IFB Industries – Premium Product Positioning

IFB Industries

IFB Industries Limited (“IFB Industries” or the “Company”) operates in 2 divisions:

  • Appliances (83% of the Revenue) –operates through its manufacturing facility at Goa.
  • Fine Blanking (17% of the Revenue) – operates through 2 manufacturing facilities, one each at Kolkata and Bangalore

The Company also imports and markets some of its products from countries around the globe.

APPLIANCES DIVISION – The Company delivers products, in both domestic and industrial application categories. These are washing machines, special commercial laundry equipment for dry cleaning and other equipment like ironers, microwave ovens, dishwashers, clothes dryers, modular kitchens, kitchen appliances (hobs, chimneys and built-in-ovens) and ACs.

IFB Industries

The Appliances Division operates through 5 key channel segments:

[1] Multi-Brand Stores – contributes 54% by volume of IFB’sales

[2] IFB Exclusive Stores

  • IFB Points – contributes 16% of sales by volume
  • IFB Website and E-Commerce – contributed ~9% of sales by volume
  • As of 30th September 2019, the total number of IFB Points currently stands at 535, which management intends to further expand to 600 by FY20

 [3] CSD/Defence Canteens, Institutions and more – contributes ~1% of the sales by volume

[4] The Channel of Dealers who are also Service Providers – this segment, largely catering to customers buying air conditioners, contributed ~1% of sales by volume

[5] Channel of Distributors – contributes ~10% of sales by volume. This channel is delivering expansion of IFB’s reach into small towns and up-country area across India.

FINE BLANKING DIVISION – This division caters to the automobile sector, both the 2 wheelers and 4 wheeler segments. The Company is also focusing to increase its presence in non-auto sectors such as electrical, railways, cycle industry, defence etc.

Financial Position

Particulars

FY15

FY16

FY17

FY18

FY19

Revenue (In Rs. Cr.)

1,261.50

1,500.94

1,758.44

2,217.31

2,659.15

Growth

19%

17%

26%

20%

EBITDA (In Rs. Cr.)

88.31

71.66

94.74

155.58

126.89

EBITDA Margin

7%

5%

5%

7%

5%

EBIT (In Rs. Cr.)

47.67

26.29

50.51

101.77

69.34

EBIT Margin

3.78%

1.75%

2.87%

4.59%

2.61%

PBT (In Rs. Cr.)

59.27

35.16

64.65

115.14

94.12

PAT (In Rs. Cr.)

49.73

31.36

53.27

80.97

72.95

PAT Margin

4%

2%

3%

4%

3%

EPS (In Rs.)

12.27

7.74

12.12

19.98

18.00

EPS Growth Rate

-37%

57%

65%

-10%

Historic P/E (Closing Price of 31st March)

47.75

41.07

53.39

57.17

53.44

CURRENT P/E (based on price of 6th January – Rs. 686)

48.27

RATIOS

D/E

0.09

0.04

0.07

0.04

0.03

Interest Coverage

50.75

32.28

23.63

28.60

17.55

ROCE

20.96%

16.48%

18.60%

27.07%

19.79%

ROE

12.85%

7.50%

11.34%

14.78%

11.80%

Quarterly Performance

Quarterly Results

Q2 FY 2019

Q3 FY 2019

Q4 FY 2019

Q1 FY 2020

Q2FY 2020

TTM

Q-o-Q %

Y-o-Y %

Revenue

687.20

699.26

653.36

697.52

713.20

2,763.34

2.25%

3.78%

EBITDA

41.94

32.07

16.15

29.60

50.73

128.55

71.39%

20.96%

EBITDA Margin

6.10%

4.59%

2.47%

4.24%

7.11%

4.65%

   

PAT

34.69

18.51

5.53

10.06

22.01

56.11

118.79%

-36.55%

PAT Margin

5.05%

2.65%

0.85%

1.44%

3.09%

2.03%

   

EPS

8.56

4.57

1.36

2.48

5.43

13.84

118.95%

-36.57%

  • Washing Category –
    • Front Loaders – The Company continues to maintain a dominant market share. As on date, product development is focused on the introduction of a washer-dryer in the 4th
    • Top Loaders – The sales are increasing and the Company is expecting to reach approx. 30,000 top loaders per month within the 3rd The focus will be on profitable growth from the 6.5 kg and higher segment in the market.
  • Clothes Dryers and Dish Washers – The clothes dryers and dish washer segments are growing for the Company.
  • Industrial Segment (Dishwashing and Laundry Segment) – The Company has a dominant share in various customer segments including defence establishments, pubs, bars, large institutions, hotels, restaurants, ships etc.
  • Microwave Ovens – The Company continues to be among the top 2 players with a market share of 24%. The Company’s aesthetics as well as the unique “Oil Free Cooking” technology continues to be USPs.
  • Modular Kitchens – As of September 2019, the stores in Goa, Bangalore and Kolkata have increased their order book pipelines. The Company is planning to expand the number of stores by an additional 5-7 stores by the end of this fiscal.
  • Built-in Ovens, Hobs and Chimneys – The market placement in this category are in ~900 stores across the country. This includes displays in the ~530+ current IFB Points. The IFB Points accounts for ~65% of sales in this category.
  • Fine Blanking Segment – caters to the automobile sector, both 2-wheelers and 4-wheelers as well as the commercial vehicle segment.

WHAT’S DRIVING THE STOCK?

  • New Product Launches and Capacity Addition in the Washing Machine Segment –
    • Front-load – It is the largest product category of IFB Industries, where the Company enjoys a strong market share of 42%-44%. Currently, the Company operates with a capacity for 450,000 units per year which will get further enhanced to 700,000 units in the next few months. In addition, the Company also plans to launch new product variants in H2 FY2020 with focus on features such as IoT capabilities, water and energy efficiency, user-convenience and interface designs.
    • Top-load – This category of IFB has fully automatic top-load washing machines in the 6.5kg to 9.5kg range and accounts for 17.5% of home appliance revenues. On the back of capacity addition, IFB has captured 16%-17% market share in the 6.5kg to 9.5kg segment, and has 7%-8% market in the overall top-load washing machine category. Import content for top-load washing machines is at 35% and plans to reduce to 20%- 25% over the next year by localization of motors.

Diversified Product Portfolio

Enjoys Leadership Position

The Company enjoys a leadership position in Some Categories like front-load washing machines, microwave ovens. Clothes dryer, both are niche product segments of the Company in which IFB has a market share of 70% in clothes dryers and – 50 % in domestic dishwashers, both in volume terms. For categories such as industrial laundry equipment and industrial dishwashers, IFB’s market share is 35%-40% in value terms.

Strong Distribution Network

Other Highlights:

  • IFB don’t pursue the practice of providing heavy discounts to perk up sales.
  • Competitive intensity for IFB in washing machine has remained the same. While players such as Media and Voltas-Beko have entered the washing machine category, they largely operate in the economy segment whereas IFB operates mainly in the premium segment.
  • Consumer finance accounts for 23%-24% of total sales for IFB.
  • Warranty provision for IFB Industries is higher as it provides a comprehensive warranty period of four years on washing machines (among the highest in the industry), which includes entire machine, spare parts and labour charges.

WHAT’S DRAGGING THE STOCK?

High Competitive Intensity

IFB Industries PeersRevenue Concentration

ACs accounted for 26% of Home Appliances segment’s revenue. As IFB Industries imports ACs as a fully built unit, it is negatively impacted by increase in import duty to 20%. While IFB has undertaken prices hikes over the past few quarters, it is still insufficient to turn the AC segment profitable. For a turn around, IFB is setting up a manufacturing plant for ACs, which is likely to commence production in 1QFY21. The total capacity planned is 600,000 units in two phases.

Slowdown in the automobile segment | Negative Impact on Fine Blanking Business

In Q2 FY20, the revenue has shown de-growth of 8.6% as compared to the corresponding period of the previous year due to slowdown in the auto sector. The automotive market is expected to have subdued growth in the 3rd quarter as well due to stockpile at dealer’s end due to lower demand.