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IFBI posted consolidated sales of Rs10.9bn, up 2% YoY and broadly in-line with our estimate. Home Appliances sales was flat YoY at Rs8.6bn amidst subdued demand environment and channel build-up. Softer commodity costs and better product mix led to 250bps YoY/30bps QoQ rise in gross margin to 39.4%. This was, however, offset by higher spends on staff, promotion, franchisee and travel leading to flat YoY EBITDA at Rs348mn. EBITDA margin was at 3.2%, flat YoY and 60bps below our estimate of 3.8%. Home Appliance segment EBIT margin fell to 0.8%, down 30bps YoY mainly led by loss in RAC category. Core PAT stood at Rs37mn, however, Rs43mn loss from associate (from 44% stake in IFB Refrigeration Ltd) led to consolidated net loss of Rs6mn. Turning around AC division (Rs2.54bn PBT loss from inception up to Q1FY24 vs. Rs1.8bn AC plant capex) is key to overall profitability, which IFBI aims to achieve through material cost reduction and improving channel extraction. Factoring in the loss from IFB Refrigeration Ltd, we cut our FY24E/FY25E earnings estimate by 19%/6%. Retain ADD rating with SOTP based target of Rs875, valuing appliances/engineering segment at P/E of 25x/10x FY25E earnings.

Air Conditioner business update

AC sales in Q1FY24 fell 9% YoY to Rs2.4bn (derived) as the peak summer months of April and May were impacted by unseasonal rains across the country. AC division remains loss making (cumulative PBT loss of Rs2.54bn till Q1FY24 vs. plant capex of Rs1.8bn) which IFBI intends to turn around through material cost reduction programme (likely to be concluded by Q4FY24). In order to accelerate volume growth in, IFBI intends to enhance its RAC placement in large chain counters, increase sales in institutional/SSD verticals and appoint counter sales representatives in multi-brand stores. To fully utilize 0.5mn AC capacity and achieve economies of scale, the company targets volume of 0.3mn IFB brand sales and 0.2mn sales as an OEM.

Washing Machine business update

In Q1FY24, Front Load WM sales was up 3% YoY to Rs2.9bn (derived) while Top Load WM grew 8% YoY to Rs1.2bn (derived). In Front Load, higher capacity models witnessed healthy traction while in Q1FY24, IFBI launched new high-end models in 8kg, 9kg and 10kg variants (annual volumes for 9/10kg estimated at 0.12mn units). Key market share drivers for FL category will be (1) new product offerings embedded with inverter technology and Wifi (phase-wise launches in Q4FY24) and (2) enhancing product availability through distribution reach expansion and higher channel extraction. In Top Load, demand is healthy for higher capacity models. 12kg variant washer introduced in Q4FY23 is gaining healthy momentum while IFBI plans to roll out new models in this category by Q2FY24 and will be IOT enabled. Further, IFBI will equip their high end Top Load models with inverter technology and would launch them by Q4FY24.

Maintain ADD with unchanged target price of Rs875

Scale-up in AC and healthy growth in Washing Machine will be key revenue drivers for IFBI. Attaining high single digit margin will be a key challenge amid high competition.

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