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Margin set to improve; upgrade to ADD

Result Synopsis

IFBI revenue grew 7.9% yoy (9.5% lower than estimates). Its home Appliances business registered muted revenue growth of 4.9%, while engineering services registered strong growth of 24%. Company’s overall gross margin expanded by 80bps yoy on lower commodity costs and initiatives taken by the company to reduce material costs. Muted revenue growth in home appliances was on back of washers’ industry registering de-growth in Q4 and RAC facing supply chain issues. IFBI has taken certain actions like launching larger capacity SKUs with capacity of 9-10kgs which has resulted in company gaining market share. As far as RAC supply chain issues are concerned it has been resolved and month of April and May have been significantly better resulting in increased production target to 500,000 units vs 400,000 units earlier. The company expects strong growth in FY25 as IFBI now has got full range of washers and have introduced in Q1. Company is working towards its goal of 10% margin in home appliances segment and is confident of its achievement by Q2. On the engineering front company is looking for acquisition which will push up the growth. Considering the new launches in washers, refrigerators, and strong growth in RAC we believe the company can grow in double digits in FY25. We however have been conservative in our estimates as company in past have not been able to deliver on its guidance. We however upgrade the stock to ADD as our EPS get upgraded on lower interest costs, higher other income, and lower tax incidence. We now expect IFB to pose revenue/EBITDA CAGR of 12%/29% over FY24- 26E. We build in EBITDA margins of 6.5% in FY26, which is 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 lower than peers. We continue to value company at 30x as company is working on the cost reduction initiatives to improve the margins. We upgrade the stock to ADD PT of Rs1,514 as management has done work which will enable margin improvement.

Result Highlights

* Revenue – Revenue grew 7.9% yoy as home appliances business revenue grew at muted pace of 4.9% yoy. Engineering segment grew by 24% on yoy basis on back of strong marketing push.

* Margins – Gross margins stood at 39.9% registered expansion of 80bps, while EBITDA margin stood at 4.3% expanding by 141bps. The company is currently working on sourcing and supply chain management to improve the margins.

* AC Segment – AC sales were affected by supply chain issues in Q4FY24. ln the month of April and May 2O24 company managed to rectify the situation to some extent. The supply chain issues continue to prevail.

* IFB Refrigeration – The company holds 41.1% stake in IFB refrigeration, the company may look to raise its stake further in IFBI refrigeration. The company’s target is to reach volume of 50,000 refrigerators by August 2024.

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