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Edited Transcript of SYMPHONY.NSE earnings conference call or presentation 13-Nov-19 5:00am GMT

Q2 2020 Symphony Ltd Earnings Call

Dec 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Symphony Ltd earnings conference call or presentation Wednesday, November 13, 2019 at 5:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Achal Anil Bakeri

Symphony Limited - Founder, Chairman & MD

* Nrupesh C. Shah

Symphony Limited - Executive Director

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Conference Call Participants

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* Abhineet Anand

SBICAP Securities Ltd., Research Division - Analyst

* Manoj Gori

Equirus Securities Private Limited, Research Division - Associate

* Mayur Parkeria

Wealth Managers Pty Limited - Head of PMS & Fund Manager

* Naveen Trivedi

HDFC Securities Limited, Research Division - Research Analyst

* Neelesh Vivekanand Wagle

Suyash Advisors - Portfolio Manager

* Nirav Vasa

Anand Rathi Financial Services Limited, Research Division - Research Analyst

* Nitin Arora

Axis Asset Management Company Limited - Equity Research Analyst

* Renu Baid

IIFL Research - VP

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Symphony Limited Q2 FY '20 Earnings Conference Call hosted by SBICAP Securities. (Operator Instructions) Please note that the conference is being recorded.

I now hand the conference over to Mr. Abhineet Anand from SBICAP securities. Thank you, and over to you, sir.

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Abhineet Anand, SBICAP Securities Ltd., Research Division - Analyst [2]

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Yes. Thanks, Ali. I welcome everyone to 2Q FY '20 Post Year Conference Call of Symphony. From the management, we have Mr. Achal Bakeri, Chairman and Managing Director; Mr. Nrupesh Shah, Executive Director; Mr. Bhadresh Mehta, Global CFO; and Mr. Milind Kotecha.

Without further delay, I will hand over to the management for opening remarks. Over to you, sir.

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [3]

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All right. Thank you very much, Abhineet. A warm welcome to everybody to this conference call. This is Achal Bakeri here. I thank SBICAP for arranging this conference call. The normal safe harbor terms apply. I'm not going to repeat the whole thing.

I begin with just a brief overview about the business, both India and overseas. And after which my colleague, Nrupesh Shah will walk everybody through the numbers.

As far as India is concerned, as you would have seen in the current quarter as well, there has been a significant growth over the previous year. But as we all know, the previous year was -- is no benchmark or no reference for us. So in a sense, we are back on track with the year before that, which is the year '17 and '18. This is, by and large, basically because we had a good summer. So since the quarter of April to June went out very well. So the channel inventory is pretty much exhausted, and we have been able to receive a fairly good off-season bookings and orders from the channel.

So as a result of which, in this quarter of July to September as well, we are somewhat significantly higher than the previous year, but a little higher -- even a little higher than the year before that.

So like I said, for us, more or less, we are back on track with '17 and '18. We began the offseason, which is really a prelude to -- is a buildup to what happens in the next summer with introduction of new models, which were done about 3 months ago. So the models have been introduced to the channel. So we have a whole new range in our celebrated DiET series. Our DiET range, which was launched about 10 years ago was really a trendsetter. And of course, looking at its success, the rest of the industry also followed suit with sort of lookalike models. So this was -- we felt an opportune moment for us to come up with some -- to take the whole range to another level. So we launched a new range of models, which we call DiET 3D. It has many distinguishing features, which I will not go through over here.

Similarly, we've also launched a whole new range of Sumo models. Now Sumo is also one of our flagship subbrands, which goes back about 20 years, and it has seen several transformations over the last 20 years. And this is, I would say, this year, what we have launched is the largest ever sort of transformation in this range.

So we have an all-new range of Sumo models, about 4 models in the range. And so those have also been very well received by the trade. We also revamped -- we have, again, a very popular subbrand called Winter, which has also been in existence for about 15 years. It's about 14 years, and that has also been completely revamped and also has been -- has received a very good response.

Moreover, the rest of the models and ranges have also seen some refreshment or revamping or the other. And all in all, the entire range of what we call household coolers has received a very good response.

So essentially, at Symphony, we sort of categorize our product range under 3 categories, the HC or household coolers, which is what I spoke about so far. The second is CC or commercial coolers. And the third is IC or industrial coolers. So the DiET or the Winter or the Sumo that we -- I spoke about were all -- formed a part of the household cooler range.

In commercial coolers, so far, we had been bringing in some models from our factory in China and selling them over here. But looking at the potential, the sort of test mark tested the potential or sort of evaluated the potential with models from China, but after having sort of understood the category and understood its potential, we decided to develop a range, which was specifically designed for the Indian market and so that had been in the works for the last 1.5 years.

And finally, last quarter, that range was introduced. That range is what we call Movicool, that consists of 6 models, very high capacity models. Again, now commercial coolers are essentially very large coolers -- portable coolers, but very large portable coolers, which can cool outdoor areas, banquet spaces, factories, warehouses, restaurants, so on and so forth.

So this Movicool range that we have introduced, like I said, consists of 6 models of very large capacity. For the first time ever in India, we have also launched a model, which is a double-decker model. So this has one tank at the bottom, but 2 fans above that, so whereas the one -- the fan -- the lower fan will give air in the immediate vicinity, the fan above will be able to deliver air to further distances. So this [whole range] has also been very well received in the market. And -- but of course, the real numbers and all will happen in the next summer.

Then talking about industrial coolers. Industrial coolers too all these years, we had initially been bringing from our factory in Mexico, then for the last 3 years, also from our factory in China.

But having also understood the market and understood the potential for this market, and for us to be able to take it to the next level, for us to be able to really scale up the business, we decided to, again, develop a range, which is specifically meant for the -- for Indian conditions. And that range had also been in development for the last couple of years and has finally been introduced the last quarter.

Now this range basically, what we have done, we have, I would say, what we have developed is something truly unique. We have, in fact, applied for a global patent. Typically, one would -- industrial coolers deliver air, either from the top or the side or the bottom. And so you have different SKUs for top or side or bottom. So if you have different sizes, different capacities and each of them, if you have different discharge top, side and bottom, then you have [those] many SKUs that you have to not only produce, but store as well as the channel also has to store so many SKUs. And at time, what happens is, you have -- there is demand for the SKU, which is not in stock. And then you have in stock what is not in demand. So you have these situations, which most people in the industry face worldwide, and we too faced for the last few years, while we were selling industrial coolers.

So when we began to develop this range 2 years ago, we decided something truly unique, which I said -- which is what I've said we have applied for a global patent. So we have developed a product which we call Universal. So the same product can be reconfigured with just a change in parts, not even [change in] parts. Sorry, what I meant is with exchanging parts, so the top goes to the bottom and the bottom goes to the top and so the same product [at the site] , depending on requirements can be used for top or bottom or side discharge.

So we have developed this, what we call the universal range in 2 capacities, 20,000 and 25,000 CFM, essentially 2 models using many, many multiple -- many [common] parts, but you get 6 SKUs out of that. So for the channel as well as for the company, it reduces the complexity and reduces the inventory that one has to hold.

So this has also been very well received. But again, this is the offseason. For industrial and commercial coolers, really there is not a lot of off-season sales. This is more of an introduction to the channel, the sales that happen will essentially happen in the summer.

So this is broadly about the new models within the household cooler, commercial cooler and industrial cooler categories in India. This being the offseason, there is nothing dramatic happening as far as the channel is concerned or as far as advertising and sales promotion is concerned, but there are -- the company does engage in various channel sort of initiatives and that is something which goes on -- in around the year. So that's something which has also happened in the previous quarter.

So all in all, I would say, as far as the channel is concerned, notwithstanding the 2018 summer, which is now people have sort of pretty much forgotten, thanks to a very good 2019 summer. The move is pretty positive. Like I said before, the channel inventory is pretty much exhausted, and Symphony also made sure that the channel's inventory was exhausted even at the cost of some loss of sales by Symphony. So what I meant is, if say, in one town, someone has some excess inventory and in another town, someone needs more coolers. So rather than build afresh from Symphony, we would try and sell from one distributor to the other, thereby cleaning up the channel inventory.

So all of that helped a lot in establishing the cooler category, despite the seasonal vagaries it is still a good business. And I think, all in all, the Symphony and channel connect is as good as it has ever been.

Talking about our international subsidiaries, Climate Technologies, which is, of course, our largest subsidiary, has seen sales being marginally up, but a significant improvement at its EBITDA level, primarily due to the various value engineering initiatives and overhead reduction initiatives initiated by Symphony under Symphony management in the last 1.5 years since acquisition.

In fact, that is going to be a work in progress for the next couple of years. We are completely revamping the business model over there. And that, in itself, regardless of what happens to whether the sales -- regardless [of] the sales increases would also result in significant improvement at the EBITDA level. So there's the various value engineering projects. And like I said, a complete redesign of [the] business model. To a great extent, the business model will be -- will fall along the lines of Symphony, where it is going to be sort of asset-light and capital-light and there will be a fair degree of third-party manufacturing, whether not really in Australia, but in China or India. And so it will be a mix of Symphony's business model and their existing business model.

But all in all, what I'm trying to say is these will have a salutary effect on the bottom line going forward. Over and above that, we are -- we have embarked on various initiatives to improve -- to increase sales. The first of which is that Climate Technologies had in all these years, never sold household coolers within Australia or portable coolers within Australia. So beginning this quarter, we will be sending coolers from India to them, which they are now going to be in the summer, and their summer is now approaching or rather is almost upon them. This summer, they will be [selling within] Australia.

So this will be like a trial sort of an order, the first year, just a few thousand coolers, but we expect that in the next 2, 3, 4 years, this should also become a significant sort of business, both for Climate Technologies as well as for Symphony.

Just as the acquisition of IMPCO gave Symphony access to the Mexican market. And because of IMPCO being there and having feet on the ground is the -- in one sense, the largest international customer for Symphony. Similarly, we expect Climate Technologies also going forward to become a significant customer for Symphony and Australia to become a significant market for Symphony products, household cooler product exports from India.

Also because of Climate Technologies, we gained access to the U.S. market, through its subsidiary Bonaire-USA, and so far, again, in the USA, they never sold household coolers. They sold or -- they never sold portable coolers. They had one large customer, which is Home Depot, which is the world's largest home improvement stores company. It is $120 billion U.S. giant. So they had business with Home Depot, but with the addition of Symphony, India's range and Kerolite China's range in the summer of 2020, we will be opening up Lowe's, which is the second largest home improvement stores group within the USA, with a $70 billion top line and also Amazon.

So as we speak, our products are being readied for exports, both from India and from China, to Bonaire-USA for sales in the summer of 2020 through Lowe's and Amazon.

So once again, what I'm trying to reiterate is that the acquisition has opened -- paved the way for Symphony's access into those markets and also for Climate Technologies and Bonaire to scale up their business with access to Symphony and Kerolite's range of models.

Coming to our subsidiary, which is the third largest subsidiary, IMPCO and Mexico, YTD sales has also -- has shown a healthy double-digit growth over the previous year. And going forward, also in 2020, we also expect the sales -- the growth to continue.

Kerolite in China has actually seen a bit of a dip in sales [in local] , because primarily, Kerolite sales is industrial coolers and because of the trade war between China and USA. Really no new factories are coming up, or existing factories are also slowing down on their investments. So because of that, there has been some impact on our business, which had otherwise for the last 3 years, the top line had been growing, and we have -- it had turned cash neutral last year. This year, we have -- we would have actually originally expected it to become cash positive. But this year, too, because of the reduction in sales at best we would be cash neutral.

We have also incorporated a subsidiary in Brazil, which is basically just a trading subsidiary, which will import coolers from Symphony India and also Kerolite China and that subsidiary has begun operations. It had its sort of maiden business in the last month, actually, so that's in the current quarter, didn't really happen in the last quarter. But anyway, what I meant is that the business has begun. That subsidiary is now functional.

One more thing, which I should have mentioned earlier was that because of Climate Technologies, and Bonaire's presence, we are also selling -- going to sell their models in Australia now. We test marketed that last summer in the summer of 2019 and the products received a very good response. So IMPCO is going to be scaling up the sales of those models in the summer of 2020.

So if one were to step back and see what is the big picture over here, then there is -- what I'm trying to say is that each of the subsidiaries is offering the other subsidiaries or the parent access to its market. So there is a -- will be a fair amount of cross-selling and the products are complementary, although they are all air coolers. But they all come with different characteristics and different capacities and different applications. So they're all complementary. There is very little overlap. And because of which there is a lot of opportunity for cross-selling in each other's markets.

So in one sense, the sum of the parts is greater than the whole.

So with that, I think I've finished my broad overview, and I now request my colleague, Nrupesh Shah, our Executive Director, to walk you through the numbers. Thank you very much.

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Nrupesh C. Shah, Symphony Limited - Executive Director [4]

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Good morning to all. So I will cover stand-alone quarterly numbers vis-à-vis previous year and consolidated 6 monthly performance vis-à-vis previous year.

So on a stand-alone basis, income from operations from July to September '19 stands at INR 195 [CR] versus INR 148 [CR,] that is up by 32%. While EBITDA stands at about INR 71 crores versus INR 48 crores and showing healthy EBITDA margin of 34.40%, in line with 2016-'17 and 2015-'16.

Despite there is a marginal degrowth in operating margin percentage, that is down from 50% to 47%. But one, on account of innovation; secondly, in value engineering, thirdly, robust summer and good product mix, PBT margin has improved from 30% to 34%, resulting into PBT growth of 49% versus top line growth of 32%.

And in respect of income tax, we were covering under about 30% effective taxation on business income. So we have opted for 25.17% lower income tax regime, which has resulted into reversal of June quarter [an earlier] year about INR 3.5 crores of income tax. So to that extent PAT is positive. But this income tax reduction will lead to incremental PAT of about INR 8 crores to INR 10 crores per annum.

Again, coming back to capital employed in the core business, we are back to negative capital employed, which based on monthly average capital employed during September quarter, it is negative by INR 58 crores. And coming to consolidated numbers for 6 months, the comparison from April [to '] 17 should be considered, keeping in mind Climate Technology was acquired effective 1st July '18. So April to September '18 includes Climate Technology numbers for 1 quarter, that is September quarter.

So on a consolidated basis, the top line is INR 369 crores to INR 564 crores, that is up by 53%, while EBITDA is up from INR 74 crores to INR 123 crores, that is 66%, again, higher than top line growth. And PBT margin on consolidated basis stands at about 18% versus 16%. And PAT growth on a consolidated basis is 77%, up from INR 51 crores to INR 91 crores, of course, inclusive of reversal of some of the deferred taxation and for 6 months, consolidated capital employed, which includes Symphony India and all 4 subsidiaries is just about INR 100 crores.

As far as surplus funds in the form of treasury, excluding equity investments in subsidiary as on 30th September stands in excess of INR 700 crores.

So as it was shared and conveyed earlier, we have decided to resort back to 50% payout ratio and starting current quarter, we have increased the dividend payout from 50% dividend to 100%, that is INR 2 per share on a face value of INR 2.

And coming to break up between international sales and domestic sales. Domestic sales stands at about INR 337 crores in 6 months, that is about 60% of the total sales of INR 564 crores, while the rest of the sales stands at INR 227 crores, that is about 40%.

So with that, we can go for question and answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Renu Baid from IIFL.

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Renu Baid, IIFL Research - VP [2]

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Congratulations for the strong results. My first question is on the domestic cooler market, in the offseason against a weak basis come back to 2 [years'] back level of INR 195 crores and grown on that. So if we look in terms of the key drivers for this [offseason] , how would one attribute? Are we seeing the dealer sentiment back to the old levels that they're willing to stock? So some insight on the demand offtake, the kind of off-season ordering that you have seen? And within the mix, any particular trends that you would want to highlight [from] the SKUs on the same line?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [3]

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Well, as I said, the sentiment is very positive again. So we have seen our off-season sales and orders as good as they were in 2018 -- sorry '17 or '16. So that has been very, very positive, very encouraging. There has been a bit of a -- in this last quarter, there has been, I would say, some sort of a change in the model mix, which has been invoiced. As a result of which, there would be a somewhat of a decrease in the gross margin, which may by the end of March, by the end of the year, may sort of change. So we don't read too much into the reduction in the margins. But -- so all in all, I would say the model mix has been really dependent more on what we have been able to invoice rather than what has been ordered because of our production, because of what we have produced or what we had in inventory. So broadly, we see the sentiment to be as good as in the past, the orders have also been very good.

And the margins also are like I said, there has been no significant change at [our] level in terms of the pricing or discounts that we have offered. So the somewhat reduction in margin that is visible is, by and large because of the model mix that we have sold, that we have invoiced, not necessarily what has been ordered.

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Renu Baid, IIFL Research - VP [4]

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Sure. Sir 2 things, essentially here. A, there has been no material impact because of the overall equity constraint in the market or the general economy per se on your bookings or orders. And second, your comment on mix suggests that by the end of the year, probably, the gross margin should revert back to close to 50% level, the way it typically used to be. Am I right?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [5]

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Yes. Yes.

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Renu Baid, IIFL Research - VP [6]

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Sure. And then Achal, you did mention in your opening remarks that even in Australia, some of the residential coolers, which you're planning to introduce, they are now broadly ready. So what kind of market should one estimate this for Symphony India in terms of exports to the developed world, especially to Australia?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [7]

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It should be in the current year, we don't expect it to be a game changer. Because like I said before, see, their summer is now. This is their beginning of the summer. So we have -- what we are going to be doing is just trialing out some models to win some new customers because they don't even currently have a channel appropriate for this, so they are developing the channel for household coolers. So this is really more -- going to be more of a trial this year. But in -- this will next year and the year after and the year after that, [this] should see a significant increase. So like I said, for Symphony India, IMPCO is the largest or Mexico is the largest market, not because Mexico, is largest -- is a large market in itself, but because of IMPCO's presence over there. Similarly because Climate Technologies is based in Australia and is a subsidiary company of Symphony. So in one sense is a captive customer. So because of that, we should be able to see significant increase in sales in Australia, in the coming years, in 2, 3, 4 years.

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Renu Baid, IIFL Research - VP [8]

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Yes. So from a 2- to 3-year perspective, the Australian market, can it be as large as IMPCO or probably even exceed the Mexican market exposure that we have?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [9]

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We think we should at the moment assume it will be about as large as IMPCO. If it exceeds that will be -- [it will be very nice.] But as of now, I think what we should expect it that it should be about as large as IMPCO.

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Renu Baid, IIFL Research - VP [10]

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[Correct.] And the third [element] would be again related to Bonaire, here we were waiting for certain approvals from the U.S. market and to penetrate on that part of the geography with respect to the residential air coolers segment there. So how are things developing there for the local U.S. market? And by when should we think that volume should start becoming material to capture some part of the pie there?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [11]

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Yes, sure. So again, like I said, that so far, what Climate Technologies had been selling in the U.S. were coolers to its one customer, which is Home Depot and that was only rooftop coolers. They never sold household coolers or portable coolers. Now because of the range that -- the access that Climate Technologies or Bonaire has to the range of Symphony India and Kerolite China, they will be introducing household coolers this year in the coming summer of 2020 not only to Home Depot but also to Lowe's and to Amazon. Now again, in 2020, will be more like a trial year, but we still expect that by 2020, whether for Kerolite or for Symphony, the U.S. will become one of our largest markets, even in 2020 itself.

But in the next 3, 4 years, this should be a significant market, maybe even bigger than IMPCO or Australia for household coolers. Because the market inherently exists. It's just that we never -- Symphony never really had a significant presence and Climate Technologies was restricted more to the rooftop models. So now because the range exists and Climate Technologies has access to the range, they will be able to develop that market and those customers. So in the next 3 years, 4 years, we should see this business to be significantly scaled up.

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Renu Baid, IIFL Research - VP [12]

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And probably that will also help the contribution from the subsidiaries to be meaningfully better than what we have seen in the last couple of years, to the overall consolidated performance?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [13]

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Absolutely, absolutely. Like I said, see, Australia is anyway meaningful in terms of top line, in bottom line also because of value engineering projects, business model revamping there is going to be a significant improvement in its EBITDA and the bottom line. And of course, on top of that, the additional business that it generates because of the household coolers that itself will just add to improving that bottom line.

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Nrupesh C. Shah, Symphony Limited - Executive Director [14]

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So just to add to that, of course, in absolute number, international subsidiaries [we add,] but at the same time, in domestic business and Symphony India is also looking [forward] a robust growth in medium term. So in terms of absolute numbers, both will register good growth. And in terms of percentage-wise, we [made in and at about] 50-50 or 60-40.

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Renu Baid, IIFL Research - VP [15]

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Right. So just sir, last 2 questions. A, on this note, how would one want to guide for this year and next year in terms of growth for Symphony India? And second would be more of a bookkeeping question, if you can help [where] the individual subsidiaries, revenue, EBITDA numbers or PBT, PAT, it would be helpful to just [map] the performance on a quarterly basis?

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Nrupesh C. Shah, Symphony Limited - Executive Director [16]

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We didn't get your second question.

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Renu Baid, IIFL Research - VP [17]

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Second is more of a housekeeping question on numbers as far we can get the key headline numbers, probably I would have missed. I'm not sure the headline revenue, EBITDA and PBT or PAT numbers for IMPCO, GSK and Climate Technologies?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [18]

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Those we are not showing separately in the -- at this time of the year. They will be shared at the end of the year, the individual numbers. But Nrupesh, will you want to answer the first question?

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Nrupesh C. Shah, Symphony Limited - Executive Director [19]

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So as far as current year or next year is concerned, of course, we have a good visibility for December quarter and December quarter seems to be quite robust for Symphony India, including top line as well as overall profitability margin. Secondly, in respect to your earlier question, even though operating margin or gross margin has slightly reduced, but more importantly and our focus is on maintaining or improving EBITDA margin which is now around 34%. So even in that respect, considering a variety of initiatives, we are confident to maintain around that level of EBITDA margin in current year as well as next year. And as far as March or June quarter and hence next year are concerned, it will have more to do with summer. But again, we feel, at this point of time, reasonably confident.

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Renu Baid, IIFL Research - VP [20]

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Right. Just probably a 40% plus growth for the full year should be reasonable that is on a stand-alone basis 40%, 45%?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [21]

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Over the previous year.

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Renu Baid, IIFL Research - VP [22]

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Given that -- yes.

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [23]

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Yes.

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Renu Baid, IIFL Research - VP [24]

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Yes, because last year's rate was different and first half, you grew nearly 55%, 56%?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [25]

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Yes.

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Renu Baid, IIFL Research - VP [26]

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So maintaining this kind of -- yes.

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [27]

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So by and large what you can assume is that [2000] -- we will revert back to the numbers of the year before.

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Operator [28]

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The next question is from the line of Nirav Vasa from Anand Rathi.

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Nirav Vasa, Anand Rathi Financial Services Limited, Research Division - Research Analyst [29]

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My first question pertains to the new business segments that we are trying to [cater] in the domestic market, that is commercial and the industrial segment. So sir, would it be possible for you to share some kind of color with regards to the market potential across both the segments? And what kind of growth levels can we expect on sustainable basis, maybe because we are getting into this newer markets. So at initial level growth might be very, very high. But what [kind of] growth can we see on sustainable basis?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [30]

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A very general question. I mean difficult to answer, to be honest because like you yourself said the initial years, we'll see great growth. But after that, what it will be it's a little too premature for us to speculate. I really wish we had an answer. Because it is such a blue sky saying, that at this point, it could be -- we could be completely taken by surprise positively. So at this point, it's really a little, I would say, too difficult to answer.

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Nirav Vasa, Anand Rathi Financial Services Limited, Research Division - Research Analyst [31]

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Get your point, sir. I understand your concern. Sir, now in the industrial segment.

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Nrupesh C. Shah, Symphony Limited - Executive Director [32]

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Sorry to interrupt, in the respect of commercial range of air cooler, the major initiative, which has been taken earlier on a trial basis, we used to import from China and sell it here, which used to attract custom duty, and there used to be also a long lead time. So considering the response and potential starting current year, we are getting it manufactured in India itself, which has helped substantially in respect of not only custom duty, but also cost in response time and lead time. And hence, it's also witnessing very buoyant response.

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Nirav Vasa, Anand Rathi Financial Services Limited, Research Division - Research Analyst [33]

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Get your point, sir. Sir, now in the industrial segment, as we have started the trial marketing, and we are trying to test the market which are the industries if you can share where we are doing this kind of trial testing on marketing? Or what are the industries which we are keen to -- trying to get ready initial phase?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [34]

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No, no, no. See, these products will be -- are new. And for the first time, [they will be] made in India, but we have been selling similar products like I said in my initial remarks, which we brought in from Mexico first and then China later. So we have been -- we have more than 1,000 or more applications or installations, I don't mean 1,000 coolers. I mean 1,000 projects, which -- where our coolers have been installed, and they cut across the range of industries, engineering, or pharma, textiles, all kinds of industries. So including, I would say, the educational segments, religious segments. So movie theaters. It cuts across all kinds of segments.

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Nirav Vasa, Anand Rathi Financial Services Limited, Research Division - Research Analyst [35]

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Get your point, sir. Sir, my last question would be, sir, as I understand, after becoming a dominant player, we are increasingly focusing on newer geographies. So like any other new geography that we intend to cater now maybe like Middle Eastern countries or some other countries where we intend to expand our presence, maybe either through some acquisition or by getting some channel partners who can [do actually our] exports and manage our brand [and] work on it there?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [36]

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Well, we are, in one sense, present in almost every geography. And in each of those geographies, there is potential for scaling up. So -- and that has been an ongoing process so far and will remain an ongoing process going forward. So again, nothing dramatically different. Like I said, the only big thing is that we have now made a major -- taken major strides in developing the Brazilian market by establishing our own company over there, which we will warehouse and be able to sell coolers locally. That will help us in scaling up significantly. Other than that, whether it is the Middle East or Southeast Asia or Europe or Latin America, we are there. We are already present in most countries of any substance, and we will only scale up there.

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Operator [37]

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The next question is from the line of Naveen Trivedi from HDFC Securities.

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Naveen Trivedi, HDFC Securities Limited, Research Division - Research Analyst [38]

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Congratulation on a strong recovery in the first half. Sir, my question is on considering, first half, you have done a robust recovery. And even in the second quarter, our domestic businesses grown by 33%. So if you can comment about how the trade inventory is there? Is it like at par with the average or is it lower than the average?

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Nrupesh C. Shah, Symphony Limited - Executive Director [39]

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Trade inventory.

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [40]

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Trade inventory.

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Naveen Trivedi, HDFC Securities Limited, Research Division - Research Analyst [41]

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Yes.

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [42]

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Did you say trade inventory?

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Nrupesh C. Shah, Symphony Limited - Executive Director [43]

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Yes.

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Naveen Trivedi, HDFC Securities Limited, Research Division - Research Analyst [44]

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Yes, sir. Yes, sir. In the domestic business.

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [45]

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Trade inventory is now fairly clean. I said that a couple of times, is very clean, which is why we have seen this robust growth in the off-season because last summer, everybody pretty much sold out whatever they had. And if there was, like I said if someone was -- had some excess inventory and someone else needed something, so rather than the company invoicing to them, we made sure that the one with the inventory sold to the one who needed additional inventory. So by doing that, we sort of made sure that the channel is very clean.

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Naveen Trivedi, HDFC Securities Limited, Research Division - Research Analyst [46]

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I was looking -- considering in the last quarter commentary, you were saying that the inventory is historically low. And I think as you just reasoned that even if I look at your numbers in Q2, it seems that the inventory levels are still lower than your average you can deliver during the second quarter.

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Nrupesh C. Shah, Symphony Limited - Executive Director [47]

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Yes. So last quarter or end of June quarter, which was end of season. So end of season in the trade, there was negligible or 0 inventory vis-à-vis June '17 or June '18. And hence, that has really led to very robust collection in off-season. Secondly, as of now, whatever trade has lifted, by and large, it is meant for [selling seasons] . So as per the normal trade practice, they sit on this inventory for a couple of months, but they get this at a very decent price. But as far as we are concerned, it is with 100% advance. So obviously, at this point of time, there may be some inventory, which is in line with earlier years. But it's absolutely normal.

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Naveen Trivedi, HDFC Securities Limited, Research Division - Research Analyst [48]

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Fair point. And with respect to your gross margin, I can understand that last season was balanced. There was an adverse market mix and [the product mix was there] . I just need to understand that considering this quarter, our margins has gone down. Is [it led] to some technical promotions to improve the sentiments of the trade, so that third quarter onwards we may see a jump up in the gross margin? Or do you think that only in the season time, the margin will improve?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [49]

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No, no. I think I -- we spoke about it a couple of times already that this is, by and large, because of the model mix and model mix, that [to] not which has been ordered from us, but which has -- which we have been able to produce and deliver. So it's really more a function of that. There has been no significant change as far as Symphony's selling price or discount structure are concerned.

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Nrupesh C. Shah, Symphony Limited - Executive Director [50]

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And by March, by the end of the year, this may change also. So one should not read too much into this at this point. And despite that what matters the most, that is about the EBITDA margin. So despite that having an EBITDA margin in excess of 34%, in line with one of the best EBITDA margin of earlier years, that itself indicates and shows that robustness of the business model and a variety of initiatives. So as I mentioned earlier, in the respect of EBITDA margin of about 34%, we feel it should be maintained around that level. And if gross margin improves, it may further improve. Not only that [at level of] profit after tax that is spent due to reduction in income tax, it is going to be even higher.

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Naveen Trivedi, HDFC Securities Limited, Research Division - Research Analyst [51]

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[Nice one,] sir. And just lastly, if you can considering the Australian [season will] start, can we expect that the trade inventory there is normal in this season, considering last season, we have done lots of -- that was the first year when we had a fire. Do you think this season, although like you commented about the -- your positive expectations on that side. But on the inventory -- trade inventory side, [it's absolutely] normal prior to the season? And the kind of 8% to 9% kind of a guidance, EBITDA margin guidance, which we had given during the time of acquisitions, those are the numbers, is it still doable in this [current] season?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [52]

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Okay. First of all, as far as trade inventory over there is concerned, it is very much normal. There, the product range isn't such that trade buys a lot of inventory before the season and may get left with a lot of inventory. The season is not good. That does not happen in Australia because the nature of the business is different than India, number one. Number two, as far as our initial estimates or projections that we had given at the time of acquisition, would be very much something that we will deliver. The first year was different. But going forward, we will absolutely be able to deliver what we had expected 1.5 years ago.

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Operator [53]

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(Operator Instructions) The next question is from the line of Nitin Arora from Axis Mutual Fund.

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Nitin Arora, Axis Asset Management Company Limited - Equity Research Analyst [54]

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Sir, my first question is that...

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Operator [55]

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Nitin, you're not audible.

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Nitin Arora, Axis Asset Management Company Limited - Equity Research Analyst [56]

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Can you hear me now?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [57]

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We can't hear you.

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Nitin Arora, Axis Asset Management Company Limited - Equity Research Analyst [58]

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Hello. Can you hear me now?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [59]

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No.

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Nitin Arora, Axis Asset Management Company Limited - Equity Research Analyst [60]

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Hello?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [61]

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Yes.

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Operator [62]

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Yes, it's audible now.

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Nitin Arora, Axis Asset Management Company Limited - Equity Research Analyst [63]

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Yes. So it's very surprising that we have given -- we are not giving our subsidiary numbers now. Sir basically, I just wanted to get a color how we look at because when we acquired a company, which was making INR 17 crores, INR 18 crore EBITDA which actually turned a loss making. Is it possible to throw some color where we stand in terms of our guidance, what is our EBITDA, I think it would be an EBITDA loss if I'm not wrong in this quarter. If you can throw some light on the subsidiary performances, that would be helpful?

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Nrupesh C. Shah, Symphony Limited - Executive Director [64]

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Okay. So for half year, that is IMPCO, Mexico, top line stands at INR 65 crores versus INR 57 crores in September '18. And EBITDA stands at about INR 6 crores versus INR 7 crores and PAT stands at INR 4 crores, that is a cash profit of INR 6 crores. So this is as far as IMPCO Mexico is concerned.

Coming to GSK China, it is down from INR 36 crores to INR 29 crores, essentially because commercial coolers, which we used to import from them partly on account of that. And secondly, locally, there is a slowdown because as mentioned earlier, hardly any new factories are coming up, so especially in respect of industrial segment. And EBITDA level, it stands at positive INR 1 crore, depreciation INR 2 crore. So at a PAT level, it is negative INR 2 crore and cash profit of INR 1 crore, which is in line with almost last year.

Coming to Symphony Australia, it is INR 121 crores for 6 months, while for the quarter, it is INR 52 crores versus INR 56 crores, and previous year, our consolidated numbers for Australia was about INR 56 crores because April to June were not consolidated.

Coming to EBITDA for 6 months, it is INR 6 crore versus INR 1 crore, but INR 1 crore was for 3 months, while there is an interest cost on acquisition loan of INR 3 crore and depreciation of about INR 6 crore. So at a MAT level, and there is some reversal of deferred taxation. So at a PAT level, it is positive INR 2 crore versus 0. But at a cash level, it is positive of INR 5 crore and before acquisition interest cost, it is positive of about INR 7 crore. So this is what the color of subsidiary companies numbers are.

And obviously, when we publish stand-alone numbers and consolidated numbers, consolidated numbers take into account these numbers, plus intercompany transactions.

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Nitin Arora, Axis Asset Management Company Limited - Equity Research Analyst [65]

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So when you look at the EBITDA of CT technologies I mean...

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [66]

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We can't hear you now.

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Nitin Arora, Axis Asset Management Company Limited - Equity Research Analyst [67]

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Okay. Can you hear me now? Is it audible?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [68]

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Okay.

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Nitin Arora, Axis Asset Management Company Limited - Equity Research Analyst [69]

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Yes. So when we acquired this company, where we stated a high-growth guidance, when it was acquired. Where do we look at now, considering that we are only in the single-digit EBITDA back. So do you see that there are still 2, 3 quarters more, where you will see this EBITDA and then you might start growing in a 2 crore population in Australia? Or do you think it's more or largely done, and you can see the summer season itself and can bring you to the double-digit EBITDA side? That's my last question.

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [70]

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So as far as the Australian market is concerned, the bulk of the growth will come from the introduction of household coolers or portable coolers from India, which it had never sold. There already is a market in Australia for those coolers, but CT had never been present in those markets, in that category. So it will by and large grow from -- growth will come from that. Secondly, whatever, in that -- in its existing product portfolio of coolers and heaters as also, it also sells air conditioners, there will be some organic growth in the sort of the low double digits. But the real opportunity for us is the U.S., where I said, the market is large and our presence is very small. So the real opportunity for growth is in the U.S. So this is as far as sales is concerned.

But again, I spoke about it 2 or 3 times. Maybe you seem to have missed it. But we have various value engineering and overhead reduction initiatives in progress. In fact, we are revamping its complete business model because of which, it's -- at the EBITDA level, it should be -- it should do much better. The growth in EBITDA will be much better than the growth in top line. And the impact we expect to be in next year of about AUD 6 million to AUD 8 million. Just the impact of value engineering and overhead reduction.

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Operator [71]

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(Operator Instructions) The next question is from the line of Manoj Gori from Equirus Securities.

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Manoj Gori, Equirus Securities Private Limited, Research Division - Associate [72]

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So just one question. So if we look at earlier when you -- like you have...

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Nrupesh C. Shah, Symphony Limited - Executive Director [73]

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We can't hear you.

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [74]

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We lost you.

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Operator [75]

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Sir, it seems participant line is disconnected. We'll just move to the next question, which is from the line of Neelesh Wagle from Suyash Advisors.

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Neelesh Vivekanand Wagle, Suyash Advisors - Portfolio Manager [76]

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Sir, you have done well this year to get back to the peak of FY '18, and that's very commendable. My question relates to the opportunity in the CC and IC parts of your business. We have been waiting for a long time for the Industrial businesses to scale up for you to penetrate the large market opportunity that exists. This is the first time I heard you very excited about innovation done in these segments, patents you are filing, the SKU program and all of that. So when should we expect, say, next 2 years, that the CC and IC businesses start generating meaningful [delta] for the overall business? Otherwise, currently, as I understand, Symphony essentially remains largely an HC company. Is that a fair assumption?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [77]

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Your assumption is absolutely fair. So far, we are largely an HC company. And in the next 2 years, we do expect the CC and the IC business to be more -- substantially more meaningful.

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Neelesh Vivekanand Wagle, Suyash Advisors - Portfolio Manager [78]

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This number of HC and IC would currently be less than 5%. And by when do you expect this to be say 20% of revenues?

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Nrupesh C. Shah, Symphony Limited - Executive Director [79]

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It is certainly more than 5%, but hopefully, considering a variety of initiatives, which we have undertaken and also some new range of models in commercial as well as IC we have launched, hopefully, in the medium term, it should reach to that level.

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Neelesh Vivekanand Wagle, Suyash Advisors - Portfolio Manager [80]

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By medium term, you would say 5 years?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [81]

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No, 2 or 3 years, let's say, 3 years.

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Operator [82]

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The next question is from the line of Mayur Parkeria from Wealth Managers.

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [83]

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Congratulations on good set of numbers to the entire team. So Nrupesh, before I go to the question, Nrupesh [bhai] just one small clarification. The published results of consolidated segments, it seems there is some error in the capital employed number. So just wanted to clarify because the assets are INR 551 crores and the liabilities are INR 571 crores, but capital employed is showing INR 100 crores positive.

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Nrupesh C. Shah, Symphony Limited - Executive Director [84]

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Sure. So at a consolidated level, of course, one is, in terms of capital employed, it includes acquisition loan taken and also the MAT [work] . But at the same time, on a stand-alone level, we do have advances received from the trade, so you would have observed that on a stand-alone level, there is a negative capital employed of INR 58 crores. So while we give the consolidated capital employed, which is based on monthly opening and closing capital employed numbers that has to be also accounted for. And offline if you wish to understand workings can be shared by Girish bhai or Bhadresh bhai.

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [85]

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Okay, sir. I'll come back on -- that on offline. Actually, my question was also [relatively] on the CC and -- more on the CC rather than industrial coolers because that was a segment which we have launched now. And so if you can give some more qualitative color, Achal bhai, as to how you are seeing the market response to that because that is one which we -- and will there be some cannibalization to some extent from the IC in the medium term, [til] people [that] go to the IC, can CC be a substitute for that? And how is the channel -- how is the sales and marketing shaping up? Which are the more focused areas in the near term in the next 1 year for CC and how you're looking at it?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [86]

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Even now, I would say the CC, there are products available for commercial coolers, but they're all unorganized sector. So these are all big metal coolers which somebody will order and will be made tailor-made for some factory or something like that. So there is no -- so while the market exists and there are unorganized sector players in the category, there is nobody in the organized sector. So our range is expected to cater to those kinds of requirements.

Now as far as IC is concerned, and you talked about cannibalization. There -- it's a fair point. There could be some cannibalization, but at the same time, the capacities are different and what they deliver is also different. So there could be some cannibalization. But really, it doesn't matter because as long as we are the ones -- as long as it's a Symphony that is being sold, it doesn't really matter to us.

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Nrupesh C. Shah, Symphony Limited - Executive Director [87]

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And in a way, it also gives substantial competitive edge.

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [88]

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All right. But the supply chain will be completely different for this compared [against the] dealers, distributors and even for CC, I'm not talking of IC, but even for CC?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [89]

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Yes, yes. No, in CC, there may be some overlap with the household cooler channel. There could be some overlap because some of them in some traditional markets also sell such coolers, but there will also be some overlap with the IC channels. So there will be some overlap with both channels as far as CC is concerned.

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [90]

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Okay. And sir, last question on my side was, in China also, once we go sell [through] the e-commerce route and wasn't that supposed to be a little bit more positive while the current outlook, which you gave was a little more surprising. But based on the new trade -- new partnering, which we were expecting, wasn't that also supposed to be a little more positive in China?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [91]

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With what?

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [92]

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In China also, the e-commerce we were expecting -- means we had more feet on the ground as far as residential coolers in China was concerned. And even partnering through e-commerce player in China. Wasn't China supposed to be faring a little more better than what the reported numbers?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [93]

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Yes. No, in e-commerce, see, in China, we have also had some sort of, I would say, leadership issues over there. But we have a new team in place over there. And now in the last 2 months. And hopefully, they would be able to sort of fulfill our expectations going forward. But yes, in China, we too, are disappointed. We had expected the business to be much better than it is, no denying that. And by and large because of some sort of, I would say, people issues that seems to be something which is uniquely Chinese, where there are sort of the stability and those kinds of issues are what we witnessed.

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [94]

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Sir, if I may just squeeze in.

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Operator [95]

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Mayur, I'm sorry to interrupt. We request you to come back in queue for follow-up questions. The next question is from the line of Manoj Gori from Equirus Securities.

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Manoj Gori, Equirus Securities Private Limited, Research Division - Associate [96]

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Sir, I want to just touch on one thing. So you've spoken a lot on competition in domestic market [for long,] but if you look at earlier commentary that you used to talk like your competitors [are] not able to sell or are not able to do much volumes during off-season, especially September and December quarter. But recently, there have been few competitors who have been doing that, so any view from your end on this competition like how it can pan out?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [97]

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Yes, see for -- up until now, our competitors were going around and telling the channel that why are you investing in off-season, why are you blocking up your capital and your warehousing space in the off-season. So they were, in fact, trying to dissuade people from this and trying to desell what Symphony does. But obviously, our channel understands that this is something which is important if one has to remain in the business. And so our competitors' claims weren't really -- were not resonating with the channel. That is when the competitors also realized that they also need to sort of do something similar. So they have attempted to do something similar. And they may have also sold something in the off-season.

But then again, their channel is different from our channel in the sense that it is not that their sales is coming at the cost of Symphony sales. Their distributors are different entities than ours and ours are different from theirs. So if they have managed to do some off-season bookings, which we know is not remotely close to what we have done it is something which then is -- it really doesn't affect Symphony in any significant manner.

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Manoj Gori, Equirus Securities Private Limited, Research Division - Associate [98]

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So despite all such activities our market share continues to remain intact?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [99]

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Absolutely. Absolutely.

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Manoj Gori, Equirus Securities Private Limited, Research Division - Associate [100]

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Question. So if you look at last quarter we had a very positive start from July onwards despite the subdued environment. So same is the trend during October as well, for the first half of November?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [101]

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A subdued environment.

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Manoj Gori, Equirus Securities Private Limited, Research Division - Associate [102]

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Sir, not for you, but overall, if you look at the macro, which was not looking so promising, and you were very confident that. Yes. And you were very confident that your spend is going to be very strong. So the same outlook continues to remain even for [December] quarter?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [103]

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Yes, the macro has not changed significantly in the last 3 months. But our outlook remains the same as well, has not changed either.

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Operator [104]

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That was the last question. I now hand the conference over to Mr. Abhineet Anand for closing comments.

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Abhineet Anand, SBICAP Securities Ltd., Research Division - Analyst [105]

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Yes, I would like to thank the management for giving SBICAP Securities the opportunity to hold this call. And I would like to thank all the participants who participated for the call. Thank you.

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Operator [106]

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Thank you. Ladies and gentlemen, on behalf of SBICAP Securities, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.