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Edited Transcript of SYMPHONY.NSE earnings conference call or presentation 1-Aug-19 5:00am GMT

Q1 2020 Symphony Ltd Earnings Call

Aug 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Symphony Ltd earnings conference call or presentation Thursday, August 1, 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

* Bhadresh Vinaychandra Mehta

Symphony Limited - CFO and Senior VP of Finance & Accounts

* Nrupesh C. Shah

Symphony Limited - Executive Director

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Conference Call Participants

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* Abhishek Ghosh

DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation

* Ansuman Deb

ICICI Securities Limited, Research Division - Aviation Analyst

* Mayur Parkeria

Wealth Managers Pty Limited - Head of PMS & Fund Manager

* Naveen Trivedi

HDFC Securities Limited, Research Division - Research Analyst

* Nitin Arora

Axis Asset Management Company Limited - Equity Research Analyst

* Prithvi Raj

* 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 Q1 FY '20 Earnings Conference Call hosted by IIFL Securities Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Renu Baid from IIFL Securities Limited. Thank you, and over to you, ma'am.

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Renu Baid, IIFL Research - VP [2]

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Thank you, Karuna. Good morning, everyone. On behalf of IIFL, I would like to welcome you to Symphony Limited's First Quarter FY '20 Conference Call. We have with us from the management today Mr. Achal Bakeri, Chairman and Managing Director; Mr. Nrupesh Shah, Executive Director; Mr. Bhadresh Mehta, Global CFO; Mr. Girish Thakkar, Senior GM Accounts and Finance; Mr. Mayur Barvadiya, Company Secretary; and Mr. Milind Kotecha, our Senior Associate, IR & Treasury.

Without taking much time, I would like to hand over the call to Mr. Bakeri for his opening remarks. And thereafter, we can start the call for Q&A. Thank you, and 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, Renu. Good morning, everybody. First of all, welcome to everybody to this conference call of Symphony on this lovely, rainy day. My colleague, Nrupesh Shah, usually takes these calls, but I did insist to him, so I am here today, and it is a pleasure to be here. I'll give an overview and Nrupesh Shah will then after give you some more granular details.

All the numbers and the data keys are relevant for participants, so really I'd really like to spend more time on Q&A. So getting into the call, you know the safe harbor statement that is customarily applied, and I won't sort of repeat it. As far as the numbers are concerned, the operating income for the last quarter April to June 2019 on a stand-alone basis was INR 160 crores. Including other income, it was INR 171 crores. The operating income was the highest ever for this quarter in our history, and it also represents an [overall] increase from the previous -- the same quarter of the previous year. Though we don't consider that as any benchmark because the previous year, the previous summer was a disaster, but even if you look at it from the year before that which is 2017, we had corporate turnover of INR 129 crores during this quarter.

So from that point of view, it was an 11% CAGR. But again, we are cognizant of the fact that there is no (inaudible) because in the year prior, back in 2016, it was INR 152 crores. So from INR 150 to INR 160 crores in 3 years is really nothing to write home about. However, we know that it could have been much higher, except for the fact that we took advantage of a good summer to ensure that the channel was completely restocked. We've had [dealers] and materials, all had been sort of netting some inventory for some time, and we ensured that their inventory was liquidated entirely or almost entirely even if it meant that we could have, of course, repositioned. We actually compromised on maybe INR 15 crores, INR 20 crores, INR 25 crores of sales. But it was being appropriate in the long term for us to ensure that the trade was paying down.

But I think what is important for all the participants to recognize is that like we've done these numbers. Because last year and the year before that, there were apprehensions about what Symphony -- how it would fare, there were apprehensions about competition, about the market for air coolers, whether air conditioners, air coolers and what is the future of air conditioners. So there are all these sort of pessimistic sort of apprehensions which I think this summer and our performance have put to rest. So although it could have been better, like I said, because of the inventory that we had liquidated from the channel, but despite that, even in the INR 150 crores, I think the market will still recognize that Symphony is back with a bang. And as we go forward, we believe that we have better things to come.

As far as the EBITDA is concerned, as you can see, it is at 36 -- close at INR 36 crores, which is 21% of revenue compared to 35% in the previous quarter, (inaudible) the quarter of 50% for all of last year. By and large, this is because of the increase in expense that we incurred in this quarter. And this being the summer quarter, basically pretty much the expense for the year, for the entire financial year up to March 2020 has been incurred. So going forward, we don't see -- there will be some in the last quarter, but there wouldn't be a huge amount that will be spent. So I would say that by the end of the year, we should be able to restore our EBITDA levels.

And with that campaign, it was necessary for us because we've introduced new models. And was also necessary to revise trade sentiment which has been dampened because of 2 consecutive back summers. As the market leaders, we basically see it as incumbent on us to do that. And I think it give us the desired results, which has -- as I said, it also helped the trade liquidate on the inventory. It may have helped our competitors as much as -- or to some extent, even our competitors will have engaged by our advertising, but then, that is how the business works.

Coming to the consolidated revenue. It went to INR 291 crore, which is 81% lower than recorded in previous years, again, largely on account of the consolidation of a number of Climate Technologies, Australia. And the EBITDA also consolidated INR 50 crores, again, for primarily the same reason.

The last quarter -- or actually, for IMPCO Mexico, the financials April to -- sorry, January to December. So if I were to look at the last 9 months, we've had very good growth, good double-digit growth so far. And we had a good summer in Mexico, besides, the models in terms of Mexico are also being, well received, and we are gaining market share over in Mexico. So I think all in all, Mexico is also doing well. Climate Technologies, also last quarter, April to March, so April to June was there in the first quarter. So even if Climate Technologies was soft, we have visible growth in the top line. As far as China, our business in China is concerned which is GSK, that is in negative territory, unfortunately. But since the (inaudible) is small, so the overall impact is not significant.

Coming to how we see the balance of the year, we are very bullish. We have already introduced or rather we introduced to the market a range of new models. And although the products are not yet evenly introduced, but just on the basis of a brochure and a picture, the kind of bookings that we have received for that for the new range is probably more than what some of our existing competitors tell the whole year. So I think that is also testimony to the kind of sales that the trade channel in the market has in Symphony and in our products.

So despite what happened last year, despite that this year, our Symphony's innovation engine was, as always, was on high gears. And we're working on a range of new models which have already been sort of introduced to the market. But once they actually hit the market in the months to come, we expect them to gain a very good response, and even better response in fact. We have introduced new models not only in the household cooler segment, but also in the commercial cooler and industrial cooler segments.

So far, in the commercial cooler and industrial cooler segments, whatever we used to sell was we imported from our subsidiary in China. And that, I mean, that's been going on for the last 3 years. Prior to that, we were importing our industrial coolers on the -- from subsidiary in Mexico. So because of the fact that they were imported, they were subject to a 34% customs duties where the standard costs, trade costs, and the time that it took longer to mismatch would mean demand and supply are now build up products going to be made locally. And we believe that we should be able to do away with the demand and supply mismatches and have better margins to invest in brand building and in market development. Over and above that, these models are also, you know, very innovative, whereas some of the models, some of the features that we have or some of the virtues, that is much beyond feature, I would say, the virtues of the models are such that they are the first of their kind in the world and in the industry. And we believe that the commercial and industrial cooler segment will, going forward from now onwards, really be able to truly blossom as we expect.

So all in all, I would say so far, the trade sentiment is very positive. Like I said, what we have -- as we have always done in the past, we have the off-season sort of bookings, and what we have achieved in July is significantly higher than last year, which is also a signal of the positivity that the trade has because of the last season and all of the initiatives by Symphony. So we believe this year, we should sort of be back at Symphony historical levels. And in the next 2 years, we should also be able to also restore our historical CAGR.

So that's an overview from my side, and I request Nrupesh Shah to give more of the details. Nrupesh Shah?

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

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Thank you, and welcome all to Symphony's Q1 Conference Call. To start with, the title of our annual report of 2018-'19 is the eye of the storm, and that was the case during the summer of 2017 and summer of 2018. But as we shared in the past, we maintained calm, we maintained presence and we look much beyond bad summer.

We merely focus in the respect of innovation, new format of air coolers, luxury, trade channel and cultivating the strong relationship to a variety of initiatives and potential focus on branding as well as with promotion, and that has led to and reflected in the financials of 2019. And we have achieved market leadership by far, and all on -- in line with and it was shared about 15 months before, Symphony was [working]. So as a part of Symphony presentation, a variety of initiatives have been launched and many more are in pipeline.

As Achal shared, we have launched a series of new models across residential rates, commercial rates as well as package air cooler and at different price levels. They are ranging from INR 8,999 to INR 70,000. And some of the past-breaking features and formats, model to model, are some of the models do have 3D cooling, that is 3-side cooling. Some of the models have 4-side cooling. Many of the models have a very enormous body, all [within]. Many of the models do have highly efficient cooling pads which increases cooling efficiencies by about 30%. Fan was especially designed, especially the fan blades whereby they generate very powerful air from (inaudible). And some of the models also do have, for the first time, universal air cooling that has top and bottom discharge.

Many of these models and features we have applied for domestic as well as global patent and design registration, so Symphony as a whole on a global basis, now we have 500 plus intellectual property rights, including 60 plus [with] patents and 100 plus designs, one of the highest by any Indian consumer company or appliance company. And out of these 500 plus, about 330 are in India.

So as we have shared in the past, we are very optimistic about the air cooling industry with the respect of residential air cooler, centralized air cooler or international markets. We really foresee a huge run rate. And as well, we are highly excited about these prospects and the potential.

In the respect of overall performance, out of INR 292 crore, about INR 140 crores has been generated from the rest of the world, that is close to 47% including exports from India. As far as stand-alone performance is concerned, most of the financials have been already shared. And just to reiterate about the margin, our operating margin, the contribution is about 50%. And we are quite comfortable at this contribution margin, and we are reasonably sure to maintain this level of operating margin. Coming to EBITDA margin, for the quarter, there has been some hit, mainly on account of advertisement and sales promotion expenses, but the year as a whole in line with prior years, it should be in the range of 4% to 6% of the annual turnover.

And as far as overseas subsidiaries and consolidated performance is concerned, overseas subsidiaries have generated almost INR 130 crore of top line. In the respect of IMPCO Mexico and GSK China, we are on track in line with expectations. As far as Climate Technologies is concerned, it is about 1 year since we have acquired. Of course, its performance in the first year is not in line with our expectations, but its integration is on track. We have identified an initiative series of strategic measures to enhance its performance and profitability, including launching of Indian residential air coolers in Australia as well as United States through its existing dealer distribution network.

Through Climate Technologies, it's having the market potential of about INR 3,000 crore, of which INR 900 crores plus even Australia and INR 2,100 crores in United States, they are upgrading in some of the increasing models. There is a huge potential of value engineering and rationalization of some of the overheads, and also taking advantage of sourcing from China leading to further cost reduction. And we do expect that these initiatives show in the result in ensuing quarters and not nearly in the long term.

Thank you.

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

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Also just to add to that, some of the models that we have in the industrial coolers have been introduced will be about (inaudible). And some of our commercial air coolers will be about 50,000 or so. So these will be high value products. So these will also result in an overall rise in volume buildup, this will result in a significant, I would say, improvement in realizations for the year.

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Nrupesh C. Shah, Symphony Limited - Executive Director [6]

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So with this, we can open for question-and-answer.

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

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Yes.

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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 Prithvi Raj from Unifi Capital.

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Prithvi Raj, [2]

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So my first question is on the inventory level. So have the inventory been completely cleared at the dealer level? And how is the trade sentiment now, because there has been a slowdown in the [convention] phase, you know, the product phase. Are we seeing any slowdown or can we expect the same kind of growth even in the coming quarters?

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

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Sorry, sorry, could you please repeat that question?

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Prithvi Raj, [4]

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So how is the inventory level at dealer currently? Has it been completely cleared or you still have some inventory? Second...

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

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No, no, no. Inventory is at historically low levels. And what we got is [valued with the] channel.

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Prithvi Raj, [6]

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And how is the trade sentiment? I mean are we seeing any slowdown in the takeoff?

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

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I think you probably would have joined after my comments ended. But I said that the trade sentiment is very bullish, I think, as far as we are concerned, and also there is no slowdown. In fact, what we have done so far in the current quarter is significantly higher in the high double digits, higher than what we did in the very first quarter of last year so far.

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Nrupesh C. Shah, Symphony Limited - Executive Director [8]

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So just to corroborate, unlike most of the consumer behavior, or the consumer phasing industry. Fortunately, we are not much impacted by the overall economy or by the various parameters of economy. It's more about the summer, about the innovation and our focus. And hence, we are quite bullish in terms with the trade sentiments.

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Prithvi Raj, [9]

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Okay. Sir, that's helpful. So we can expect a similar growth even in the coming quarters, right?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [10]

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Yes. Even, I think, with costs.

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Prithvi Raj, [11]

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And sir, second one on -- can you give the breakup of the costs and in the Climate Technologies, Symphony, EBITDA and the entire number?

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Nrupesh C. Shah, Symphony Limited - Executive Director [12]

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Yes. So for the quarter, as you know, Symphony standalone ranges about [INR 60 crore], Symphony. Australia, there is Climate Technologies, INR 69 crore. IMPCO is about INR 51 crore, and GSK China is about INR 16 crore. And all in all, overseas subsidiaries will generate a top line of INR 132 crore, and profit after tax, about INR 7 crore.

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Prithvi Raj, [13]

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Can you give us the data for the overseas?

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

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The subsidiaries?

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Prithvi Raj, [15]

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Yes.

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

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So IMPCO Mexico has generated EBITDA of INR 7 crore and profit after tax. I'm referring to quarterly numbers, about INR 6 crore. About Symphony Australia, after accounting for the acquisition as well as acquisition financing costs, EBITDA of INR 1 crore and profit after tax negative INR 1 crore and GSK China, negative INR 1 crore. And there is also intercompany positive adjustment of INR 3 crore, so that results into end-to-end consolidated overseas subsidiaries profit after tax of INR 7 crore.

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Prithvi Raj, [17]

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Going to the current trend, I mean, shall we get the INR 20 crore, INR 25 crore towards kind of PAT for Climate Technologies in the full year?

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

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Certainly, certainly. At EBITDA level, the expectations are somewhat higher than that. But once all our value engineering initiatives and other market development initiatives start bearing fruit, this should improve significantly.

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Prithvi Raj, [19]

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And one final question on the gross margin phase. So you are guiding to a 50%, 51% kind of gross margin. And historically, we were doing it somewhere around 54% kind of level. I mean, as the oil prices have come down, is it because you are offering higher accounts to the dealers?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [20]

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First of all, it was about 52%, 53% and it is about 50%, 51% now. So I think it is really a function -- because of the model mix. And it differs on the market makes before now and by now it's a function of the model mix, and also maybe a little bit of high grade incentives, combination of various things. It does not mean that -- it does not necessarily mean that this is the new normal. This could be -- could change going forward.

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Operator [21]

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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 [22]

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Congratulations on the strong number of this quarter. Sir, considering you briefly mentioned that the growth was across the market, while what we have observed that north will be -- the north market post-May is particularly doing very strong. So do you think that at your level, and specifically for you, there were some divergence in the growth that you maybe wanted to share about?

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Nrupesh C. Shah, Symphony Limited - Executive Director [23]

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In what? So what do you mean by that? Wasn't the growth related to June monthly? If you can just reiterate and specify that.

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Naveen Trivedi, HDFC Securities Limited, Research Division - Research Analyst [24]

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I'm just trying to understand the consumer offtake between north and dealer to the market. Is the north really supported for you or that you have you seen uptake level growth across the market?

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Nrupesh C. Shah, Symphony Limited - Executive Director [25]

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Well, it was very much across the markets. Across the markets. Across the country. It was across the market and also across the trade channels. When we say across the trade channels, traditional trade channels, large format stores, e-commerce, et cetera. And when we say inventory, it has been (inaudible) or almost manageable, that is also across the market and across part of the stores.

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Naveen Trivedi, HDFC Securities Limited, Research Division - Research Analyst [26]

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Okay. And considering the kind of growth which we are seeing positively in the last quarter, and we have observed that you've gained market share for company inventory. And if we add even growth for quarter 4 and quarter 1, that's obviously the OpEx level performance. But can you expect that to ultimately gain market share?

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

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As far as the last quarter is concerned, we don't really yet have conclusive numbers. But for the previous years, when we grew by 24%, we know for a fact that some of our competitors did grow by significantly larger numbers. So mathematically, our market share would have increased or improved. I'm talking about the financial year '18, '19. As far as -- like I said, as far as the last quarter is concerned, we don't really have yet any conclusive numbers.

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Naveen Trivedi, HDFC Securities Limited, Research Division - Research Analyst [28]

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And as far as sales from the -- on the field, would you observe a positive thing with respect to your market share?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [29]

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Yes, we believe so. We believe so. We believe that our market share would have improved.

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Naveen Trivedi, HDFC Securities Limited, Research Division - Research Analyst [30]

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Okay. And considering that you take price hike during the July month, so have you taken any initiatives during this month?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [31]

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Price hike?

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Naveen Trivedi, HDFC Securities Limited, Research Division - Research Analyst [32]

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Yes.

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [33]

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Nothing significant. We vary from model to model. It's an ongoing sort of process. We're depending on the models. We might improve the pricing from there, we might even rationalize it somewhere. So that is an ongoing process. So I wouldn't say there is anything to say significant.

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Naveen Trivedi, HDFC Securities Limited, Research Division - Research Analyst [34]

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And you mentioned that...

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [35]

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And of course -- the new models, of course, are sort of high-value models. And so the margins will also be better, and the realizations per unit will also be much better.

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Naveen Trivedi, HDFC Securities Limited, Research Division - Research Analyst [36]

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Okay. And you talked about lots of products in the residential side and even in the commercial side also. Can you give us some quantity in terms of how many launches you have done so far? And how much are you expecting that this year and to the last year, the whole back R&D launch [inspection]. So can you explain what this year will be the in terms of our R&D capability side, like you talked about also a little bit that you'll probably launch this year. So if you can also -- give us quantifying number also.

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [37]

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In the household cooler segment, we have launched a -- actually in household it's entirely new models. It would be about 7 new models, entirely new models in the household cooler segment. But we have also upgraded several existing models, refreshed them. So for all practical purposes, they are like new models. So that will be another 7. So in the household cooler segment, where we have all this other competitive noise, we have something like 14 new models. And in our commercial cooler segment, we have -- actually, have just marketed, so far, about 6 new models. As far as commercial coolers are concerned, they have not even been introduced. We plan to introduce them in the months to come. The products are ready and they will be now reintroduced. And those are about 3 or 4 new models.

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

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And lastly, if you can give us more color on the LCT. You're certain -- when can we expect would we think that there can some change in the guidance for FY '20 numbers? Or do you think that the kind of initiatives which you are taking, your segment addressables you will maintain?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [39]

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Again, so what is your question? What are the initiatives?

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Naveen Trivedi, HDFC Securities Limited, Research Division - Research Analyst [40]

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Yes.

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [41]

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I think specifically, like I said in my opening comments, there are various initiatives whether it is in cost reduction, or manufacturing cost reduction, overhead reduction and business development phase enhancement. So far, Climate Technologies has never really sold household coolers, our 41 coolers, which will be now introduced next summer in Australia. Indian models will be introduced in Australia next summer. Then Indian models will also be introduced through Climate Technologies subsidiary in the U.S. They will be introduced in the U.S. And also models from China, household cooler models from our China subsidiary will also be introduced in the U.S. So there are all these initiatives which have been -- which have -- which are underway. And it will be another, I would say, 2 years or so by the time the entire results are visible. But regardless of that, even if we do nothing, I think Climate Technologies was a profitable company when we acquired. And we will continue to do that, that is, maintain that going forward. And all the initiatives that we are undertaking will only add to both the top and the bottom line. The full effect of that will be felt over the next 2 years.

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Operator [42]

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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 [43]

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Sir, my first question is that when we look at the competition growth in the cooling segment, especially the coolers, the kind of growth which you have got, considering the base remains the same as for the competitors, not in the absolute term but the magnitude that I'm seeing in terms of growth. They have grown far lesser than you in this season. Is it that you have gained market share? Or is it more to do with an organized -- finally coming into an organized [way], you do the highest market share guide, getting that benefit? That's my first question. And my second question is, though you have spoken about EBITDA margin even more as a function of top line, but you have been a very consistent EBITDA margin of 30% when we look at FY '18, FY '17. So last year because of a season issue where the [IL&FS] cannot come down firmly, margins were a little lower. So is it something which you can guide us with respect to a (inaudible) from the whole year where we should stand in terms of EBITDA margin? Those 2 are my questions.

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [44]

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Like I said, again, in my opening remarks, the EBITDA margin for the year as a whole should be more or less in line with the previous years in terms of percentage -- or I mean to last year. Last year was -- it was normal last year. Until last year, it was about, let's say, give or take, 30%. I think that is something which we feel should be maintained. So that was your second question. And your first question was about market share and our competitors not growing as much as us. Now I mean we again, like I said before, we really don't have competitors' numbers here. But we do sort of get the sense from the market that our growth was better than our competitors. So if we were to accept that contention, then basically our market share would have improved.

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Operator [45]

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The next question is from the line of Abhishek Ghosh from DSP Mutual Fund.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [46]

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A couple of questions. So the newer model that you're introducing now, the expectation of gross margin from there will be higher than, what, 50% you're currently clocking because of the better realization and better utility of the product?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [47]

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There is no model-to-model, so it is not that all models are at 50%. There are some which are significantly higher and some which are significantly lower across the range. So I wouldn't really get into specifics. But suffice it to say that net-net, it will be in this vicinity of 50%.

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Bhadresh Vinaychandra Mehta, Symphony Limited - CFO and Senior VP of Finance & Accounts [48]

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And more importantly, in respect of new models, they are type of absolutely next generation models, so vis-a-vis this competition in terms of the salability. And in terms of not only covering the market share, but still in the top line substantially. And hence, the key overall profitability should improve.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [49]

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Sure. And also, in terms of last year, there was a lot of pressure last couple of years. You've seen a lot inventory issues, [bad season,] other things. Now we are coming off where the channel inventory is quite clean. So is there a change in dealer margins that you can resolve to or is it constant for -- all the time?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [50]

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Again, that is something that is -- varies from time to time and also varies from model to model, also varies from market to market. So I would say by and large, it remains in more or less the same territory as before.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [51]

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Yes. So just one last thing in terms of the industrial coolers, which is on a low base today. So would you attribute that, that segment has grown at a higher pace for the domestic revenues than the household coolers for us?

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

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No. Like I said, industrial coolers, all the new commercial coolers have yet to be sort of introduced into the market. So far, the growth in those segments is more or less in line -- or actually, no, in terms of percentage, actually, of course better than the household coolers because the base is very low. That was with the existing models. Now with the new models and the new range, we expect that the scaling up to happen and the rate of growth in that will be significantly better.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [53]

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Yes, but the margin profile is -- sorry.

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [54]

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The margin will also be better. And like I said, these will be manufactured locally. As I said in my opening remarks, it will be manufactured locally. So we will not have all the customs duties and import logistics costs and all of that to bear. So we will have a higher margin, and also higher ability to invest in market development. And we have higher value products also. So this will help us in improving our unit realizations.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [55]

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And in that segment will you be largely competing with the [semi-organized] guys? Will that be a right assumption to make?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [56]

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To be honest, in that segment, almost nothing exists. So our challenge or our job is to actually educate the market about what we have and the opportunities that exists with our product. Many -- most industries that you would visit has no air cooling. It has nothing. So our job is to actually go out and convince management that if you will cool your premises you're going to -- the comfort of your workers, productivity will improve, quality will improve, and so on and so forth. And we see in other countries especially in China, there is actually -- or almost every factory in China is air cooled. Workers will not work in a factory where the indoor temperature is high. So I think it's a combination of 2 factors. One is in India, as the threshold of comfort reduces, and it is, so the workers will become more demanding. And hopefully management will also become more sensitive to workers' comfort. What we are doing is actually creating a market. So pretty much like what we did 30 years ago when we introduced Symphony coolers. At that time, as far as factory coolers are concerned or the organized sector is concerned, there was no market. So over the last 30, 31 years, that's what we have done. And in the commercial and industrial cooler space, that is what we have been doing for the last few years. But -- and we'll continue to do that going forward. And with better resources available to us, we will be able to invest more in creating that market henceforth.

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Operator [57]

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The next question is from the line of Mayur Parkeria of Wealth Managers (India) Private Limited.

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [58]

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Sir, first of all, a good set of numbers on the top line. If you had to put a benchmark cost for Q1 FY '18 for all practical purposes, if we remove the Q1 FY '19 which was a bad summer, even from a Q1 FY '18 perspective, the tender advertisement costs were almost only around INR 21 crore on a standalone balance sheet -- standalone P&L. Whereas right now it's INR 28 crore. Even if we adjust some of those numbers, still the EBITDA margins would not have crossed 20% in this quarter, compared to our historical levels. So where does this -- is that by your guide, your initiative that by the year-end, this will be back to normal levels. But I'm just trying to understand where did this go wrong in a time when we had such a strong growth execution?

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

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I don't think we should view advertising spend which encompassed just 1 quarter. I think there is still business here to do, ad spend and -- digitize the results of that in the context, in the larger context. So we have to view it from how it is for the whole year.

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [60]

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So you believe -- by your reply to the previous question, you believe that by the year-end, we will be back to our normal levels of EBITDA of 30%? Because that's the worry which is coming on the standalone numbers.

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

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So to add to that and to justify the numbers, even though in 2018, '19, there was a degrowth. And on degrowth of EBITDA margin for the entire year was 26%, versus EBITDA margin of 21% in June '19. It means in this current year considering [our EBITDA] is back on track. So the year as a whole, we should see EBITDA margin in line with what it was in earlier years, and certainly higher than what it was in 2018, '19. In fact, what I would recommend in sales promotion expenses that have been incurred in the quarter of June '19, that has helped not only in liquidity, but inventory on which sales was incurred in the beginning of the year and the beginning of the season. But it also helped to substantially view the off-season business. So it's not just quarterly number.

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [62]

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Sir, on the Climate Technologies, again, I know when we acquired, we had indicated that it was a 7x EBITDA which we had acquired, around 7.5x, close to that. And it was roughly around INR 290 crore, INR 300 crore revenue top line, which translates into almost 12%, 13% of EBITDA margin. What happened in this 1 year, where even at the EBITDA level, which is cash profit, it turned so negative? And so it turned negative, from 12% margins to negative. And if you can -- while you have indicated again about the value in engineering this, in the next 1 year, where do you think this negative can translate into in terms of margin?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [63]

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So there's a couple -- we already narrated in the opening speech that we're very strong, particularly in terms of export business from Climate Technologies. So this is the very first year of acquisition. In March it was 9 months of year-end, and of course, there were many challenges in terms of understanding the market, understanding the product, understanding the culture over there. So all cognizant of that and all developing in the different geographies. So it was a challenge. Now I think we helped set right almost all the things. The covenants and accounts is also completed. And also now we are on the innovation of the product line, and also the improvement of [manufacturing] overage and other expenses. And this all saw many improvement in this quarter. The June '19 quarter, the climate is slightly higher than June '18 quarter. Of course, the June '18 quarter was not concentrating by the [console] all [liquidity] was the effect from 1st of July 2018. So if you get back-to-back years we have seen the improvement in this quarter in sales. So going forward, it will be further improvement. One more thing to say is that there is an impact of interest also because we have taken the increase in loan. Had we not taken that, at the bottom line, it will be [different].

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Mayur Parkeria, Wealth Managers Pty Limited - Head of PMS & Fund Manager [64]

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Sir, has it changed from the March quarter? Did the debt level change from March level?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [65]

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See basically, we have taken the long-term debt in terms of equities and funding, and as far as I think at present, there is concern, [whether capital] debt reduced and we [trialed] our equities. And the working capital facility of Climate Technologies was higher, which we have been able to substantially make it lower. Basically, for the previous year, [the debt] -- the performance is below expectations. But then again, that company's on [previous] seasonal business. And we have issues of seasons arriving later and the sales will be happening in a later period. As I say in my opening remarks, all-in-all, I would expect (inaudible) Y-o-Y (inaudible) growth (inaudible). For that specific period, it was affected negatively. But all-in-all, I would say that Climate Technologies is showing good growth. And we have to also, as Bhadresh mentioned, we have to recognize that this was the first year of acquisition. 10 years ago, when we acquired the company in Mexico, IMPCO, at that time too there were questions about the wisdom of making an acquisition so far away. But what that acquisition has given us in the last 10 years, on an investment of just a little over INR 3 crores 10 years ago. Over 10 years, it has generated revenue of $100 million and net profit after tax end-to-end between Mexico and India of more than INR 100 crores. So I think these acquisitions, again, should not be viewed narrowly with the performance of 9 months or a year or a quarter. I think we have to see, like I said before, the full effect of everything that we intend to do and expanding in the next 2 years. And so this has to be taken -- one has to take a slightly longer-term view. Like I said, it costs 3.5 -- for INR 3.25 crores, an investment of INR 3.25 crores, you get top line of $100 million in 10 years and more than INR 100 crores of net profit after tax over 10 years. This wasn't visible 10 years ago and there were all these questions. So I think a similar situation will play out in the case of Climate Technologies. The opportunity in the case of Climate Technologies is there in Australia, but the much greater opportunity lies in the U.S. where not only is the market much bigger, but now because of Symphony and China, the range of products available for Climate Technologies to sell over there is much vaster. And therefore I think the opportunity of keeping up especially in the U.S. is much better than in Australia. So I think once all these sort of initiatives start kicking in, you will see the result over the next couple of years. [But we must just be patient].

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Operator [66]

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(Operator Instructions) We move to the next question from the line of Ansuman Deb of ICICI Direct.

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Ansuman Deb, ICICI Securities Limited, Research Division - Aviation Analyst [67]

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My first question is, I missed the numbers from the subsidiaries. Can you repeat it once, sir? Are there any EBITDA impact numbers?

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

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Yes. So basically, [China] has been slightly lower than the last year, same quarter. The top line INR 16 crores for the quarter was Symphony EU. And in Australia INR [69] crores and (inaudible) INR [51]. And the EBITDA level, we are scalable to INR 1 crores profit. In (inaudible) about INR 3 crores and (inaudible) INR 7 crores. And the GSK level, the GSKs are negative INR 1 crores (inaudible) is INR 6 crores positive, and for the [EU] is INR 1 crores negative.

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Ansuman Deb, ICICI Securities Limited, Research Division - Aviation Analyst [69]

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Okay. So my second question is that since you have given industry centralized -- cooling industry size of around INR 4,000 crores in your annual report and you are very positive, you are very positive in the market of commercial cooling and industrial cooling in the coming 2 years. Can you just quantify in terms of how much market share of this INR 4,000 crores could be converted into the top line for Symphony?

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

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We would gladly quantify it, had we known. I think the opportunity is out there but at the moment it is something which we have to develop. So how big it turns out to be, only time will tell. But the fact that we believe it is significant and we believe that we will be able to harness that, is borne out by the investment that we have made in the new products, not only in terms of financial investment which is also significant, but also the development effort and all that has gone into it for the last 2, 3 years. This is unprecedented at Symphony. And I think -- so all of this, all the effort, all of the investment, sum total of that is testimony to the fact that we are -- we are very positive, we are very bullish about the potential.

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Bhadresh Vinaychandra Mehta, Symphony Limited - CFO and Senior VP of Finance & Accounts [71]

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And as we shared in the past, in terms of this potential, it is actually as we get residential air cooler which we can monetize over a period of time. And that too, unlike residential cooler, is going to generate the business around the year. And despite, there are going to be many corporate and institutional clients and our business model is such which will be absolutely line with the residential air cooler that is asset-light, capital-light and working capital-light business models. So again, in terms of the return on capital employed, it's going to be absolutely incremental. But it is difficult to quantify in respect of the value and also the time.

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Ansuman Deb, ICICI Securities Limited, Research Division - Aviation Analyst [72]

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Okay. Sir, last question is, again, on the overseas subsidiary, since the overseas subsidiaries are now contributing around 50% to the top line. But I end up thinking standalone on business is at 50%. So I just wanted to know whether the margin profile of the consolidated business would be part of this increased standalone or will it be a lower margin business, lower in terms of margin?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [73]

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Actually, I think that the margins will be -- help created on -- in India, out of the Symphony universals and with the market driver, which we have, we -- so Symphony India is the market leader and we are the price trend setters. As far as the global geographies are concerned, there is (inaudible) we're not seeing the demand in India as we see it over there but we also have potentially improved the margin in the (inaudible) region.

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Operator [74]

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The next question is from the line of [Sahil] (inaudible), from IDBI Capital. We move to the next question from the line of [Anirudh Shetty] from (inaudible) Investment Management.

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Unidentified Analyst, [75]

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This is [Manish Gupta]. So 2 questions. First one is on the revenue from -- the segmental revenue standalone from outside India. That does not seem to be growing. Is that because you're serving other geographies now from China? Or is it that, that business is not getting as much traction as we had hoped?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [76]

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No you are right. So some of the overseas markets are being sold directly from overseas territory. So part of the exports are being reflected in the standalone financials of another country. But at the same time, in last 2 years, in some of these countries where we have sold, there was some slowdown. But even, I believe in current year, we are seeing promising inquiries from some of these markets also.

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Unidentified Analyst, [77]

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Okay. And the last question was how are you thinking about cash distribution now that the tax on buybacks have also been [plugged]?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [78]

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Yes. So of course, in a year, about, we think we have announced the intention of buyback. We would like to have some wait and watch. But despite taxation implications, our business model is such we don't need a substantial capital. And hence, we are likely to consider this opportunity, subject to Board decision in the ensuing meetings.

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Operator [79]

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The next question is from the line of [Hirendra Bedi] from [AXA] Securities.

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Unidentified Analyst, [80]

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My questions had been answered.

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Operator [81]

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Ladies and gentlemen, that was the last question for today. I'm going to hand over to Renu Baid for closing comments. Over to you, ma'am. Renu Baid, over to you. (Operator Instructions) Renu Baid from IIFL securities limited, can you hear us?

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Renu Baid, IIFL Research - VP [82]

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Yes, yes.

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Operator [83]

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Please go ahead with your closing comments.

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Renu Baid, IIFL Research - VP [84]

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Thank you so much, everyone, for participating on the call. And we would like to thank the management for giving us the opportunity of hosting the conference. Thank you, everyone.

And any closing comments from the management, please?

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Achal Anil Bakeri, Symphony Limited - Founder, Chairman & MD [85]

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No, actually, we are all enlightened by the valuable questions from the participants. We thank all of them.

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Operator [86]

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Thank you very much, sir.

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