MANAGEMENT DISCUSSION AND ANALYSIS

Global economic outlook

The year 2014-15 saw the emerging economies of China and India experiencing higher rate of growth compared to the advanced economies like the US and those of the Eurozone. The advanced economies also witnessed an improvement in terms of their economic outlook and continued to recover from the recession that had hit them in 2010. This was largely aided by accommodative monetary policies and a significant lowering of energy costs. However in the near term, the eurozone is expected to witness a slowdown following the fall in aggregate demand and concerns over Greek ban kruptcy.

However, the year remained fraught with crude oil price volatility, a slowdown in the Chinese economy towards the later part of the year and trade protection issues, among others. Chinese GDP growth was pegged at 7.4% during 2014 and is expected to slow down to around 7% by end-2015. The Chinese Government aims to reduce the impact from this slowdown by reducing focus on exports and increasing domestic consumption.

As per World Bank data, global growth should expand at around 2.80% in 2015 and accelerate to touch around 3.20% by 2017.

Indian economic outlook

The macroeconomic scenario in India  witnessed an improvement during FY2014-15 as compared to the brvious year. Wholesale and retail inflation declined, domestic demand rose, capital expenditure increased, exchange rates stabilised and currency outflows reduced considerably on account of falling oil imports. This was in sharp contrast with the scenario brvalent during the brvious few years which were marked by rising inflation, widening fiscal deficit, stagnating demand, current account imbalances and fluctuations in the value of the rupee against the dollar.

The decline in inflation was further aided by a close to 40% fall in crude oil prices as well as a decline in the prices of major industrial commodities towards the end of the year. The tight monetary policy stance adopted by the Reserve Bank of India helped contain any recurrence of inflationary trends, and cushioned India from potential risks arising from external contingencies. Favourable macroeconomic developments stabilised the value of the rupee against major foreign currencies.

The latest estimates of national income indicate that the revival in growth, which had commenced in 2013-14, has continued into 2014-15. (Source: Central Statistics Office)

As per the Economic Survey 2015, India grew by an estimated 7.3% during FY2014-15 as against 6.9% during FY2013-14. World Bank and IMF expect the Indian GDP growth rate to remain around 7.5% during 2015-16 and reach around 8% during 2017-18. Thus, Indian GDP growth is projected to accelerate over the next five years on the back of investment-led growth, economic reforms and favourable demographics.

Air coolers in India

Air coolers rebrsent a low-cost, energy-efficient and an environmentally-friendly alternative to air conditioners. Air coolers are simple to use and cools air through the evaporation of water. Evaporative cooling differs from typical air conditioning systems which use vapor-combrssion or absorption refrigeration cycles. Evaporative cooling works by employing water's large enthalpy of vaporization. The temperature of dry air can be dropped significantly through the phase transition of liquid water to water vapor (evaporation), which can cool air using much less energy than refrigeration. In extremely dry climates, evaporative cooling of air has the added benefit of conditioning the air with more moisture for the comfort of building occupants. They also filter dust and dirt without drying the air.

Unlike conventional air conditioners, evaporative coolers require fresh air and work  best with open windows and doors. They are best suited for residences, showrooms, shops, offices, especially where doors are opened and closed frequently - a major advantage over conventional air conditioners. Besides, they consume significantly less electricity and produce no emissions.

Symphony offers a wider range of air coolers, which find applications also where it is difficult or impossible to install and use an air conditioner. Symphony's air coolers are easy-to-install, relatively inexpensive, and can be easily maintained by a layperson.

Opportunities

(a) The Indian air cooler segment

The domestic air cooler segment is largely fragmented with about 70-80% of sales accounted for by unorganised players. The branded air cooler industry is competitive in nature with the top four players accounting for more than 90% of the branded air cooler market. Symphony is the leading player in the space followed by Kenstar (Videocon Industries Limited). Other players include Bajaj Electricals, Khaitan, Maharaja and Usha. Symphony enjoys about a 52% share of the organised segment.

(b) Demand drivers

Environmental concerns: The use of air  conditioners has contributed significantly to global warming and the destruction of the ozone layer. The release of CFCs and excessive energy usage has propelled many to switch to air coolers which are far more environment-friendly.

Growing middle class: A young and upwardly mobile lower and middle income group in large and small Indian cities has grown in numbers in the recent past. According to the NCAER, the Indian middle class is expected to more than double from the 2015-16 levels to 113.8 million households or 547 million individuals. Strong aspirations of the Indian middle class will lead to an increase in the demand for brmium lifestyle products.

Increasing urbanisation: Rising urbanisation in  India has accelerated the demand for housing units which require cooling solutions.

Rising affordability: A study carried out by McKinsey has concluded that middle class households will have an aggregate spending power of 14.1 trillion rupees (20% of total Indian consumption). The growing aspirations combined with rising affordability are expected to contribute towards a growing market for products such as air coolers.

Burgeoning rural markets: 67.97% of the Indian population is considered to be rural as per a study carried out by the World Bank in the year 2013. The aspirations and incomes of the Indian rural population have been rising at a rapid pace thereby enlarging the scope of the rural market. Air coolers are expected to gain from this change in marketplace dynamics.

PACKAGED AIR COOLERS

At Symphony, our Residential Air Coolers cater to a variety of room sizes while our Central Air Cooling Solutions address large spaces such as factories, warehouses and halls.

Despite having such a wide range, we found a huge requirement of air cooling for spaces that fall between residential and large commercial spaces. This inspired us to develop and introduce Packaged Air Coolers in India.

Packaged air coolers are ready-to-fit compact units ideal for a wide range of commercial, industrial and residential uses. These offer  numerous advantages over air conditioners -durability, easy installation and value-for-money - and are suited for spaces where conventional air conditioning solutions fall flat.

The Symphony range of Central Air Cooling units are being manufactured at IMPCO using American technology and have been selling in the North American markets over the last 50 years. Realising the potential for these coolers the Company launched them in India in the  year 2014-15.

CENTRAL AIR COOLING SOLUTIONS

Symphony was the first Indian brand to launch Central Air Cooling Solutions. Central air cooling is an efficient alternative to air conditioning because it's a cost-effective and environmentally friendly cooling solution designed for various commercial/industrial environments. Symphony's central air coolers are made of highest grade automotive steel with coatings to brvent corrosion and enhance durability.

Symphony's central cooling solutions cater to factories, offices, schools, malls, assembly halls, warehouses and metro stations. Symphony being India's largest branded player in this segment stands to gain the most from the significantly large untapped opportunity in the Central Air Cooling Solutions business

Symphony's brsence

IMPCO (Symphony's subsidiary) has significant expertise in the Central Air Cooling Solutions vertical with an emphasis on large metallic air coolers. Symphony has made a name for itself by offering Central Air Cooling Solutions for a number of esteemed industrial customers. Symphony's vertically integrated plant in North America manufactures an expansive range of heavy duty central air coolers

In order to carve out a larger slice of the Central Air Cooling Solutions market, Symphony has appointed dedicated dealers and distributors across all its key markets. The Company enjoys longstanding tie-ups with leading HVAC consultants and EPC contractors to execute large industrial and factory projects.

Symphony is also credited with executing the world's largest central air cooling project at the Hajj Complex, Saudi Arabia and India's largest cooling project at the Patanjali Yog Bhawan, Haridwar.

Advantages offered by Symphony's Central Air Cooling Solutions Enhances productivity: Central Air Cooling Solutions help raise workplace productivity by providing a comfortable working environment and reducing stress.

Reduces absenteeism: A comfortable work environment reduces absenteeism and improves staff morale and compliance with quality and safety instructions.

Increases productivity: The human comfort zone refers to the range of temperature and humidity that people generally find comfortable. Central air cooling solutions from Symphony helps employees work and perform in the 'human comfort zone' thereby raising  productivity and creating a genial working atmosphere.

Improves air quality: Air cooling ensures a constant flow of fresh air brventing sick building syndrome, irritation of eyes/throat/ nose, headache, dizziness, hypersensitivity, nausea, coughing and other allergies caused due to poor ventilation.

Minimises breaks: With an improvement in indoor air quality, employees tend to take fewer breaks and perform better.

Durability of Symphony's Central Air Cooling Solutions

Symphony Central Air Cooling Solutions are constructed using the highest quality of galvanised automotive steel with polyester epoxy power-based coating to boost durability and lower life-cycle maintenance costs. These are the construction materials and technological inputs that make Symphony Central Air Cooling Solutions durable:

Cooler bodies made from high strength automotive grade steel with PLASTISOL™

Electrostatic process reduces corrosion and weather damage

Use of galvanised steel improves resistance to abrasion and water

Power coating improves mechanical and chemical performance

Climate change is increasingly becoming a reality over the last ten years. Global warming has lead to rising global average temperatures over the last 30 years.

Acquisition undertaken to strengthen Symphony's Central Air Cooling Solutions

Symphony acquired M/s. Munters Keruilai Air Treatment Equipment (Guangdong) Co. Ltd. (MKE), China to facilitate the Company's access into the Chinese market (the 2nd largest air-cooler markets in the world after India) and also provide Symphony with access to the international markets as China enjoys Free Trade Agreements with most ASEAN countries.

The major advantages expected to accrue from this acquisition are:

Premium products and R & D advantage: MKE  enjoys a strong R&D base. Its robust range of brmium air coolers for commercial applications enjoys attractive international prospects.

Synergy: MKE is an asset-light and debt-free business built around good operational and governance practices that aligns with Symphony's business model.

Sourcing advantage: A number of components sourced from China are used in the manufacture of Symphony's products. MKE's knowledge of local sourcing will help Symphony enjoy the twin benefits of lower costs and enhanced quality.

STRENGTHS

The strength of the Symphony brand is demonstrated by its indomitable success over the last 27 years. Symphony is the first air cooler company in the organised sector India and is credited with creating the air cooler industry.

The Symphony brand today dominates the air cooler market.

The Symphony advantage

Air coolers are significantly more environmentally-friendly when compared to air conditioners which release CFC gases and consume large amounts of energy. Not only do air coolers not emit hazardous greenhouse gases that cause global warming but they are also highly energy-efficient.

Air coolers generally consume the energy equivalent of a normal ceiling fan and use around 5-10% of the energy consumed by air conditioners. The low energy consumption also allows air coolers to run on inverters in case of a power cut. Air coolers are also highly versatile and can be used indoors as well as outdoors.

Symphony's range of air coolers offers all these advantages and more. They brsent a superior alternative to conventional air coolers through their aerodynamic design, power saving technology, uniform air inlet discharge, usage of high-grade non-conducting materials and optimised body and component framework.

The user benefits by owning a Symphony air cooler because it lowers costs and offers a superior performance over existing alternatives.

The Symphony business model

The Company and its management realised years ago the importance of creating a brand that would be able to endure marketplace competition. As a means to this end, Symphony has consistently provided products of the highest quality and built an unparalleled reputation for itself. The Symphony business model has revolved around six overarching factors that have been listed bellow:

Saving costs: The Symphony business model aims to constantly cut unnecessary costs by outsourcing the manufacture of components and products.

Deleveraging the balance sheet: Symphony follows an asset-light approach when it comes to its Balance Sheet. This allows it to remain significantly underleveraged, generate higher returns on capital employed and channelise adequate funds for future expansions initiatives.

Generating ample cash: The asset-light model of Symphony allows for the generation of significant free cash flows which can be ploughed back into mission-critical activities like product development, brand promotion and market development.

Maintaining qualitative excellence:

Symphony has standardized procedures and best practices across product design, manufacturing processes, marketing, sales and consumer service to ensure the highest levels of reliability and efficiency. These standard practices, procedures and functions strive to enhance performance towards a zero error goal. Symphony's products are reputed to have the highest levels of reliability with the lowest defect rate in the industry.

Owning the marketplace: Symphony has time and again chosen to outsource product manufacturing while concentrating exclusively on building its brand equity and product goodwill. It is by owning the marketplace that the Company is able to leverage its qualitative excellence and inspire customer faith to earn higher margins.

Focusing on strategic aspects: Symphony has consistently aimed to be the best air cooler company in the world. The Company is focusing on the global potential of its products and believes that its strengths in innovation, product design, branding and distribution will enable it to further expand its international brsence. Further, the Company has outsourced non-core manufacturing activities to remain focused on the strategic aspects of the business and expanding international brsence.

The global warming menace

Human influence on the climate system is clear and growing, with impacts observed on all continents. If left unchecked, climate change will increase the likelihood of severe, pervasive and irreversible impacts for people and ecosystems. However, options are available to adapt to climate change and implementing stringent mitigations activities can ensure that the impacts of climate change remain within a manageable range, creating a brighter and more sustainable future.

These are among the key findings of the Synthesis Report released by the Intergovernmental Panel on Climate Change (IPCC) released on November 2, 2014. The Synthesis Report distils and integrates the findings of the IPCC Fifth Assessment Report produced by over 800 scientists and released over the past 13 months - the most combrhensive assessment of climate  change ever undertaken. The Synthesis Report confirms that climate change is being registered around the world and warming of the climate system is unequivocal. Since the 1950s many of the observed changes are unbrcedented over decades to millennia.

The impacts of climate change have already been felt in recent decades on all continents and across the oceans. The more human activity disrupts the climate, the greater the risks. Continued emissions of greenhouse gases will cause further warming and long-lasting changes in all components of the climate system, increasing the likelihood of widesbrad and profound impacts affecting all levels of society and the natural world.

Internal control systems and adequacy

The Company has robust internal control systems and procedures. The Company has deployed a strong system of internal control procedures that are commensurate with the size and nature of the business. These internal controls ensure the optimal use and protection of assets, facilitate accurate and timely compilation of financial statements and management reports and ensure compliance with statutory laws, regulations and management policies. The Company also devised an extensive monitoring and review mechanism, whereby the management regularly reviews actual performance with reference to business plans: both financial and operational.

The functional heads are responsible for performing regular internal assurance reviews to ensure adequacy of the internal control systems and adherence to management policies and statutory requirements. The functional heads deploy an annual internal assurance plan based on assessment of major risks in each of the businesses. Risk assessment helps in identifying and focusing on all high-risk areas. The reviews cover all the business critical functions, such as  revenue assurance, collection, credit and risk, MIS and Information Technology and network security, procurement and financial reporting. The Audit Committee periodically reviews the audit plans, observations of both internal and external audit teams, risk assessment and adequacy of internal controls.

Information systems

In order to enforce robust internal control, strengthen management processes and information availability, the Company has operationalized a tailor-made ERP system that helps effectively monitor operations and manage resources.

Human resources

The Company acknowledges the importance that human resources contribute to organizational effectiveness. Symphony Limited has aimed at investing in the training and knowledge upgradation of employees across various functions and levels. Symphony enjoyed cordial employee relations throughout the year.

As on June 30, 2015 the Company has on its payrolls 416 employees compared to 400 on June 30, 2014.

SNAPSHOT OF FINANCIAL PERFORMANCE

Overview

The year 2014-15 was another year of growth for the Company. The topline grew by 11.42% while the bottomline grew by 9.64% on the back of increasing penetration, unparalleled customer confidence in the 'Symphony' brand and the strong business model.

Analysis of the statement of profit and loss

Operating income: The operating income of the Company increased 8.65% from Rs.532.42 crore in 2013-14 to Rs.578.49 crore in 2014-15.

Cost analysis: Total expenditure increased 9.48% from Rs.412.25 crore in 2013-14 to Rs.451.32 crore in 2014-15, which was mainly in line with increase in sales.

Operating expenses: Total operating expenses increased 9.37% from Rs.408.38 crore in 2013-14 to Rs.446.64 crore in 2014-15. Primary items in the operating expenses comprised:

Material costs: Cost of goods sold increased by 4.68% from Rs.228.03 crore in 2013-14 to Rs.238.70 crore in 2014-15. This, as a percentage of gross sales, decreased from 42.83% in 2013-14 to 41.26% in 2014-15.

Employee costs: Employee benefits cost increased 7.72% from Rs.41.68 crore in 2013-14 to Rs.44.90 crore in 2014-15.

Other expenses: Other expenses increased 17.57% from Rs.138.67 crore in 2013-14 to Rs.163.04 crore in 2014-15.

Taxation: The Company's provision for taxation increased 19.50% from Rs.36.85 crore in 2013-14 to Rs.44.03 crore in 2014-15 . Average tax rate was  27.60%.

Analysis of the balance sheet Capital employed: Capital employed of home appliances increased 1.55% from H81.04 crore as on June 30, 2014 to Rs.82.30 crore as on June 30, 2015. Capital employed of corporate funds increased 26.35% from Rs.194.74 crore as on June 30, 2014 to Rs.246.06 crore as on June 30, 2015. PBIT % on capital employed in home appliances has increased from 106.02% as on June 30, 2014 to 113.48% as on June 30, 2015.

Equity Capital: The Company's equity share capital remained unchanged at Rs.7 crore comprising 34,978,500 equity shares of Rs.2 each.

Reserves and surplus: Reserves and surplus increased 19.56% from Rs.268.78 crore as on June 30, 2014 to Rs.321.37 crore as on June 30, 2015.

External funds: The Company enjoyed a zero-debt status as on June 30, 2015. The Company did not avail of working capital limits and managed its daily operations through its own resources.

Non-current liabilities: Non-current liabilities increased 14.85% from Rs.7.81 crore as on June 30, 2014 to Rs.8.97 crore as on June 30, 2015, due to increase in deferred tax liability.

Current liabilities: Current liabilities decreased 2.01% from Rs.109.74 crore as on June 30, 2014 to Rs.107.54 crore as on June 30, 2015.

Trade payables: The balance under this head increased 15.41% from Rs.34.71 crore as on June 30, 2014 to Rs.40.06 crore as on June 30, 2015.

Other-current liabilities: The balance under this head decreased 15.82% from Rs.22.00 crore as on June 30, 2014 to Rs.18.52 crore as on June 30, 2015. This decrease is primarily on account of decrease in other payables.

Short-term provisions: The balance under this head decreased 7.67% from Rs.53.03 crore as on June 30, 2014 to Rs.48.96 crore as on June 30, 2015. This decrease is primarily on account of decrease in provision for dividend and provision for taxation.

Fixed assets: Fixed Assets increased 16.25% from Rs.77.87 crore as on June 30, 2014 to Rs.90.52 crore as on June 30, 2015. This increase is primarily on account of new corporate office.

Non-current investments: Non-current investments decreased 5.18% from Rs.138.75 crore as on June 30, 2014 to Rs.131.56 crore as on June 30, 2015.

Current assets: Current assets increased 26.48% from Rs.173.73 crore as on June 30, 2014 to Rs.219.75 crore as on June 30, 2015.

Current investments: Current investments increased 84.93% from Rs.59.88 crore as on June 30, 2014 to Rs.110.74 crore as on June 30, 2015. This increase is primarily on account of increase in treasury investments.

Inventory: Inventory increased 18.67% from Rs.38.51 crore as on June 30, 2014 to Rs.45.70 crore as on June 30,2015. The inventory cycle increased from 26 days in 2013-14 to 29 days in  2014-15.

Trade receivables: Trade receivables decreased 21.43% from Rs.41.58 crore as on June 30, 2014 to Rs.32.67 crore as on June 30,2015.

Short-term loans and advances: Short-term loans and advances decreased 41.56% from Rs.25.95 crore as on June 30, 2014 to Rs.15.17 crore as on June 30, 2015. This decrease is primarily on account of decrease in advances to suppliers.

Other-current assets: Other-current assets increased 272.64% from Rs.2.12 crore as on June 30, 2014 to Rs.7.90 crore as on June 30, 2015.This increase is primarily on account of increase in accrued interest of treasury investments.