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55,000% up in 15 yrs, 24% down in 5 yrs! Will this small-cap run again post Q4 results?

55,000% up in 15 yrs, 24% down in 5 yrs! Will this small-cap run again post Q4 results?

In the equity market, there are a couple of case studies which have halted investors’ wealth creation journey after delivering a massive return in the long run. This multibagger is one such example.

With a fall of 24 per cent, shares of the cooler major have underperformed the benchmark equity index BSE Sensex (up 82 per cent) in the past five years. With a fall of 24 per cent, shares of the cooler major have underperformed the benchmark equity index BSE Sensex (up 82 per cent) in the past five years.

Investing is all about scuttlebutt, research, picking the right stock and, most important, exiting at an appropriate time. Those who master the last step can protect their gains on Dalal Street. In the equity market, there are a couple of case studies which have halted investors’ wealth creation journey after delivering a massive return in the long run. Symphony is one of them.

Share price movement

With a fall of 24 per cent, shares of the cooler major have underperformed the benchmark equity index BSE Sensex (up 82 per cent) in the past five years. Before wiping off some of the gains, the scrip had climbed 72,725 per cent between May 2007-2017. Overall, shares of Symphony have gained 55,337 per cent in the past 15 years till date.

Financials

Of late, market watchers have maintained a ‘Buy’ rating for Symphony after it reported a mixed bag of a performance in Q4FY22 with revenue growth partially offset by a lower EBITDA margin. 

The company on May 3 reported a marginal growth of 1.58 per cent in its consolidated net profit at Rs 64 crore for the fourth quarter ended March 2022. It had posted a net profit of Rs 63 crore in the January-March quarter a year ago. Its revenue from operations increased 13.27 per cent to Rs 384 crore during the quarter under review, as against Rs 339 crore in the year-ago period.

In the long run, net sales of the company has grown by 24 per cent CAGR to Rs 1,039 crore since FY2007, while net profit has increased by around 31 per cent annually to Rs 121 crore during the same period.

YES Securities sees 17 per cent CAGR revenue growth for Symphony for the FY22‐24 period. “Considering higher operating leverage, we estimate FY21‐24E EBITDA and PAT CAGR of 31 per cent and 33 per cent respectively. We feel the complete recovery in margins will remain challenging,” the brokerage said.

About the company

Symphony is the world’s largest manufacturer of air coolers with a presence in over 60 countries and provides air cooling products in the residential, industrial and commercial segments. It has a strong distribution network of over 30,000 dealers, more than 1,000 distributors and over 1,000 authorised service centres across the country.

The company has an asset-light business model with strong RoE and RoCE of around 20 per cent and 21 per cent, respectively (average in the past three years).

Should you invest?

ICICI Securities said has a ‘Hold’ rating on Symphony with a target price of Rs 1,215. “Price-performance has stayed muted underperforming the index in the last five years. We value Symphony at 35 times P/E on FY24E EPS,” the brokerage said, adding that organised players would gain market share due to their strong balance sheet and robust supply chain network going ahead.

At present, the air cooler industry is dominated by unorganised players (70-75 per cent of the total industry). “Increased rural electrification, urbanisation and 1.7 crore new houses under PMAY will augment growth in the Indian air cooler market. Strong demand for cooling products from Australia and the US will drive revenue growth of overseas subsidiaries,” ICICI Securities said.

HDFC Securities has an ‘Add’ rating on Symphony with a target price of Rs 1,200. “With normal channel inventory and robust primary sales already visible in April, we expect strong domestic growth from Q1FY23 onwards.”

YES Securities is also bullish on Symphony with a target price of Rs 1,215. “Domestic business has bounced back well with a strong start to the summer season, with channel inventory getting liquidated in March and strong primary sales in April. The company delivers the highest domestic sales in April, and management expects that trend to continue in Q1FY23 with a slew of new launches. International business has seen robust growth with IMPCO Mexico and Climate Technologies growing at 39.2 per cent and 10.1 per cent respectively in FY22 with improved profitability.”

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