Over the last few months I have been romancing the highly readable book ThePsychology of Money' by Morgan Housel. There are two parts of the book that I would liketo share with you as a segue to the Symphony story. In the chapter Getting Wealthyversus Staying Wealthy' the author reduces investing success to a single word:survival.' He then elaborates on how getting money and keeping money are twodifferent skills. Getting money requires taking risks being optimistic and puttingyourself out there and fear that what you have made can be taken away from you just asfast. It requires frugality and an acceptance that at least some of what you've made isattributable to luck so past success can't be relied upon to repeat indefinitely.'
In the same chapter he describes what for me was the principal take-home from thebook. Some 1.3 million Americans died while fighting nine major wars. Around 99.9% of allcompanies that were created went out of business. Some 33 US recessions lasted acumulative 48 years. The stock market declined more than 10% from their recent peaks atleast 102 times. Annual inflation exceeded 7% in 20 years. And yet the standard of livingfor an American increased 20-fold in 170 years reinforcing the message that short-termeconomic or social aberrations are a short-term fee' to be paid for long-termgrowth.
These extracts from Housel's book have a resonance with the Symphony story ofFY2020-21. The company' revenues declined 20% to Rs 931 crore; EBITDA (ExcludingExceptional Items) declined 36% to Rs 170 crore; profit after tax declined 41% to Rs 107crore. And yet interestingly we at Symphony have seldom been more optimistic about ourprospects than now.
Consider the reasons.
One the earth will progressively warm through our lifetimes whether we like it ornot. Over the next few years we are likely to respond to air-cooling products the way werespond to a refrigerator or a car or a television. Even as recently as three decades agothese were products that were considered inaccessible to most mid-low income Indians;today they are an unquestionable part of people's homes. We are believe that the same islikely to happen to air-cooling products and not just across urban or semi-urban India;you will see air-cooling products (including air-conditioners) across economic classes.Walk into a rural neighbourhood that you would not necessarily associate with comfortableincomes and you will be surprised to find air-cooling products just about everywhere a fewyears from now.
Why? That brings me to something that we saw play out after the lockdown was imposed.As people huddled into their drawing rooms there were a number of messages that came in:Ek cooler to karaavi aapo!' ("could you get me a cooler please?")and Tamara dealer ne kaho ne. Pottay maanas moklaavi ne delivery aapi shakaay chhey'("Arrange a man to deliver me a cooler"). Why would people want to buyair-coolers at a time of income uncertainty and hazy economic outlook? a becausepeople seek to live better. Because people seek to spend their way out of discomfort.Because people seek to spend on improving the family experience and what better way thanthe air-cooler? b the price-value proposition of an air-cooler continues to extendway beyond competing products not just in terms of the outright cost but also interms of the running electricity cost.
Two the market for air-coolers will pass through its usual cycles of a benignsummer lockdown and other factors but on the whole if you have a sustainable pipeline ofgrowing incomes and aspirations the demand curve will soon catch up and suddenly therewill be years when the air-coolers will disappear even before they have been put onshelves of retailers.
So the big message I wish to leave with our shareholders is that the perceived utilityof the air-cooler strengthened in an otherwise initially weak year. Until a couple ofyears ago the air-cooler was good to have'; during the course of a stay athome' year it graduated to must have' as users in a pandemic environmentprioritised the need for ventilation with the line Khol do khidki chalaaoSymphony!' We exited the year under review more optimistic about our long-term prospectsthan we have been in a long time.
Dig more discover more
At Symphony we remain intrinsically restless.
Even before the Novel Coronavirus had broken out which incidentally was nearly33 years after we had gone into business - our team in Ahmedabad had gone into a huddlewith a singular agenda: Cut costs.' In a sense there was no conclusive need to;sales were expected to be upbeat; the sector was growing; most business consultants wouldhave recommended Focus on growing the market'.
We focused on moderating our cost structure as well (no sixth sense just a restlessstreak and the urge to make what was good even better). We questioned every practice; weconvinced ourselves that the more we dug the more we would discover. Discover we did;through a combination of value-engineering schemes and eliminating the redundant wereduced our break-even point and increased our competitiveness.
Then and only then - came the pandemic.
As people locked into their homes we realised that we had lower sales on ourbooks
but we had lower costs as well. Now that we had a pandemic on our hands andsales declined 18% through the year. More relevantly sales were extensively affectedduring our peak season when temperatures rose but consumers were locked into their homes.What an irony. Seldom has Symphony been as proud about reporting a flat number as we wereduring the last financial year as this year tested the resilience of our business modeland instill new energy to our confidence.
Widen the market; rest will be taken care of
In the last annual report we had identified a number of initiatives on growing ourshare in Australia through our acquired subsidiary (Climate Technologies).
I am delighted to state that in a year when sales evaporated across a number ofconsumer appliance categories we reported the unexpected: higher revenues out of ouroperations in Australia largely arising out of increased heater offtake (coinciding withthe Australian winter).
This was the outcome of the hard work that had gone into widening our distributionnetwork positioning our brand more visibly and strengthening the price-value proposition.
However this increased market presence came at a temporary cost: because we could notship components out from China we selected to buy from the local markets at a highercost; the air-freighting of certain components to beat the ports lockdown resulted in acost escalation that could not be covered by passing them on to consumers.
Our optimism comes from a simple extrapolation: if we retain shelf space consumerrecall and market share on the one hand and are able to draw in components from China andincreasingly from India by sea on the other our cost economics should fall into place andour Australian subsidiary should be able to deliver not just to our consolidated revenuesbut to the bottomline as well.
How the pandemic validated our acquisitions
A number of analysts have repeatedly asked: How have your acquisitions paid off whenyou consider their modest bottomlines and the costs paid for their respectiveacquisitions?
This is my answer: When we acquired businesses in Mexico China and Australiaduring the last decade most analysts missed one point. We were buying on the basis of theaggregate value they would bring to the consolidated Symphony table as opposed to thevalue they would deliver to their respective bottomlines.
There was a rationale for our contrarian perspective: our Chinese acquisitionpossessed a deep insight into air-cooler research coming as it did on the back of anumber of pioneering launches in the vast Chinese market; our Mexican acquisition wasinspired by its extensive knowledge into industrial cooling a space where we werecompletely absent; our Australian acquisition was prompted by the largeness of the marketof that continent seasonal complementarity with India that rounded our annual salesprofile and inroads into marquee retail brands in USA.
So all those asking Yes but what profits have these subsidiaries reported?' aremissing the point. The operative word is holistic'. When one appraises theacquisitions from a standalone perspective they are possibly doing the overarchingstrategy a disservice because the acquisitions were never meant to be appraisedindependently. So the next question: what have these acquisitions achieved from aholistic perspective? This is my answer: Sohail Abbas.'
That is right. Abbas has been recognised as the most successful penalty corner and dragflick specialist in modern hockey with a 65% success rate. A number of players partneredAbbas; he scored. This then is the Symphony story as well; our partners (readsubsidiaries) deliver to us; we score. Interestingly we could have never scored themwithout our subsidiaries. The bottomline then is that the value that the subsidiariesbring to our table cannot be appraised by the narrow perspective of goals' but inthe precious dribbles across competitive markets and the passes that have empoweredSymphony to score.
In Mexico we generated approximately Rs 178 crore in revenues for the last twelveyears; the aggregate profit inspired by our performance in Mexico has more than paid forthe acquisition price of our entry into that geography several times over; our Australianbusiness led us into the US market through a sales engagement with the iconic Home Depot(represented in multiple locations across USA); our China business helped us moderatecomponents costs strengthening the competitiveness of our Indian operations and inspiringus to export the world over a typical orchestra where each one plays a role. Theresult is that our multi-country presence is reinforcing the Make in India initiativetransforming Symphony into a global products provider.
Clarity on our existence
Over the last couple of years there is a deepening of the Symphony clarity in the areaof asset lightness. This is not something new; in fact it is the principal reason whySymphony is valued distinctively on the markets; we own the brands we research andinnovate products we prospect markets we enhance product visibility and widen ourdistribution.
The result? With the flexibility that our asset-light strategy affords us we aresingularly focused on the markets changes growth and every feeler we can pick up withthe object to sell more and price better. There is a specific reason why markets arebecoming increasingly complex warranting a singular focus: cooler ownership isconcurrently widening and deepening; the increased use of data analytics hasunearthed' consumers that one did not know existed; by an extension of algorithms asimple word like consumer' can now generate a number of interpretations; marketshave become complex to the point that it takes informed study to comprehend which model atwhich price is likely to open up an entirely new segment; multiple cooler ownership is onething but we are also beginning to see models being replaced faster than ever; we areseeing coolers evolve from functional use to products against which to take selfies andgenerate likes' on social media.
Our singular focus on marketing coolers tailored to customer needs graduated us intothe highest recalled brand. The logical offshoot was to extend this strategy to oursubsidiaries as well. Along with the focus on consumer expectations we have been applyingthe principle of comparative advantage to our subsidiaries in Mexico and China which wehave now extended to Australia. A large number of products that used to be manufactured inAustralia will gradually be manufactured completely in India; ditto for Brazil; welaunched a subsidiary in Brazil to penetrate the market.
By reorienting these constituents Symphony will avoid duplication in manufacturing byimporting the products from India. Through this we expect to achieve two objectives: onewe expect the teams in those countries to develop a feet-on-the-street specialisation onwhat will work and what will not strengthening productisation for those markets. Bysourcing all the coolers for those markets from India we expect to capitalise onsignificant economies arising out of a manufacturing hub. By empowering each Symphonyconstituent then to play a specialised role inch wide and mile deep weexpect to enhance holistic value (it is amazing how this term keeps coming up in my copy)for the organisation.
We are sure that what worked for Symphony in India (asset lightness) will work for thecompany's international subsidiaries in the future enhancing overall value and deepeningour positioning as a branding and distribution multi- national committed to customersatisfaction.
The mood at the point
The performance of the Company was affected in the first quarter of the current year -the quarter that normally accounts for the major part of our revenues. The quarter wasmarked by the pandemic's second surge that kept consumers indoors and moderated demand fora range of products air-coolers included. Our focus will be to do what we have alwaysdone - protect our Balance Sheet keep engaging with our trade partners strengthening theprice-value proposition of our products and enhancing the visibility of our brand. Theseare testing times and I must not give you the impression that the solution is simple.However what I can - and will - commit is that Symphony will remain creative resilientand passionate with the objective to be the last person standing during the downtrend andthe first off the blocks when the sentiment revives.
With warmth (of the other kind)
Achal Bakeri Chairman