Detailed Rationale

CRISIL Ratings has assigned its 'CRISIL A1+' rating to Rs 50 crore commercial paper facility of IFB Industries Limited (IFB) and reaffirmed its 'CRISIL AA-/Stable' rating on the non-convertible debentures (NCDs) of the company.

 

The operating income increased ~17% on-year on the low base of last year with strong demand in cooling products, driven by strong sales of air conditioners (AC) in home appliances and healthy sales in the engineering segment. The operating margin improved to ~6.5% in the first quarter of the current 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 as compared to the previous fiscal, supported by revenue growth of ~5% in home appliances and ~10% in the engineering segment. The revenue is expected to grow in low double digits in fiscal 2025 on the back of strong summer sales and revival in rural demand. The operating margin improved by 1.2% to 5.2% in fiscal 2024 due to softening of raw material prices and cost saving initiatives. It 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 robust capital structure with networth of Rs 673 crore as of March 2024. Gearing has improved to 0.1 time in fiscal 2024 as compared to 0.3 time in fiscal 2023 due to reduction in debt. Though the total outside liabilities to adjusted networth (TOLANW) ratio remains high, it has marginally improved to 2.2 times from 2.3 times in fiscal 2023. The 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. The debt protection metrics are expected to remain healthy, over the medium term, with reduction in debt. The liquidity profile remains strong with cash and bank balance of Rs 303 crore in fiscal 2024 and low utilisation (25%) of the bank limits of Rs 327 crore for the 12 months through August 2024.

 

The ratings 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 fluctuations 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 strong players in the consumer appliances and fine blanking components industries.

 

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

 

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

 

• Diversified business profile

IFB has a well-diversified revenue profile, driven by presence in the household appliances (accounting for around 78% of revenue) and engineering division (22%) in fiscal 2024. The company also benefits from healthy consumer and segmental diversity in the fine blanking division. In terms of segmental contribution, the company derived nearly 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 further aided diversification.

 

• Strong financial risk profile, supported by robust liquidity

The financial risk profile is supported by strong capital structure with networth of Rs 673 crore as on March 31, 2024. The gearing has improved to 0.1 time in fiscal 2024 as compared to 0.3 time in fiscal 2023 due to reduction in debt. Though TOLANW ratio remains high, it has marginally improved to 2.2 times from 2.3 times in fiscal 2023. The debt protection metrics remain healthy with interest coverage ratio of 6.1 times and NCAAD of 2.5 times in fiscal 2024. The debt protection metrics are expected to remain healthy, over the medium term, with reduction in 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 through indigenisation, sustenance and improvement in profitability 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 Trishan Metals Pvt Ltd is likely to ensure timely access to raw materials and lower fluctuations in the operating margin.

 

• 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 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 equivalent was strong at around Rs 330 crore as on June 30, 2024. Healthy cash accrual of above Rs 200 crore per annum, over the medium term, will be sufficient to fund the debt obligation, regular capex and incremental working capital requirement. Liquidity is further supported by unutilised working capital limits.

Outlook: Stable

CRISIL Ratings believes that IFB’s credit profile will improve, over the medium term, due to ramp up 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 base

•      Significant growth in scale 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 the 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 and marketing 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 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 consumer appliances at 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

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	41.4%	Associate