Buy Symphony; target of Rs 1700: KR Choksey

KR Choksey's research report on Symphony

Symphony Ltd posted its Q2FY18 results which were above our estimates. Net revenue for the quarter was at INR 1,842.5 Mn which grew by 22.5% YoY and 42% QoQ. Mainly due to growth from sale of new products. EBIDTA for Q2FY18 stood at INR 642 Mn with margins of 34.8% which was an increase of 1,986 bps QoQ and 77 bps YoY due to lower raw material and advertisement cost during the quarter. PAT for Q2FY17 stood at INR 506.7 Mn and PAT margin was at 27.5% which increased by 981 bps QoQ and 139 bps YoY.

Outlook
A successful business model has turned Symphony into an asset-light, zero-debt company; which has enabled the business to generate very high RoE (42.6%) and RoCE (41.7%). Despite of weak season during April to June period there was good demand for Symphony air coolers including the new models of touch series which resulted into negative inventory for the company, we believe that the new touch series model is very well received by the market. The withdrawal of introductory prices in the touch series is key to bring the margins back on track. With its strong brand image company is building strong distribution network to penetrate into the rural markets which will lead to robust growth, we anticipate revenue to grow at CAGR of 16.8% and PAT to grow at CAGR of 24.1% between FY15 and FY19E. Currently the stock is trading at a P/E of 36.1x for FY19E EPS, we recommend “BUY” rating on the stock with a target price of INR 1,700 representing an upside of 16.0%.

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