IFB Industries Limited (IFBIND) Earnings Call Transcript & Summary

Yes, this is Govindaraj here, I'll explain. The quarter 2 innovation, what we are expecting is, it will be to the tune of maybe about INR 15 crores to INR 20 crores, and in line with the target whatever we have taken for the fiscal year.

Okay. And that run rate should also be continuing for the balance 3 quarters.

Yes, it will continue and it should improve on, so that we are in line with the yearly target...

The next question is from the line of [ Saikiran Pulavarthi from Pulavarthi Advisor ]

Sir, just a broad level question is that in terms of the market share, except for the washing machines, you are not material enough in the rest of the segments and the larger ones like refrigerator or AC. So how do you look at yourselves in a very highly competitive industry when your market shares are very less? How can you able to improve your margins sustainably and also have very good return ratios?

So this is Ranjan Mathur. First of all along with washers, we have good market share in our microwaves as well as dishwashers. We launched ACs -- and lastly, we -- as shared in last meeting, we sold [indiscernible]. Here we intend to -- we are targeting around 5% margin. Generally in refrigerator, in span a 2 years, we are now touching around 40,000 every month. And -- so we are targeting around 65,000 per month, around 7-odd percent.

Sir. But even in your presentation, you mentioned that by FY '26, you want to be like 5% market share in AC. And then probably now you were saying refrigeration at 7%. At that kind of market shares, yes, when your competition is like global players like Samsung or LG or Haier or Midea? So is it possible for you to sustainably improve the margins from where you are or how difficult or how challenging it is? Experience tells us that in the last 5 years, you guys tried a lot on the sales and improving the marketing but still the margins are still struggling. So we're just trying to understand these challenges is it subscale or is it because of something else? Or is it a problem of, say, what is the -- where is the issue? We as investors outside think that this is primarily because of probably the lower market share is not giving kind of a pricing power. That's our assessment. Is our assessments right? Or is it something else to think about?

No. Look, in this, I'll only say one thing. In terms of air conditioners, the responses which we got in the category in last financial -- last 1.5 years have been very good. And this year also, if you see despite a major drop in the industry, we were able to sustain our volumes. And same thing is that refrigerator in a span of 2 years we are practically touching 4%. Our biggest strength is our network, we work -- we are working on improving our...

Ranjan, his question is not that. Please answer -- when people ask you all a question, one problem with all of you is you don't answer the question. Answer the question. If you don't understand the question, you ask him again to repeat the question. But he's asked a very clear and factual question.

Yes. Can you please repeat the question, please?

My question is that except for the washers, you don't have a substantial market share in any of the products. And this industry is extremely competitive. So what I think is the single-digit market share is 5% or 6%, will you be able to have pricing power or not? And if not, then can this be impacting your subscale, what I can say, EBITDA margins, which was there for quite some time. So is it the right way to think about it? Is it something else or other which we should think about?

So as I was telling you, our market shares in microwave, our market share in dishwashers, our market share in clothes dryers are substantially at a good position along with our washers. Top loaders, which have -- after the launch of the new range we shared, the market share have further -- have started improving. With regard to AC and rev, so as I just not shared, now the question which you are asking, whether we'll be able to sustain the margins and sizing. So in IFB, we firmly believe that we should give our good for technology products. And that product give us good, sustainable volumes. And that is what on -- that is how we are...

That is not his question. Kartik, can you answer the question? Ranjan, first, you hear the question well and answer the question. Please don't make up stories for the public. This is not a marketing meeting.

Sir, pricing power is not coming from the market share. If we see the new products what we have launched also our market share is only going up. And in front loading washing machine, we are #1 as far as the customer selling price is concerned, we have features and we give value for what price we are charging. In air conditioners, as you know, it is a crowded market. There are more than 40 brands operating. If you look from the price point, we are in top 10. So lower market share doesn't mean that our price point is discounted. So margins will not get impacted because of market share. And also in air conditioner, if you see the market leader has around 20% market share. So 4% to 5% market share is a good market share to start with, which ultimately we want to further increase.

The next question is from the line of [ Udit Sehgal from PinpointX Capital ].

Regarding the cost-down measures in the last con call, we had discussed that INR 200 crores we are targeting from the material cost reduction. Around INR 75 crores from the fixed cost reduction and INR 20 crores from the warehousing and freight reductions. So I wanted to know, sir, what's the time line on that and from when do we start -- start to see these savings kicking in?

This is Govindaraj here. We had already indicated that out of the INR 200 crores plan, INR 85 crores will be -- approximately about INR 85 crores will get in the fiscal year '26 and we are on track of that. We will be able to achieve that INR 85 crores.

And like you said that some part of it was available in Q1, but we could -- I mean, it was offset by the increase in material costs. So could that happen in the future as well?

Our estimate for the quarter 2 commodity price increase is not as high as what was happened in Q1. So we should be able to get substantial benefit from the cost innovation activities, whatever we are doing in Q2.

Mr. Govindaraj, please also inform them what we did not do in Q1, which have led to this. Why don't you and Kartik give them visibility? What did we do wrong?

Even though we could achieve about -- in terms of 1.6% cost innovation, but the commodity price increase happened more than that. So that there was a less increase in the material cost, which should not have happened. Our cost innovation measures should be more so that the impact of the commodity we should have been able to absorb, point number one. Point number two, the realization took some time, which should've happened in Q1 has moved to Q2 because of the validation we had to complete.

No, Kartik. There is another point. What did we do wrong?

Yes. Apart from that, overhead cost has gone up.

No, what did we do wrong on commodity pricing.

Yes. Okay. We have now...

See, Mr. Govindaraj, you should be able to explain. You are the manufacturing director. What did we do wrong? You should transparently say.

What we could have done better is the control on the commodity pricing. We have pricing committee with regular follow-ups and the [indiscernible] and what measures we can take to mitigate that we do it properly, we have now corrected.

Okay. So if I understand correctly, sir, from -- for FY '26, we'll get around INR 70 crores to INR 80 crores from the material cost savings. And for next year FY '27, we will get the full INR 200 crores for the material cost savings. That's my understanding, is it correct?

Yes, that's correct.

That is not correct. Total is INR 200 crores, correct?

Correct, sir. Out of that...

Out of INR 200 crores, this year, you're supposed to get INR 60 crores to INR 80 crores. So the balance will be only INR 120 crores, for example.

No, the total will get INR 200 crores.

Yes. So INR 120 crores plus INR 80 crores is INR 200 crores.

So this is like a onetime saving or it's like a recurring savings since we have reengineered the product?

Mr. Govindaraj, am I right or wrong?

That's right, sir. The savings are recurring only and based on the target of overall INR 200 crores, the realization will be about INR 60 crores to INR 80 crores in this fiscal year. The remaining we'll get in -- it's a recurring only. It's not onetime.

Sir, ultimately, okay, the recurring part will be around INR 120 crores or it will be INR 200 crores, the recurring part?

The recurring part will be about INR 120 crores.

Okay. And with respect to the fixed cost that we talked about that will be reducing around INR 6 crores per month and the warehousing and logistics costs. What is the visibility on that?

Kartik here. We have put in place a team for this along with Alvarez & Marsal. We have identified areas of overhead cost reduction, and we are setting internal tactics for this. So if you say freight, because of freight, we have done trial on network optimization for Bangalore. The project is complete. Now we are rolling out Pan-India. So we expect that the savings will start coming in from Q3 of FY '26.

Okay. And regarding the fixed expenses, sir, is there any visibility on that?

Yes, yes. This is for fixed expenses also, the same team is going to work on. And from Q3, we expect the savings to come in the P&L.

Okay. And sir, if we look at the year-on-year sales, the sales have increased, but the margin has gone down. That's because of the material cost increase or some other reason?

Yes.

That should normalize going ahead since the cost savings will also kick in?

Yes. As we explained, our service are in the pipeline. When will it come, may take some time. But we expect INR 60 crores to INR 80 crores to come P&L in FY '26. At the same time, we are putting a team for -- a pricing committee, which will look into commodities and find ways to reduce the commodity prices. So we expect the effect of commodity price on future quarters to be much lower or we expect a reduction in all this to add to P&L.

Because our eventual target is to reach 10% EBITDA margin is what we've been targeting. So with these cost savings, you think in the next 2 or 3 years we can achieve that?

Our intent is to hit double-digit EBITDA in this financial year.

In this -- so that would be for the whole year, that would be like on the exit?

Yes, the first quarter, we could not do, but we are working towards double-digit EBITDA.

The next question is from the line of Naveen Baid from Nuvama Asset Management.

My question is on the Engineering division. What kind of growth are we seeing for the next couple of years? And in what segment of the Engineering division would you drive that growth?

Mr. Narayanan, can you please take this question?

Yes, I'm Narayanan here. Actually, we are now looking at almost 3x growth and we are also having fine blanking, we are also having stamping. So we are now trying to improve both in fine blanking as well as stamping. So we are also having plans. This year, we are looking at a growth of around 20%. So in the next 2 years, we are looking at around -- more than around 30% growth, which we are also working, other than automotive, other customers also.

Mr. Narayanan, he asked the question -- you started off by saying 3x growth. And then you said 20% and 30%. Does that add up to 3x? I'm just asking. You're from Sundaram Clayton that is how you're answering a question. JC, can you answer? JC, can you answer? Can you answer?

It's okay, if you can just throw some light on what is the...

One sec. Jayanta, are you there?

I had just got cut off. I just joined, Mr. Nag.

Can you please answer the question?

I didn't hear the question, please. Can somebody repeat the question?

Mr. Narayanan said 3x growth you are planning and then said you'll to 20% this year and 30%, 30%. Does 20%, 30%, 30% add up to 3x?

No, it doesn't.

Okay. So what is your plan?

The plan is that we have to grow organically, minimum 30% per annum. And also we have to grow through merger and acquisition route, which we are actively pursuing. And we have already seen 48 companies and due diligence have been done for many. So apart from that, we are also working on some breakthrough projects like which are new lines. For example, brake disc line, et cetera, we are working on these, which will give us additional revenues using the fine blanking methodology basically.

Okay. If you see our margins or margins had been...

Can I just pick that? Sorry. Sorry, I'll just say, Jayanta, it's important to learn how to present matters, you and the CEO both. There is a division, fine blanking division. What is your plan for that? Explain to the shareholders. What is your plan for stamping? What is your plan for Electronics division? Why don't you go step by step? Have some water and present.

Okay, Mr. Nag, I'll do that. So the fine -- the Engineering division basically has 4 verticals now. The primary vertical is the fine blanking division, which is about INR 600 crores, out of...

What will be the growth in that? Get to the point.

We are aiming to grow it INR 400 crores by the end of -- by March '27 new orders into the pipeline. INR 445 crores by March '27. So this will come from new lines of business, which is the brake disc line as well as we are talking to increase our sprocket business with the various OEMs. So -- and we are pushing for newer businesses in the non-auto sector also with companies like ABB, et cetera.

You don't have to say all that. Just explain. What are the segments you're getting into? Just explain.

So automotive segment as well as we are also now embarking into the non-automotive and with the onset of EVs, we are -- there is a thrust to keep our portfolio EV-neutral so that we are suddenly not out of business. So gradually, we see the onset of EVs in automotive horizon. So we are aligned with that. And so this is in fine blanking. In stamping, our plant is in Bangalore, and it is working at full capacity. So there is -- we are adding some pressure in that facility there, but our -- we are also planning a new facility in north of India, because most of the big OEMs are there, including Maruti, Hero Motors, HMSI. So we are planning a new greenfield facility here. And we are also talking to innovative new products, contemporary products like the battery can for the -- so these products also, we are talking to the suppliers in Exide and Tatas and all that. So we are in advanced stages of discussion and we are hopeful of good order pipeline in the near future. We have a vertical which we call the aftermarket. That's about close to INR 100 crores. We make the chain and sprocket kits. The chains we were importing from China, the sprockets we were manufacturing in our fine blanking plant. Now the government is imposing some restriction on imports, so our Board has cleared our investment for setting up a chain manufacturing plant in India. We will do that, but our Chairman has said to get the organization right before we move ahead with the procurement of the -- we are setting the organization right, which we will complete by the next 30 to 45 days. And thereafter, we are going for -- and we hope to put up this plant in the next 8 to 10 months. The supplier has been identified, the equipments have been shortlisted. We are in discussions with them. Very recently, we have set up, made a foray into electronics sector, we have named this Advanced Electronics division. We are making components for a global player, very big player, who will be the ultimate consumer. We have made a beginning, and we are quite hopeful that this business will grow substantially for us and we are also in talks with other electronic players. So we want to grow this segment also, which is headed by a separate person and it's a fully independent vertical under the Engineering division.

I just had a [ commerce ] question on this. So your margins saw a very sharp increase in FY '25. So you expect this margin to kind of stay around this level? Or -- because in the past, your margins have been volatile over the past 4, 5 years. So you see further improvements in margin from here on?

My answer to this question is, the last 2 years, we have been blessed with a stable commodity price, it has not been very -- now in quarter 1 this year, the steel prices have been increased by INR 3,000. So in the automotive industry, it is the standard norm that we -- whenever there is an increase in RM input, we get it from the customer. But there is a lag of quarter to half year. So we definitely will defend the margins we have been doing but our target is to improve it further. And definitely, we will do that.

The next question is from the line of Naitik from NV Alpha Fund.

Sir, in the beginning of the call, you mentioned that our expenses have increased because increase in sales representatives and increase in professional and legal services. Can you quantify these charges, which has led to increase in bigger gross margin expenses on a company level?

Yes. Kartik here. CSR spend -- CSR expenses has increased by around INR 7 crore for the quarter. Professional fees has increased by INR 3 crores. And e-waste expenses has increased by another INR 3 crores.

Sorry, last INR 3 crores you mentioned is for e-waste?

E-waste, yes.

Second question is, you briefly also mentioned about margins, gross margins had fallen in Home Appliances division. So that was primarily due to increase in RM cost? Or was there any other reason also?

No, no. That was impact of commodity less recovery through cost innovation.

Right. And my next question is what sort of growth do we expect in the washer segment top load and front load individually and in RAC this year? All 3 separately, if you can quantify.

Yes. So in case of front load, the growth what we are targeting is around -- we initially, in the financial year, we were targeting from 25% growth, but the industry in front load is a bit segment. So we still feel that this festival season will be good and we'll be able to recover our volumes. And we'll be growing by around 20% to 25%. In the top loader, we have been able to -- with the launch of new range, we have been able to grow at a much higher level and have been able to gain the share. Here we envisage around 35-odd percent growth for us, which will be better than what the industry -- and we'll be able to gain some market share. Refrigerator -- sorry, air conditioners, you asked. In the air conditioners, there was a drop of 30% plus in the industry in first quarter, but what we feel is our -- first of all, our -- because we were able to sustain our volumes compared to industry. And what we feel is in -- from quarter 3 and quarter 4, we'll be able to get the volumes which we have lost in quarter 1. So then we envisage a growth of around 25% to 30% in air conditioners.

And sir, my last question is what sort of market share do we currently have in RAC segment?

We marginally gained, we are at around 3%, 3.5%.

The next question is from the line of Lakshminarayanan from Tunga Investments.

You mentioned e-waste provisioning. So approximately, what is the amount you would provision for the full year?

Yes, our monthly cost is around INR 2 crores. So annually is around INR 24 crores to INR 25 crores.

Got it. Got it. So the savings would be after accounting this only, right, the savings we are talking about?

Yes.

Got it. The second question is that in terms of our compressors have you -- have we secured compressors for both refs and the ACs for the next -- even as we expand because there has always been some shortage in terms of compressor capacity in India, be it refs or be it AC. How secured we are in terms of the supply chain?

We [indiscernible]. We are aware of the demand-supply gap in compressor, but we are already discussing with a manufacturer. And as of today, we are secured with the quantities whatever is required in the -- for the season.

Got it. Sir, can you just help me understand what is the capital structure of this IFB Refrigeration, 40% is owned by IFB Industries. So what is the 60%?

I think individuals are owning about 20-odd percent. And others in promoter group are owning significant shares. A promoter group, meaning the one declared to SEBI as promoter group, they are owning shares.

Okay. And the rest is by the employees, you mean to say the 20%?

Various individuals, yes.

Okay. And is there a plan to kind of consolidate it at some point in time? Like if there are...

Yes, I think now if you look at the overall thing, IFB Refrigeration above our threshold volume makes positive EBITDA, et cetera. As we've said, 55,000 to 60,000 is what we must sell to make a decent amount of money. Hopefully, we will get there soon. And we hope to at least consolidate it in the near term. Near term meaning maybe in the next 6 to 12 months, hopefully, subject to Board approvals.

And strong in DC or no frost in the refrigerator?

So we now make more of DC, but the no-cost is increasing because we are producing more of that now. We are launching the 328-liter very soon. And after that, we will launch other models. Our brand prism ideally should have -- I mean, our ideal structure would have been to launch the higher-end models first because that's what IFB stands for. But then when we were considering the project, we realized that if you don't do the lower end also to succeed in this is going to become very, very difficult. So going forward, we will do more of the higher end.

Got it. And one last thing on washing machines. So have we -- I mean, are we -- do we still manufacture the fully drive -- driven washing machines? Or actually, we have moved to completely motor-driven?

We have moved completely to BLDC. We are moving completely to BLDC.

Thank you. Due to time constraint, that was the last question. I now hand the conference over to the management for the closing comments. Over to you, sir.

I think one of the things we have to say is -- sorry, I'm just going to sum up something. Performance has been relatively weak. And all -- most of the participants have asked the question, what happened to the issue on cost, commodity costs, et cetera, et cetera. And I think whilst we were working with A&M on cost down, the team that was supposed to handle commodity price, et cetera, got defocused and some slippages have happened there. And that's an area that we need to tighten. I think that let us down. On the fixed cost increase if you see, increments were given, et cetera, which had to be done. But areas where consolidation of work, et cetera, should have happened, have not happened as fast as it should have. And that's also an area of slippage. So we have slipped. AC, of course, got affected due to the monsoons, I think, across brands. In other categories, in various areas, we've still not tightened and change management, where the required -- that work is still WIP. We've been very, very slow at it. Hopefully, in this quarter, a lot of that will get fixed permanently. Soumitra, anything else?

No, sir. Thank you very much to everybody for participating in the call. We'll meet again after quarter 2. Thank you.

Thank you. On behalf of Nirmal Bang Equities Private Limited. That concludes this conference. Thank you for joining us, and you may now disconnect your lines.