Symphony Ltd – Symphonomics is simple economics

What will you call a company that calls itself a maverick? Pretentious? Will your opinion of it change if you realise its market capitalisation has risen by over 2,000x in the last 10 years? Will it further change if you learn it earns a quarter of its revenue from abroad, has an EBITDA margin in the high 20s and has zero debt? Since we know your answer, let’s just reveal the name. It’s Symphony Ltd. Shakti Shankar Patra | The Dollar Business Symphony-Ltd-TheDollarBusiness

While there’s a lot more to the company, whether you are a Symphony bull or not boils down to what you think of air coolers. Yes, air coolers! Remember? What you think of air coolers, again, boils down to how upwardly mobile you are. It, probably, boils down to your income, your standard of living and your aspirations. Does this mean an air cooler is only for the not-so-privileged? Symphony Ltd. and its Chairman and Managing Director Achal Bakeri don’t think so. Symphony’s belief that air coolers are not obsolete and down-market products is core to everything the company does. The company believes that unlike air conditioners, air coolers are easy on the pocket – at the time of purchase and every time one pays the power bill – is environmentally friendly, is portable and doesn’t overcool. In fact, the company feels that an air conditioner is not even an air cooler’s competitor! To substantiate this point, the company, in its FY2014 Annual Report, asked, “When is the last time you encountered a room without a fan because it had an air conditioner?” An honest answer to this question, is very likely, the first step in appreciating Symphony’s business. What the company essentially believes is that air conditioners and air coolers are not competitors, but, actually, complement each other. The company believes an air cooler is not just the first cooling solution that people purchase while graduating from a fan, but it also has a role to play in the homes of the uber-rich, even in homes and hotels that are centrally air-conditioned.

"Symphony Ltd. has a close to 50% share in the Indian organised air cooler market"

All ends covered Symphone Limited's shareholding pattern-TheDollarBusiness

Symphony, essentially, exists in two segments – residential air cooling and, through its Mexican subsidiary, central air cooling. In fact, central air cooking is the segment Symphony is the most bullish on. The company claims even 3-4 degrees reduction in shop floor temperature enhances productivity by 25-30%. It feels Indian companies, in order to benefit from this increased productivity, are bound to spend on air cooling solutions for their factories, thereby opening up a multi-million units market for it. It also claims that a single turnkey central air cooling project is, in value terms, equal to several thousand standalone residential coolers and is a business that will keep it busy for years to come. As a validation of this, Symphony boasts of Asian Paints, Maruti Suzuki, Ranbaxy, Coca Cola, Pepsi and Havells as clients. Symphony has also executed the world’s largest central air cooling project at the Hajj complex in Saudi Arabia and Patanjali Yogpeeth in Haridwar – further proofs of its capabilities and a hint at the scalability of the central air cooling business. Almost miraculous Just eight years back – in FY2006 – Symphony had a standalone revenue of Rs.25.1 crore. And raw material expenses accounted for over 90% of this, thereby ensuring the company made a loss. In FY2014, Symphony had a standalone revenue of Rs.451.2 crore – an astounding CAGR of 43.5%. More importantly, in FY2014, raw material expenses accounted for just 43% of its revenue, ensuring it had an all-time high profit margin of 21.9%. What’s been core to this miraculous turnaround is a very unorthodox approach – Symphony outsources almost all of its production to original equipment manufacturers (OEMs) and to ensure it isn’t too reliant on one particular OEM, it has tie-ups with nine different OEMs. In fact, just how asset-light the company is, can be validated by the fact that in FY2014, depreciation and ammortisation was just 0.25% of net revenue – tangible assets of the company are worth just Rs.31.11 crore. This approach to business also means Symphony has never had the need to raise debt to fund expansion and hence continues to be debt free.

Symphony acquired IMPCO in Mexico-TheDollarBusiness

In 2009, Symphony acquired IMPCO in Mexico, and with that, started its foray into the central air cooling segment

Synergy-nomics In FY2014, at a consolidated level, Symphony earned a fourth of its revenue from abroad. And at the core of this is its Mexican subsidiary – IMPCO. For, a large chunk of Symphony’s standalone exports – from Symphony SEZ in Surat – are accounted for by IMPCO. IMPCO has also been instrumental in Symphony’s foray into central air cooling in India – the company has successfully implemented over 300 air cooling projects, like the one at Patanjali Yogpeeth. So, while on one hand, Symphony has benefitted from IMPCO’s tie-ups with large retail chains like Walmart, Home Depot and Sears, on the other hand, it has benefitted from IMPCO’s expertise in central air cooling solution, which seems to be the way forward for the company. Symphony's revenue and margins-TheDollarBusiness

Symphony's revenue and margins-TheDollarBusiness

Not so cool Despite a stunning performance, which has not gone unnoticed by the market – shares of Symphony, once again, outperformed benchmark indices last year – there are some minor question marks on company’s future. And the first and foremost is regarding (what has been) the company’s biggest strength – its asset-light model. With all its manufacturing outsourced to OEMs, there will always be fears about the OEMs’ ability to arm-twist Symphony. There haven’t been too many successful consumer durable companies that have entirely outsourced their manufacturing, right? Symphony's raw material expense-TheDollarBusiness

Symphony's raw material expense-TheDollarBusiness

Another minor question mark over Symphony is the sustainability of its pricing power. Despite a market share of almost 50%, the company claims it, today, commands just a 10-12% pricing premium over competitors. In FY2014, its realisation per unit (standalone) was Rs.6,382. This means air coolers from competing brands are available just Rs.600-Rs.650 cheaper, which, given that Symphony is perhaps the only brand that comes to mind when one thinks of branded air coolers, isn’t much.

"In FY2014, The Surat-based Symphony SEZ surpassed the one lakh coolers per annum mark"

A comfortable sleep These minor irritants aside, Symphony has been one of the most successful turnarounds in recent years. Its products can be seen everywhere – from shop floors in US to meditation halls in India. It’s asset-light, has zero debt and is cash rich. In fact, it probably is, today, the most successful Indian white goods company. So, as India tries to increase the share of manufacturing in GDP, and Prime Minister Narendra Modi goes about implementing ‘Make in India’ programme, there’s definitely a lot we can all learn from Symphonomics.

Next page: Interview with Achal Bakeri, Chairman & MD of Symphony Limited…

“Air coolers don’t emit greenhouse gases like ACs” Achal Bakeri, Chairman & MD of Symphony Limited Sticking to your conviction, when your company is on the verge of bankruptcy, is not easy. Neither is it easy to increase your topline by over 20x in 10 years. But then, Achal Bakeri, Chairman & MD of Symphony Limited, has not only stood the test of time, but has also emerged successful. In an exclusive interaction with The Dollar Business, Bakeri gives us an insight into this maverick company Interview by Shakti Shankar Patra | The Dollar Business

Achal Bakeri, Founder, Chairman & MD, Symphony Limited

TDB: From being EBITDA negative 10 years back to operating at close to 30% EBITDA margin in recent years, your journey has been truly spectacular. Please help us understand what has been at the core of this turnaround. Achal Bakeri (AB): To understand this, we need to look at how the journey was started. It was in 1987 when our family moved into our new home and we felt the need for desert coolers to beat the heat of Ahmedabad, where the temperature often soared beyond 48 degree Celsius during summer. Housed as they were in tin boxes, these desert coolers made a lot of racket. They were not only noisy but also gathered rust and often leaked. The air coolers that we had installed in our new house were of very poor quality. I was irritated, but an interesting thought crossed my mind. Despite their bad quality, air coolers were still being lapped up in large numbers. I saw a huge business potential in superior quality air coolers and accidentally entered the segment. At that time, I had just returned from US after completing an MBA to join my father’s real-estate business. My first challenge was to design a noiseless air-cooler, which looked like an air-conditioner. I took the help of my peers from the National Institute of Design to design such an air-cooler. The product I had designed was a first of its kind – an air-cooler housed in a moulded plastic body, which resembled a window AC. Till then, air coolers were notorious for creating a cacophony. The air cooler we designed created symphony. So, we named our product ‘Symphony’ – a mechanism that just made a humming sound and was sleek. Not sure of the response we would get, we decided to go for a soft launch of the Symphony air-cooler in 1988. Encouraged by the success of our air coolers, we started expanding our range and diversified into other consumer durables such as geysers, room heaters, exhaust fans, flour mills, washing machines and water purifiers, which were in fact counter products to our main product line. However, unlike the air coolers, which had seen roaring success, these counter products spelt doom for the company. Within eight years of the company’s decision to diversify into new products, Symphony’s net worth got drastically eroded as a result of spreading its capital investment too thin. Symphony got itself registered with the BIFR in 2002, as its net loss amounted to Rs.31 crore for the year ended June 2002, on a total income of Rs.28 crore. It was really a nightmare. Some of my friends advised me to declare bankruptcy, others told me to join my father’s construction business, while some others suggested I should leave the country and settle in US. But I decided to catch the bull by its horn. Basically, I had complete faith in my products. I was also confident about the future because the future belonged to eco-friendly, energy-saving air coolers and not air-conditioners. We proposed a restructuring scheme to the BIFR and decided to exit from all products other than coolers and geysers. This decision paid off and, by 2007, we became debt-free and started making profits by 2008. Today, the company’s market capitalisation stands at about Rs.7,000 crore.

"The branded air cooler market is still at a nascent stage and will grow at 20% for the next 5-6 years"

TDB: Do you truly believe that the Indian air-cooler market can become 100% branded as has been the case with air conditioners? AB: The branded air-cooler market is still at a nascent stage. The penetration of air coolers in India is low, at just about 9%, as compared to other consumer durables. Going forward, the rising purchasing power of bottom of the pyramid customers could result in many households graduating from fans to air coolers. Credible estimates suggest that the market for branded residential air coolers will grow manifold as product awareness increases. While the total market is estimated to grow 15-20% over the next five or six years, the organised segment is likely to grow at a faster rate (>20%), as consumers migrate from the unorganised segment to branded players, offering innovative and superior quality products with better designs and aesthetics. TDB: If you look back at your decision to outsource some of your manufacturing, instead of expanding capacity, do you feel it was the right decision? AB: Symphony operates through an asset light model, wherein it outsources manufacturing of air coolers to about nine exclusive vendors in India and uses the cash and carry model for sales. However, the company retains the rights for product development, design and marketing function to maintain the exclusivity of products and technologies of Symphony from its vendors. This, value addition through vendor support (VAVS), has worked wonders for us, turning the company into an asset-light, capital-light, zero-debt company. This model has left the company with adequate resources – people, time and cash – to concentrate on product design, development, value engineering, innovation, marketing, branding and distribution. TDB: With interest rates at all-time lows in the developed world, has there never been an urge to raise debt and buildup more capacity? AB: Symphony is a cash rich company with no debt on the balance sheet. Further, company follows an asset light model, where it can build, expand or contract capacity depending upon the demand-supply cycle, without investing much in capacity built up. Hence, there has not been any requirement to raise debt and build up more capacity. TDB: Today, Symphony can boast of even GE as a client. Where and why do such giant corporations use air coolers? AB: Recent trends indicate that big businesses, across various sectors, are opting for industrial cooling for spaces which are difficult to centrally air condition. Air coolers are environment-friendly. Unlike air conditioners, which release CFC, air coolers do not emit hazardous greenhouse gases responsible for global warming and other environment-related problems. In factories that house large boilers, large furnaces and other equipments that generate lot of heat, air cooling emerges as the only cooling solution in these areas. Air coolers also find application in warehouses that need to store material at controlled temperatures. In large commercial space and retail malls, which have expansive open areas, industrial air coolers are the only workable cooling solution. Interestingly, wherever centralised air conditioning is used, there is potential even of using centralised air cooling or ducted air coolers. TDB: Last year, advertisement spending was about 5% of your revenue. What factors do you keep in mind while choosing the medium and other factors for advertising? AB: For the last number of years, Symphony has been the biggest spender in enhancing the profile of the air coolers in India. We have been investing nearly 4.5% of our annual sales in promoting the air cooler as a concept and its brand as a preferred choice. In just last five years, we have invested no less than Rs.59 crore in concept-cum-brand building, accounting for 70% of the air cooler industry’s overall promotional spending. To this spending we have brought a distinctive science. One, we recognise there is a growing traction for television viewership in India; in line with this, we allocate 40% of our promotional spending for the electronic media. Two, we identify the right channels, the ones watched by the 25+ old audience, comprising the A, B and C socio-economic classes. Three, we widen our presence across the reach, frequency and hybrid channels.

Symphony Ltd – Symphonomics is simple economics

you may also like...

We like you just the way you are.