Symphony stock: Climate Technologies buy to double foreign market share

The acquisition is in line with Symphony's strategic plan of expanding its international reach, extending to industrial cooling solutions and launching technology-driven coolers

After shedding over 27 per cent since May, given the low demand conditions in the summer season, the Symphony stock gained 4 per cent after it announced plans to acquire Australia's Climate Technologies. The over Rs 2-billion acquisition will provide India's largest air cooling company a 50 per cent organised market share access to the Australian and US markets. 

Further, given the opposite seasonal trends in Australia and India, the business is expected to de-risk its revenue flow. The valuations, according to analysts, are attractive at 7.3 times the enterprise value to operating profit and 0.7 times the enterprise value to sales. Analysts at IIFL Institutional Equities expect the acquisition to add 9-13 per cent to Symphony's consolidated net profit in 2018-19 and 2019-20. They expect revenues to improve by 27-35 per cent due to the deal on the back of a large export market in the US and Australia for the company's portable air coolers. Sourcing benefits and cost optimisation could add to these estimates. 

The acquisition is in line with its strategic plan of expanding its international reach, extending to industrial cooling solutions and launching technology-driven coolers. The company, which currently gets 22 per cent from international markets, will double its overseas markets share after the acquisition. 

While Climate Technologies is a leading Australian cooling company with a 30 per cent share, it has grown at 9 per cent over the last three financial years and growth is expected to come from the US market. The company expects growth to be at 14 per cent over 2018-21 led by the US, which at about $300 million is the largest cooling market in the world. 

In addition to the international market, analysts at HDFC Securities are bullish on the Symphony stock due to the rising demand for coolers, large unorganised market and consistent product innovation. The stock is trading at 32 times its 2019-20 earnings estimates and given that the target price is upwards of Rs 2,000, it could give meaningful returns from current levels.