Symphony Ltd

Our India domestic sales registered 53% YoY growth and surpassed the pre-Covid historical high, up by 21% vis-?-vis FY2019-20.

Overview

If I had to summarise Symphony's FY2022-23 story in a sentence, it would be this: The Company reported higher revenues but lower profits when compared to the pre-Covid period.

This divergence will surprise those accustomed to the extrapolation that a higher top line should translate into a superior bottom line on account of related economies (brand, distribution, procurement and overheads coverage). This time around, not only were we able to capitalise on these economies, but allowed cost increases to eat into our buffers.

The result: a subdued year.

Despite commodity prices cooling off globally, headline inflation in India did not decline. We responded by bringing the gate down with a price increase, but by then the horse had bolted.

Some of the global markets that we had placed our bets on – Australia for one – surprised us with how things could turn so unfavourable and so fast. The result was that we under-performed on our expectations on the overall, which was quite like loading the side with batsmen and finding the ball turning before lunch of the first day.

Understanding the markets

I must explain how we performed market to market.

India: This is one market that keeps bailing us out, even while the rest of the world turns uncertain. This is when one begins to respect the breadth and depth of the world's most populous market, which, barring aberrations like the pandemic, continues to deliver. Our India domestic sales registered 53% YoY growth and also surpassed the pre-Covid historical high, up by 21% vis-?-vis FY2019-20. Even though there was a record increase in logistics, material, after-sales service, and branding costs, the standalone EBITDA margin was 20%, up by 210 bps YoY.

USA: This is the largest market in the world in terms of spending power. In this market, we felt that the combined action of climate change and the relative affordability of the air cooler over the air conditioner would translate into demand in elasticity and consequently, better numbers for our Company. All I can say is that the world is a demanding teacher; inflation was possibly the sharpest in decades. The large retail brands who are our primary customers did the next most predictable thing – they began to destock, which is a management jargon for saying that they reduced fresh purchases across all product categories including air coolers, in anticipation of a slowdown. However, the medium-to-long term viability and profitability of the USA market remain intact. Australia: This is one country that surprised me. Over the last few years, we have built credible traction; we have the right brands in place; we have built new products; we have developed cross-country supply chains. Just when we felt that we had all our blocks in place, Australian housing companies began to go bust

(who would have expected?), which affected new home rollout and in turn our products offtake. Interestingly, the cost of staying in business remained just as we would have wanted (factors within our control) but the cost of goods sold increased, and margins declined. And just to highlight how things can transform, all the gains that we had patiently made through prudent value engineering before Covid were wiped away by the combined inflationary impact of the pandemic and the Russia-Ukraine conflict.

Positives

I could have started my review with the positives we derived from the year under review except that it would have appeared that we were camouflaging things that had not gone our way. I thought it would only be prudent that I present the positives after listing all the points where we did not perform creditably.

So here they are.

Our biggest achievement during the year under review was that the lower profits did not translate into a lower market share. Symphony remained India's biggest air cooler brand (a synonym); we continued to sell more than the rest of our competition combined (which comprises large competitors coming in from adjacent cooling spaces and competing with us after examining long-term prospects and our Balance Sheet health). Right through the year under review, our trade partners continued to profess ‘Symphony best hai ji'; this was an effective

We increased our standalone advertising and promotion spends: from H43 Crores in FY2021-22 to H73 Crores in FY2022-23; from 6.7% of our revenues to 8.3%.

incentive in rising each morning, changing into fatigues, presenting ourselves for the roll call and pressing into battle.

At a time when we knew that the consumer momentum would be wearing off – the newspapers kept telling us that the rural consumer was feeling the pinch – we did something unusual. The general response would have been to conserve all our advertising gunpowder and wait for when buyers felt they had a larger savings pool to service their aspiration for a lower home temperature. We trusted our gut; we said that if this is how most air-cooler manufacturers were going to think, then maybe what we had was an opportunity. We increased our standalone advertising and promotion spends: from H43 Crores in FY2021-22 to H73 Crores in FY2022-23; from 6.7% of our revenues to 8.3%.

We continued to launch innovative models and I cannot over-emphasise the positive spin-off. When inflation is on the rise, our Company could have made do with existing models and not trying out anything new. The rationale behind a defensive approach would have been that ‘people are going to be hesitant with inflation eating into their savings; why waste a new model on a defensive consumer?' So when we went out and launched new models, the first constituency that expressed surprise (pleasant!) was of our trade partners. Even they had been worried; most had called to say that they had felt apprehensive trying to push sales with no new story. And suddenly here came the new models; they could now engage the consumer in a conversation on superior features and price-value proposition. They could impress. They could persuade. They could push a sale.

When you add thousands of instances like these that happened across the country (plus the increased advertising), you get something that has given all of us at Symphony the warm satisfaction of a cool job: we sold more air-coolers in FY2022-23 across all formats (general trade, large format stores, rich communication services, direct-to-consumers and e-commerce). The outcome was that we generated a ~5% CAGR in our domestic sales over a five-year period ending FY2022-23, despite two consecutive Covid-induced failed summers in FY2020-21 and FY2021-22 resulting in historical high trade inventory at the beginning of Summer 2022 (FY2022-23). We didn't just transact; we seduced an upgradation. Despite everyone on the outside telling us not to try. Despite everyone telling us that all our advertising spending would be wasted. Despite everyone telling us that our new models would pass like a ship on a moonless night.

The record inventory with our trade partners at the beginning of Summer 2022 was liquidated and this translated into record sales, which tells you of the traction for Symphony products within India. The Company reported record India domestic sales in three quarters (Q1, Q2 and Q4) compared with our respective historic best quarters.

Our standalone gross margin improved to 47.9%, up by 290 bps YoY, aided by a price hike and softening of input cost (still higher than the pre-Covid level). Symphony improved its standalone EBITDA margin to 20.0%, up by 210 bps YoY. This is creditable when one considers that the Company incurred higher after-sales service costs, increased advertisement & sales promotion expenses and higher logistic costs. This kernel inflation could not penetrate, and I am optimistic that the Company will build on this when realities normalise.

Continuing to build

At a time when inflation began to neutralise much of the good work we had previously done, it may have been usual to duck and wait for the present to roll over.

We did the reverse. We invested in the future.

We said, ‘There is a possibility that everyone within our sector will lie low, so this may be the best time to start something new or accelerate what we have already begun.' We increased our brand building expenditure, including a decent amount of exclusive market research and consumer trend studies to carve out mind space when most peers remained restrained. We believe we are creating the next sales growth foundation, which could prove to be our octane when the post-inflation consumer returns to buy an air-cooler.

We built superior value in new product launches. In line with the Symphony tradition, these models were differentiated, especially in product adjacency and efficient energy consumption. By broad basing the portfolio pyramid, we reinforced the confidence of our trade partners.

We strengthened our micro-market approach. We deepened consumer research to understand markets. We customised products for different countries (sending out a message that we were not dumping stock cross-border but building ground level up, with terrain temperature, humidity and consumer preference in mind). We manufactured locally (wherever possible). We built local promotional teams. We created supply chain linkages. We engaged directly with the global marketplace Amazon in each of the countries where we intended to deepen our presence (USA, UK, Australia, and Mexico) complemented by brand stores in select countries (India, USA, Australia, and Mexico). We focused on ‘GLOCAL' – global by quality, local by customisation - and in doing so, we created a granular platform to enhance the e-commerce and D2C proportion of our revenues.

We leveraged our nimble manufacturing structure, which helped create a cushion against the full inflation impact. When freight costs were high, we shifted production to Mexico; with the freight cost now declined, we plan to shift back to cost-effective India. Our web of global manufacturing linkages made it possible for us to capitalise on pan-global cost arbitrage opportunities.

We continued to re-configure Symphony from within. We created new managerial positions, inducted subject matter experts and formalised a succession plan for roles and