Rating Rationale
May 14, 2024 | Mumbai
IFB Industries Limited
Rating outlook revised to 'Stable'; Rating Reaffirmed
 
Rating Action
Rs.50 Crore Non Convertible DebenturesCRISIL AA-/Stable (Outlook revised from 'Negative'; Rating Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has revised its outlook on the non-convertible debentures (NCDs) of IFB Industries Ltd (IFB) to ‘Stable’ from 'Negative' while reaffirming the rating at ‘CRISIL AA-‘.

 

The revision in outlook reflects an improvement in the business risk profile with the operating margins improving to 5.1% during 9M-FY24 compared to 4.2% in 9M-FY23. The operating margins are estimated to improve further with increase in volume of ACs, resulting in more efficient absorption of costs, and benefits of cost savings initiatives taken by the company in the medium term.

 

The financial risk profile continues to remain strong, as indicated by net debt free status as on March 31, 2024, and aided by the absence of any large, debt-funded capital expenditure (capex). Debt protection metrics continue to be healthy, with interest coverage ratio of ~7 times and net cash accrual to adjusted debt (NCA/AD) ratio of 1.2 times estimated for fiscal 2024.

 

The ratings also continue to reflect the strong market position of IFB both in the home appliances and fine blanking divisions. These strengths are partially offset by moderate profitability due to exposure to intense competition in the consumer durable industry and fluctuation in raw material prices and foreign exchange (forex) rates.

Analytical Approach

CRISIL Ratings has consolidated the business and financial risk profiles of IFB and its subsidiaries, Global Automotive and Appliances Pte Ltd (GAAL; 100% subsidiary), Thai Automotive and Appliances Ltd (subsidiary of GAAL) and IFB Refrigeration Ltd (associate), considering the significant managerial, operational, and financial linkages between these entities.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Established presence in the consumer appliances and fine blanking industries: IFB is among the key players in the consumer appliances and fine blanking components industries. Healthy growth in the fine blanking division, which outperformed the automotive component manufacturing segment, was driven by technology, established clientele, and new product addition.

 

IFB is among the top five players in washing machines and has a strong position in the front load washing machines. A gradual ramp up of the air conditioners (AC) segment and expected breakeven in fiscal 2024 should improve the business risk profile. Additionally, IFB derives strength from a strong focus on research and development (R&D) and a strong distribution network.

 

  • Diversified business profile: IFB has a diversified revenue profile, driven by presence in the household appliances (accounting for around 78% of revenue) and fine blanking divisions (18%) in fiscal 2023. The company also benefits from healthy customers and segmental diversification in the fine blanking division. In terms of segmental contribution, the company derived nearly 40% of revenue from front-load washing machines, ~16% from top load washing machines, ~8% from microwave ovens, ~20% from ACs and the balance from other product categories. Additional revenue from the AC segment has further aided diversification.

 

  • Strong financial risk profile, supported by robust liquidity: Networth is estimated to remain robust at around ~Rs 600 crore and gearing at 0.2 time as on March 31, 2024. Debt protection metrics will remain healthy, with interest coverage ratio above 9 times and NCA/AD ratio above 1.5 times over the medium term.

 

Weaknesses:

  • Volatility in profitability: Over the years, the company has witnessed volatility in operating margin due to inability to break-even in the AC business post its introduction in FY21, amidst vulnerability to fluctuation in raw material prices, high dependency on imports and lower margin on traded goods. While IFB is taking initiatives to curb volatility in operating margin via indigenization, sustained improvement in profitability in the household appliances segment is a key monitorable.

 

Raw material cost and purchase of traded goods constitute 62-66% of sales in the consumer durables and automotive industries. However, acquisition of Trishan Metals Pvt Ltd is likely to ensure timely access to raw materials.

 

  • Exposure to cyclicality in demand in automobile industry: While the revenue profile derives strength from the well-diversified customer and segmental profiles, it remains linked to performance of original equipment manufacturers (OEMs) in the automotive industry. Revenue prospects remain exposed to cyclicality in demand patterns inherent to the industry and ability of the OEMs to sustain their operating performance and ramp up scale.

 

  • Vulnerability to intense competition in the household appliances segment: IFB faces stiff competition from large, organised players in the household appliances segment. The company has been able to maintain market share in the washing machine segment due to its strong distribution network and continuous focus on R&D and product development.

Liquidity: Strong

Cash and cash equivalents are strong at around Rs 274 crore as on Dec 31, 2023. Healthy cash accrual of Rs 200-300 crore per annum over the medium term will be sufficient to fund the debt obligations and regular capex. Further supported by the unutilized working capital limits.

Outlook: Stable

CRISIL Ratings believe that credit profile will improve over the medium term due to ramp up in scale of operations and profitability driven by home appliances segment.

Rating Sensitivity factors

Upward Factors:

  • Sustained increase in market share across product segments and further diversification in revenue base
  • Significant growth in scale and operating margin above 7% on a sustained basis

 

Downward Factors:

  • Reduction in operating margin below 4-5%
  • Considerable weakening of market position in key product segments
  • Weakening of the capital structure and debt protection metrics, due to sizeable, debt-funded capex or acquisition

About the Company

Incorporated in 1974, IFB is headed by Mr Bikram Nag, who oversees the operations along with a professional team.  The company operates in two segments - manufacturing of fine blank components and manufacturing and marketing of consumer durable goods. It produces fine blanking components for two wheelers, four wheelers, heavy vehicles and electricals OEMs. Backed by a strong brand and established market position, the company has a diversified product portfolio, comprising front and top load washing machines, dryers, ACs, microwave ovens, dishwashers, modular kitchen and chimneys.

 

IFB has manufacturing facilities for the fine blanking division in Kolkata and Bengaluru and for consumer appliances at Goa and Bengaluru.

 

Company achieved an operating income of Rs 3,348 crores in 9M-FY24 as compared to Rs 3,184 crore in 9M-FY23 with PAT of Rs 38 crores in 9M-FY24 as compared to Rs 25 crores in 9M-FY23.

Key Financial Indicators (Consolidated)

Particulars

Unit

2023

2022

Revenue

Rs.Crore

4196

3419

Profit After Tax (PAT)

Rs.Crore

13

(50)

PAT Margin

%

0.3

(1.50)

Interest coverage

Times

5.8

1.9

Net debt/adjusted networth

Times

0.40

0.37

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs.Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Non Convertible Debentures^ NA NA NA 50 Simple CRISIL AA-/Stable

^Yet to be raised

Annexure - List of Entities Consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Global Automotive & Appliances Pte Ltd

100%

Subsidiary

Thai Automotive and Appliances Ltd (subsidiary of GAAL)

100%

Step down subsidiary

IFB Refrigeration Ltd

44.44%*

Associate

*As on Dec 31, 2023

Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures LT 50.0 CRISIL AA-/Stable   -- 01-09-23 CRISIL AA-/Negative 14-09-22 CRISIL AA-/Negative 30-12-21 CRISIL AA-/Stable CRISIL AA-/Stable
All amounts are in Rs.Cr.
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Consumer Durable Industry
CRISILs Criteria for Consolidation
Understanding CRISILs Ratings and Rating Scales

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