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Margin improvement long drawn process; maintain Reduce  

Result Synopsis

IFBI delivered lower than expected revenue growth with slack demand post the festive season.   Its home Appliances business registered flattish revenue with EBIT loss of Rs56mn. Company’s overall gross margin expanded by 79bps yoy on lower commodity costs. Company’s focus on getting higher extraction from channel is showing results but it is still lower than the expectation, there is still a lot of work pending which will enable higher channel extraction on consistent basis. We have already built?in increased efficiency in home appliances resulting from the higher utilization of AC plant and introduction of new higher capacities premium models in front load washing machine with enhanced features. Margins of the company are significantly lower than its peers. We believe company will have to undertake stringent cost reduction activities which will be a long?drawn process to improve margins Aspiration of management to reach double digit margins will take time as competitive intensity remains intense. We continue to maintain Reduce as we will have to wait for the delivery before becoming constructive on the stock. IFBI will have to deliver on various initiatives it plans to undertake on consistent basis to improve its efficiency for us to become constructive on the stock.

We now expect IFB to pose revenue/EBITDA CAGR of 17%/83% (on low base) over FY22? 25E. We build in EBITDA margins of 6.3% in FY24, lower than management aspiration of 10% as competition continues to remain intense and IFBI is yet to demonstrate double digit margins. Despite scale benefits and increased efficiencies, IFB’s margins are significantly lower than peers. We continue to value company at 25x as return ratios and profitability are significantly lower than peers. We maintain reduced on the stock with revised PT of Rs821.

Result Highlights

* Revenue – Revenue grew 4.8% yoy led by strong growth in engineering segment which grew by 23.5% yoy. Home appliances segment registered flattish revenue as demand was significantly impacted in month of November and December.

* Margins – Gross margins stood at 39.5% 79bps expansion of 79bps, while EBITDA margin stood at 3% expanding by 13bps yoy. Internal target of the company is achieve double digit EBITDA margins. The company is behind the schedule as material costs have significantly gone up in past two years.

* AC Segment – The company expects utilization in AC segment to increase as it has strong indication from the brands for upcoming summer. Also, the company is confident of its strong own brand sales in summer season.

* IFB Refrigeration – The company has invested Rs69crs for 37.34% of IFB refrigeration. The company has committed 97crs investment in IFB refrigeration. This company will focus on refrigeration of all kinds

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