| IFB Industries Limited | ||
| Rating outlook revised to 'Negative'; Rating Reaffirmed | ||
| Rating Action | ||
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| 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 debenture (NCD) programme of IFB Industries Limited (IFB) to ‘Negative’ from ‘Stable’ while reaffirming the rating at ‘CRISIL AA-’.
The revision in outlook reflects weakening of the business risk profile as indicated by sizeable contraction in operating margin, owing to sustained increase in input cost and limited ability to pass on the same, amidst intense competition and fragile recovery in demand. Increased promotional expenditure, along with high logistic cost, also impacted profitability in fiscal 2022. The margin declined to 1.7% in fiscal 2022, from 7.6% in fiscal 2021 and recovered to 3.25% in the first quarter of fiscal 2023, yet remains lower than historical levels. Healthy and sustained improvement in business performance will be a key monitorable, going forward.
Despite moderation in operating performance, the financial risk profile continue to remain strong as indicated by net debt free status as on June 30, 2022 and aided by absence of any large debt-funded capital expenditure (capex) plan. Interest coverage ratio moderated to around 2 times in fiscal 2022 in line with profitability, but should improve going forward.
The ratings also continue to reflect the leading market position of IFB both in the home appliances and fine blanking divisions in India.
These strengths are partially offset by moderate operating efficiency and exposure to intense competition in the consumer durable industry and fluctuation in raw material prices and foreign exchange (forex) rates. |
Analytical Approach To arrive at the rating, CRISIL Ratings has consolidated the business and financial risk profiles of IFB and its subsidiaries, Global Automotive and Appliances Pte Ltd, (GAAL- 100% subsidiary) and Thai Automotive and Appliances Ltd (subsidiary of GAAL) 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 one of the leading 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.
Backed by a wide product portfolio, IFB has built a market share of about 13% in fine blanking components and around 27% in the automatic washing machines in India. Within the washing machine segment, the company held a market share of around 36% and 12% in the front and top load categories. Gradual ramp up of the air-conditioners (AC) segment in the current fiscal will be a key growth driver in the normal year post the capex. Additionally, IFB derives strength from strong focus on research and development (R&D) and a strong distribution network.
Diversified business profile IFB has a well-diversified revenue profile, driven by presence in the household appliances and fine blanking divisions, which accounted for around 80% and 13% of revenue, respectively, in fiscal 2022. The company also benefits from healthy consumer and segmental diversity in the fine blanking division. In terms of segmental contribution, the company derived nearly 40% of revenue from front-load washing machines, 14% from top-load washing machines, 10% from microwave ovens, 15% from ACs and the balance from other product categories. Additional revenue from AC segment will further aid diversification.
Strong financial risk profile, supported by robust liquidity Financial risk profile is marked by healthy networth and low gearing of around Rs 600 crore and 0.4 time, respectively, as on March 31, 2022. Debt protection metrics moderated in fiscal 2022, due to a decline in profitability. However, the metrics should remain healthy with interest coverage ratio above 6 times and net cash accrual to adjusted debt ratio of around 1 time, aided by expected recovery in profitability and scheduled repayment of debt.
Weaknesses Moderate operating efficiency Operating efficiency remains constrained by volatility in operating margin, amidst vulnerability to fluctuation in raw material prices, high dependency on imports, lower margin on traded goods and changes in regulatory policies. While IFB is taking initiatives to curb volatility in operating margin via indigenisation, sustenance and improvement in margin in the household appliances segment is a key monitorable.
Raw material cost and purchase of traded goods constitute 60-66% of sales in the consumer durables and automotive industries. However, acquisition of a stake in Trishan Metals Pvt Ltd is likely to ensure timely access to raw materials and lower volatility in the operating margin.
Return on capital employed ratio has also been volatile between 10% and 30% and could further be impacted by moderate capex in the near term.
Exposure to cyclicality in demand in automobile industry While the revenue profile derives strength from the well-diversified customer and segmental profile, it remains linked to performance of original equipment manufacturers (OEMs) in the auto industry. Revenue prospects remain exposed to cyclicality in demand patterns inherent to the automobile industry and ability of the OEMs to sustain their operating performance and ramp up their scale.
Vulnerability to intense competition in the household appliances segment IFB faces stiff competition from large, organised players in household appliances segment. The company has been able to gain market share in the automatic washing machine segment due to its strong distribution network and continuous focus on R&D and product development. |
Liquidity: Strong Expected cash accrual of Rs 140-160 crore in fiscal 2023, along with cash and equivalents of Rs 321 crore as on March 31, 2022 and an unutilised working capital limit, which should suffice to cover the debt obligation over the medium term. |
Outlook: Negative CRISIL Ratings believes that the business risk profile of IFB would weaken over the medium term owing to suppressed profitability. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company Incorporated in 1974, IFB is currently headed by Mr Bikram Nag, who overseas the operations along with a professional management. The company operates in two segments - manufacturing of fine blank components and manufacturing and marketing of consumer durable goods. It manufactures 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.
For the three months ended June 30, 2022, the company reported operating income of Rs 1,067 crore and PAT of Rs 2 crore on a consolidated basis, against Rs 572 crore and loss of Rs 41 crore for the corresponding period in the previous fiscal. |
Key Financial Indicators (Consolidated)
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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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
^Yet to be raised |
Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
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