Symphony Comfort Systems Ltd (517385) hbj capital's inside value pick for feb 2010
Symphony Comfort SystemsSymphony is a market leader in Air cooler segment and is almost synonymous to their products. Symphony has beena highly successful turnaround in a strong growth trajectory. The company can boast of its market leader tag, brandoriented business model, negligible debt levels, very high profitability margins and very impressive return ratios. Thecompany is severely undervalued at 3.3 times FY 10E earnings and 2.2 times FY 11E earnings. HBJ Capital Services Pvt. Ltd Web: www.hbjcapital.com E-Mail: firstname.lastname@example.org Call: +91 98867 36791
Best Buying Price… 2 Phase Buying Strategies Suggested [Always buy in SIP ways] 1st Phase : Buy at the recommended price range Rs 200 - 210 [50% of investment] 2nd Phase : Add if the price falls down to Rs 165 - 175 [50% of investment] Recommended Average Buy Price – Rs. 187.5 >>>Expect at least 70 - 100% return in next 12 months time period!!!
Symphony Comfort Systems Launched in 1988, Symphony today has established itself as a world leader in evaporative air coolers. Symphony is the domestic market leader in the Air Cooler segment with more than a 50% market share. Air Coolers continue to be the company’s mainstay while it has also has entered into the Water heater and Air conditioner segment in the last few years. Symphony offers its Air Coolers across two key segments – Personal and Industrial applications. While being a market leader in the domestic segment, the company is a growing player in the export markets. The company derives more than 80% of its revenues from the domestic market segment. Its products are already being sold in U.S.A, Europe, Middle East, Africa, South-East Asia and it is aggressively expanding in the export markets. The company has a world class manufacturing center at Thol, 23 Kms from Ahmedabad.
Symphony Comfort Systems – Products Symphony Mobile / Portable Air Coolers are ideal for residences, shops, show rooms & offices where doors are frequently opened. The technology being completely natural there are no emissions of harmful CFCs. Symphony Mobile / Portable Air Coolers are packed with unique features and state-of-the-art design, combined with economy, reliability and efficiency. Symphony ventured in the AC market 2 years back and been relatively a new entrant. The company is hopeful of leveraging its brand equity in the AC segment. The company offers products across both Window and Split categories. The unique DTX technology ensures quick and instant cooling at minimal power consumption. Symphony manufactures Indias first 5 star water heater with high density polyurethane foam (PUF) insulation that minimize the heat loss. In addition, there is a second layer of special glass wool insulation in the storage water heaters. This Double insulation ensures minimum heat loss and maximum energy saving.
Symphony – The turnaround story While Symphony has always been synonymous with Air Coolers, the company has had a tough time for most part of the last decade. The company came out of its home turf of air coolers and went on to make water purifier, air conditioners and washing machines in a short span of time and with inadequate planning. However, the response was not really active and in spite of the poor response, the company tried for several years to gain a space with these utilities before calling it a day. The company also had its loss making domestic flour mill business which it later exited. These in a collective manner impacted the companys numbers which even led to a negative reserves that lasted until FY 07. However, after the company exited many of these loss making businesses and started concentrating on streamlining its distribution network, the company has truly turned around. Between FY 07 and FY 09, while the revenues of the company increased by 3.4 times, the net earnings increased by around 20 times and 10 times (excluding other income). This clearly shows the unused potential of the company and its products.
Staring at good timesThe company is in a best shape and has reported impressive margins in the recent times. The improvement ininventory turnover ratio is a clear example of efficiency setting into the business. The company has also reportedimpressive profit margins of 33% (OPM) and 23% (NPM) in the recent fiscal year.The company’s financial year in June ending and the company receives more than 80% of its business in the lasttwo quarters, owing the favorable climate conditions. To reduce this dependence, the company has forayed intomany export markets. The company has been aggressively expanding its domestic distribution network and is alsolooking at bigger business opportunities from industrial applications.The company had management re jigs and recently roped in the COO of Kenstar with 12 years of experience as thePresident of the company.The share of the organized air cooler market in India is pegged at around 15% to 20% and is growing ata healthy pace. More customers are moving towards branded air coolers, where Symphony is in charge.
TargetsWe expect the company to record earnings both in the short term and with a long term (2 or 3 years) point ofview. There is a reasonable chance that the company will grow its earnings at a CAGR of at least 35% in next fewyears.The company being a market leader and brand oriented player with negligible debt levels, 45 crore cashreserves, impressive profit margins and return ratios looks highly undervalued at 3.3 times FY 10Eearnings and 2.2 times FY 11E earnings. There is a very high probability for a PE re-rating.With the above considerations, following are our 6 months and 12 months price targets (Conservative)6 months target – Rs. 300 (49% appreciations from the Recommendation price of Rs. 203.95)12 months target – Rs. 380 (around 88% appreciation from the Recommendation price or Rs. 203.95)