After studying law I vectored towards journalism by accident and it's the only job I've done since. It's a job that has taken me on a private jet to Jaisalmer - where I wrote India's first feature on fractional ownership of business jets - to the badlands of west UP where India's sugar economy is inextricably now tied to politics. I'm a big fan of new business models and crafty entrepreneurs. Fortunately for me, there are plenty of those in Asia at the moment.
Achal Bakeri, founder, chairman and managing director of Symphony, had sold out all the units that he had manufactured in the first year of production Image: Joshua Navalkar Unlike most entrepreneurs in the white goods segment, Achal Bakeri, 57, has not built factories with rows upon rows of assembly lines. Nor does his venture Symphony Ltd have a finger in every pie of the sector. A single-product company, it devotes all its resources to what it does best—making air coolers. Symphony develops its products in-house and provides the tools for manufacturing, but outsources the final assembly to third party plants. Its employees look after vendor management and quality control. It is this asset-light—and consequently capital-light—model that has made the stock a favourite among investors. Shares of Symphony, which could be picked up for a little over Rs 100 five years ago, were trading at Rs 1,364 on BSE on July 11, 2017—that’s a compounded annual growth rate of around 62 percent in the period. More importantly, Symphony has chosen to return cash to its shareholders. Its return on net worth has always been above 30 percent in each of the last five years. “Returning excess capital to shareholders is the hallmark of a good business and shows that the interests of the promoters are aligned with those of minority shareholders,” says Utpal Sheth of wealth management firm Trust Capital. Devoid of major heavy assets, Symphony has been modelled as a “product innovation, marketing and distribution company”, says Bakeri, founder chairman and managing director. The result has been a clear pole position in the domestic air cooler market and financials that are in the pink of health. Revenues in FY17 grew to Rs 768 crore, clocking a compounded annual growth rate of 16 percent over the last five years. Profits, too, have kept pace, expanding at 22 percent a year in the same period, touching Rs 165 crore in FY17. More recently, Symphony has created the niche market of industrial cooling wherein large factories, warehouses and halls are installed with Symphony’s air cooler units as a cheap alternative to air conditioning. Also, with two overseas acquisitions, the company has every chance of making a major dent in the international market. While the company has been asset-light from the get-go, the single-product strategy was adopted after missteps in diversification led to bankruptcy less than a decade after its first summer of sales in 1988. Bakeri, a scion of realty major Bakeri Group, had started the business that year on his return to India after completing his masters in business administration from the University of Southern California. A year earlier, the family had installed an air cooler at their residence in Ahmedabad. While the cooling was satisfactory, “the product was an eyesore”, recalls Bakeri, who was convinced there’s a market for a more aesthetic product. Symphony’s first air coolers had a dream debut. Though, at Rs 4,300, they were twice as expensive as the competition, it was still cheaper than an AC that cost around Rs 35,000 (for a 1.5 tonne unit) at the time. The first batch of about a thousand were sold out that summer. Bakeri, who had seen his family struggle with collections in the real estate business, was clear that he would not extend credit to anyone when he started Symphony. Even today, the company pays its manufacturers upfront in exchange for cash discounts and supplies to dealers in exchange for immediate payment. (Well-known chains like Tata Croma and Vijay Sales, though, are allowed short credit periods.) This frees Symphony from the burden of working capital requirements—it does not have to borrow for its day-to-day operations. After the initial success, Symphony progressively expanded sales across Gujarat and then across India, with the help of an aggressive marketing strategy. “In 1989, we might have clocked sales of Rs 3.5 crore, yet in 1990 we spent as much as Rs 1.8 crore on advertising,” says Himanshu Shah, director, sales and marketing, at Symphony. Liberal advertisement spends helped it become a national brand. In 1994, the company went public raising a little over Rs 10 crore. And then, the music stopped. Being a publicly traded company, analysts, at meetings with Bakeri, stressed that Symphony is focusing on just one product, whereas competitors like Usha, Crompton Greaves and Polar were multi-product companies. Moreover, air cooler sales were dependent on a hot summer and Symphony needed a range of all-weather products, they opined. Seeing reason in the argument, Bakeri started diversifying his product range in 1995 making, among other things, geysers and washing machines. However, he had underestimated the competition in these categories. The next 14 years were the toughest in his life as he witnessed the net worth of his company erode. Compared to a profit of Rs 3.5 crore in 1994-95, the company posted losses of Rs 5.16 crore in 2000-01. As Bakeri told Forbes India in a 2015 story, “We spent seven years digging a hole and then seven years getting out of it.” In 2002-03, the company filed for bankruptcy and approached the Board for Industrial and Financial Reconstruction (BIFR), the government agency that assists in the revival of sick industrial units. The market for industrial cooling is largely untapped and Symphony is looking to grow from scratch Having burnt its fingers trying to diversify, Symphony now decided to focus only on air coolers. It emerged from BIFR in 2009 to create Symphony 2.0 with a single-product strategy. The move came up trumps and eventually catapulted it to the position of market leader in air coolers. The battle-scarred Bakeri is candid in admitting that without the experience of seeing his company crumble, he would probably not have created the Rs 9,400 crore company (by market capitalisation as on July 11, 2017) that Symphony is today. And with the phoenix-like resurrection near complete, he is now expanding the global footprint, in what is Symphony’s third, and possibly most exciting, phase of growth. While Symphony went about expanding in the domestic market, it is its two international acquisitions that provide further insight into the mind of Bakeri. Even as a global player, he retained the same asset-light model. In 2008, the company acquired International Metal Products Company (Impco), which was started by Adam Goettl, who patented the first ever air cooler in 1930. After a series of ownership changes, the company had ended up in the hands of American private equity group Castle Harlan that was looking to sell. Symphony paid $650,000 (Rs 2.6 crore then) to acquire the company along with a debt of $25 million. The debt helped it get a tax write-off and the $650,000 Symphony paid was recovered within six months of operations. “Their respect for capital is phenomenal and this shows in the [low] price they have paid for their overseas acquisitions,” says Nilesh Shah of Envision Capital, a value investing firm and a Symphony shareholder. With Impco, Symphony lost no time in converting it into a low-cost operation. The company was put through the Mexican equivalent of Chapter 11 (a form of bankruptcy that involves restructuring a company’s debts and assets) and creditors were paid off a fourth of what they were owed. Real estate was sold and manufacturing was discontinued (coolers were supplied from India).
Bakeri is now expanding the company’s global footprint, in what is its third and most exciting phase of growth
Click here to see Forbes India's comprehensive coverage on the Covid-19 situation and its impact on life, business and the economy
Check out our anniversary discounts on subscriptions, upto 50% off the website price, free digital access with print. Use coupon code : ANN2022P for print and ANN2022D for digital. Click here for details.
(This story appears in the 04 August, 2017 issue of Forbes India. To visit our Archives, click here.)
For hassle free instant subscription, just give your number and email id and our customer care agent will get in touch with you
click here to Subscribe Online
Jack Dorsey and Jay-Z collaborate to launch 'The Bitcoin Academy'
Tether launches new USDT tokens on the Tezos blockchain
South Korean Exchanges delist Litecoin
Lithuania aims to tighten crypto regulation and ban anonymous accounts
From Oslo to Paris, which global city offers the best work-life balance?
NASA plans to join UFO research efforts with 'open mind'
Asteroid samples contain 'clues to origin of life': Japan scientists
Federal safety agency expands its investigation of Tesla Autopilot system
Photo of the day: Rains come knocking
From Saddam to ISIS: Iraq is still exhuming mass graves
US Capitol riot probe puts Donald Trump at heart of 'attempted coup'
Games 24x7: How Bhavin Pandya and Trivikraman Thampy turned wild cards into a winning hand
Old tricks, new crises: How misinformation spreads in the US
Urgent need to look at esports from a different lens: JetSynthesys' Rajan Navani
Himachal Pradesh Vs Uttarakhand: A tale of development for two Himalayan states