Edited Transcript of SYMP.NS earnings conference call or presentation 22-May-19 10:00am GMT

At a company level, our outsourced manufacturing was back to normal starting August ’18 itself. As we conveyed earlier, Symphony has gone for Symphony Version 3.0. In that respect, we are on track in respect of volume-led value growth by keeping our asset light, capital light, working capital light business model intact.

There has been, within the year, launch of 16 new models, which have been received well, offering innovative features, design, format as well as performance. Down the line, we are sure that time to time, there will be launch of new models offering innovative performance, design and format.

Coming to specifics of summer of 2019. Very happy to share that, by and large, backlog of inventory, in line with the trade channel, has been cleared off. Of course, at our company level, that inventory was cleared off in off-season itself. Not only that, we are witnessing in the summer of 2019 strong secondary sales and good offtake across the geographies and across the trade channels. We are also witnessing that despite air cooler being a low-ticket consumption item, more and more consumers are preferring easy finance options. And in keeping in line with the trend, we have also tied up with several national as well as regional NBFCs to take care of that.

As far as competition is concerned, Symphony has maintained its edge in respect of the product, in respect of the sales, in terms of number of the format, in respect of consumer tool as well as consumer tool strategies and also service after sales.

So having said this, coming to specific financials for the year 2018-’19 on a stand-alone basis. For the quarter March ’19, the revenue from operations stood at INR 138 crore, down from INR 155 crore, that is down by 11%. So starting March quarter itself, we have seen that the growth, to an extent, was restrained. In earlier 2 quarters, the [NII] growth was in excess of 20% and of course, in June quarter, the growth was around 45%.

Coming to EBITDA, excluding exceptional items for the quarter, stood at INR 51 crore versus INR 59 crore in March ’18. However, there are exceptional items during the quarter amounting to INR 20 crore and during the year, INR 24 crore, which mainly includes complete write-off of investments in preferred shares of IL&FS amounting to INR 21.5 crore, which were to mature in 2021 and 2022. So excluding this exceptional item, PBT for the quarter on a stand-alone basis stands at INR 50 crore — INR 58 crore. However, after accounting for exceptional item as well as taxation, tax for the quarter is INR 19 crore versus INR 42 crore, while gross margin percentage on sales stands at about 48% versus 49% in December ’18 and 54% in March ’18.

In respect of business model, as I said earlier, our business model is impacting this sort of capital light, asset light. And hence, on a stand-alone basis, annualized capital employed in the core business of air cooler and appliances stands at INR 114 crore, which translates into ROCE, that is EBIT on core capital employed, at about 116%, of course, lower than earlier year but still different. And treasury as on March ’19 is INR 458 crore, which is in addition to investments in subsidiaries. So including investments in subsidiaries, it stands at about INR 545 crore. And on an annualized basis, the turnover stands at INR 522 crore versus INR 685 crores, that is a reduction by 24%. EBITDA excluding exceptional items is down to INR 168 crore down from INR 260 crore, while PAT on a stand-alone basis is down from INR 183 crore to INR 101 crore.

Coming to centralized and commercial and cooler segment. Last year itself, we had initiated restrategizing, restructuring and redefining the business growth plans for centralized and commercial air cooler. We are pleased to inform that in that respect, we are not only on track but also achieving desired result. For that segment, we have further strengthened our dealer and distribution network. And during the year, the dealers and distributors have gone up by almost 50%. We have created many, many dedicated authorized service providers for Sense range. We have also launched under commercial air cooler, as a part of centralized cooler, feature-rich, user-friendly commercial air cooler, Movicool. And we are quite confident based on initial response that it should lead to major growth trajectories for the years to come.

Coming to international business that is rest of the world. Including exports from India and our 3 overseas subsidiaries, the rest of the world has contributed INR 377 crore of top line out of consolidated top line of INR 844 crore, that is about 44%. Exports during the year from Symphony India was down from INR 66 crore to INR 57 crore, mainly on account of some inventory pileup in 3 countries, which, by this time, has cleared off. And in current year, we should see back to normal and maybe accelerated export.

Coming to subsidiary company-wise performance. IMPCO Mexico, during the year, we launched a new range of residential and window model of air cooler. Some of the existing models we intend to replace by securing the efficient, feature-rich but most cost-efficient model. Further down the line, we also propose to launch, suitable to North American market, new models. And we have also identified some more value engineering projects to — which should lead to further improvement in its performance.

On a stand-alone basis, IMPCO Mexico’s top line for the year stood at about INR 88 crore, which in terms of the top line was flat in regards the previous year. But in terms of EBITDA excluding exceptional item of previous year increased from INR 5 crore to INR 8 crore, while PBT increased from INR 4 crore to INR 7 crore. And PAT also increased from INR 4 crore to INR 7 crore. In the year 2017-’18, in IMPCO Mexico, there was a onetime gain amounting to about INR 10 crore on disposal of some of the real estate.

So as it was conveyed earlier, IMPCO Mexico is a completely turnaround story. And on exports from India through IMPCO Mexico on residential range of air cooler, there is also a decent profit which is reflected in Symphony’s books.

Coming to GSK China. For the year, its top line increased from INR 44 crore to INR 56 crore. EBITDA, which was negative INR 2 crore in ’17, ’18, is now positive INR 2 crore. While at a PAT level, which was negative INR 5 crore, is now negative INR 2 crore. But at a cash level, it is positive by about INR 1 crore.

Coming to Climate Technologies. For the 9 months, its financials have been consolidated. And for 9 months, its top line stands at about INR 206 crore. And there is, on account of acquisition, onetime adjustment costs amounting to INR 7.5 crore, which is due to notional entry for reevaluation of inventory. So INR 7.5 crore is on account of that, and also about INR 4 crore is interest costs on acquisition funding. So in all, about INR 12 crore is on account of that.

So after accounting for these 2 items, the PBT is about INR 15 crore. But if we exclude them, it is minus INR 3 crore. And at a PAT level, it is minus INR 14 crore. But if we exclude these 2 items, it stands at minus INR 2 crore. In fact, in Climate Technologies, this means a soft year of acquisition. There were some initial hiccups in terms of the integration, and it happened due to some initial heating issues. But now operation is completely back to normal. And its integration, some of the key focus areas have been clearly identified, and we propose to launch Symphony range of residential air coolers in Australia as well as United States, which will be sold through its existing established trade partners of Climate Technologies, which includes several large furniture stores.

We have also undertaken to upgrade some of its existing new models. We also propose to introduce new range of commercial portable air cooler that is suitable to Australian market. And we have identified and targeted some specific value engineering projects and also rationalization of the overhead, which should, down the line, improve its operating performance. We also intend to improve some of its processes and design, and we have also initiated a more efficient working capital offering.

So all in all, at a consolidated level, for the year 2018-’19, sales stands at about INR 841 crore, up from INR 796 crore. But mainly, it is on account of acquisition of Climate Technologies. EBITDA before exceptional item stands at INR 178 crore, down from INR 265 crore, while PBT after accounting for exceptional items stands at INR 130 crore, down from INR 265 crore. While PAT on a consolidated level stands at INR 92 crore, down from INR 193 crore, which is after accounting for exceptional item of INR 24 crore at Symphony India and a onetime acquisition adjustment at a level of Climate Technologies.

Coming to a few of the corporate announcements. So Symphony has — the Board of Directors of the company has recommended final dividend of 75%, that is INR 1.5 per share which — including interim dividend. All in all, it will translate into close to INR 40 crore of payout during the year.

The Board has also taken into account that for last 2 years, the overall payout was lower. And hence, to match with the company’s payout policy, the company will resort to share buyback by March 2020. The modalities and pricing will be decided in ensuing Board Meeting or Board Meetings. And Board has empowered to go for buyback up to 25% of net worth, which is the maximum permissible limit. So buyback can happen up to INR 165 crore.

And Board has also recommended appointment of independent director, the details of which we already shared.

So with this, I open up the floor for question and answer.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have a first question from the line of Nitin Arora from Axis Mutual Fund.

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Nitin Arora, Axis Asset Management Company Limited – Equity Research Analyst [2]

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So my first question is that you were — your commentary says a strong secondary sales is happening. How much the industry would have grown in April, May in your sense? Because I’m asking in the context that in Symphony channel, there were some more guide — a lot is having a problem of season, the rain that’s happening there. So it would be great if you can just tie it on the industry side and how much investment could have happened in?

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Nrupesh C. Shah, Symphony Limited – Executive Director [3]

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As far as industry growth is concerned, still we are in the midst of the summer season. It is too premature to really estimate industry growth. But it seems that considering overall good summer, there has to be a growth. But to be very specific about the company, as we conveyed earlier, for sure worst is over, we are witnessing robust offtake by the trade channel across the format. Not only that, whatever backlog of the inventory was, by and large, it has been completely cleared off in all the geographies. So we are likely to witness, subject to how remaining 5 weeks really performed, a good quarter. And normally, summer sets the tone for ensuing quarters.

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Nitin Arora, Axis Asset Management Company Limited – Equity Research Analyst [4]

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Then my second question is we saw a lot of ad spends in the media, a lot of ads started coming from Symphony after a long time. So is this cost — has been accounted in the previous quarter as well as in this quarter? Or this is something we still approve? So my question is, is there any large ad spend or something like that coming in the ensuing quarters?

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Nrupesh C. Shah, Symphony Limited – Executive Director [5]

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So normally, our media ad spend is mostly in June quarter and partly in March quarter. So whatever was the media spend in the March quarter, it has been fully accounted for. And whatever will be additional media spend across various formats of media, it will be accounted for in June quarter, which is in line with our past practice.

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Nitin Arora, Axis Asset Management Company Limited – Equity Research Analyst [6]

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And I think that you’re still seeing other growth. But you don’t expect that the channels in north as somewhat seasonality is something which is going on and off there. You’re still seeing a good growth for the freezer and such?

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Nrupesh C. Shah, Symphony Limited – Executive Director [7]

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Please repeat the question.

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Nitin Arora, Axis Asset Management Company Limited – Equity Research Analyst [8]

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So sir, the second part of the question — or the first question which I asked is a lot of the channels when we speak to them, not only coolers but also issues in the north, what we are getting is the season has been somewhat disturbed by the rains there, especially Pakistan, India and also in — Delhi and (inaudible). So they’re saying that the season was kind of not that great in the month of April. So that’s why I was asking that do you agree with what that channel is saying? Are you still [seeing] issues and such? Are you still getting a growth of 40 — 30%, 40% there?

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Nrupesh C. Shah, Symphony Limited – Executive Director [9]

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Yes. Our country is so vast. It’s always going to happen. Out of so many regions, some of the regions, weather may not be good. So of course, as you said, it’s true that, particular to those 2, 3 territories, it has not been that great. But what we talked about and referred to, overall, as a company and overall all of the geographies put together, we are witnessing good offtake and demand.

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Nitin Arora, Axis Asset Management Company Limited – Equity Research Analyst [10]

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Okay. Sir, my — another question was related to the old total consolidated results. If you can throw some light on the Climate Technologies quarterly numbers for this quarter. As well as we saw gross margin going down as well as EBITDA margin has been on the down trend if you look at the year-over-year or sequential. And given the guidance you’ve given for Climate Technologies, I think we have not met that, correct me if I’m wrong. So if you can throw some light on that. That’s all from me.

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Nrupesh C. Shah, Symphony Limited – Executive Director [11]

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Yes. So I do have a subsidiary company-wise annual numbers, but not specific quarterly numbers. So if I share with you the annual numbers of Climate Technologies on top line, so top line-wise, it was INR 206 crore. While in EBITDA before onetime acquisition adjustment was negative of about INR 7 crore. While after the accounting for onetime adjustment as well as acquisition, interest costs, at PBT level, it is negative by INR 14 crore. So of course, for Climate Technologies, even if we exclude onetime adjustment cost as well as acquisition cost, the performance has not been in line with our estimate. But it was more due to some hiccups and initial intervals on account of acquisition. But as I shared in my initial remarks, it is now completely set. And integration in respect of some of the major strategies, product strategies, manufacturing, cost rationalization, product launch et cetera, have been already set. And on account of that, now in the current year as well as next year, we are going to launch Symphony’s range of residential air coolers in Australia as well as United States through its established distribution network, including the large-format stores.

Not only that, some of the heavy-duty commercial air coolers are being proposed to launch, which have been developed in China as well as Symphony India. And some specific high-ticket value engineering and cost reduction items have been identified, and work has been initiated thereon. So despite not so good performance of Climate Technologies in 2018-’19, we remain very optimistic about its medium to long-term performance.

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Operator [12]

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We have next question from the line of Renu Baid from IIFL.

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Renu Baid, IIFL Research – VP [13]

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Sir, first question, you did mention that post — a tough season, as in a tough quarter, and then you’re seeing very strong offtake. Just to recollect, last year, June quarter was a significantly weak quarter where we barely [did a] growth of revenues. So that means…

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

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(inaudible)

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Renu Baid, IIFL Research – VP [15]

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Yes, as in given the kind of almost 40% decline that we saw last year June quarter, you barely did INR 80 crores, INR 79 crores, INR 80 crores of revenues, core stand-alone books. So when we look at Y-o-Y growth, definitely, the jump would be significant, 100%-plus. But when we compare to normalized seasonal levels as in prior to 2018, which would have been ’16, ’17 years, compared to those average levels, how are we seeing the base demand offtake from a season perspective this year, so not comparing it with the last season but on an average — the trend that we have seen, which we have — in June quarter, we have seen revenues between INR 230 crores — INR 120 crores through INR 150-odd crores. So compared to that base, are we seeing growth coming in for us this season? Or on a 2-year, 3-year CAGR basis, there is not much of growth?

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

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Sure. So first and foremost, it was very important that even though we sold 100% advance in off-season, one [multiple] was with backlog of inventory at trade level, that is inventory we — they were carrying forward and sitting on, since June ’18 and on top of it, whatever we have sold within off-season, that should have been our secondary sales. That is very important. So by and large, across the geographies, across the trade channels, backlog as well as off-season sales has been cleared and it has been done. So you — that’s very important and significant milestone, especially when there was a bad season.

Secondly, on top of it, even in current quarter on top of partly in March, there is a fresh demand and offtake. So we will like to evaluate the performance more considering these aspects.

Now answering to your specific question whether we will grow vis-à-vis the June ’17 or so, I think it is premature because still 5 weeks to go. But I — and of course, you rightly say that vis-à-vis June ’18, there will be our growth. But vis-à-vis June ’17, there will be a growth? It is possible, or we need to keep our finger crossed. But it is premature as of now.

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Renu Baid, IIFL Research – VP [17]

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Right. But on your seasonal offtake, if we see as in the channel [6] purely (inaudible) district, the South, towards end of March picked up very strongly, Central and they have done well but not still — has been mixed because of intermittent showers and weather not being very clear on the summer side. So do you read — as we should — we read — should one read anything between the lines for North as a market because that is a significant large market for us as well, or one can still presume it’s still 1, 1.5 months to go and season might turn around?

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Nrupesh C. Shah, Symphony Limited – Executive Director [18]

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See, there is a strong forecast that there is likely to be an extended summer and delayed monsoon. If that is the case, in the past, we have seen that, especially in North India, there is also a delayed offtake right up to June. So even if as of now in some pockets there are disturbances, there may be some offtake.

Secondly, vis-à-vis last year, in current year for us in North is really not that bad. And even without North, as of now as a company, there has been a decent performance. So still, we have to keep our finger crossed for North India.

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Renu Baid, IIFL Research – VP [19]

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Sure. And how would one evaluate and look at the competitive pressure this season because still it’s been mixed. So a, with respect to competitive pressures in the market, what are we seeing? And as we go in the next season, I mean we’ve had some impact on gross margins also. So can one presume that gross margins are going ahead — should improve back to normal or there could be much more sustained pressure on them?

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Nrupesh C. Shah, Symphony Limited – Executive Director [20]

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I think by and large, on account of, again, series of initiatives we have initiated internally, we are reasonably confident at this point of time that whatever is the gross margin in the mid-year ’18-’19, which was close to 48% to 54%, we should be in a position to maintain.

Having said that, of course, this requires — we are really in a position to give the competition run for their money. But that call, we haven’t yet taken. So even after reducing some gross margins, if we are really confident that there can be substantial increase in volume, we may go for that. But subject to — but if that is the case, then total size of the cake in terms of the profitability will increase, even though percentage wise, it may be lower. But as of now, we are fairly confident to manage — to maintain current level of gross profitability margin, subject to this strategy. That’s number one. Number two, as far as competition intensity is concerned, of course, there is a competition. But in the past also, it was not like we were in monopoly or oligopoly position. Even if we don’t…

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Renu Baid, IIFL Research – VP [21]

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Sir, I just comment you were seeing FY ’19, we had really compromised on the gross margins that used to sit at almost 53% in FY ’17-’18. So we can surmise on that, given the fact the season was weak, the channel was impacted, and we would have wanted to throw more support to the channels. Now assuming that the season normalizes back at the end of this year or at the end of June, should one logically improve — expect improvement in gross margins back to 52%, 53% levels? Or should one presume that the current gross margin levels of 50% is more realistic to assume in the current environment? That is my easy question.

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Nrupesh C. Shah, Symphony Limited – Executive Director [22]

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So at this point of time, whatever has been the gross margin in ’18-’19, we are comfortable to maintain that.

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Renu Baid, IIFL Research – VP [23]

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Sure. Right. And sir, my second question is more on the commercial air cooling segment. We have seen sustained growth. You mentioned a significant increase in dealer distributor signs there. So if you can help us understand then, has this business now come to a base critical mass in terms of installed base or in terms of revenue base here? And how are we looking at the supply chain and manufacturing of these coolers? If you can throw some light on that aspect as well.

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Nrupesh C. Shah, Symphony Limited – Executive Director [24]

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Yes. So for sure, now [we have] reached to a critical mass. We are really looking at — and we feel that from this level, we can really take off. And we have already dropped out and in the process of implementing certain significant strategies to grow the business. And we feel that in 2, 3 years’ time, that should improve results.

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Renu Baid, IIFL Research – VP [25]

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So when is the critical mass as a percentage of the annualized revenues would it still — as in would it now be at 10% or still far lower in terms of the overall value that it has in our mix today? I’m talking of stand-alone operations.

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Nrupesh C. Shah, Symphony Limited – Executive Director [26]

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Yes. On a stand-alone basis, still it is less than 10% but far higher than what it was the year before.

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Renu Baid, IIFL Research – VP [27]

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Right. And my last question, within the subsidiaries, as in fourth quarter was expected to be a favorable quarter for Climate Technologies, especially Australia’s summer could have been — and this was supposed to be a very strong quarter. Surprisingly, the numbers have been weak. You’ve highlighted few of the reasons yourself. So now when we look forward to the next financial year, how should we look in terms of the numbers for Climate Technologies both in terms of revenue and EBITDA? And I’m asking for specific numbers as guidance because you had given some guidance at the time of acquisition. So just to get a sense on the numbers, whether they’re still in place or are we expecting big change in the forecast there.

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Nrupesh C. Shah, Symphony Limited – Executive Director [28]

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So whatever guidance was given, we stick to that for Climate Technologies. If you need a specific answer, that is the specific answer, and we stick to that. And we really see that it’s likely to happen that way.

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Renu Baid, IIFL Research – VP [29]

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Sir, can you just help us reiterate or remind the guidance numbers?

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Nrupesh C. Shah, Symphony Limited – Executive Director [30]

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I believe broadly speaking…

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Renu Baid, IIFL Research – VP [31]

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Financial forecast, yes.

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

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Yes. So if I recollect rightly, broadly speaking, we had estimated and indicated that the top line-wise, it should be about INR 275 crore to INR 280 crore for developments. In EBITDA-wise, it should be close to AUD 5.5 million to AUD 6 million, that is about INR 30 crores. And PAT-wise, it should be, without accounting for exceptional item or acquisition funding costs, close to INR 23 crore, INR 24 crore.

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Renu Baid, IIFL Research – VP [33]

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Right. Because next year, in EBITDA, there wouldn’t be any exceptional items. They’re already behind. So INR 23 crores, INR 24 crores…

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Nrupesh C. Shah, Symphony Limited – Executive Director [34]

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Yes. Inventory adjustment won’t be there but still closer, of which acquisition has yet to be achieved, which is based on several milestones. So if at all any exceptional item on that arises, which we are not aware as of now. Other than that, major exceptional item has been already accounted for. Secondly, acquisition interest costs, still if this funding is paid off, will continue.

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Renu Baid, IIFL Research – VP [35]

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Okay. So that is a part of our recurring expenses. So…

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Nrupesh C. Shah, Symphony Limited – Executive Director [36]

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Absolutely.

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Operator [37]

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Our next question from the line of Prithvi Raj from Unifi Capital.

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Prithvi Raj, [38]

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On the Climate Technologies, so when can we achieve the revival sales from this quarter onwards? Can we achieve the revival or do you think it will take some more time?

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

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No. I think whatever — I think what were hiccups were there or initial deemed issues were there, which normally happened at the time of acquisition, that do with the respect of integration, by and large, they have been taken care. And we feel that starting current quarter itself, in fact, we should see the positive result

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Operator [40]

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We have next question from the line Naveen Trivedi from HDFC Securities.

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

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Sir, considering the extended winter that has impacted many players, even the air conditioning players, in the fourth quarter, your domestic performance is very encouraging, particularly when the channel inventory has also normalized. So considering — you already talked about the growth has come from across the markets and the inventory has also normalized across the market. So can we see that despite like a — you already mentioned about North and West is also expected to do — have seen extended summer this time. This year, our inventory levels, by the end of the year, could also raise to a normal level. Were — and then because we have also done some new launches at the end of the quarter. So considering these 2 points, how do you see the traction in that part?

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Nrupesh C. Shah, Symphony Limited – Executive Director [42]

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Yes. As I said earlier, I would reiterate that already, across these geographies, barring some exceptions here and there, inventory at a trade channel level, at a company level and also at OEM level is absolutely back to normal. And as it is already back to normal as of date, by and large, that trend should continue even at the end of summer.

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Naveen Trivedi, HDFC Securities Limited, Research Division – Research Analyst [43]

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And have you seen that — any shift between from unorganized to organized? Because one of the player has already mentioned that they witnessed a shift from unorganized to organized this season. So have you also noticed this kind of a change?

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Nrupesh C. Shah, Symphony Limited – Executive Director [44]

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I don’t think that there has been any significant shift from unorganized to organized. Except over a period of time, in a normal case, on account of rising aspiration level, purchasing power shift is happening. But that is in a normal course.

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Naveen Trivedi, HDFC Securities Limited, Research Division – Research Analyst [45]

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Okay. And you talked about that period of time when some of the NBFCs also to have a — consider finance for air coolers. Any number which you’d like to share about how much percentage of revenues now because it is then — like what kind of experience you’re getting with this kind of a type.

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Nrupesh C. Shah, Symphony Limited – Executive Director [46]

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No. We are having numbers but not worth sharing.

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Naveen Trivedi, HDFC Securities Limited, Research Division – Research Analyst [47]

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Okay. But like will this be more of a contribution to what — how we have seen in case of other appliances, do you think this is a — this can be a material change, how it has been the case — in the case of larger appliances also?

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Nrupesh C. Shah, Symphony Limited – Executive Director [48]

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We are not sure what’s happening in other appliances. But in our case, as I mentioned, there is an increasing trend with the consumers, especially with the young consumers, also in many, many other geographies, to buy on finance. So to respond to them, we have tied up with many, many national as well as regional NBFCs. There is an increasing trend, and that trend is likely to continue.

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Naveen Trivedi, HDFC Securities Limited, Research Division – Research Analyst [49]

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Okay. Fine. And your India EBIT margins, if I exclude the one-time impact, is it fair to say that your India EBIT margin was close to 36% this quarter?

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

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Yes. Specific margin, so for the quarter on a stand-alone basis, our EBITDA before exceptional item is INR 51 crore on a top line of INR 137 crore. So it’s close to 36%, 37%.

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

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Okay. And if you can also give us your time line for the new launches, was it like in these segments? The price point also, why is it — it wasn’t the [mass] within the premium segment also?

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Nrupesh C. Shah, Symphony Limited – Executive Director [52]

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We would like to keep it as a surprise in terms of timing and price and format, isn’t it? I think we live and [sit on] a competitive industry. It should be a surprise.

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Operator [53]

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We have next question from the line of Nandan Vartak from Wealth Managers.

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Nandan Vartak, [54]

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So my question is about exports from India portion. So you mentioned about the inventory pileup in subsidiary companies, and that’s why it is lower. But is there some strategy change because a few days back, there was a notification on exchange that our Suraz SEZ Unit has been closed down. So just want to understand our — that.

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Nrupesh C. Shah, Symphony Limited – Executive Director [55]

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See, there is a change in the strategy in the sense that Suraz SEZ was not closer to the port. It was involving some higher logistic costs and also a lead time. So about 2 years before we establish unit in Kandla SEZ, which is very close to the port, better connectivity and better lead time. So to that extent, there is a change. And hence, we didn’t deem it appropriate to continue operations in Suraz SEZ. So want to rationalize the overhead, of course, there is a small overheads and also whatever small investment was there, it has been monetized.

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Nandan Vartak, [56]

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Okay. Okay. And would there be possible to give a manufacturing capacity of Kandla SEZ?

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Nrupesh C. Shah, Symphony Limited – Executive Director [57]

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Kandla, seeing as it is, where it is, can annually manufacture about 200,000 units. But if required, we can ramp up the capacity quickly because as such, it is more like assembling kind of facility.

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Operator [58]

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(Operator Instructions) We have a next question from the line of Pankaj Bobade from Axis Securities.

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Pankaj Bobade, Axis Securities Limited, Research Division – Assistant General Manager of Research & Research Analyst [59]

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My only question is regarding the margins, the gross margins, your EBIT — EBITDA margins. Are we — are the margins which we have seen in FY ’19, should we consider them as a new normal when you — going back to what we had earned the earlier years?

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Nrupesh C. Shah, Symphony Limited – Executive Director [60]

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So as far as the gross margin is concerned, for the year, gross margin on stand-alone basis stood at 50% vis-à-vis 53% in ’17-’18. So for sure, as of now, we are comfortable with and wish to maintain this gross margin. But depending upon the market scenario and market dynamics, if we are convinced that overall [KT] of profitability can be increased, we have enough room to play with the price, whereby gross margin may come down. But overall KT of profitability or long-term business prospects may improve. So it depends upon the market dynamics. But otherwise, as of now, we are comfortable with ’18-’19 gross profit margin percentage.

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Pankaj Bobade, Axis Securities Limited, Research Division – Assistant General Manager of Research & Research Analyst [61]

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Sir, you mentioned about ’18-’19 percentage of…

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Nrupesh C. Shah, Symphony Limited – Executive Director [62]

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’18-’19 gross profit margin percentage stands at about 50%. And as of now, we are comfortable with this margin.

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Pankaj Bobade, Axis Securities Limited, Research Division – Assistant General Manager of Research & Research Analyst [63]

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Well, as you mentioned, the reduction in gross margins between ’17-’18 and ’18-’19 has been just 300 bps. But if you see at lower level that is at EBITDA margins level, the reduction is quite substantial. So going forward, do we see them reviving at EBITDA level?

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

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See, that really doesn’t matter. Most importantly, it’s about gross profit margin because EBITDA margin percentage is also a function of denomination. And in that case, denomination is the sales. So obviously, during ’18-’19, sales is down here as a whole by 24%. And in between gross margin and EBITDA, there are sales promotion, advertisement and fixed overheads, which by and large remains fixed. So obviously, it is impacted. So we need to take care of top line and gross profit margin, and the rest of the items, by and large, should be automatically taken care.

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Pankaj Bobade, Axis Securities Limited, Research Division – Assistant General Manager of Research & Research Analyst [65]

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So if we are expecting around 50% as a gross margin, then definitely the — going forward, we expect better results. Should I consider it in that way?

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Nrupesh C. Shah, Symphony Limited – Executive Director [66]

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Yes. It should lead to that way.

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Operator [67]

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(Operator Instructions) We have the next question from the line of Nirav Vasa from Anand Rathi.

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Nirav Vasa, Anand Rathi Financial Services Limited, Research Division – Research Analyst [68]

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Can you please help me with the market share that we have the end of this financial year versus the number on Y-o-Y basis?

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Nrupesh C. Shah, Symphony Limited – Executive Director [69]

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Yes. So for our 2018-’19, I believe that our market share should have been — still it is slightly early, but still it should be closer to, value terms, around 47%, 48%.

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Nirav Vasa, Anand Rathi Financial Services Limited, Research Division – Research Analyst [70]

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And what was that number on Y-o-Y basis?

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Nrupesh C. Shah, Symphony Limited – Executive Director [71]

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I think it was year before close to 50% or so.

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Nirav Vasa, Anand Rathi Financial Services Limited, Research Division – Research Analyst [72]

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Sir, my second question is pertaining to the competitive intensity. Considering your business model, a lot of — several of your peers who have a very good understanding of the Indian market, have a strong balance sheet and also very strong understanding of Indian customer preferences are getting into market. Also, they have a very strong branded distribution network. So with the rising competitive intensity from all these organized players who are very strong, how long do you think that such a high market share can be maintained? Or are you seeing any threat from any significant player that can impact our market share or any comment on the competitive intensity, especially from those big guys?

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

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See, it’s like — currently, there is a competition. In the past also, there was always a competition. Players have changed. So there are some players who are competitive with us for more than 20, 25 years, I think a couple of them from organized players. In between, many large Indian consumer durables companies — in fact, you name any Indian consumer durables company at one point of time or others point of time, they had forayed into air cooling business. And many of them, due to a variety of reasons, exited after 4 years. So as far as competition is concerned, there is nothing new. Of course, now there are some more brands, but we are totally geared to take on with them through various strategies and through various initiatives.

As far as the market share is concerned, we are not really going to speak to achieving certain market share percentage. We are more towards achieving sustained growth in terms of the top line and profitability. And by and large, considering the road map which we have decided, for the next couple of years, we are decidedly considering to achieve that.

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Operator [74]

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(Operator Instructions) We have the next question comes from the line Pankaj Bobade from Axis Securities.

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Pankaj Bobade, Axis Securities Limited, Research Division – Assistant General Manager of Research & Research Analyst [75]

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Sir, with these acquisitions which we have done, especially the Climate Technologies, where do you see our company — our consolidated entity over the next 2 years, what top line?

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Nrupesh C. Shah, Symphony Limited – Executive Director [76]

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No. We are not targeting or giving guidance in terms of the absolute top line or profitability. But as we may have conveyed earlier, on a CAGR basis, including this acquisition, top line-wise and bottom line-wise, we should achieve around 20% CAGR growth in medium to long term. But I can’t share or we don’t give guidance in terms of specific numbers. Coming to Climate Technology, in particular, as we had shared earlier, at the time of acquisition, we are reasonably confident to achieve top line of about INR 275 crore to INR 300 crore and EBITDA of about AUD 6 million, that is INR 28 crore to INR 30 crore, and PAT in the range of INR 20 crore to INR 25 crore. That we should be in a position to achieve in a year or 2.

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Pankaj Bobade, Axis Securities Limited, Research Division – Assistant General Manager of Research & Research Analyst [77]

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Sir, is the CAGR number, you mentioned 20% or 25%?

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Nrupesh C. Shah, Symphony Limited – Executive Director [78]

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So I said CAGR percent, 20%.

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Pankaj Bobade, Axis Securities Limited, Research Division – Assistant General Manager of Research & Research Analyst [79]

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20% over the next 2 to 3 years.

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Nrupesh C. Shah, Symphony Limited – Executive Director [80]

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In medium to long term, without giving any indication how many years.

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Operator [81]

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We have next question from the line of Nandan Vartak from Wealth Managers India.

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Nandan Vartak, [82]

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So I know that Symphony doesn’t give any volume number for — but could you give some idea about the industry volume number in FY ’18?

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Nrupesh C. Shah, Symphony Limited – Executive Director [83]

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So to the best of our estimate, air cooler industry volume should be in the range of 7 million to 8 million units, including organized/unorganized sector [portfolio].

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Nandan Vartak, [84]

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Okay. And has the mix changed between organized and unorganized?

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Nrupesh C. Shah, Symphony Limited – Executive Director [85]

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Over a period of time, there is a shift from organized — unorganized to organized, say, about few years before unorganized in terms of the volume was contributing 90%. Now to the best of our estimate, it is contributing 75%. But that shift is happening not on account of, as per our understanding, GST but mainly on account of rising aspiration level, better purchasing power, more and more awareness and availability of product, et cetera. So we expect that, that trend should continue.

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Operator [86]

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Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments. Sir, over to you.

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

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Yes. So thanks to ICICI Securities. Thanks to Ansuman Deb as well as all the participants for your time, valuable feedback and your involvement. Thank you.

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Operator [88]

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