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Margin improvement long drawn process; maintain Reduce

Result Synopsis

IFBI delivered inline revenue growth, with Its home Appliances business registered flattish revenue with EBIT margin of 0.8%. Company’s overall gross margin expanded by 250bps yoy on lower commodity costs. Company’s focus on getting higher extraction from channel is starting to show result but it is still lower than the expectation, as company is going on implementing its strategy state by state. We have already built-in increased efficiency in home appliances resulting from the higher utilization of AC plant which is expected from Q4 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 14%/47% (on low base) over FY23- 25E. We build in EBITDA margins of 6.5% in FY25, significantly 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 Rs788.

Result Highlights

* Revenue – Revenue grew 2.0% yoy growth was muted as home appliances business was flattish. Engineering segment grew by 10% on yoy basis. AC revenue was lower on back of subdued market conditions.

* Margins – Gross margins stood at 39.4% saw expansion of 250bps, while EBITDA margin stood at 3.2% remaining flat yoy. The company has admitted that there is lot of work required to be done to improve the margins.

* AC Segment – The company expects utilization in AC segment to now increase from Q3 onwards as company is working on expanding its distribution reach which will enable higher sales in own brand and look for customers for OEM.

* IFB Refrigeration – The company has taken 44% stake in IFB refrigeration. The commercial terms for manufacturing and selling of refrigerators will be concluded in current quarter.

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