As you would have observed, our EBITDA margin percentage, even in the past, has been substantially higher than air conditioner. In fact, most of the times, even though per unit air cooler face value is lower than per unit air conditioner, but per unit profitability is higher than air conditioner, and that is on account of uniqueness of the product, brand, dealer distribution network, et c. We believe that, in fact, we have a decent scope not only to maintain the current margin profile but to improve the margin profile. In fact, as you would have observed in subsidiaries, even though they were having, especially in IMPCO Mexico, decent margin, we could further improve upon in terms of GP margin as well as EBITDA margin percentage. As far as Climate Technologies is concerned, it is in transformation phase. There also we believe that there is a decent scope, and GSK has also registered that.
Okay.
To an extent, both are not really comparable because of the kind of the business model what we manage and run.
And would our margins be different in modern trade and traditional general trade, or would they be similar?
No. Broadly similar.
Broadly similar. Okay.
Okay. Thank you.
Thank you. Ladies and gentlemen, a reminder to all participants, you may press Star and One to ask a question. Our next question is from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.
Yeah, thanks for the opportunity. Sir, two questions. Can you indicate the market share trend for us in air coolers in India, over past one year? Whether we would have gained market share or lost and in a way, again, in region-wise, if you can indicate further trends, urban-rural, metros and smaller cities or even region-wise, whether it's east, west, north and south. Any indications for the market share trends? That is question number one. Secondly, in a way, now we are seeing massive capacity coming in air conditioners.
So in order to utilize the capacity, there might be a chance that next three to four years, we may not see any material price increase in air conditioner also. The technology change or even the regulatory related price hikes is also behind in air conditioner. Do you see that will result in higher growth in air conditioner sales, reducing the gap between AC versus coolers? Those are the questions. Thanks.
For the first part, if you look at the market share pattern over the last few years, I would say broadly we have retained our market share closer to about 50% over the last few years. There has not been a material change, so to speak, on either side of this base number. So that's where we are, and I would refrain from breaking this into a regional mix. So that's the picture at the Pan-Indi a level, which we are maintaining over the year.
In terms of the growth expectations, Nrupesh already mentioned the kind of growth we are expecting in the air coolers market. For air conditioners, there has been sizable growth. For both the products though, as you would note, the penetration levels across the country are very low. We do expect healthy growth in both the categories, and in many cases, they are complementarily growing across the country.
Okay. Sure, sir. Very helpful.
Thank you. A reminder to all participants, you may press Star and One to ask a question. Our next question is from the line of Vignesh Iyer from Sequent Investments. Please go ahead.
Thank you for the opportunity, sir. Sir, two questions on more of a broader side of the business. Just to understand, since you have been saying that there has been a shift from unorganized to organized, what has been our win share from the business that is moving from unorganized to organized? Do we have an internal estimate of what our win is of the business that is moving?
Vignesh, as we said, the overall market share across the organized cooler category that we track, we have retained it broadly at about 50%. Using that information, I would broadly conclude that we are gaining a reasonable share from the conversion from the unorganized to organized as well. There would be a possibility that even within organized segment, there is a premiumization happening, and we might be getting a better share of the premium category. But retaining the market share in the overall scheme of things at 50% would not be possible if you are not getting a share of the conversion from unorganized to organized.
Okay. Right. Understood. Just another point, if I have to see this company historically, we have been consistently doing, in the past, somewhere around 25%-26% margins as well. Right? Now we are seeing that at consolidated level that is. We have seen our subsidiary in a turnaround and reaching breakeven. Is there anything in place that will help this company go back to that 20%-25% margin on consistent basis? Is there something that has changed very drastically in the industry itself for us to not go back to that margins? Just to get an understanding.
No, we have a roadmap, and we have internal target to achieve that and also some strategy in place. We believe that certainly there is a good possibility to improve overall margin profile on standalone as well as on console basis, including at subsidiary level, particularly Climate Technologies.
Okay. What is that internal estimate? Maybe over a period of five years, if you can tell me. I am not asking for a guidance per se on immediate basis. What would be the outlook for the company, since it is almost 50%-55% part of the cooler industry that is organized part. What would be the five-year vision that the company has? Just to share with us investors and the shareholders.
I think let me deliver and let the figures be self-explanatory rather than we convey or give direct, indirect guidance in that respect.
Also for us, our north star is what we had back in 2018, which was a 32% EBITDA margin on a standalone basis.
Oh, okay. Okay, sir. Yeah, that is all from my side. Thank you.
Thank you. Ladies and gentlemen, a reminder to all participants, you may press Star and One to ask a question. Our next question is from the line of Hardik Rawat from IIFL Securities. Please go ahead. Mr. Rawat, your line has been unmuted. Please go ahead with your question.
Yeah, can you hear me now?
Yes, sir.
Yes.
Just wanted to understand what are the numbers of the revenue and EBITDA numbers for the subsidiaries individually?
Just a moment, please. For nine months, IMPCO Mexico, all figures in INR. Top line is INR 126 crore versus INR 80 crore. Gross margin percentage, 45% versus 36%. EBITDA, INR 19 crore versus INR 4 crore, that is 15% versus 5%. Climate Technologies Australia, top line INR 142 crore versus INR 173 crore. Gross margin improvement from 29% to 34%. And EBITDA - 11% in line with last year. However, noteworthy figure for Climate Technologies Australia is December quarter.
In December quarter, we could improve despite on a similar sales of last year, GP margin up from 28% to 40%, and EBITDA was - 10%. In December quarter, it is - 3%. Coming to GSK China, top line, INR 27 crore -INR 33 crore and EBITDA, which was slightly negative previous year, now stands at INR +4 crore. Symphony Brazil, turnover up from INR 7 crore to INR 22 crore, and EBITDA, which was zero, now stands at INR 3 crore. All in all, subsidiaries put together for nine months, top line up by about 12% from INR 288 crore to INR 321 crore and gross profit margin 38% versus 31%. EBITDA, all subsidiaries put together, + 3.1% versus - 4.3%. So for nine months.
Got it. Thanks. One more question with regards to you mentioned something about the unbilled sales partly resulting in a sequential decline in revenue. Could you please elaborate on that, exactly what happened there?
Hardik, basically, as you are aware, part of our business model is that we take advance collections from our channel partners, and then that advance collection is billed as we move towards the season starting from the July, August quarter itself. This year, while we have been able to get advance collections from our channel partners, many of them are yet not ready to get the billings done from us because they are across the downstream channel, which is on the secondary side. They are sitting on large inventory across multiple cooling products. The billing has been deferred or delayed from the downstream side. As the category starts moving, the billing will be executed in the current quarter. That is broadly the larger picture.
Understood. All right. Thank you so much.
Thanks.
Thank you. Ladies and gentlemen, you may press Star and One to ask a question. Our next question is from the line of Aditya Bhartia from Investec. Please go ahead.
My first question is on gross margins, which while on a year-over-year basis expanded, but on a sequential basis, we saw a bit of a decline. Last quarter, we had spoken about some value engineering that we had done and cut off lower commodity costs playing through. How should we read about it, and how should we think about margins going specifically at a full unit?
Yeah, Aditya, I think you might be referring to standalone EBITDA margin, which certainly sequentially has come down. As we talked earlier, gross profit margin percentage, in fact, has improved. However, on account of degrowth in sales as fixed costs remain fixed, which impacts the EBITDA, and that's where that reduction has come.
No, sir. I'm speaking about gross margins declining versus September quarter on a sequential basis, coming off from, let's say, somewhere around.
I just don't need to touch into that. It's more also about the product mix and sales mix. More relevant is nine months and year as a whole. In that respect, it doesn't matter much.
Understood, sir. My second question is also somewhat related. Given that you see the possibility of market moving from organized to organized, at any point of time, can you use the pricing lever a bit, as in reduce the pricing a little or compromise a little on margins in order to be gaining market share and expedited?
We have a wide portfolio of products which are priced at various price points. So it isn't that we are only catering to the higher end of the market. We have models at lower end as well. But yes, in one sense, we could do that, change volumes over profitability. But we believe that we could do that more strategically, with smart pricing, rather than across the board reduction in margins.
Sure. We should not be anticipating any change in strategy from what you've seen in the last couple of years. Is my understanding correct?
I didn't get your question.
In terms of pricing, are you saying that it is unlikely a major change in strategy versus what you've been following in the last two years?
No, there is not any major change in strategy. Absolutely not. Besides, please remember that the gap between unorganized sector and any organized sector company, normally Symphony, is so wide that it will be impossible to bridge. That unorganized sector is a reality in our country, is a fact of life, and you can't do anything about it. And that is true not only in their products, but in almost every sector that one can think of, where the entry barriers are relatively low. So, unorganized sector is here to stay, and there is no way that any organized sector company in any sector can reduce their pricing to their levels.
Sure. Understood, sir. Thanks.
Thank you. Ladies and gentlemen, that was the last question of our question and answer session. As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Thank you for your participation, valuable inputs, and questions. I also take this opportunity to thank Investec for hosting this conference call. Looking forward to see you in year-end analyst conference call.
Thank you. On behalf of Investec Capital Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.