Symphony Ltd (SYMPHONY) Q1 FY23 Earnings Concall Transcript

Symphony Ltd (NSE:SYMPHONY) Q1 2023 Earnings Concall dated Jul. 26, 2022

Corporate Participants:

Aditya Bhartia — Head of Research

Achal Bakeri — Founder and Chairman and Managing Director

Nrupesh Shah — Executive Director and Corporate Affairs

Analysts:

Manoj Gori — Equirus Securities — Analyst

Renu Baid — IIFL Securities — Analyst

Pulkit Patni — Goldman Sachs — Analyst

Manish Poddar — Motilal Oswal — Analyst

Amit Mahawar — Edelweiss — Analyst

Omkar Gangadhre — Shree Investments — Analyst

Devesh — DS Investments — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Symphony Limited Q1 FY ’23 Earnings Conference Call, hosted by Investec Capital Limited. [Operator Instructions]

I now hand the conference over to Mr. Aditya Bhartia from Investec Capital. Thank you, and over to you, sir.

Aditya Bhartia — Head of Research

Thanks, Inda. Good afternoon, everyone. On behalf of Investec, I would like to welcome you all to Symphony’s Q1 FY ’23 Results Conference Call. We have with us the senior management team of Symphony Limited, represented by Mr. Achal Bakeri, Chairman and Managing Director; Mr. Nrupesh Shah, Executive Director, Corporate Affairs; and Mr. Amit Kumar, Executive Director and Group CEO. I would now like to hand over the call to the management for their comments. There is a presentation which the management would be running through, the link of which was put in the calendar invite.

Thank you, and over to you, sir.

Achal Bakeri — Founder and Chairman and Managing Director

Thank you. This is Achal Bakeri. Good afternoon to everybody, and welcome to the call. We will jump straight into the presentation, which our Executive Director, Mr. Nrupesh Shah will be making, post which we will take all the questions. Thank you.

Nrupesh Shah — Executive Director and Corporate Affairs

Hello, good afternoon to everybody. This is Nrupesh Shah. We have already shared the link if you wish to connect so as to refer the presentation, because there will be certain graphs and data. So to start with, customary safe harbor statement applies in respect of forward-looking and expected statements. So 27-degree world, that is the space in which we are operating, that is the comfortable cooling around the world. We are very pleased to announce that so far, Symphony and its subsidiaries have cumulatively sold in excess of 25 million air coolers in the country and globally, and almost 1/3 of it is out of India. So that signifies the scale, size and potential, not only within the country, but globally. So now coming to performance highlights for June ’23 quarter.

So after two COVID summer and COVID years, finally, we are back to normal quarter. And in June ’23 quarter, we have registered highest ever standalone, as well as, consolidated sales, vis-a-vis earlier highest June quarter, on a stand-alone basis, we have registered almost 30% higher top line, while on a consolidated basis, it is 13% higher. And very importantly, this is on top of and despite unprecedented highest-ever pre-season channel inventory, mainly on account of COVID-19 in two previous seasons. So if we consider the customer sales, during the quarter, it should be even at a purchase price of distributor, around or in excess of INR700 crore. And finally, at the end of the season, we are back to normal channel inventory almost across the country. Also, very importantly, whatever work we have done in the last couple of years, which we highlighted and shared in the past, despite unprecedented increase in input cost, as well as freight costs, on a consol basis as well as on a stand-alone basis, our gross margin is higher than pre-COVID quarter that in June ’19. However, stand-alone as well as consol EBITDA are lower compared to June ’19.

In fact, most of the comparison we have made, vis-a-vis pre-COVID quarter because obviously last two years’ quarters were low base and hence, even internally, we are not comparing in terms of our performance. So EBITDA margin is lower, one, because we have incurred higher advertisement and promotion expenses not only in June ’23 quarter, but also in earlier quarter, as reported earlier, one, to say historically highest pre-season channel inventory, as well as newer initiatives, mainly B2C and also e-commerce promotion. And in addition to that, as it is known, very high increasing freight and forwarding charges and also to an extent there has been changing warranty estimate as per the accounting standard. And EBITDA margin has also partly impacted because as it is known, in D2C initially, apart from advertisement, the cost below gross profit in respect of the fixed overheads as well as initial establishment expenses are also higher and to an extent that is applicable to e-commerce also.

And as it was expected, D2C and e-commerce, both have generated robust incremental sales growth. We are also happy to announce that we have initiated, of course, with the baby step globally, B2C as well as e-commerce in U.S.A, Mexico and Australia. And we expect that, in medium term, they have a huge potential on account of — not only global presence, but more importantly, we do have full-fledged operational subsidiaries, which are large team, also having Symphony owned local well-known decade gold established brands and global models suitable to respective territories. Large Space Ventilating Cooler, which was earlier known as ducted and centralized air cooling, has generated robust traction on account of some of the initiatives which were taken just before COVID sagging and also in last two years, that is new models, wider distribution network, and localization of product manufacturing, which allowed us to offer affordable and competitive price, which has allowed us not only to offer affordable and competitive pricing, but still to maintain very robust profitability margin in that segment. Symphony has been bestowed with Great Place To Work certification, and we are attracting and nurturing the brightest talent across the department at all the levels, and that is helping us to evolve into strong business leaders.

And now as normalcy is back, so even in respect of payout also, we are back to normalcy and we are back to quarterly payout. So we have announced first interim quarterly dividend of INR2 per share, that is about INR14 crores. So coming to consolidated financials. June ’23 quarter registered INR329 crore of sales, that is 43% vis-a-vis June ’22 and 13% higher than June ’20, that is pre-COVID quarter. Gross margin percentage during June ’23 is 45.6% on our consol basis versus 45.3% in June ’20, that is June ’19 June ’19, I’m sorry, it is June ’19. However, EBITDA margin is lower by about 2.4% and stands at 10.5%. And PAT margin is lower at about 8.9%, partly on account of lower EBITDA margin and partly also on account of lower treasury income. So this has been the EBITDA margin movement in June ’23 versus — June ’22 versus June ’19 quarter. So as it can be seen, advertisement and promotional expenses higher by 1.3% despite higher sales. That is up from INR31 crores to INR39 crores due to reasons I’ve explained earlier. And similarly, other expenses, mainly freight and forwarding and warranty charges, higher from INR11 crore to INR19 crore.

So within the quarter, the geographical segment wise, total sales INR329 crore, out of which domestic sales INR188 crore, that is 57%, while the rest of the world, including exports from India and sales by our subsidiaries, INR141 crore, contributing to 43% of the top line. And as it can be seen on our right-hand side chart, EBITDA margin percentage is also proportionate to geographical segment, that is 44% EBITDA margin from rest of the world and 56% from India. Coming to capital employed in core business, that is air cooler and appliances. During the quarter, the capital employed stands at INR413 crores versus INR288 crores in June ’19 quarter. This is mainly on account of augmentation of some inventory and continued production even in June quarter to cater off-season requirement and also high sales to NFS and e-commerce on account of reach, quarter-end receivable, which by and large have been realized during current month. And ROCE percentage for three months, for June ’23 stands at 9%.

That is annualized about 36%, while return on net worth, on trailing 12 months profitability stands at 18% on a net worth of INR818 crores. Coming to standalone financials, that is Symphony India. The top line is INR208 crores, that is 30% higher than pre-COVID quarter and almost twice of June ’22. Treasury income is down to INR4 crores versus INR7 crores in June ’22 and INR10 crore in June ’20. And hence, that translates into 1.9% of the revenue, which were earlier 6.2% of revenue, which has partly contributed to lower PAT percentage. Gross margin percentage on stand-alone stands at 50.6% versus 47.6% in June ’22 and 50.1% in June ’19 quarter. And EBITDA margin is down to 12.8%. While PAT stands at INR25 crores, that is 12.2%. And the EBITDA shown earlier is purely from business, excluding treasury income. And on stand-alone basis, the EBITDA margin movement in respect of advertisement and sales promotion, it is up from INR28 crores to INR38 crores despite higher sales and still percentage is higher on account of reasons I explained earlier.

And similarly, freight as well as warranty charges, higher from INR8 crores to INR15 crores, so almost 2% higher. And on stand-alone basis, capital employed stands at INR130 crores, translating into ROCE percentage of 19% for three months, that is annualized about 76%. And return on net worth percentage, on trailing 12 months earning is 16% on a net worth of INR808 crores, while treasury stands at INR539 crores as on 30th June, almost in line with June ’19 quarter. Coming to way forwards. Now there is a decent visibility of consumer sales in the domestic market on account of the robust trade sentiments, uptick in consumer demand, and also that is reflected in off-season collection. We continue to plow the investments, which is mainly in terms of the revenue expenditure in domestic and global B2C, as well as e-commerce platform, and also continuously leveraging new age technology and tools for products as well as internal processes in the domestic market, as well as internationally.

So we are keeping a close watch on evolving global headwinds, which may translate into demand headwinds in some of the overseas markets, but still we are reservedly well placed. Mainly on account of, we are in a position to leverage our Indian, as well as global outsourced manufacturing facilities and very agile supply chain strategy. Just to give an example, we used to earlier manufacture plastic air coolers for Mexico in India, but on account of high logistic cost, in a very short period we could shift our molds and dyes to Mexico and started local outsourced manufacturing facility and similarly for some of the models being sold in Australia and as and when size turns, we can easily reverse that. So we are pursuing in letter and spirit ESG agenda. So we have carried out detailed ESG assessment and it has come out that Symphony products generate 93% lower GHG emissions, vis-a-vis 5-Star Air Conditioner. And on an average, one Symphony air cooler saves approximately seven trees over its useful life, the great contribution to the earth.

And finally, with the shareholders profile. So, we are open to Q&A.

Questions and Answers:

Operator

[Operator Instructions] Our first question is from the line of Manoj Gori from Equirus Securities. Please go ahead.

Manoj Gori — Equirus Securities — Analyst

Yeah, thanks for the opportunity and good evening everyone. My first question is — so if you look at the situation at the ground level, definitely, there has been some pressure across product categories. So has it impacted sentiments of channel partners, which might resist them to build inventories during 2Q and 3Q? And if there’s some broad indication, like broad trend, how the July collections have been, that would be helpful.

Nrupesh Shah — Executive Director and Corporate Affairs

Manoj, could you repeat your question? You were not very clear.

Manoj Gori — Equirus Securities — Analyst

Yes. So what I meant was, situation at ground level definitely seems to be some stress on the consumer demand, especially from the June month onwards. Has it impacted any — has it impacted sentiments of channel partners? And accordingly, they might resist on building inventories during 2Q and 3Q? Also, if you can share how the July collections have been?

Nrupesh Shah — Executive Director and Corporate Affairs

No, so as earlier shared during the presentation, in fact, that’s not true at least for our products, and it’s clearly reflected in our July month season collection and it is in line with our business plan. That’s number one. And number two, importantly, many trade partners who extend had no confidence pre-season due to back-to-back two COVID summer, but that has been completely restored and there is a fresh interest. And in the past, we have seen that when it comes to air cooler, it had no correlation with the economy. In fact, if you recollect, during ’13-’14 to ’17-’18, when the economy was not doing that well or there were many blackstone events, in fact, Symphony continued to perform exceedingly well. The only correlation is with the weather.

Manoj Gori — Equirus Securities — Analyst

Sir, secondly, if you look at the gross margins, we have reached 50% mark after roughly around eight quarters. Going forward, can we expect given that the cost pressures were very severe during 1Q. Could we expect normalized margin levels for the domestic business for the rest of the year?

Nrupesh Shah — Executive Director and Corporate Affairs

No. So we will keep a close watch on input costs, and we will decide whether to improve the margin or to take some strategic decisions. But as you would have observed that, in June ’19 there was no cost pressure. And in June ’22 quarter, whether on console level or on a stand-alone, we have maintained the margin. And obviously that is on account of various factors and initiatives which we have done successfully.

Manoj Gori — Equirus Securities — Analyst

Sir, on the subsidiary gross margin, so if we look at consol minus stand-alone, your gross margins for the subsidiary businesses on sequentially has been impacted significantly. So probably, if you look at, this has been the lowest gross margins for last eight to nine quarters, and despite all the efforts that we have taken. So how should we read this, given that now the RM prices are cooling off and have cooled off significantly? So can you throw some light over there?

Nrupesh Shah — Executive Director and Corporate Affairs

As far as subsidiaries are concerned, that’s why in our geographical segment, below quarterly performance we had also shown in respective year and quarter how the margin moved. So actually, one quarter performance is no way reflecting that. If you can see that slide has been open. So in FY ’22, Q1, that is June ’21 quarter, corresponding quarter of last year, succeeding EBITDA margin percentage was negative 5%. But year as a whole, it registered 51%. The point is, subsidiaries performance most of the times has been skewed to December quarter and March quarter. And by and large, we are confident that in the current year also, we will replicate what we achieved last year.

Manoj Gori — Equirus Securities — Analyst

Sir, one last question. So now if you look at — so obviously, you already highlighted like you will take a strategic call on whether to maintain the gross profit margins and all for the domestic business. So suppose today if someone is buying, obviously, he would be buying relatively at a lower price, a channel partner buying an air cooler. So probably, if you look at in future quarters, probably the RM prices would be lower and your manufacturing cost would be lower. So in that case, if you maintain your gross margin to the normalized level, so how should it impact the purchase price of your channel partner?

Nrupesh Shah — Executive Director and Corporate Affairs

Neither our channel partners will be impacted nor will we be impacted, and that has been our track record in the past. So, there are various ways and means to do that.

Operator

Our next question is from Renu Baid from IIFL Securities. Please go ahead.

Renu Baid — IIFL Securities — Analyst

Yeah, hi, good evening, and congratulations for the results. Congratulations for the result. Sir, my first question is, if you look at the India business, the numbers are broadly — at a stand-alone level, sales are almost back to — domestic revenues are almost back to June ’19 levels at INR188 crores. But if you look at the impact of inflation and the price hikes, although not much during the current fiscal, what in your view would be the volume growth over the pre-pandemic and the current levels, from the market perspective?

Achal Bakeri — Founder and Chairman and Managing Director

So, first of all, Renu, congratulations to you too. So we heard you got married, so that’s great. And so, as far as price hike is concerned, we really haven’t taken much of a price increase as we have said in the past. So, off the top of — do we have our volume numbers readily available? Yes, so we have a significant increase in volume as well. We don’t have it readily available. There is a significant increase, very much a significant increase in the volume numbers, no doubt about that.

Nrupesh Shah — Executive Director and Corporate Affairs

And Renu, as we shared from time to time earlier, due to strategic reasons, we didn’t take actually much of the price increase. Even in June ’22 quarter we have taken very selected price increase, varying from model to model and no way matching to input cost and freight cost increases. And as we shared earlier, that itself is one of the measure of our competitive mode, because there are several ways and wins, including product mix, including high-value models, enhancing the dealer distribution network and spreading across the channels. So essentially, they were the ways and means. And also, we — not to forget, as I shared earlier, massive work done by our operating team in terms of value engineering and also to an extent cost restoration. So it’s a contribution, in fact, collective efforts of all this.

Achal Bakeri — Founder and Chairman and Managing Director

But Renu, the point is, what I believe what we are trying to get to is, whether the increase in revenue is because of price increases or because of volume increases.

Renu Baid — IIFL Securities — Analyst

Yes, it’s broadly on a year basis revenue numbers, India revenues were flattish. So there would be some volume growth, given the changes in mix which have been there.

Achal Bakeri — Founder and Chairman and Managing Director

Absolutely, absolutely.

Nrupesh Shah — Executive Director and Corporate Affairs

And Renu, with June ’22 quarter sales fees in addition to channel inventory, which had piled up substantially, isn’t it? So channel inventory got cleared off substantially and channel inventory sales value was substantially higher than June ’22 quarter.

Renu Baid — IIFL Securities — Analyst

Sir, secondly, if you look at your comments, you did mention that there has been a meaningful and visible turn in the sentiment of the trade partners after the current season. So when we look forward towards FY ’23, where the off-season bookings would have started for you, should we expect a similar kind of jump up in growth the way we have seen in historical trends where growth tends to be 30%, 40%, given last year we had a low inventory upstocking during the of season, as there was inventory channel also, which was there. So if you offset both of these elements, then the — at least the core domestic revenue growth numbers or the outlook, would it be right if we assume it should be fairly strong even in the current environment?

Achal Bakeri — Founder and Chairman and Managing Director

I mean the initial indications, and we are now sort of a month — nearly a month into the into the off-season and into the sort of the new business year. The initial indications of sale that we get from this trade are very, very upbeat. So while I wouldn’t sort of — we wouldn’t get into specifics, you mentioned 30%, 40%, we wouldn’t there get into specifics, but we are internally tremendously enthused by the response we are getting and we expect that we will end the year — we should sort of revert back to our historical sort of growth trends.

Nrupesh Shah — Executive Director and Corporate Affairs

And Renu, after turnaround of our international business in FY ’22, now we look at and also urge all the analysts to look at consol numbers? Because consol EBITDA margin is in line with domestic margin and amount-wise also. So that also matters a lot.

Renu Baid — IIFL Securities — Analyst

If I look at the consol numbers now, some of the same context and we drive the performance of subsidiaries, sequentially, there is a visible shrinkage in the gross margins and the EBITDA margins for the subsidiaries. I appreciate there would be a change in the sales mix also between the regions, U.S. market and the other regions. But if you can help throw some light on how are these three subsidiaries for you both Mexico, China and Australia, how have they performed in terms of operating profitability target? That would be helpful.

Achal Bakeri — Founder and Chairman and Managing Director

If I look at the consol numbers now, some of the same context and we drive the performance of subsidiaries, sequentially, there is a visible shrinkage in the gross margins and the EBITDA margins for the subsidiaries. I appreciate there would be a change in the sales mix also between the regions, U.S. market and the other regions. But if you can help throw some light on how are these three subsidiaries for you both Mexico, China and Australia, how have they performed in terms of operating profitability target? That would be helpful.

Renu Baid — IIFL Securities — Analyst

And lastly, any comments on the industrial part of the business, industrial cooling portfolio, how has that fared, given that it was a seasonal quarter for that business as well?

Achal Bakeri — Founder and Chairman and Managing Director

[Indecipherable] LSV?

Renu Baid — IIFL Securities — Analyst

LSV portfolio.

Achal Bakeri — Founder and Chairman and Managing Director

Renu, LSP business continues to be built. And now that we are saying the seasonal, we are getting into normal business model. So LSP business also is continuing to grow on lines of our expectations. We are not actually ready to disclose the absolute numbers at this point in time. But I would just add that the growth is in line with what we had planned. And we are seeing traction now in the market in both the commercial as well as industrial segments.

Operator

[Operator Instructions] We’ll take our next question from the line of Pulkit Patni from Goldman Sachs. Please go ahead.

Pulkit Patni — Goldman Sachs — Analyst

Sir, thank you for taking my questions. Sir, a couple of them. Sir, firstly, if you can give a sense, particularly in this quarter, when I look at the overall numbers, one of the things that I want to understand slightly in greater detail is the performance of Climate Technologies in context of it exporting to Home Depot in the U.S.? Now with the U.S. likely to see some slowdown in consumer spending. And I understand in our last conversation, you were very cool about that business. Any pressures you are already seeing on that particular piece? That’s question #1.

Achal Bakeri — Founder and Chairman and Managing Director

So Pulkit, what we are currently seeing is, that the U.S. is undergoing a record summer. So the sellout is pretty good. But the inflationary trends and the recessionary trends are sort of putting pressure on the selling price. So our customers have to reserve to discounts and which obviously is something that we, as a company, had to absorb. So the prices at which are — the retailers are able to sell this year are lower than what they were able to sell in the summer of 2021. So in terms of volume, thanks to the temperatures, we’ve not really seen much of an issue. But for sure, the recession is playing a role in the customer — consumers’ ability or willingness to pay. So we have to see how the rest of the year progresses. But if the recession is here to stay, then next year too, probably volumes may not be as badly affected as probably margins or selling prices could be. It may be offset by rupee depreciation. Because as on 31st March ’21, rupee was INR73 and now it is INR80, so about 9%. So to an extent, we may have competitive advantage to offset that. We had much of a competitive advantage, but in the — when we convert to rupees, this will not be a significant reduction.

Pulkit Patni — Goldman Sachs — Analyst

Sir, secondly, if you could talk about competition, any rough sense you would have in this particular quarter, any shift in market share? Or what is our growth relative to the broader sector? Any sense on that, if you could talk about?

Achal Bakeri — Founder and Chairman and Managing Director

And I assume you are talking about India. So the quarterly market share numbers are not yet out, and we are awaiting those. But the sense that we are getting from the our channel partners and from our teams in the field is that our market share is, I would say, fairly intact, maybe a shade higher, but there is no significant shift in the market share.

Pulkit Patni — Goldman Sachs — Analyst

And sir, just one last question, more of an observation. I mean, given the fact that we’ve not really taken meaningful price increases, and now we are heading into a period presumably where costs have started coming down. We’ve already got any weighted A&P spends and logistics costs in the quarter. So even if we don’t take any major price action, would it be fair to assume that our gross margins, as well as EBITDA margins from here should actually go north, unless there is something that changes in the international business, as you highlighted, the various developments that’s happening. Is that a fair observation just on a steady state basis?

Achal Bakeri — Founder and Chairman and Managing Director

I think we should separate this into two parts. One is on the standalone level. So the price increase that you referred to really is more relevant for the — for India numbers. I think although we have not taken a significant price increase now so far. But in the current year, as we speak, we have taken somewhat of a price increase for the next — for the year to come. So we already actually put into effect a price increase. And you’re right that with the price increase and with commodity prices or input prices likely to soften, the margins should look better than they did. However, there are too many, I would say, uncertainties going forward. So let’s not get ahead of ourselves. Let’s hope for the best. But what you say is a likely possibility.

Operator

Our next question is from the line of Manish Poddar from Motilal Oswal. Please go ahead.

Manish Poddar — Motilal Oswal — Analyst

Hi, sir. Thanks for the call. Just one question. What is the change in accounting estimate for the warranty expenses? Can you please explain that?

Achal Bakeri — Founder and Chairman and Managing Director

Can you repeat your question again?

Manish Poddar — Motilal Oswal — Analyst

Sir, what is the change in accounting estimate for warranty expenses? Can you explain that, please?

Achal Bakeri — Founder and Chairman and Managing Director

Can you explain, Nrupesh?

Nrupesh Shah — Executive Director and Corporate Affairs

So warranty is provided as per the accounting standard on the historical movement. So we have to take up the ratio of the past 2, three years. So according to that, the provision has increased by 0.50% in this quarter. So provision is higher compared to June ’19 and the June ’20.

Manish Poddar — Motilal Oswal — Analyst

So this is a management estimate of the warranty expenses which you do, that’s — I think INR18 crores was the spend in FY ’20? So this is a management estimate?

Nrupesh Shah — Executive Director and Corporate Affairs

Management estimate as per the historical warranty costs of the last 2, three years.

Operator

We’ll take our next question from the line of Amit Mahawar from Edelweiss. Please go ahead.

Amit Mahawar — Edelweiss — Analyst

I just have one quick question. If I club your last two quarter results, the standalone performance at 4.6 billion top line seems to be a significantly better number if I compare, say, last 3, four seasons of clubbing up these two quarters, effectively around 15% CAGR on a 6-monthly basis. So, maybe you tried to answer that in the previous question. But generally, if I see your volume market share, I don’t know if it’s feasible for you to give this to us. But do you think your volume market share would have headed north by a couple of percentage, sir? That’s my first question.

Achal Bakeri — Founder and Chairman and Managing Director

So as we said earlier, the detailed market share reports for the June quarter are yet to come in, but that is our estimate in the market and inputs on the channel partners. We believe we are broadly there, maybe a decimal point here or there on the higher side, but not major changes in the market share on the volume side as well.

Amit Mahawar — Edelweiss — Analyst

Fair point. Sir, second and last question is again on standalone. The profitability of our business, the gross margin that we earn, the design engineering advantage that drive our SKU rollout, do you think the overhead basically to retain the market share, and I’m not talking about freight and other costs, which are more common to everybody, but more to maintain our competitive rigor, do you think the ASP that we do — again, I understand Q1 should not be seen because Q1 is where you incur bulk of it. But for the year as a whole, do you think the cost of retaining market share or slightly improving market share is coming very high. If you can address this question qualitatively, sir.

Achal Bakeri — Founder and Chairman and Managing Director

So that’s a valid question, Amit, and the way we would want to highlight this is, as you noted, we said earlier also that the ratio of our primary sales this year to the secondaries and tertiaries that are happening in the market, because of historical stocks there in the market, that ratio is a bit skewed. So obviously, going forward, this ratio is likely to improve as we would think of this more as a onetime blip to correct the stock situation in the market, rather than something which is structurally shifting on to the higher side.

Nrupesh Shah — Executive Director and Corporate Affairs

And we said that further to this, D2C and e-commerce initiatives, still it is an initial time. So there we spent in March quarter, June quarter, and we may have to spend even though many of them may give long-term benefit. But by way of advertisement, initial establishment, team costs, many IT cost-related initiatives, et cetera.

Amit Mahawar — Edelweiss — Analyst

Can I sneak in one last question, if you allow, sir?

Achal Bakeri — Founder and Chairman and Managing Director

Yes, of course.

Amit Mahawar — Edelweiss — Analyst

Sure. This is on the subsidiaries. Generally, Q4 and Q1, if you see are seasonally again, volume-wise or revenue-wise strong quarters. Earlier you tried to answer this question in the last participant’s query. But still, at least I’m not able to understand if Q4 and Q1, we are able to build more revenues in subsidiaries also in line with what you have in standalone. Generally, the profitability mark should be healthy. I’m sorry for this, but I’m not able to understand the profitability metrics in Q1 subsidiaries. So why it’s so much skewed?

Achal Bakeri — Founder and Chairman and Managing Director

How you are saying it is skewed because subsidiaries contributed, I believe, about 45% of the top line and in total EBITDA TT also, they have contributed almost proportionate. So subsidiaries have contributed about 43%, there is INR141 crore out of top line of INR329 crores, and out of INR34 crores of PAT, they have contributed — EBITDA, I’m sorry. Out of INR34 crores, they have contributed INR15 crores, that is 44%, which last year was negative INR5 crore.

Amit Mahawar — Edelweiss — Analyst

Okay. No, I was more referring to Q4 and Q1 top line of 1.3 and 1.2 billion. I mean, again, June quarter and March quarter. And if you see the cost index, generally the RM cost that we had in this quarter, that was not very clear to me why there will be a very different number vis-a-vis Q4. So why should Q4 and Q1 gross margin be very different, this will be my question?

Achal Bakeri — Founder and Chairman and Managing Director

No, because in Q4, business is skewed to U.S.A., while in Q1, there is a negligible U.S.A.-based business. Even in Q3 also there is a relatively large U.S.A.-based business. And there, margin percentage is very high and this is how, by and large, it’s likely to continue, because their sales happens before their summer starts.

Operator

Our next question is from the line of Omkar Gangadhre from Shree Investments. Please go ahead.

Omkar Gangadhre — Shree Investments — Analyst

One question is regarding, you have been consistently talking about utilizing your funds by the way of buyback, which hasn’t materialized. So can you throw some more light on that, a concrete one?

Achal Bakeri — Founder and Chairman and Managing Director

So first and foremost, we have a stated payout policy of 50% of PAT that continues whether in form of dividend or in any other form. And obviously, last two years, there were a lot of uncertainties. So, it was not an opportune time. And still, we continued with the dividend payout. And as stated earlier, maybe now sooner than later, we will resort to buy back, but there has to be an opportune time also, but I think it should be sooner than later.

Omkar Gangadhre — Shree Investments — Analyst

What’s stopping you from doing the buyback, it’s the size or what exactly it is? I can understand, last two years is not that great and the situation all had…

Achal Bakeri — Founder and Chairman and Managing Director

We can’t preempt the Board decision, because ultimately, the size, pricing, and timing ultimately the Board has to collectively decide. But overall sense what we get is, it should be a decent permissible size, which I believe is up to 25% of the net worth, which we just saw will be in excess of INR800 crores. So permissible size is around INR210 crores or so. So the size seems to be permissible size or around that. And secondly, in respect of buyback, we are also quite aware that there is some conflict between institutional investors and non-institutional investors. But for institutional investors’ preference is dividend. And as you know, almost 60% of our floating stock is owned by institutional investors. And non-institutional investors do prefer buyback. So we have to also manage that balance well.

Omkar Gangadhre — Shree Investments — Analyst

Next question is regarding the channel inventory, which you talked about is almost back to normal. So given — taking into consideration that, how do you see a couple of quarters performance of yours?

Achal Bakeri — Founder and Chairman and Managing Director

So, as we said earlier, the channel inventory seems to be reaching the regular pre-COVID normal level. And with that context and with the experience of the coming season, we do anticipate and how that — the coming couple of quarters would be in line with our historical growth patterns. At least in the like — the July collections are also pointing in the same direction.

Omkar Gangadhre — Shree Investments — Analyst

And what about the international markets?

Achal Bakeri — Founder and Chairman and Managing Director

The international market typically had a much smaller outstanding inventory compared to what it was in India. So depending upon the heat waves and the weather patterns, the growth will be there, but the inventory issue was not material as far as the international markets are concerned.

Omkar Gangadhre — Shree Investments — Analyst

But when can we start expecting a significant contribution from the international market to the EBITDA?

Nrupesh Shah — Executive Director and Corporate Affairs

So international markets have already contributed significantly even in FY ’22, isn’t it, as always very, very, sure.

Amit Mahawar — Edelweiss — Analyst

I’m talking about in terms of growth rates, not the exact numbers.

Nrupesh Shah — Executive Director and Corporate Affairs

Yes. So it will continue to drive the growth, except some of the headwinds which we are witnessing in some of the countries. So as we mentioned in earlier highlights, we are closely observing them. But we believe that we are relatively well positioned. The reason being, we do have really the strategic advantage of cross-country, very agile supply chain due to our full fledged operating subsidiaries in respective country.

Achal Bakeri — Founder and Chairman and Managing Director

But if you’re talking about growth rates, I think we must recognize that these are all pretty mature economies. And there, the growth rates in general are nowhere close to what you will find in sort of developing economies like India. So I think that the expectations have to be some times different. However, in Australia, our market share is as it is about 30%, 35%. Mexico, it’s about 35%, 40%. It’s only in the U.S. where our market share is relatively low, but it’s a huge market. So the upside is significant. And which is why we have grown significantly in the U.S. in the last two, three years. So we will keep on growing in the U.S. market, in Mexico, and Australia. The expectations of growth even at our end are not huge. And China, of course, has been badly affected where there is no growth – I mean there is negative growth in China in the last two, three years. But — so all-in-all, I would say the bright sort of star on the horizon is the U.S. market. And bulk of what you have seen is rebounding in the profitability also for the international — from international markets is largely driven by U.S.

Omkar Gangadhre — Shree Investments — Analyst

We talked about the developing economies. So how much is your presence there in countries like Indonesia or Thailand or Malaysia?

Achal Bakeri — Founder and Chairman and Managing Director

Not much. Not much, we are exporting to various countries. But the bulk of the business is coming from where we have physical presence, which is U.S., Australia, Mexico, China and now increasingly Brazil, where we have established a sort of a greenfield subsidiary a year ago.

Omkar Gangadhre — Shree Investments — Analyst

So in these countries, which you talked about in Southeast Asia, should be there on that radar, considering India-like situations?

Achal Bakeri — Founder and Chairman and Managing Director

It could be. It could be, but there are various other factors that play over there, which are probably too many to get into over this conference call. So you’re welcome to come over here. You haven’t been to our office in a long while. Please you’re welcome any time and we’ll explain to you in more granular detail when you do.

Omkar Gangadhre — Shree Investments — Analyst

Not anything on the horizon as of now?

Achal Bakeri — Founder and Chairman and Managing Director

For Southeast Asia?

Omkar Gangadhre — Shree Investments — Analyst

Yes.

Achal Bakeri — Founder and Chairman and Managing Director

No, no, things are going on, but nothing specific, no.

Operator

Our next question is from the line of Devesh [Phonetic] from DS Investments. Please go ahead.

Devesh — DS Investments — Analyst

Yeah, hi, good afternoon and Congratulations for the good set of number. My question probably is little bit more longer-term aspect. The Symphony, which many times is referred was a very high-growth engine until certain year ’16, ’17. Now we have a very big base and in the last answer you sort of alluded that we have a sizable market share in majority of the geography that we operate. If we have to sort of see next three to five year growth, what would be the right way to look at it? If you can help more directionally and broader range, just to understand how you look at it and then how we should model that would be helpful?

Achal Bakeri — Founder and Chairman and Managing Director

So as far as India is concerned, where there still is about 70%, 75% of the market is dominated by the unorganized sector. There, I would say there is significant headroom for growth. And although our market share of the organized sector will be whatever, 40%, 45%, 50%. But of the total size — of the total market or including the unorganized sector, it is still sort of in the low double digits. So there is significant headroom for growth. And we are seeing in the last two years, some sort of a accelerated transition from the unorganized sector to the organized sector. So I think India still has significant upside in the household cooler segment. As far as industrial coolers are concerned, where we are still sort of, I would say, our numbers are still very small and the market out there, the potential market out there, the undiscovered market out there is enormous. So I think that is also something which — and in that segment, we are continuously growing. So there too, I would say there is significant upside for growth. And outside of India, maybe like I said, Mexico and Australia may not have very, very impressive rates of growth, but newer geographies where like the U.S. or Brazil are where we are sort of sort of, I would say, planning on growing significantly in the current year as well as in the years to come. And then, of course, there are other geographies where we don’t have a significant presence, but where the potential is huge and you — everyone, all of us would have read about the heat that — heat wave that’s cutting across Europe as we speak. So that is also another big sort of, I would say, frontier that we have yet to sort of conquer. And where we’ve been around in Europe for several years, but no significant measure, but we are going to be sort of changing our approach and ensuring that we build a robust business in Europe as well. So I think the newer geographies outside of India and within India, as industrial or as we now call it, the LSV Large Scale Venti-Cooling segment. And of course, the household cooler where we still have significant headroom for growth. So broadly, this is how we look at our sort of opportunity going forward.

Devesh — DS Investments — Analyst

If I can sort of add to it, would you also be open to some inorganic elements like we have acquired and turn around the company. Are you also looking at some opportunities, which could be pursued?

Achal Bakeri — Founder and Chairman and Managing Director

So very honestly, we are not actively looking at any opportunities. Even in the past, we never actually were looking for opportunities. These opportunities — I mean, the acquisition that we have made were opportunity that came to us. So we’ve never been looking around, scouting around for acquisition opportunities. So if something compelling comes along and we keep on getting offers of all kinds. But unless something compelling comes along, we will not just go ahead and sort of exercise that option. But we are sure…

Devesh — DS Investments — Analyst

And the last one, if you can answer. So let’s say, today, if you are at a base of X, next four to five years, right, would it be reasonable to assume that on the current sizable base we could sort of double ourselves or probably be around that? Is that a reasonable assumption, assuming next few quarters could be here and there, but just four to five year horizon, what would be your outlook, if you can share?

Achal Bakeri — Founder and Chairman and Managing Director

Yes. So I believe your question is, can we double the size in next four to five years? Yes. I think maybe one year or two years here and there, but I think that’s why we are in the business, and we should be.

Devesh — DS Investments — Analyst

Okay, thank you. Thanks for the answers.

Operator

We’ll take our next question from the line of Aditya Bhartia. Mr. Aditya Bhartia, could you please unmute your line and go ahead with your question. That was the last question. Back to you, sir, for closing comments. Over to you.

Achal Bakeri — Founder and Chairman and Managing Director

Okay. So thank you very much to all the participants and also to Investec for hosting this conference call.

Nrupesh Shah — Executive Director and Corporate Affairs

All right. Bye-bye everybody.

Achal Bakeri — Founder and Chairman and Managing Director

Thanks, everyone.

Operator

[Operator Closing Remarks]