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Anand Rathi Bullish On Small Cap Consumer Durables Sector Stock, Suggests Buy For Robust 29% Upside

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Anand Rathi in its latest report has placed a "buy" call on Symphony Ltd, a small-cap Consumer Durable Sector company engaged in the electronic and electrical business. The brokerage sees a potential gain of around 29% in 12 months with a target price of Rs 1,194 apiece. It has a market capitalisation of Rs 6,513.35 crore.

 

Rising mercury levels could brighten Symphony's fortunes. The inflationary context in the USA and Australia and rising logistics cost could dampen prospects of overseas subsidiaries and are key monitorables. Keen competition from peers with strong brands and marketing networks in summer of CY23 would also be an important factor to watch.

Stock Outlook & Returns

Stock Outlook & Returns

The Current Market Price (CMP) of Symphony's stock on NSE is Rs 931.05 apiece, 1.50% up as compared to its previous close. It recorded its 52-week low at Rs 820.60 on 3 November 2022, and the 52-week high at Rs 1,215 on 8 April 2022, respectively.
 
 The stock surged 5.73% in 1 week, and 11,28% in 1 month, respectively. Over the last 1 year, it has fallen 4.05%. Whereas, over the last 3 and 5 years, the stock has fallen by 17.71% and 42.18%, respectively.

 

Growth in lean season supported by standalone operations
 

Growth in lean season supported by standalone operations

Q2 FY23 consolidated revenue rose 25% y/y as standalone revenue rose 54% y/y to Rs2.15bn and revenue from global subsidiaries was 26% lower y/y at Rs590m. Lower revenue from global subsidiaries can be attributed to deferred revenue by CIT, its Australian entity which exports to the USA and caters to its local market. The EBITDA margin was 422bps lower y/y on the 56bp gross margin compression y/y led by upgrading several SKUs and higher freight costs (biggest cost element in other expenses) and Rs60m market research expenses. PAT increased 7% y/y as other income rose 56% y/y. The Q2FY23 tax rate was 26% (25% a year ago).

H2FY23 outlook still strong

H2FY23 outlook still strong

Q2 is a lean season for durables. The outlook for H2FY23 looks strong as channel partners are not loaded with surplus stocks and advance collection from them is good. Deferred revenue for CIT is expected to be booked in H2FY23 and is an important monitorable.

Outlook, Valuation and Risks

Outlook, Valuation and Risks

Post Q2FY23, our FY23e and FY24e revenue are intact. However, we lower FY23 EBITDA margin 14% and FY24, 19%. At the CMP, the stock trades at 29x/23x the FY24e FY25e EPS of Rs31.4/40.1. "We retain our Buy rating with a TP of Rs1,194, 30x FY25e EPS of Rs40.1 (earlier Rs1,347, 35x FY24e EPS of Rs 38.5). The PE cut is in line with the companies we cover," the brokerage has said. 

Risks: Keener competition and aggressive pricing by well-established all-India brands can curtail growth. Rising inflation in America (export destination via global subsidiaries) can be a risk reducing growth of overseas subsidiaries.

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of Anand Rathi. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.

 

Story first published: Saturday, December 3, 2022, 16:52 [IST]
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