IFB Industries Q3 Results Review - Margin Improvement Needs To Be Monitored; Upgrade To Reduce: Yes Securities

Yes Securities Report

IFB Industries Ltd.'s revenue grew 16.2% YoY marginally lower than estimates. Its home appliances business registered strong revenue growth of 18.4%, while engineering services registered growth of 8%. Company’s overall gross margin expanded by 85 bps yoy on lower commodity costs and initiatives taken by the company to reduce material costs.

IFB expects monthly savings of Rs 60-80 million post the cost reduction program which is expected to be completed by Q4 FY24.

IFB is focusing on expanding its presence in the channel networks led through distribution across India and strengthening itself in the chain counters across India.

Management is confident that changes are being made in the sales team will produce desired result. The company now has got full range of washers, and this will start to get introduced from Q4 onwards. Margins of the company have been better than estimates led by material margin improvement.

We believe company will have to stringently pursue its cost reduction initiatives to reach its aspiration of double-digit margins. We upgrade the stock to 'Reduce', as we will have to wait for the response from the new premium washers and consistent delivery of margins. IFB will have to deliver on various initiatives it plans to undertake on consistent basis to improve its efficiency for us to become constructive on the stock.

We now expect IFB to pose revenue/Ebitda compound annual growth rate of 10%/33% (on low base) over FY23- 26E. We build in Ebitda margins of 6.9% in FY26, which is lower than management aspiration of 10% as competition continues to remain intense and IFBI is yet to demonstrate double digit margins.

Despite scale benefits and increased efficiencies, IFB’s margins are significantly lower than peers. We continue to value company at 30 times as company is working on the cost reduction initiatives to improve the margins.

We upgrade the stock to 'Reduce' target price of Rs 1,182 as margin improvement will be difficult in the hyper competitive environment.

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