Detailed Rationale

CRISIL Ratings has assigned its 'CRISIL AA-/Stable' rating to Rs 450 crore non-convertible debentures (NCDs) of IFB Industries Ltd (IFB) and has reaffirmed its 'CRISIL AA-/Stable/CRISIL A1+' ratings on the existing debt instruments.

 

In the first quarter of fiscal 2025, operating income increased by ~17% to Rs 1,269 crore (on-year) on low base of the previous corresponding period, supported by strong demand in cooling products, with strong sales of air conditioners (AC) in home appliances, and healthy sales in the engineering segment. Operating margin improved to 6.4% in the first quarter of fiscal 2025 from 3.2% in the corresponding period of the previous fiscal, driven by reduction in material cost (through cost reduction programmes) and operating leverage.

 

The operating income has grown 6% to Rs 4,440 crore in fiscal 2024 compared with the previous fiscal, supported by revenue growth of ~5% in home appliances and ~10% in the engineering segment. Revenue is expected to grow in low double-digits in fiscal 2025 backed by strong summer sales and revival in rural demand. The operating margin improved by 1.2% to 5.2% in fiscal 2024 owing to softening of raw material prices and cost saving initiatives, and is expected to improve further over the medium term, with increasing volumes, small price hikes and cost-saving measures.

 

The financial risk profile is supported by a strong capital structure; networth was Rs 673 crore against debt of Rs 69 crore as on March 31, 2024. Though total outside liabilities to adjusted networth (TOLANW) ratio remains high, it has marginally improved to 2.2 times as on March 31, 2024, from 2.3 times as on March 31, 2023. Debt protection metrics remain healthy with interest coverage ratio of 6.1 times and net cash accrual to adjusted debt (NCAAD) ratio of 2.5 times in fiscal 2024. IFB is planning to undertake acquisition in the engineering business, which will likely be funded through a prudent mix of debt and accrual. Despite this acquisition, gearing is expected to be below 1 time and debt to earnings before interest, tax, depreciation and amortisation (Ebitda) ratio is not expected to exceed 2 times over the medium term. Liquidity remains strong with cash and bank balance of Rs 303 crore as on March 31, 2024, and low utilisation (25%) of the bank limit of Rs 327 crore over the 12 months through August 2024.

 

The ratings continue to reflect the strong market position of the company in home appliances and fine blanking businesses. These strengths are partially offset by modest profitability due to exposure to intense competition in the consumer durables industry and susceptibility to fluctuations in raw material prices and foreign exchange (forex) rates.

Analytical Approach

CRISIL Ratings has combined 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), as these entities have significant managerial, operational and financial linkages.

 

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 businesses: IFB is a strong player in the consumer appliances and fine blanking components businesses. The company is among the top five players in washing machines and has a strong position in the front-load washing machine segment. Gradual ramp-up of the AC segment has resulted in the company achieving breakeven in fiscal 2024, which should strengthen the business risk profile. Additionally, IFB derives strength from strong focus on research and development (R&D) and its robust distribution network.

 

The company has a strong market position in the fine blanking division (contributes to ~80% of revenue in the engineering segment) and established clientele. This segment has performed well over the years, with compound annual growth rate (CAGR) of ~13% in the last five fiscals, driven by technology and new product addition.

 

• Diversified revenue profile: IFB has a well-diversified revenue profile, driven by presence in the household appliances (accounting for around 78% of revenue) and engineering divisions (22%) in fiscal 2024. The company benefits from healthy consumer and segmental diversity in the fine blanking division. It derives 37% of revenue from front-load washing machines, 14% from top-load washing machines, 7% from microwave ovens, 17% from ACs, 16% from services and the balance from other product categories. Improving revenue contribution from the AC segment has aided diversification.

 

• Strong financial risk profile, supported by healthy liquidity: Capital structure was healthy, as reflected in networth of Rs 673 crore as on March 31, 2024. Gearing improved to 0.1 time as on March 31, 2024, from 0.3 time a year earlier due to reduction in debt. Though the TOLANW ratio remains high, it has marginally improved to 2.2 times as on March 31, 2024, from 2.3 times as on March 31, 2023. Interest coverage and NCAAD ratios were healthy at 6.1 times and 2.5 times, respectively, in fiscal 2024, and are expected to remain healthy over the medium term. The company has healthy liquidity with cash and equivalent of around Rs 330 crore as on June 30, 2024.

 

Weaknesses:

• Modest operating efficiency: Operating efficiency is constrained by volatility in operating margin amid vulnerability to fluctuations in raw material prices, high dependence on imports, lower margin on traded goods and changes in regulatory policies. Raw material cost and purchase of traded goods account for 60-66% of sales in the consumer durables and automotive industries. While IFB is taking initiatives to curb volatility in the operating margin through indigenisation, sustenance and improvement in profitability in the household appliances segment is a key monitorable.             

 

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

 

• Vulnerability to intense competition in the household appliances segment: IFB faces 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 equivalent was strong at Rs 330 crore as on June 30, 2024. Healthy expected cash accrual above Rs 200 crore per annum over the medium term will be sufficient to meet debt obligation, regular capex and working capital requirement. Liquidity is further supported by unutilised working capital limit.

Outlook: Stable

CRISIL Ratings believes the credit risk profile of IFB will strengthen over the medium term due to improvement in scale of operations and profitability driven by the home appliances segment.

Rating sensitivity factors

Upward factors:

• Sustained increase in market share across product segments and further diversification in the revenue profile
• Significant growth in the scale of operations and sustenance of operating margin above 7%
• Sustenance of strong financial risk profile and healthy liquidity

 

Downward factors:

• Reduction in operating margin below 4-5%
• Considerable weakening of market position in key product segments
• Weakening of the financial risk profile due to sizeable, debt-funded capex or acquisition, with debt to Ebitda ratio sustaining above 2.25 times

About the Company

Incorporated in 1974, IFB is headed by Mr Bikram Nag, who oversees operations along with a professional team. The company operates two businesses - manufacturing of consumer durables and manufacturing of fine blank components (part of engineering segment) and goods. It produces fine blanking components for two wheelers, four wheelers, heavy vehicles and electrical OEMs. Backed by its 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 kitchens and chimneys.

 

IFB has manufacturing facilities for consumer appliances in Goa and Bengaluru, and for the engineering division in Kolkata and Bengaluru.

Key Financial Indicators (Consolidated)

Particulars	Unit	2024	2023
Revenue	Rs crore	4440	4196
Profit after tax (PAT)	Rs crore	49	13
PAT margin	%	1.1	0.3
Interest coverage	Times	6.1	5.8
Net debt/adjusted networth	Times	0.1	0.3

Note: These are CRISIL Ratings-adjusted figures

Any other information: Not Applicable