| IFB Industries Limited | ||
| Rating reaffirmed at 'CRISIL AA-/Negative' | ||
| Rating Action | ||
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| 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 reaffirmed its ‘CRISIL AA-/Negative’ rating on the non-convertible debentures (NCDs) of IFB Industries Ltd (IFB).
The ‘Negative’ outlook continues to reflect moderate business risk profile of the company, as seen in lower-than-expected operating margin owing to high input cost, limited ability to pass on the same, amidst intense competition and increased promotional expenditure. Though the operating margin improved to ~4% in fiscal 2023 from ~2% in fiscal 2022, it remains lower than historical levels. Healthy and sustained improvement in profitability will remain a key monitorable, going forward.
Financial risk profile should remain strong, as indicated by net debt free status as on June 30, 2023, 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 5.8 times and net cash accrual to adjusted debt (NCAAD) ratio of 0.7 time in fiscal 2023.
Further, IFB has acquired 44.44% stake in IFB Refrigeration Ltd, which commenced commercial production in May 2023.
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 strong 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 strong position in the front load washing machines. 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 strong focus on research and development (R&D) and a strong distribution network. IFB has a well-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 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, 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 stood robust at around Rs 600 crore and gearing at 0.3 time as on March 31, 2023. Debt protection metrics will remain healthy, with interest coverage ratio above 6 times and NCAAD ratio around 1 time over the medium term.
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 indigenization, 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 the fluctuations in the operating margin.
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 250 crore as on June 30, 2023. Healthy cash accrual of Rs 150-200 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: Negative CRISIL Ratings believes that the business risk profile of IFB to remain moderate over the medium term owing to lower profitability as compared to historical levels. |
Rating Sensitivity factors Upward factors
Downward factors
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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. |
Key Financial Indicators (consolidated)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
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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