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Aims to aggressively pursue cost reduction and channel extraction

IFBI’s consolidated sales grew 16% YoY to Rs11.6bn, in line with our estimate, on a favorable base (2/3 year CAGR at 10%/7%). Industry demand continue to remain flat/negative YoY while IFBI expects demand situation to remain stable in medium term. Home Appliances sales grew 18% YoY to Rs9.1bn on a favorable base (2/3 year CAGR at 9%/5%) while Engineering sales was up 8% YoY to Rs2.1bn. Gross margin expanded 90bps YoY to 40.4%, led by many material cost reduction initiatives. EBITDA margin rose 260bps YoY to 5.6%, above our estimate of 4.8%. Home Appliances’ EBIT margin was at 3.9%, flat QoQ while EBIT margin of Engineering segment expanded by 180bps YoY to 10.1%. Core PAT stood at Rs250mn. Post Rs75mn loss from associate (towards IFBI’s 44% stake in IFB Refrigeration), consolidated PAT fell to Rs174mn, but above our estimate of Rs155mn. Turning around AC division (Rs420mn loss in YTD FY24) is key to overall profitability and could be achieved by material cost reduction and higher capacity utilization. IFBI aims to reach double digit margin from Q1FY25 in home appliances through (1) increasing billing points and improving sales extraction by deploying more aggressive sales team and (2) Rs80mn savings per month in other expenses (office cost, logistics and cost of compliance). Factoring in partial benefit of these cost savings, we upgrade our EPS estimates for FY24E-26E by 14%-18%. Retain ADD rating with revised SOTP target of Rs1,300 based on H1FY26E EPS.

Air Conditioner business update

In Q3FY24, AC sales grew 62% YoY to Rs1.1bn on a low base (2-yr CAGR at 8%) and formed 12% of total Home Appliances sales. However, AC division reported loss of Rs420mn in 9MFY24. To turn profitable, IFBI will focus on (1) achieving annual sales volume of 0.35-0.4mn units (plant capacity is 0.5mn units) and (2) material cost reduction. It plans to sell 0.3mn units of brand IFB sales while OEM sales will be over and above it. IFBI aims to achieve material cost reduction as well as savings from PCB and compressors selection. Key focus areas include (1) enhancing reach, (2) launching new models (its benefit to be seen in Q4FY24) and (3) placement at channel counters. At peak utilization of the plant on single shift basis, AC sales can touch Rs16bn.

Washing Machine business update

In Q3FY24, Front Load WM sales grew 11% YoY to Rs3.4bn (2 year CAGR at 3%) forming 38% of Home Appliances sales. Top Load WM sales was flat YoY at Rs1.3bn (2 year CAGR at 1%) forming 14% of Home Appliance sales. Market acceptance is healthy for recently introduced 9-10kg models as well as India’s first 3-in-1 offering Washer Dryer Refresher. IFBI regained its market share in Front Load, while it was flat in Top Load. To gain market share, IFBI will focus on increasing product placement, extracting higher sales from existing billing counters and offering more color options. Capacity utilization of WM is at 80%. Competition from LG and Samsung continues to be intense.

Maintain ADD with revised target price of Rs1,300

Turning around AC division will be a key challenge amid very high competitive intensity, which is likely to limit the extent of margin recovery envisaged. Retain ADD.

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