Buy Symphony; target of Rs 1055: ICICI Direct

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ICICI Direct's research report on Symphony

Symphony’s strong consolidated performance in Q4FY20 was mainly supported by better-than-expected performance in domestic markets. Despite revenue loss of 15-17% (Rs 22-25 crore) in March 2020 due to lockdown, standalone business (~60% of total revenue) posted volume led revenue growth of 12% YoY due to low base, inventory build-up at dealer’s level (before start of the season). This helped consolidated revenue grow at ~6% YoY despite flattish revenue of overseas business. The GSK China performance (revenue down 25% YoY) was significantly marred by US-China trade war, Covid-19 pandemic in China in FY20. Revenue of other two subsidiaries viz. Climate Technology (CT) Australia, Impco Mexico was stable due to less impact of pandemic in respective regions. Consolidated gross margin expansion of ~524 bps YoY was supported by favourable mix that drove EBITDA margin up 493 bps YoY to ~17% in Q4FY20. While it focused on liquidating channel inventory before end of peak season (i.e. end of Q1FY21), we believe demand recovery in domestic business would return from Q3FY20 with the start of second summer (October-November) and festive season. Hence, we cut our revenue, earnings estimate for FY21E and FY22E by ~12%, ~26% and ~5%, ~21%, respectively.

Outlook

We maintain our positive stance on the stock given 1) market leadership position, 2) strong financials to tide over rough phase of FY2,1 3) market share gain from unorganised market (has ~70% in volumes). While FY21 will be challenging in terms of lower volume offtake, we expect a strong recovery in FY22E led by domestic business. We maintain BUY rating on the stock with a revised target price of Rs 1055.

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