1. Symphony Limited Strong Brand, Asset Light Business Model .and yet we are only scratching the surface. March 2014 Un-Earthing Multibagger Stocks www.drequity.in 1 Research Report March 2014

2. March 2014 Un-Earthing Multibagger Stocks www.drequity.in 2 In-depth Research Quality Advice 3. March 2014 Un-Earthing Multibagger Stocks www.drequity.in 3 4. Content Index Symphony Ltd An Introduction Symphony Ltd Business Overview Industry Overview Warren Buffett Filters Check Symphony Ltd Financials Concerns March 2014 Un-Earthing Multibagger Stocks www.drequity.in 4 Concerns Conclusion 5. SYNOPSIS Continued innovation, expanding distribution strengthening market leadership Symphony (SYML) is the largest Air Cooler company in India, with 50% value market share in the organized market. Its strong brand enables it to command 10-12% pricing premium over competitors. It has strong distribution network of 750 distributors, 16400 dealers and plans to ramp up to 40000 in the medium to long term thereby driving growth. SYML's asset-light business model, complimented by a working capital cycle of 27 days is highly capital efficient, leading to RoCE being greater than 40%. March 2014 Un-Earthing Multibagger Stocks www.drequity.in 5 SYML's asset-light business model, complimented by a working capital cycle of 27 days is highly capital efficient, leading to RoCE being greater than 40%. In India Middle Class strata is undergoing great change, rising disposable income, nuclearisation of families, aspiration for luxury goods will lead to great boom in the Consumer Facing companies. Icing on the cake is the middle class population constitute more than 50% of the total population, this will create an ever growing demand for such products. Dr Equity 6. Symphony Ltd Investment Highlights Recommendation: Strong Buy CMP: INR 650 FV: Rs 2 Mkt Cap: Rs 2273Cr BSE Code: 517385 NSE Code: SYMPHONY Bloomberg Code: SYML IN Sector: Consumer Durables Air coolers penetration in India at just ~8% With just 20% market share, opportunity size for organized players is huge Strong dealer-ship network SYML is the largest Air Cooler company in India, March 2014 Un-Earthing Multibagger Stocks www.drequity.in 6 Sector: Consumer Durables Promoter Holding: 75% Total Equity Shares: 3.497cr SYML is the largest Air Cooler company in India, with 50% value market share in the organized market Continued investment in brand building Asset light business model ensures robust return on capital 7. History & Milestones 1988 - Symphony Comfort Systems Ltd. begins operations in India. 1990 - The company expands its horizons by focusing on national distribution, The company's first TV ad is broadcast. 1992 - Symphony's coolers established as a household name. 1993 - Kaizen launched and promoted as an air cooler that 'looks and feels like an AC 1994 - Symphony Ltd gets listed at the Bombay, Ahmedabad and Delhi stock exchanges March 2014 Un-Earthing Multibagger Stocks www.drequity.in 7 1994 - Symphony Ltd gets listed at the Bombay, Ahmedabad and Delhi stock exchanges with 10000+ individual investors, Mr. Achal Bakeri is awarded the Young Achiever Award by Sista Worldcom, The launch of Symphony's Columbia range of plastic water heaters. 2000 - Sumo desert air cooler launched with aggressive advertising strategy. Successfully established as a household brand by year-end, Awarded the Guinness World Record for creating the world's largest functioning air cooler. 2001 - Coolers launched in mid-segment. Source: Dr Equity Research / Company Annual Report 8. Contd 2004 - Symphony HiCool launched through an aggressive advertising campaign for coastal markets. 2006 - Launch of Symphony's range of air conditioners, Global focus with entry in 33 countries. 2008 - Symphony acquires Impco Air Coolers, Mexico, founded by the inventor of evaporative air coolers. The company that has a rich tradition dating back to 1939. 2009 - Launch of the Diet Range of air coolers, the world's first tower coolers, Firmed the March 2014 Un-Earthing Multibagger Stocks www.drequity.in 8 2009 - Launch of the Diet Range of air coolers, the world's first tower coolers, Firmed the proposal for a new Corporate Office and acquired real estate; the office will be ready by 2013. 2010 - Launch of industrial air cooling solutions in India, Introduced our first summer campaign. 2011 - Strengthened our network and TV campaigns to promote the first summer concept, Launched a TV campaign for the South American / Mexico market-- a first by any evaporative cooler company in the region. 2012 - Introduced Storm - world's largest tower cooler with advanced electronics. 9. Brief...The Company A leader of global air cooling solutions that effectively address the cooling needs of residential and industrial customers in 60 countries. The DNA Committed to the manufacture of eco-friendly products. Passionate towards creating innovative designs Firmly believes in maximising returns from every invested rupee reflected in the companys asset-light and lean business model. The presence Headquartered in Ahmedabad, Gujarat, India Manufacturing facilities in India (for residential March 2014 Un-Earthing Multibagger Stocks www.drequity.in 9 Headquartered in Ahmedabad, Gujarat, India Manufacturing facilities in India (for residential coolers) and Mexico (for industrial coolers) Sales teams stationed in 15 countries across Europe, America, Asia and Africa. Products occupy the shelf spaces of large retail brands namely Walmart, Lowes, Carrefour, Singer, Sears, Costco and Home Depot, among others. The products Air coolers for residential, commercial and industrial applications 23 plastic and 64 metal air cooler models for diverse residential, commercial and industrial applications Comprehensive air cooling solutions for industrial applications. 10. Overview Established in 1988, Symphony leverages a unique and successful asset-light business model for its residential coolers in India and in-house lean manufacturing for its industrial coolers in Mexico to achieve sustainable and profitable growth. Headquartered in Ahmedabad, Gujarat, India, Symphony is a global company committed to develop sustainable and responsible products. This means leading the air-cooling industry's efforts to develop breakthrough green technologies to combat climate change. A publicly traded company in India with a manufacturing base in North America offering products in over 60 countries, Symphony continuously delivers value to its stakeholders in a profitable and predictable way. March 2014 Un-Earthing Multibagger Stocks www.drequity.in 10 predictable way. A world leader in evaporative air coolers, Symphony focuses on innovative design to create better and eco-friendly products for domestic and industrial customers in 60 countries across the globe. Symphonys design-driven innovation and green engineering is a sustainable competitive advantage. It deliver market-leading products with engineering and design innovation, improved energy conservation, distinctive styling and customer-centric design. 11. Contd It is an exciting time for the air cooling industry. As an industry leader, Symphony enjoys a distinct advantage. In India, where we have over 45% market share and with rising per-capita income, increased rural and lifestyle spending, and growth of organized retail, Symphony is poised to capitalize on brand premium, volume growth, value addition and cost efficiency. With there recent acquisition of the worlds oldest industrial air cooling company in Mexico, which was founded by the inventor of air coolers, Symphony sees huge market potential in the unexplored market segment of industrial air coolers both in the international and Indian markets. As Symphony evolves into a leading global brand, one thing remains the same: our commitment March 2014 Un-Earthing Multibagger Stocks www.drequity.in 11 As Symphony evolves into a leading global brand, one thing remains the same: our commitment to the global community and the world we share. At Symphony, environment responsibility is not just a business strategy; it is embedded in our business model. With a growing appetite for environment-friendly products, we expect to capitalize on our first mover advantage leading to market leadership, brand premium and category dominance in a profitable and responsible manner. 12. Symphony has recently acquired a state-of-the-art manufacturing plant in North America for heavy duty metal air coolers. Here, too, they follow a lean manufacturing strategy by driving efficiency and production through shop floor best practices. By reducing wastage, improving processes and focusing on quality, Symphony has transformed the industrial air cooling business into a profitable business. They have gained significant market leadership in North America and made encouraging inroads in the Indian manufacturing and services sector. There industrial air coolers will be a significant growth driver in the near future. Business leader in air cooler segment: Changed Strategy from single market, multiple products to single product, multiple markets. By 2001, Symphonys net worth was completely eroded and referred to BIFR due to its decision to shift focus from one segment to enter other segments like AC, washing machines, etc. Later, the company exited the business after making huge losses and decided to focus on its core strength i.e. air coolers. The company now focuses on establishing a strong brand equity and recall by making significant expenditure on advertisement and promotions (~4% of sales). Currently, Symphony holds ~50% market share in the organised markets followed by Kenstar (~35% market share) and Bajaj Electricals (~15% market share). March 2014 Un-Earthing Multibagger Stocks www.drequity.in 12 13. Air Cooler Market The 2,000 crore Indian air cooler industry is fragmented across a number of unorganised players with organised brands comprising Kenstar, Bajaj, Usha, Orient Fans and Havells. The unorganised air cooler market has a share of around 50%. India is a vastly under-cooled country with penetration of cooling appliances, including air coolers, being low. With, India being a power- starved nation, air coolers are the best bet as they consume only a fraction of electricity compared to an air conditioner. Currently, the Indian air- cooler industry is growing at 20% per annum; the organised segment is growing faster at 25% per annum. Despite this robust growth, Indias air-cooler penetration is a mere 5%, corresponding to approximately five million units per annum while the size of the expensive air conditioner market is estimated at 3.2 million March 2014 Un-Earthing Multibagger Stocks www.drequity.in 13 per annum while the size of the expensive air conditioner market is estimated at 3.2 million units. Over the years, the markets for air coolers and air conditioners have grown as consumers have graduated to both: from fans to air coolers and from air coolers to air conditioners. 4% 8% 66% Air Conditioners Air Coolers Fans 20% 80% Organised Un-Organised 50% 30% 15% 5% Symphony Kenstar Bajaj Others Value Market Share Market Penetration Air Cooler Volume Market Share Source: Dr Equity / Company 14. Filter # 1 Track record of high returns on capital. "Here's what we're looking for...businesses earning good returns on"Here's what we're looking for...businesses earning good returns on equity while employing little or no debt." - Warren Buffett's letter to shareholders, 1987 March 2014 Un-Earthing Multibagger Stocks www.drequity.in 14 15. 84 53 42 31 29 36 39 40 0 10 20 30 40 50 60 70 80 90 2009 2010 2011 2012 2013 2014E 2015E 2016E ROE ROE Asset light business model delivering superior RoCE Symphony reports strong return on capital with core RoCE (excluding cash on books) standing at 87% (170% pre-Impco acquisition. High margins (>20%) coupled with 100% outsourcing and 100% advance from distributors on domestic sales helps Symphony to earn high returns on its capital employed. March 2014 Un-Earthing Multibagger Stocks www.drequity.in 15 to earn high returns on its capital employed. Symphony is consistently focusing on its key strengths - innovation, marketing and brand building. We expect Symphony to continue reporting strong RoCE on the back of its strong business model. Source: Dr Equity / Company 75 65 54 44 49 0 10 20 30 40 50 60 70 80 2009 2010 2011 2012 2013 RoCE RoCE 16. Filter # 2 ...else pays it back to shareholders "Most high return businesses need relatively little capital. Shareholders of such a company usually will benefit if it pays out most of its earnings in dividendssuch a company usually will benefit if it pays out most of its earnings in dividends or makes significant stock repurchases."- Warren Buffett letter to shareholders, 1992. March 2014 Un-Earthing Multibagger Stocks www.drequity.in 16 17. 5.5 6.5 4 5 6 7 DPS DPS Symphony is consistently paying dividend even the dividend has increased in the last 3 years. The pay out ratio has also improved in the last 3 years. Last 3 years average payout stands at 34% which is good. Company has an asset light business model which requires minimum capex and symphony holds huge cash as well, so we anticipate that in March 2014 Un-Earthing Multibagger Stocks www.drequity.in 17 2 0 1 2 3 2011 2012 2013 holds huge cash as well, so we anticipate that in future the payout is going to increase. Source: Dr Equity / Company 18. Filter # 3 A word on the management. ..."the certainty with which management can be counted on to channel..."the certainty with which management can be counted on to channel the rewards from the business to the shareholders rather than to itself..."- Warren Buffett letter to shareholders, 1993. March 2014 Un-Earthing Multibagger Stocks www.drequity.in 18 19. Mr Achal Bakeri Mr Achal Bakeri, Founder, Chairman and Managing Director Mr Bakeri, an MBA from the University of Southern California, is an Architect with over 25 years of experience in the Air Cooler industry. He founded Symphony in 1988. He contributes to Policy Formulation and Strategy, besides giving overall guidance and support to the Board. He was also awarded the India Young Business Achiever Award by Worldcom Group Inc. Mr Nrupesh Shah, Executive Director Mr Shah looks after overall Corporate Affairs, including Strategy, Finance, Accounts, MIS and Taxation along with other corporate functions. He has around 25 years of experience. March 2014 Un-Earthing Multibagger Stocks www.drequity.in 19 Taxation along with other corporate functions. He has around 25 years of experience. Mr Dipak Palkar, Independent Director Mr Palkar has about 30 years of experience in Marketing, Business Promotion and International Sales. He has been associated with the company since 2005. Mr Himanshu Shah, Independent Director Mr Shah has about 25 years of experience in Marketing, Business Promotion and International Sales. He has been associated with the company since 2009. 20. Mr Bhadresh Mehta, Vice President (Finance & Accounts) Mr Mehta is a Finance and Audit professional, with 27 years of experience. He is responsible for the organizations Finance, Audit, Accounts and Costing functions. Mr Chandrakant V Gandhi, Company Secretary and Head (Legal) Mr Gandhi is an MCom, LLB, FCS & ICAI (Inter). He has more than 28 years of experience and currently looks after the Secretarial and Legal functions of the company. March 2014 Un-Earthing Multibagger Stocks www.drequity.in 20 Left Intentionally Blank 21. Filter # 4 Strong MoatStrong Moat March 2014 Un-Earthing Multibagger Stocks www.drequity.in 21 22. The Major Moats of the company: 1. Accelerating innovation investment to create enhanced product features and customer value. 2. Reducing components and costs and improving execution in our value chain. 3. Developing eco-friendly products that reduce energy consumption and release no harmful by-products during use. 4. Backed by design innovation, Symphony now has strong portfolio of different products, solutions and intellectual property, both in the domestic and industrial air- cooling segment. Our product design incorporates not only engineering and efficiency parameters but style as a key factor of the product attribute. Symphony marketed the ongoing operating cost advantage: If a 1.5 tonne air-conditioner were Moats March 2014 Un-Earthing Multibagger Stocks www.drequity.in 22 Symphony marketed the ongoing operating cost advantage: If a 1.5 tonne air-conditioner were operated right through the month without a break, it would consume 9 times more electricity than an equivalent air-cooler; besides, the cost differential alone would make it possible for the air-cooler to be paid back in just months. The result of this positioning is that air cooler market growth outperformed air- conditioner market growth during the year under review. India is a vastly under-cooled country with penetration of cooling appliances, including air coolers, being low. With, India being a power- starved nation, air coolers are the best bet as they consume only a fraction of electricity compared to an air conditioner. Currently, the Indian air- cooler industry is growing at 20% per annum; the organised segment is growing faster at 25% per annum. Despite this robust growth, Indias air-cooler penetration is a mere 5%. 23. Symphonys presence: The company enjoys a market share of 50% in the organised segment of the Indian air cooler industry. With an exhaustive range of 25 coolers (including 2 metal coolers) in different variants like desert, tower, room, and personal coolers, and a price bracket of `5,500 and `17,000, Symphony has been able to maintain a sound growth trajectory over 25 years of its existence. Symphonys four main pillars are design, innovation, brand and network. Design- driven innovation and green engineering are sustainable competitive advantages of the Company. Innovation at Symphony: Symphonys success in global air coolers market has primarily been due to its focus on innovation and R&D activities since inception. Some of its path-breaking innovations comprise water distribution channel, durability, odourless cooling medium for the best cooling March 2014 Un-Earthing Multibagger Stocks www.drequity.in 23 water distribution channel, durability, odourless cooling medium for the best cooling performance, high capacity submersible pumps, remotely operated air coolers, aerodynamic profile and a balanced fan for high air flow and lower noise. As a result, Symphony air coolers have been certified for the highest air blast, air delivery and cooling efficiency. 24. Symphonys distribution: The companys deep and wide distribution network has been pivotal in sustaining its dominance in the Indian market. The 16,400-strong dealer base present in 4,500 towns and cities ensure that the Company is able to capitalise on demand emerging from every pocket in the country. The Company plans to grow its network to 40,000 dealers over medium-term for a deeper penetration and a stronger presence in rural and semi-urban markets. Symphony has widened its global footprint with presence in over 60 countries. Through operations in different parts of the world, with different climatic-cycles, the Company has reduced its dependence on seasonal demand and insulated itself to a large extent from impact of a drop in sales in the non-summer months. Future Targets: In the domestic market, the Company is working to increase it dealer base to about 40,000 over March 2014 Un-Earthing Multibagger Stocks www.drequity.in 24 In the domestic market, the Company is working to increase it dealer base to about 40,000 over the medium-term to strengthen its presence in semi-urban and rural markets. The Company is increasing its product presence in malls and with leading retail chains. For the international markets, the Company has adopted a dual strategy: one, increase penetration in existing markets and secondly, widen its presence across 100 nations over medium-term. 25. Reducing dependency on seasons which derives symphonys sales: By entering in to global markets, symphony has reduced its dependence on seasonal demand. India experience summer from April to June, where as in the other parts of the world there is winter at the same time. Hot weather time table: May to August USA April to October UK and Middle East October to February South Africa December to February Australia March 2014 Un-Earthing Multibagger Stocks www.drequity.in 25 December to February Australia Symphony has presence in 60 countries as of now and planning to enter 100 countries in couple of years which is only going to reduce its dependence on seasonality demand which in turn uptick its revenues further. 26. Network in India 4000+ cities/towns 750+ distributors 15000+ dealers across India High on Innovation Intellectual property comprising 8 patents, 49 designs, 108 trademarks and 7 copyrights Global Footprints Presence in 60 countries Offices in US, Mexico & India Sales team in 15 countries across Europe, Americas, Asia and Africa Present in key retailers like Wal-Mart, Lowes, Carrefour, Singer, Sears, Costco, Home Depot etc. March 2014 Un-Earthing Multibagger Stocks www.drequity.in 26 27. Distributors Dealers March 2014 Un-Earthing Multibagger Stocks www.drequity.in 27 Display of symphony products on E-Commerce Platform Source: Dr Equity / Company 28. Business Model Symphony has globalised its operations and its products are available in 60 countries. While domestic air coolers are manufactured in India, industrial air coolers are manufactured in our state-of-the-art manufacturing facility in North America. Symphony draws its strength in domestic air coolers from a unique business model based on value addition through strategic vendor development. A hub and spoke model ensures near-to- market manufacturing to deliver products in a significantly shorter time. Hub and Spoke Model March 2014 Un-Earthing Multibagger Stocks www.drequity.in 28 Hub and Spoke Model Manufacturing Manufacturing Manufacturing Market Source: Dr Equity / Company 29. Comparison of Air Coolers and Air Conditioners Parameter Air Cooler Air Conditioner Price 7000 25000-45000 Area covered (feet) 500 150 Watts 180 1500 March 2014 Un-Earthing Multibagger Stocks www.drequity.in 29 Run Time 8 8 Total Kwh Consumed 1.5 14 Per Month (kwh) 46 434 Price per kwh 4.5 4.5 Cost per month 206 1953 Can be used indoor and outdoor indoor only 206 1953 Source: Dr Equity / Company 30. Filter # 5Filter # 5 Huge Opportunity March 2014 Un-Earthing Multibagger Stocks www.drequity.in 30 31. Opportunity Opportunity based on upward mobility: In India, there are about 24.7cr households; about 8.3cr do not own a fan. Only about 3.8% of the total households own an air-conditioner (94Lacs) and about 5% own coolers. This means that the addressable cooler market is about 91% households over and above the replacement market. Opportunity based on location: In India, about 13.2cr households live in hot dry climatic regions (about 54% of the total) and about 1.1cr households live in moderate climatic regions. This represents an aggregate 14.3cr households (58% of total) of potential customers. March 2014 Un-Earthing Multibagger Stocks www.drequity.in 31 households (58% of total) of potential customers. Opportunities over the horizon: In India, especially among the mid-income groups, there is a huge demand of air coolers, especially for the cost of ownership: an air conditioner costs between `23,000 to `35,000 whereas branded air coolers (like Symphony) cost between `4,500 to `17,000. Besides, air coolers consume 90% less electricity compared to air conditioners a critical factor in swaying the decision in favour of the coolers. 32. Growing middle class: Indias 3.14cr strong middle-class households are expected to touch 5.33cr by 2015 and grow to 11.38cr households by 2025. Indias total household consumption is all set to quadruple over next two decades, (2005 to 2025) according to McKinsey Global Institute. The countrys middle- class will be over 50cr strong by 2025, making India the worlds fifth-largest consumer market. This bulging base of middle-class families presents an immense opportunity for air-cooler manufacturers in India. Increasing urbanisation: India is the fastest urbanising country. Urban markets are set to explode as Indias urban population is expected to grow at about 2.3% during 2006-2016 while the overall population is anticipated to grow at an annual rate of about 1.4%. UN estimates that 40% of Indias March 2014 Un-Earthing Multibagger Stocks www.drequity.in 32 anticipated to grow at an annual rate of about 1.4%. UN estimates that 40% of Indias population will be living in urban areas by 2030 (Source: Forbes India). Nuclear families: The average increase in the number of middle-class nuclear families is estimated to be over 30cr. The average household size declined from 4.6 to 4.1 in the past decade with a corresponding increase in average dwelling sizes from 41 square metre per unit (sq. m/unit) to 48 sq. m/unit. (Source: ENAM). India also has the highest proportion of couples with two children, or nuclear families, at 52%, followed closely by Brazil and China at 49%. 33. Working population: Indias proportion of the working age population (15-59 years) is likely to rise from around 58% in 2001 to over 64% by 2021 (Source: Economic Survey). In absolute numbers, around 6.35cr people are expected to enter the working age group between 2011 and 2016. By 2030, India will have the youngest median age of 31.2 years. When most major economies will see a decline of working age adults (20-64 years), India is expected to see a significant rise in working age adults. A NASA report stated that at 38 degrees temperature, there is a 62% loss of work output and at 41 degrees, it goes up to 79%. Hence, there is an immense potential for industrial air cooling in India, wherever air conditioning is just not feasible. Increase in earning family members: March 2014 Un-Earthing Multibagger Stocks www.drequity.in 33 Increase in earning family members: Dependency ratio among Indian families declined from 58% in 2005 to 55% in 2010 and is expected to decline to 52% in 2015 and 49% in 2020 (Source: ENAM) Disposable incomes: The average Indian has started earning more average per capita income increased by 11.7% to `5,729 per month in 2012- 13 at current prices which comes to `68,747 annually (`61,564 in 2011-12). Estimates suggest that private final consumption expenditure is expected to scale up from USD 790 billion in 2010 to USD 3.6 trillion by 2020 (Source: ENAM). 34. Global warming: India is likely to become phenomenally hotter and could also become considerably wetter due to global warming. The mean temperature in India rose by 0.2 degree Celsius every decade 29382 35430 40605 46492 54835 61564 68747 0 10000 20000 30000 40000 50000 60000 70000 80000 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 Per Capita Income Per Capita Income Source: Dr Equity / Company March 2014 Un-Earthing Multibagger Stocks www.drequity.in 34 to global warming. The mean temperature in India rose by 0.2 degree Celsius every decade between 1971-2007 with minimum temperatures rising more than maximum temperatures, which increased 1.02 degree Celsius in 100 years. The most alarming findings in the report are the predictions it makes, based on scenarios that greenhouse gas emissions would continue to rise unchecked over coming decades. Projections show that total monsoon rainfall could rise between 9-16% by the end of 21st century. By that time, annual mean temperatures could rise by 3.5-4.3 degree Celsius with 1.7-2 degrees rise taking place as early as 2030s. Both minimum and maximum temperatures recorded in a day will rise. Areas in Rajasthan and Kutch could see more than 4-degrees rise in maximum temperatures by as early as 2020s. Night temperatures are projected to rise by 4.5 degrees across a large part of the country by 2050. 35. Filter # 6 and now Valuations... John Burr Williams set forth the equation for value, which we condense here: TheJohn Burr Williams set forth the equation for value, which we condense here: The value of any business today is determined by the cash inflows and outflows - discounted at an appropriate interest rate - that can be expected to occur during the remaining life of the asset. - Warren Buffett's letter to shareholders, 1992. March 2014 Un-Earthing Multibagger Stocks www.drequity.in 35 36. Average realisation per cooler is increasing due to good mix of value and volume sales. Gross margin average more than 50% reflects management capability to pass on the cost. Company is earning good ROE on its capital although its declining, but if we see the decline is more or less due to cash in the books and deposits earning lower returns. Symphony is earning very good return due to two factors: Asset light business model where in the manufacturing is completely outsourced and only the quality is under symphony. Cash sales to the distributors and dealers which helps symphony and puts less pressure on working capital. Earnings Power Value (EPV) March 2014 Un-Earthing Multibagger Stocks www.drequity.in 36 Earnings Power Value (EPV) The formula for EPV of a company is: EPV = Adjusted Earnings x 1/R Here, R is the cost of capital. Symphony, posted an adjusted EPS (earnings per share) of Rs 17.20 in June 2013. If the companys profits were to stagnate and remain at Rs 17.20 per share going forward, and applying the EPV formula here, we multiply Rs 17.20 with 1/8% (8% being rate for a 10 year India government bond) This gives us a value of Rs 215 per share, which is Symphonys intrinsic value as per the EPV calculation. 37. Value from growth: As it can be seen from the analysis that symphony has a sustainable competitive advantage due to which earnings growth will always certain. Hence the true value is definitely more than what we got from EPV calculation. But how much? By doing Earning power multiple calculation we can derive its true value. After analysing, the maximum multiple we can give is 3 times which gives us the value of (215*3) Symphony at INR 645 per share. Return ratios will further improve: Symphonys return ratios will improve further, Estimated for 2014-2016 to be RoCE 58% and ROE 41%. Business is high cash generating which is dragging its actual RoCE (core RoCE March 2014 Un-Earthing Multibagger Stocks www.drequity.in 37 ROE 41%. Business is high cash generating which is dragging its actual RoCE (core RoCE 100%). 38. Filter # 7 Margin of safety Having ascertained that Symphony Ltd is one of the contenders for becoming a partHaving ascertained that Symphony Ltd is one of the contenders for becoming a part of a portfolio that Warren Buffett would love to own, let us have a look whether there is sufficient margin of safety in the company's current stock price and whether one should invest in the stock at the current levels. March 2014 Un-Earthing Multibagger Stocks www.drequity.in 38 39. Buffett always insist on the Margin of Safety of 25% from the current share price. Because an analyst can go wrong in estimating the fair value of a company. That is why Buffett always look for a fair amount of Margin of Safety. Symphonys current share price stands at Rs. 710, while Fair Value comes at Rs. 645. So there is no margin of safety exist in the current share price. There is a 10% overvaluation calculated at the current price compared to its fair valuation. So, we will wait for the price to come down to our comfortable range (INR 500-600). Our Margin of Safety So, we will wait for the price to come down to our comfortable range (INR 500-600). Our analyst will track the company and will initiate BUY when the right price will come to all the paid members of Dr Equity. March 2014 Un-Earthing Multibagger Stocks www.drequity.in 39 40. Name Of Shareholder No. Of Shares held Shares as a % of Total No. Of Shares Rowenta Networks Pvt Ltd 1546525 4.42 Matthews India Fund 1173560 3.36 Shareholders with more than 1% stake as on December 2013 March 2014 Un-Earthing Multibagger Stocks www.drequity.in 40 Axis Mutual Fund Trustee Ltd A/c Axis Mutual Fund A/c Axis Long Term Equity Fund 469455 1.34 Total 3189540 9.12 Source: BSE India 41. Concerns 1. The business is still seasonal in nature so any bad weather can affect its demand ad so its profitability. 2. Entry of new players in the organised segment can dent its margin also there is a large no. of unorganised players in the market whose products price is 25-30% cheaper. 3. Symphony is majorly in to air cooling which poses a big risk since any new invention in air cooling industry will impact it business significantly. 4. Currency risk will also remain as now company is focussing more on export revenues as March 2014 Un-Earthing Multibagger Stocks www.drequity.in 41 4. Currency risk will also remain as now company is focussing more on export revenues as well. 42. Conclusion from Head Equity Research Looking at the industry structure and the business model, we have arrived at the conclusion to buy this gem but at an appropriate price. This company possess enormous competitive advantage which can be evident from the analysis. Management is clean and clear in there vision and integrity. At this level share price doesn't offer enough margin of safety. So, we will wait for the correction in the stock price since it has recently run up 50% during our analysis period. March 2014 Un-Earthing Multibagger Stocks www.drequity.in 42 in the stock price since it has recently run up 50% during our analysis period. Cerebral Advisory Services Pvt Ltd Dr Equity 43. 1. Any action you choose to take in the markets is totally your own responsibility. 2. Cerebral Advisory Services Pvt Ltd (Dr. Equity) will not be liable for any, direct or indirect, consequential or incidental damages or loss arising out of the use of this information. Information in this report is believed to be correct & reliable. Information & data in this report is been taken from publicly available data. We do not guarantee correctness of Information. 3. Stock market Investing may result in losses as well as profits. Stock Investing is not suitable for many members of the public and only risk capital should be applied. 4. Cerebral Advisory Services Pvt Ltd (Dr. Equity) does not take into account special investment goals, the financial situation or specific requirements of individual users. Disclaimer Result Update March 2014 CSL Un-Earthing Multibagger Stocks www.drequity.in 43 5. You should carefully consider your financial situation and consult your financial advisors as to the suitability to your situation prior to making any investment or entering into any transactions. 6. If you want personal advice, then you should seek a registered investment advisor. 7. Price and value of the investments referred to in this material may go up or down. 8. This service does not assure specific amount or percentage of return and it does not guarantee number or periodicity of recommendations either. 9. Investment / disinvestment decisions are entirely at the discretion of the subscribers and the entire gains/losses are theirs. Hence, Cerebral Advisory Services Pvt. Ltd. or any of its employees will not be liable for any loss suffered. (CASPL Cerebral Advisory Services Private Limited) 44. Our Solutions YOUR growth.. Our Value Portfolio service which helps clients build robust portfolio of High quality companies. 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