Ladies and gentlemen, good day and welcome to Q1 FY 2024 earnings conference call of Symphony Limited hosted by Equirus Securities. As a reminder, all participant lines will be in the listen-only mode, and there will be 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 your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Manoj Gori from Equirus Securities. Thank you, and over to you.
Thanks. On behalf of Equirus Securities, we welcome you all to Q1 FY 2024 results conference call of Symphony Limited. We have with us senior management represented by Mr. Nrupesh Shah, Executive Director, Mr. Amit Kumar, Executive Director and Group CEO, and Mr. Girish Thakkar, CFO. I hand over the call to the management for the initial comments, and then we will open the floor for question and answer. Thanks, and over to you, sir.
Yeah. Thank you, Manoj, and thank you, Equirus. Good evening to all. Welcome to Q1 June quarter conference call of Symphony Limited. We are having a brief presentation. To start with, customary safe harbor statement is applicable. To start with, on a standalone basis, that is Symphony India Limited, YoY, there has been a de-growth in domestic sales by 14%. That is on standalone Symphony domestic business down from INR 188 crore to INR 160 crore. However, despite this, the noteworthy feature is, as everybody knows, this was a disturbed summer, but still this has been second-best June quarter in terms of the domestic sales surpassing any of the June quarter sales pre-COVID. In that respect, it has been 9% vis-à-vis rest of the base June quarter sales.
This has been achieved on account of various initiatives of Symphony, and this has also resulted into, as per the data available right up to June 30, which are also in public domain, we have also improved our market share. As far as international business is concerned, there has been a decent performance for June quarter. The top line is almost in line with last year. However, EBITDA margin percentage is superior and so is PAT. Particularly, IMPCO Mexico has registered highest-ever quarterly revenue, up by almost 37%-38%, and EBITDA also. This is on account of consistent good summer in Mexico. As far as GSK China, of course, it's not significant, but nevertheless, it has turned around, registering a small PAT. As far as Climate Technologies Australia is concerned, its performance remains subdued on account of local macro headwinds.
However, down the line, I will cover our turnaround strategy. On a console basis, gross margin percentage stands at 49.7%, which is up by 400 basis points on a YoY basis, while standalone gross margin for the same quarter is higher by 60 basis points, which is on account of combination of factors including price hikes, value engineering, and softening of input costs. On a console basis, EBITDA margin percentage stands at 9.3%. However, on standalone basis, it stands at 4.2%. Let me share with you, this need not be extrapolated for the year because in the first quarter, that is in June quarter, there are some disproportionate high costs, including advertisement, sales promotions, and few of the overheads. So neither IMPCO Mexico performance, which is decently good, similarly, Symphony India, no way this quarterly performance is an extrapolation of the entire year.
In fact, despite this summer, because of our entry into ancillary products which sell around the year, plus variety of the strategies and proof of the pudding is collection, whatever we have received so far in the current month, which is almost in line with last year. So our internal strategy and action plan is irrespective of the summer of 2023. We expect decent performance for the year, including on a standalone basis. We expect top line growth as well as profitability growth, including improved EBITDA margin percentage. As far as LSV is concerned, it continues delivering a robust performance, and day by day, we are certainly attaining a traction. During the quarter, as all of you know, we have completed our buyback all in all amounting to INR 249 crore.
For June quarter, the first interim dividend, that is 50% of the face value, all in all about INR 7 crore has been announced. So this is the Sankey chart of our consolidated performance. On a console basis, revenue stands at INR 302 crore. That is YoY, down by 8%. Cost of goods sold is terms of the percentage, while it is 15% lower vis-à-vis sales de-growth of 8%, and that has translated into gross margin. If you can please place the arrow, please. Arrow the pointer. While gross margin percentage, as I talked earlier, stands at 49.7%, that is 400 basis points higher. From gross margin percentage of 49.7%, EBITDA is 9% marginally lower than last year on account of operating expenses of INR 122 crore, because some of those expenses are fixed in nature. On the right-hand side, these are detailed breakup of various expenses.
Finally, resulted into PAT of INR 24 crore, that is 7.90%. Yes. Next. This is the waterfall chart. EBITDA movement from 10.40% to 9.30%. Yes. Next. On a console basis, the capital employed for trailing 12 months, which includes our subsidiaries in Symphony India, stands at INR 300 crore. That is lower by 15%, and ROCE in the core capital employed stands at 36%, and RONW, that is our return on net worth, stands at 15% on trailing 12 months. Of course, this RONW should improve down the line on account of the recently concluded buyback, which will reduce the denomination of net worth. This is the Sankey chart of standalone performance. I have just covered the details of that. This is the waterfall chart of standalone EBITDA margin percentage. Yes. Next.
On a standalone basis, considering trailing 12 months, the capital employed in the core business stands at INR 48 crore, reduced by 43%. ROCE percentage on a core business stands at 336%, and RONW is 20%, while treasury stands at INR 342 crore as on June 30, down by almost INR 170 crore-INR 80 crore vis-à-vis June 30, 2022. Coming to outlook, Symphony remains and has cemented its position to be [Non-English content] in the air cooler industry. As said, we have increased our market share even though overall industry has de-grown, and thereby our de-growth during the quarter is less than the industry de-growth.
However, in terms of the product category, in terms of the future outlook, whether it is Symphony India or globally, we very much remain quite confident and buoyant due to variety of reasons, including continuous launch of innovative value-added products far, far ahead of competition, calibrated price hike and value engineering, continuous thrust on semi-urban and rural markets. We have plans, several initiatives to further enhance our semi-urban and rural market presence, including availability and dealer distribution network, as well as continuous growth of sales through alternate sales channels, that is other than general trade sales. We have last year successfully entered into adjacent product category, which have received very well, including products like Duet and Surround. We are going to launch many more models as well as a larger category. Because of its uniqueness, because of its positioning, it is expected to continuously do well.
There are long-term structural growth drivers, whether it is in India or domestic market, on account of, as everybody knows, intensified heat wave, climate change as well, and that does result into strong tailwind of air coolers. Just to share about recent updates in terms of the U.S. consumer sales. Despite all headwinds in U.S., despite the macro position in U.S., The Home Depot, which is our largest customer over there, majority of the goods what they have bought from us have been already liquidated and sold to the end consumer. In fact, considering the current status, we believe that as it was earlier expected, in many, many models, they are likely to be at the end of the summer. They are likely to be out of stock. Their summer ends in middle of September.
As far as Climate Technologies Australia is concerned, as shared in earlier conference call, the major business transformation is underway. However, on account of domestic macro factors, this transformation is likely to take some time, even though it is in implementation full-fledged, and we believe that part of that result we should get in the current year and mostly in the next year. Again, to repeat, the initiatives what we are doing is substantial reduction in cost of doing the business, which should result into CODB reduction of almost 40% by next year, revamping the product category and converting in-house part of the manufacturing which was already outsourced earlier. Now completely revamping the in-house manufacturing to outsource business model, as well as leveraging this retail distribution channel. Considering our product category committed to pursue the growth with a complete focus on ESG.
Yeah. Thank you, and open the floor for question answer. I will be happy to answer any question.
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 their 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. We have our first question from the line of Aditya Bhartia from Investec. Please go ahead.
Hi, good evening, sir.
Hi.
My first question is on market share gain that you spoke about. If you can give us some more details about how sharp the market share gain has been, and is it amongst the organized side that you refer to it, or is it as a proportion of the overall market?
The market share gain, Aditya, has been on a pan India basis. Specific region-wise, the overall market share gains have varied slightly. However, on a pan India basis, we have seen a market share gain, especially in the traditional trade and rural segment which saw less resource than the online channels this year versus the last year. That's the core of the gain the market share.
This is vis-à-vis organized market, and we consider the organized market those who sell in multiple states, having a brand. Our barometer remains the same, what it was in the past. In that respect, as per the data available as of now, our market share gain seems to be in excess of 3%.
About 4%. Yeah.
Sir, if you can share some more details related to market share standing today versus how it may have been a year back and two years back.
If I can take you 10, 12 years before our market share used to be, I am talking value-wise, not volume-wise. It used to be 43%, 44%. For last couple of years it inched up and remain around 50%. Current year, as on June 30, it seems higher in excess of 3%.
Understood, sir. Secondly, sir, you spoke about very strong growth in LSV segment. Again, over there, if you can share some details how large would the segment have become, and how you see the business shaping going forward.
I would say still it constitutes vis-à-vis our standalone sales in single digit percentage. Of course, that percentage is now in high single digit percentage. Again, on account of competitive and other reasons we are not sharing absolute sales performance. But by and large it has performed in line with our expectation and budget, and we have successfully implemented many, many projects across the vertical and industry. I think internally and externally for the necessary team, the trade partners, service after sales, even outsourced manufacturing and revamping the range of the model. Combination of all that seems to be working.
Sure, sir. Understood. The last bit, sir, on new product introduction, did I hear you correctly? Were you saying that you are looking to enter into—
I am sorry, Mr. Bhartia, your voice is not very clear. Can you use your handset?
Sir, it is breaking in between.
Yes, sir. I was just asking on new product introduction. Did I hear you clearly that you intend to be entering into some new product category going forward?
No, still there is some noise in between and your voice is breaking.
Mr. Bhartia.
Hello. Is it better now, sir?
Yes.
Yes, please go ahead.
Yeah. On new product categories, do you intend to enter into any new product categories going forward? Did you mention that is what the plan is?
As shared, we have already entered into Duet and Surround products, which are sold round the year. They have received good response with unique features and performance. We will further enhance its range and right now that's what we have to share with you.
Right. We have what is called the tower fan category, Aditya. That category—
Yeah.
—is something that we have already gotten in. We have a set of products within the tower fan category that we have launched in the last year, and that we continue to drive forward. That's as much as we can talk about.
Perfect. Okay. Thank you so much.
Thank you.
Thank you. We have our next question from the line of Namit Arora from IndGrowth Capital. Please go ahead.
Yes. Thank you for the opportunity. Sir, my question is, your company was always considered an innovator and a market leader, but the last three to five years have been pretty challenging for a variety of reasons. Given your perspective, any reflections on any learnings from the last few years? Anything you would have done differently? How are you sort of taking those learnings for sort of the coming three to five years? Thank you.
No, you are absolutely right. There have been some learnings in terms of how to de-risk vis-à-vis bad summer, and I think to an extent we are succeeding, including entering into adjacent category, including increasing sales through alternate channels. That is also working well and precisely in that direction even though currently, especially as on March 2023, our subsidiaries have not done well, but it is exactly the strategy in that respect. We are very much convinced and confident that overseas markets are also having huge potential. As it was witnessed in June quarter, again, I am not saying it is a reflection of the full year, but IMPCO Mexico registered a 40% growth and highest ever EBITDA margin amount, et cetera. But we have yet to work a lot, and we are working upon in respect of the turnaround of Climate Technologies.
As far as domestic market is concerned, I think a major thrust in respect of various strategy and initiatives, by enhancing our presence substantially, not incrementally in rural and semi-urban markets. Anything else to add?
That is precisely the point, Nrupesh. And Namit, the core of the learning is there is risk there in the season. In the last three years, two of these were affected by COVID. So multiple risks exist, and our strategy is focused on channel diversification, product range expansion in adjacent segment, and geographic expansion that we have followed for quite some time. So the right mix of these three is what we are pursuing and we are confident will help us address these risks today and provide growth.
Got it. Thank you very much, sirs, for your detailed perspective. This is very helpful and all the very best to the entire team. Thank you.
Thank you.
Thank you. We have our next question from the line of Hardik Rawat from IIFL Securities. Please go ahead. Mr. Hardik Rawat, please unmute your line and go ahead.
Can you hear me?
Yes.
Yeah. Thank you for the time. Actually, I wanted to ask, with respect to the Mexico business, could you share some numbers as to what sort of a margin that you registered and what is the exact revenue growth?
Sure. Mexico for the quarter top line was INR 77 crore versus INR 56 crore of corresponding period of previous year. EBITDA-wise, about INR 19 crore versus INR 10 crore. And PAT before exceptional item about INR 10 crore versus INR 6 crore. As you asked about IMPCO Mexico, let me share figures of other subsidiaries also. As far as Climate Technologies is concerned, sales is INR 51 crore versus INR 60 crore. EBITDA INR -2 crore versus INR -5 crore, and PAT INR -5 crore versus INR -3 crore, which includes interest on acquisition loan as well as depreciation. Coming to GSK China, top line is INR 12 crore up from INR 9 crore, EBITDA INR 1 crore and so is the PAT versus negative PAT of INR 1 crore corresponding period of previous year.
All right. Thank you so much. Apart from that, with respect to, since a month is almost passed for the second quarter, how have you been seeing the sales in the second quarter? Is the pickup—b ecause this is usually right after summer, so what is the revenue looking like in the first month of operations?
Yeah. As shared in initial remarks, despite not a good summer, so far our off-season collection is almost in line with last year. That is number one. Number two, starting current year, of course, there will be some sales being generated from adjacent categories, more so from December quarter, because still we are in the process of enhancing the range, and that will be in place in next one or two months. I think there is a major thrust on sales for alternate channels, which mainly sales in March and June quarter, because they do not buy in off-season. Coupled with, because whatever initiative or strategies we have decided to spread substantially in rural and semi-urban markets. We believe that year as a whole and in next summer even, that should be helpful.
Understood. Now last, I had a couple of bookkeeping questions. First of all, there is a huge jump. There is a sharp increase in the other expense as a percentage of sales. It is roughly 9% higher for the standalone business. In that, I have seen that warranty expenses have increased drastically. Could you explain what expense these entails since it has increased by 3.5%?
First and foremost, it includes freight and forwarding expenses. It includes also warranty expenses, then it is also rent, it also includes traveling expenses.
Forex loss of INR 2.5 crore.
There is also forex loss, which is on account of loan to GSK China, about INR 3 crore.
It is notional. Foreign exchange speculation.
Legal and professional charges, et cetera. All those combine under other expenses. However, in the Sankey chart , you would have seen that we have named some of the major expenses, freight, forwarding, warranty, rent, travel, et cetera.
Understood. I just wanted to understand that since there is a 3.4% as a percentage of sales increase, is there any particular reason within any of those heads? For example, like warranty or rent that has increased substantially vis-à-vis the previous year?
So, YoY there is some increase in rent expenses and the forex cost, it is not in June 2022. That is the major difference compared to June 2022.
All right. The forex loss and rent expenses.
Rent. Also, Hardik—
And traveling expenses.
—to understand is the warranty expenses are more linked to the full-year numbers. While when we look at it in the form of the quarter, it appears higher. But the full-year numbers, when we compare to that, it falls in line with what it has been traditionally.
All right. Thank you so much. Just one question. I was going through the financials, and I saw that usually the bulk of your advertisement expense is usually in the first quarter. Could you give color like, what is the seasonality on the advertisement spend? Why it is more in the first quarter and later on it sort of tapers off?
Hardik, as you would recall, the selling season, the consumer selling season for air coolers is typically during March to June months. And of this, hence the highest share of advertising and promotions for us through the entire year naturally falls in the April, May, June quarter. So for us, the highest consumer level engagement happens in this quarter, followed by the March quarter, and that's how this skews.
Understood. Thank you so much.
Thank you.
Thank you. We have our next question from the line of Tavishi Mehta from ICICI Prudential. Please go ahead.
Hello. Thank you, sir, for the opportunity. I have
Tavishi, can you use your handset, please?
Yeah. Hello?
Yes, please go ahead.
Yeah. Thank you for the opportunity. I have three questions. The first one is, can you throw some light, how is the channel inventory placed at 1Q end? And also due to overall weak demand sentiment, do we see any change in channel behavior with regards to inventory buildup?
Right. Tavishi , interesting question. The first question first. The channel inventory as we see at the end of the June quarter, in some pockets across the country, particularly in parts of UP, Punjab and MP, the channel inventory is slightly higher than what we would have wanted. That is mostly on account of us having placed a good secondary sales in the market, but due to unseasonal rains, some of these markets did not see as much tertiary as we would have ideally wanted those markets to deliver. Some of these pockets, the channel inventory is slightly higher than our target and expectation. But overall channel inventory at the end of this year across the country is lower than the channel inventory that we had at the end of the previous year or for that matter, at the end of each of the last three years.
Okay. Given that the season has been weak during the current season, have you extended any schemes as a part of channel support?
That's not something that we have done, Tavishi. Partly because typically July onwards, we get into the next year's planning and related collection. The season at this point in time in terms of tertiary is very small share of the full year volume. We have not extended any of the schemes or additional support to the channel at this point in time.
Okay. My last question is with regards to the subsidies. Do you see this current margins as a sustainable margins for the subsidies?
That is right. On the contrary, at EBITDA level, neither on a standalone level nor on a consolidated level, the quarterly margin we wish to achieve, and we have plan in place to achieve much better EBITDA level percentage margin. Because as explained earlier in the first quarter, some of the expenses are skewed, which ultimately over one year gets rationalized, coupled with other points as explained earlier.
Do we have any target for that?
No. Ultimately, in terms of the EBITDA margin percentage-wise, we wish to be, and we are targeting to reach at a pre-COVID level percentage.
Thank you so much, sir. Thank you.
Thank you.
Thank you. We have our next question from the line of Rahul Gajare from Haitong Securities. Please go ahead.
Good evening. Thanks for the opportunity. I joined the call late, so I have got a couple of questions. Sorry if there is any repetition. Now with respect to the Q1 performance, I understand we have seen season failure, but the standalone performance, even during season failure earlier, has not been as bad as what we have seen in the first quarter. Just want to have your comments on the standalone performance first.
Not very clear about your question. Standalone performance not?
Sir, even when we have had similar season failure earlier where because of rains or the season not being hot enough where the sales have been low, we have not seen EBITDA margin at this kind of clip, 2%-2.5% for a very long time. Is there a specific reason that this particular quarter we have had operating performance which was so weak?
Rahul, what we need to again understand is the nature of this business is such that the April-May-June quarter, the Q1 quarter for us, is also the culmination of the summer season. Some parts of the spend, for example, advertising, sales support, schemes and everything, they need to be done to support the business done through the entire year. As we mentioned earlier, while these are incurred during the quarter and hence for this quarter they are larger because on the entire year basis, we have still done reasonable volumes and we have still done reasonable growth. If you just go a quarter before and a quarter before, we had been doing highest ever quarterly numbers in the last couple of quarters. Now that material is there with the channel.
This quarter is where, besides doing our primary sales, we have to spend on multiple schemes, incentives and so on to get the entire channel moving, get to the consumer level in terms of product delivery and all. Seen from that perspective, one needs to understand that some of the spends made in this quarter are to ensure that all the primaries and secondaries done in build-up to this quarter are taken care of. That's why this is coming this way. I agree that the EBITDA percent margin this year, this quarter particularly, is lower than expectation. That's something that, like Nrupesh has mentioned earlier also, that's not a sign of how things would stand as we go forward.
Thanks. Sir, and second question was with respect to this entire heatwave that we are seeing in various parts of the world. Now the Mexico performance, this is closer to INR 77 crore, whereas last year I think that number was closer to INR 110 crore, INR 120 crore, in that range. Do you see this Mexico performance of the run rate continuing this way? Because if that is the case, we are looking at a very strong growth in the Mexico business.
Yeah. As I said earlier, neither Mexico performance nor Symphony India performance should be extrapolated for the whole year or new normal. Because Mexico, there has been very consistent, decent summer, and hence it has registered these sales. In fact, it also caught up some of the lost sales of March quarter. Having said that, normally their season ends in June. However, current year there is extended summer, so somewhat sales is happening in July, even currently also. So in that respect it is better off, but no way we are suggesting it is new normal, neither Mexico nor Symphony India.
What we are also suggesting, Rahul, is the approach of geographic diversification and hence trying to minimize the risk of adverse event in one geography affecting the overall consolidable numbers, is something that these trends show that we will be able to do through the right geographic diversification. So that is something that would come closest to us saying this is like the new normal, where given a good geographic diversification across the globe, some region or the other will always do good, and maybe some of the regions for a given quarter or year will not do as good.
Sir, I was actually thinking about from B2C perspective, have we seen any traction in exports? That is the reason why I was trying to see how Mexico has done. So in other parts of the world.
Export which in totality is not that significant, but coming to specific geography performance, as I had covered in my initial remarks, if to talk about U.S., which is one large, promising, and significant market for us, The Home Depot, just like all other large organized retailers, cut back in terms of demand on account of destocking. But currently, because of a strong and good summer, we believe that considering the latest figures available with us, in many, many models, we are likely to be stock out in U.S. Brazil, which is in southern hemisphere.
Ho wever, pre-season sale, very initial indication, of course, seems to be quite optimistic and helpful. Even in Europe, we have made some beginning. We have employed some high-level resources. Of course, it is going to take some time to build up, but it is also moving in line with our target and budget, and seems promising.
Sure. Thank you so much.
Precisely this is what, since long we are talking about de-risking the strategy, whereby it is always going to happen, some of the market or geography, whether in the country or globally, may do well season-wise, some may not do well. But in totality, ultimately, we should make it up. As you would have seen in current quarter, even though Symphony Limited India didn't do that well, but the rest of the world made up part of the losses.
Certainly. My last question is on the strategy towards local sourcing, especially in the Climate Technologies Australia area. Is there any change in that aspect given the way freight costs have moved? Any thoughts on that change of strategy about more sourcing from India or the local sourcing continues for climate economy?
No, absolutely. You are not on that point. As far as household air coolers are concerned, now it makes sense to manufacture and sell from India, so that is what going to happen. As far as local outsource, local in-house manufacturing or assembling is concerned, we are reducing substantially, and in a few quarters down the line, it will be completely outsourced business model, which includes the residential household from India. For ducted coolers locally, but through outsourced business model and for some other products from China.
Right, sir. Thank you very much, and all the very best.
Thank you, Rahul.
Thank you. We have our next question from the line of Nirav Vasa from Anand Rathi. Please go ahead.
Hello, sir, and thank you very much. I have certain queries based on the commentary which we have given you in our FY 2023 annual report, which elaborates our global strategy. The first thing that I wanted to understand is with pertains to targeted market across GCC nations, where we have also appointed local representatives. Would it be possible for you to share some updates as to how we intend to get into this market?
Nirav, we are already into that market, and we have been in each of the GCC countries for more than a decade now. What we have done and what we have mentioned in the annual report is to take the next level approach. Till now, most of the times we have been focused on addressing these markets through export-oriented team members based out of India. Now we have changed that approach to also have a senior level resource based out of Middle East itself to cater to the customers in that region and to build relationships and business in that region. That is the additional work that we are doing with the anticipation of further growth in the business in that market. But we have been in that market.
Right, sir. We are also looking at expanding our presence, our exports across countries like Egypt, Sri Lanka, Myanmar, Iraq, where lot of currency and economic imbalances are there. Do you think those markets can be cracked early or it is a long-term aspiration?
Some of these markets that you mentioned, Nirav, for example, let us say Egypt or Myanmar, at this point in time, there is a political and economic disruption in those markets. We have been doing business in these markets otherwise, before the disruptions were there. Egypt, for example, there is a currency limitation that the government has imposed, and we cannot get dollars out of that country. For this year, at this point in time, the business is still awaiting a resolution to this issue. Sri Lanka, there was a political and economic turmoil which has just recently gotten addressed, and we are now talking to potential customers there. Each of these markets, we have an exposure. We have active conversations with potential partners, and as and when economic conditions there allow, we would be in those markets. Iraq is a good example.
A couple of years back, it was doing almost nil business because again, of the political situation. But over the last two years, we have built business in that market.
Sir, last question pertains to domestic business. How many SKUs do we intend to launch for the forthcoming summer season? Thank you.
That something would be difficult for me to share on this call, Nirav. But we do intend to come up with new models, but unfortunately, I will not be able to share that upfront at this point in time.
Thank you, sir.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to management for closing comments. Over to you, sir.
Thank you, Equirus, and thank you, Manoj Gori, and thank you all the participants for sparing your valuable time on late evening. Thank you, and looking forward to meet all of you in next quarterly conference call.
Thank you, sir. On behalf of Equirus Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your line.