Hold Symphony; target of Rs 1110: ICICI Direct

ICICI Direct's research report on Symphony

Symphony’s standalone performance remained subdued with a decline in topline by 11% YoY (I-direct estimate: +7% YoY). We believe this was largely led by similar quantum of volume de-growth during the period. The EBITDA margin decline of ~220 bps YoY was higher than our estimate of ~140 bps decline, mainly due to a sharp decline in gross margin (declined 550 bps YoY). The company reiterated there would be a demand revival in FY20E supported by fresh dealer offtake (as channel inventory built during FY19 has completely been cleared). PAT includes exceptional items of Rs 20 crore, which is provision against investment made in IL&FS.

Outlook

Symphony’s domestic performance was hit by lower volume offtake and pricing pressure owing to rising competition in the organised segment. The standalone revenue CAGR of ~20% in FY19-21E would be largely on the lower base. We also believe it will be difficult for the company to maintain EBITDA margin at 31-32% (clocked in FY17-18) in the wake of rising competition and largely would settled be in the range of ~29%. Sluggishness in the domestic performance (contributed ~80% to the FY18 topline) and consolidated topline growth largely driven by overseas business on a lower base would result in a slow recovery in EBITDA margin. We maintain our target price and our HOLD rating on the stock.

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