Key Rating Drivers & Detailed Description

Strengths

Established presence in fine blanking industry and consumer household appliances industry

IFB is one of the leading players in manufacturing of fine blanking components and manufacturing and marketing of consumer hold appliances. IFB has witnessed healthy increase in from fine blanking division, outperforming automotive component manufacturing industry, driven by technological edge and superiority in manufacturing of fine blanks, established client base and continual new product addition.

IFB offers a wide range of product under its brand, IFB. Over the years, the company has built a market share of about 45% in fine blanking components and around 27% market share in automatic washing machines in India. It has a dominant position in front load washing machines with highest market share in top load washing machines. The company has recently commercialized their expansion capex for the AC facilities and gradual ramp up of the facilities over the current and next fiscal will be one of growth drivers for the company. Additionally, IFB also derives strength from strong focus on R&D resulting from consistent investment in people and infrastructure, continual increase in distribution network and strong product development capabilities.

Diversified business profile

IFB has diversified revenue profile having presence in fine blanking division and household appliances contributing around 18% and 82%. IFB has healthy consumer and segment diversity in the fine blanking division. The company has adequate product diversity, led by segmental contribution of around 50% from front load washing machine, 16% from top load washing machines, 11% from microwave ovens, 22% for ACs and remaining share from other product categories. Additional revenue from AC segment will further benefit diversity.

Strong financial risk profile, supported by robust liquidity

The financial risk profile is marked by comfortable debt protection metrics, with gearing of 0.4 times as on March 31, 2021, owing to debt funded capex and increased working capital requirement. The company has however prepaid part of their debt resulting in improvement in the credit metrics. Debt levels are therefore expected to remain below Rs. 250 crores over the medium term, resulting in gearing below 0.3 times. Operating margin is expected to improve and remain 5-7% driven by ramp up of inhouse AC manufacturing facility, reducing import of raw material through localisation and contribution from higher margin new product segments.

As a result, cash accrual is expected to remain comfortable at Rs over 150 crore per annum over the medium term. The financial profile will remain healthy over the medium term, despite any small or medium size acquisition. However, any significant debt-funded capex or any sizable acquisition would remain closely monitored.

Weaknesses

Moderate operating efficiency

IFB’s operating efficiency have remained moderate primarily due to volatility in operating margins. The volatility in margins is on account of volatility of raw material prices, higher imported input content, lower margins on traded goods and changes in regulatory policies. While IFB has taken initiatives to reduce volatility in operating margins on sustained basis through indiginisation through reducing import content, sustained improvement and stability of margin in its household appliances segment remain key monitorable.

IFB margins are susceptible to fluctuations in raw material prices since raw material cost and purchases of traded goods constitutes around 65-66% of the cost of sales. Over the past few years, prices of primary raw materials (includes steel, polymer) used in the consumer durables industry and automotive industry, have remained volatile. Further, downstream acquisition of stake in Trishan Metals Pvt Ltd would result in timely availability of raw materials and reduce volatility in the operating margin.

Due to fluctuating operating margin, IFB’s return on capital employed ratio has also been volatile in the range of 10-30%. Furthermore, moderate capex in near term along with volatile margin may impact return on capital employed till the investment results into better margin.

Exposure to cyclicality in demand in automobile industry

While IFB's revenue profile derives strength from healthy customer diversity and strong segment diversity, it remains closely aligned to the performance of customers in the auto segment and industry. Due to large dependence on auto OEMs, IFB’s revenue prospects are exposed to cyclical demand patterns inherent to the automobile industry and ability of auto OEMs to sustain their operating performance and ramp up their operations.

Vulnerability to intense competition in household appliances segment

IFB faces stiff competition from large, organised players such as LG Electronics India Pvt Ltd, Samsung India Electronics Ltd, Whirlpool of India and Godrej and Boyce Manufacturing Company Ltd, yet has managed to gain market share in automatic washing machine segment, due to its strong distribution network and continuous focus on R&D and continual product development.

Key Financial Indicators – (consolidated)

Annexure – List of entities consolidated

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