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Result Synopsis

IFBI revenue grew 16.9% yoy (1.5% higher than estimates). Its home Appliances business registered muted revenue growth of 18.6%, while engineering services registered strong growth of 9.4%. Company’s overall gross margin contracted by 145bps yoy on product mix moving towards AC which has lower margins. Muted revenue growth in engineering segment is on back of slowdown in four wheelers and commercial vehicles. Its key category of washers has been facing demand challenges as industry has experienced negative growth. RAC sales were impacted on back of supply constraints resulting in the revenue loss. Refrigeration production is ramping up swiftly and Q1 sales have been encouraging. The company’s target is to reach sales of 50,000 units of refrigerator by September/October and aim to achieve significant OEM sales. Company’s aspiration of 10% margins in home appliances division continues to meet challenges and now management hopes margins will start improving from Q3 vs earlier expectation improvement in 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 believe that achieve 10% margin would be challenge as company is facing demand challenges in key category of washers which has higher margins. Considering margin challenges and renewed competition from WHIRL in washers and aggressive stance adopted by BSH home appliances will rein in margins. We downgrade the stock to Reduce with revised PT of Rs1,811

We now expect IFB to pose revenue/EBITDA CAGR of 13%/30% 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 value company at 35x as company is working on the cost reduction initiatives to improve the margins. We downgrade the stock to REDUCE PT of Rs1,811 as stock price has runup ahead of expectation. IFBI will deserve higher multiple once we see company delivering on margin front.

Result Highlights

* Revenue – Revenue grew 17% yoy led by home appliances division which grew by 18.6% yoy. Engineering segment was subdued growing 9.4% on yoy basis as there has been slowdown in four-wheeler and commercial vehicles.

* Margins – Gross margins stood at 38% has contracted by 145bps, while EBITDA margin stood at 6.4% expanding by 323bps. Product mix change has resulted in lower gross margins, control over fixed expenditures has boosted EBITDA.

* AC Segment – AC Sales were impacted in month of June as due to supply constraints, which has impacted AC revenue growth.

* IFB Refrigeration – In Q1FY25 total refrigerator production stood at 87,000 units as compared to 18,000 units in 1QFY24. The company’s target is to reach volume of 50,000 refrigerators by September/October 2024 vs earlier target of Aug 24.

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