IFB Industries Limited (IFBIND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the IFB Industries Limited Q1 FY '27 Earnings Call, hosted by Nirmal Bang Equities Private Limited. [Operator Instructions] I now hand the conference over to Mr. Rabindra Nath Nayak. Thank you, and over to you, sir.

Thank you, Saniya. On behalf of Nirmal Bang Equities, I would like to welcome everyone to the Q1 FY '27 earnings call of IFB Industries Limited. We thank the management of IFB Industries for giving us the opportunity to host this call. From the management team, we have with us, Mr. Sandeep Joseph Abraham, Managing Director and CEO, Home Appliances Division; Mr. C.S. Govindaraj, Executive Director, Manufacturing, Home Appliances Division; Mr. Soumitra Goswami, Chief Financial Officer; Mr. Arup Das, Executive Director, Engineering Business; Mr. Jayanta Chanda, CFO, Engineering Business; Mr. Kartik Muchandi, Head, Finance and Accounts, Home Appliances Division; and Mr. Ranjan Mohan, National Sales Head, Home Appliances Division. Please note that today's discussion may contain forward-looking statements based on current expectations, which involve risks and uncertainties that could cause actual results to differ materially. The management assumes no obligation to update these statements in light of new information or future development. Without taking much of time, I would like to hand over the call to the management for their opening remarks. Following the management commentary, we will open the floor for the question-and-answer session. Over to you, sir. Thank you.

I am Soumitra Goswami. I welcome you all for IFB Industries Limited investor call for first quarter FY '27. Let me tell you about the quarter 1 results now. Revenue for the quarter was INR 1,529 crores, against last year's INR 1,311 crores, which is a growth of 16.65%. PBDIT for the period was INR 88.46 crores, and its percentage to revenue is 5.79%, as compared to last year's INR 69.95 crores, which was 5.34% of revenue. There's an increase in PBDIT amount by INR 18.51 crores, which is a growth of -- over last year by 26.46%. Fixed expenses for the quarter were well within budget. However, in case of sum of the expenditure, expense has increased over last year. PBT for the period was INR 51.54 crores, which is 3.3% on revenue, against last year's figure of INR 33.93 crores, which was 2.59% on revenue. Q1 PAT was INR 38.06 crores, which is 2.5% on revenue, against last year's INR 25.36 crores, which is 1.9% on revenue. With this, I would like to request to start the question-and-answer session.

[Operator Instructions] The first question is from the line of Lakshminarayanan from Tunga Investments.

Two questions. If I look at the commodity increase in Q1 and Q4, which you had actually mentioned, it totals to almost INR 90 crores, and the ForEx also totals to around INR 81 crores. So it's almost INR 170 crores of impact on both the things, right? Now, while the cost savings, if I just total, it comes to maybe around INR 110 crores or maybe INR 120 crores. My question is that whether the commodity increase, is it behind us? And do you think this can -- either it is behind us or can we actually pass through the entire commodity increase so that the cost savings is actually permanent in the next few quarters? And how do you think about the ForEx impact that you have got? And what has been the -- what is the prognosis for the year ahead? That is my first question. Second, I see that room air conditioners' growth has been close to 10%. What I gather is that the industry grew almost at 20% plus in the same period. Is it kind of a choice of not matching the growth -- I mean not matching the industry growth? Or there has been some kind of a disadvantage we had in terms of growth in the room air conditioners? So these are the 2 questions.

So, as far as commodity is concerned, commodity and ForEx -- I'm Sandeep here. Commodity and ForEx continues to be an issue. So even when you look at Q1, we have an issue as far as commodity and ForEx is concerned. And whether it is behind us, as of now, no. So we are still seeing commodity increases that are there, as well as ForEx. There is not much of a change as far as ForEx is concerned. So is it behind us? As of now, it doesn't look like it is behind us, and we continue to be under strain when it comes to both commodity and ForEx.

And how much of commodity you have passed on, sir? Because, for example, if you just take the last 2 quarters, it comes to almost INR 90 crores of commodity increase. So has it been passed on? Or when do you think it can be passed on?

We are trying to pass on whatever is possible, but we need to be competitively priced in the market. And therefore, have we been able to pass on commodity? No, we have not been able to pass on commodity and ForEx to the market. We've been able to get some cost initiatives that are there, which is basically to improve efficiencies in our operation. So, that has helped us as far as our P&L is concerned. But no, we have not been able to pass on the commodity and ForEx to the customer in the form of a price increase.

Got it. And my second question is on the RAC.

Yes. As far as AC is concerned, see, the quarter 1, when you look at it, every couple of years, 2 years or 3 years, the government changes its -- the ratings that are there. And we had taken a conscious call that we will not build up stock of the older-rating AC products. And therefore, our old-rated AC products, actually, we completed it in the first month itself. By about January itself, we have completed it, and we moved into the new rating as far as AC is concerned. The new rating, as you might realize, is about 10% to 15% more expensive than the market. And therefore, we did not have the advantage of the older-rated products with a price advantage in the market. We consciously said that we would not carry it forward. So from that point of view, yes, we had that disadvantage when it came to the operation is concerned. However, we are concentrating on some of the higher-capacity models, where we are seeing good growth, and we'll continue to focus on that.

And in terms of capacity of RACs, can you just tell me how many shifts are going on? And what is the current capacity and how much you can actually enhance without adding more capacity just by enhancing the shift?

Mr. Govindaraj, do you...

Yes. This is Govindaraj here. Right now, our capacity in air conditioner is about 75,000. And in the peak month, we are using about 85%. At the same time, we are working on improving the capacity through debottlenecking and some automation. So there is no need for us to increase the number of shifts, et cetera. We will be able to achieve 75,000 to 80,000, when it is required, per month.

The next question is from the line of Vivek Kumar from Geometric Securities.

Sir, am I audible?

Yes, you are.

Sir, this question -- like if you can help us understand how -- because like you're not able to pass on the cost to stay competitive, at least, are we seeing growth then in sales? Like are we not even having sales growth? Because we are not able to pass on -- because you have told in the last con call that 20% growth we are seeing. Is it continuing? Or even that has slowed down?

No, that's not slowed down. In fact, if you look at the P&L, you would find that our revenues -- the HAD division revenues went up by 18% for the quarter. And therefore, while we have said 20% growth, we are definitely moving in that direction. So we've been able to get an 18% growth as far as our net revenues are concerned.

So you are able to at least have a growth on -- even in this quarter?

Yes, definitely.

Sir, second question is around the same thing. So how are you looking at this opportunity -- because now that you have washer, cooling and cleaning, all -- most of the categories you have covered, and you are -- can you explain us, is there even competition facing the same issue of not able to pass on? Or is it just for us? Or we are able to pass on in a few categories and not in other? And then, why are we then persisting -- or you will be able to pass on over the next 2, 3 years? How are you thinking? Because this has been a persistent issue if you see. Then -- because if there's such a high competition, then why are we putting up our own capacities instead of doing an outsourcing? So if you can please make us understand the assumptions the management is thinking over the long run of being present in all categories, if we have such -- do not have the pricing power in the long run?

So pricing, as I said, wherever there was an opportunity, we have actually taken the price increase. But then, these are, I think, tough times where the commodity and ForEx are unprecedented increases that are there. We hope that it doesn't last. And if it doesn't last, then all the benefits that we have done to tide over the difficult conditions in the form of whatever cost on activities and all those activities that we have done to improve our efficiencies, that continues. And we are hoping that the commodity and ForEx negatives that is happening now will ease out over a period of time.

Yes, sir. But in general, I was asking about -- sorry. Go ahead, sir. Sorry.

Yes. So if that element comes down, then I don't know how much -- how many people will then look at the pricing and stuff like that. But if we -- if the commodity and ForEx actually eases out, then all our parameters will look much better. And as far as others are concerned, I'm not sure. I think you should check out their results also. But we are not seeing -- beyond a certain stage, we are not seeing [indiscernible] to increase prices.

And how should we think about IFB's presence across in the long run? And can we expect this 20% growth at least in sales to continue for 2, 3 years? And because Bikram sir used to tell us that the channel extraction, and is the work at least over there?

Yes. So the 20%, as I said, that is definitely what we are working towards. And Q1 has been at 18% growth, as far as revenue is concerned. That becomes critical because that is going to power our entire growth story. And as you mentioned, a lot of things are being done at the channel level to ensure our placements are improved, our extraction is better. We are ensuring that we have got people on the ground at the counters, manning the counters and things like that. So a lot of work is happening on the harder things, which is getting our distribution up and running. And that is what has actually got us this growth. Is it a done deal? No. Obviously, all these things keep constantly getting improved, but we are on the right path. And the good thing is that we grew 18% in Q1.

So we should be able to grow at the same rate, sir, in the coming quarters and years?

Yes, we should.

[Operator Instructions] We take the next question from the line of [ Saket Kumar from KAPO ].

I'm Saket Kapoor from Kapoor & Co. Firstly, sir, as you were mentioning that we are anticipating that the current run rate of growth to continue for the ensuing year. So firstly, if you could give us some more color on our Engineering segment and our CapEx plan, when can we expect [ rectifying ] of the same and the business environment for the home appliances? Some more color of how things have shaped up for the previous quarter and how are things currently playing? The dynamics -- the business environment would suffice.

I will take the Engineering question. The home appliance will be answered by the concerned person. This is Arup Das. As far as Engineering last quarter is concerned, we -- as sales is concerned, we have exceeded the budget, and we have grown by 17%. EBITDA level was what was budgeted. So in all terms, Engineering division met all the KPIs related to budget. And we expect that we will continue in the same fashion going forward until otherwise, there are certain dips due to global scenarios, et cetera, where we have no control on. But still, we will try to manage as much as possible. But -- as far as present situation goes with the festive season arriving, we should be in the same line.

Okay. Sir, because we have also outlined some targets for, I think, a higher top line -- I think, INR 2,000 crores-plus and with some acquisition -- some land acquisition has also been done. Some product introduction is also there. So I wanted to understand where are we in midst of closing on those aspects. What can be expected going ahead?

Okay. As far as new projects are concerned, it's -- as you know, EV is penetrating the Indian market, and we wanted to be a part of that growth story. In order to do so, we had bagged LOI from Tata, which is about INR 150-odd crores. But you might have seen that yesterday, in the newspaper, news related to Tata, Agratas and others, there are issues. Probably the Tata Group Chairman is resigning, and you have -- Noel Tata has expressed his concern about the battery project. We are -- however, we are in touch with them. If they drop the project -- because we have already acquired the land in Gujarat. But other investments, we have machine, et cetera, we have not done yet because this change of situation, we wanted to understand because the project is a go-ahead from our side. But now, under the revised scenario, we are reviewing the situation. Then we will take a call as things progresses. But that particular piece of land, which we have acquired, will not only be for EV project, it will be for stamping project as well. So, that is also being pursued. We are in discussion with customers. We have zeroed in lot of businesses where OEMs have confirmed. So there are CapEx planned. It all will move in with the receipt of LOI. Once we receive the same from the customers, we will move ahead with the CapEx.

So you mentioned about INR 150 crores battery project. I missed your comment there, sir.

Yes. So, that project under -- if you have seen the newspaper yesterday, there was a big news that this project -- we do not know what decision finally the Tata Group will take. We are holding back, but we are okay with this. It's through from our side. Once we understand -- we are in continuous touch with them. We are ready for it. But all depends on the decision from Tata.

Okay. And on the existing set of product profile, what kind of volume expansion are we expecting for the current year or...

We expect a similar sort of growth what we achieved in the first quarter. So our growth story will remain, both in terms of top line and bottom line.

Right, sir. Now, for the home appliance part, sir, if some light can be thrown?

Yes. So Sandeep here. So if you see quarter 1, we have actually grown in all the lines. There was a question that we are in multiple lines. We have seen a growth in all the lines that are there. And I'm presuming with what we are doing at the ground level, that should continue to be growing, if not becoming better. Also, we are seeing some opportunities when it comes to certain capacities, certain kind of models which are there. So, that is something that we will be investing in. And over the next 3 to 6 months, we would have -- capacities which are currently not being served by us, we would have products there also, which should be giving us an additional pillar as far as our growths are concerned. So at this point of time, we are seeing growth in all the categories that we are operating in, and we believe that we should be able to continue with that.

So there will be capacity augmentation also, sir? I missed your comment.

Capacity -- as Mr. Govindaraj said, capacity is there, so we don't have to augment capacity. And at the same time, the manufacturing side is looking at ways by which debottlenecking can be done. So without any additional investment, if required, the capacity can be augmented. Currently, we don't have a capacity constraint.

Okay. And lastly, on the cost reduction exercise and the benefits that were outlined to us, what have we achieved, sir, there, both in the variable as well as the fixed cost component? And earlier, sir, there have been -- you people have given us the idea that you have outlined what are the issues. So how are we going to address them? And where are we in terms of putting things into place in terms of -- some manning issues also were there at counters and so that our growth were affected. These were the figures given to investors 2 or 3 quarters back. So what are the updates currently on the same?

So, as far as cost is concerned, what you said is right, we are looking at INR 150 crores to come in this year in the form of various cost initiatives that are there. In the first quarter, we have already got -- about INR 42 crores, INR 43 crores has already flowed in. We are definitely on track as far as the INR 150 crores cost initiatives are concerned. We are not cutting down anything that can impact our presence in the market when it comes to the number of counters, which are manned and things like that. We are not cutting anything out there. In fact, we are increasing the number of counters which are going to be covered by our in-store promoters. Therefore, while cost is important, we also believe that what we are seeing in the Q1 should continue, and therefore, we'll continue to invest in activities which will generate revenues for us.

Right. And lastly, sir, on the performance of our associate and I think the refrigeration unit, if you could just share some color how have that performed, the contribution rate?

That's a different company. So I think we should not be discussing that.

That gets consolidated, I think so, for our numbers. Correct me there.

Yes. Soumitra here. That is getting consolidated in our consolidated statement. We are taking our 41% share of the profit or loss. But IFB Refrigeration Limited is a separate company. We will not be discussing in IFB Industries' call. Mr. Abraham wants to talk about how the IFB Industries branches have performed in case of selling IFB refrigerator, he can discuss. But total IFB Refrigeration company will not discuss with you in this call.

Okay. I was just referring to the INR 0.33 lakh -- INR 33 lakh -- yes, that was the reason why [indiscernible] has gone down.

Yes. Their PBDIT -- their PBT for the quarter is INR 80 lakhs. Out of that, what is our share, INR 41.40 lakhs, that we are takin in our consolidated statement, which is INR 0.33 crores. That means INR 33 lakhs.

Yes. I was only looking for why the numbers have gone down quarter-on-quarter, sir, from INR 4 crores to INR 33 lakhs. That was my question.

No. Last quarter, it was a loss.

I was comparing March quarter. I was comparing with the March quarter.

March quarter, there was a different story. March quarter, there was -- they recognized the deferred tax. So the profit was coming more. We should not discuss this here. But in case of corresponding quarter of last year, there was a loss. And this time, there is a profit. But we will not be discussing the IFB Refrigeration company performance as a whole in this call.

The next question is from the line of Vivek Kumar from Geometric Securities.

Sir, am I audible?

Yes, you are.

Sir, can you share your market shares in top-loaders and front-loaders and how it has been moving in the last 3 years? And where do you see -- is it stabilizing in the next 1 to 3 years? Like top-loaders and washer category -- like top-loader and front-loaders?

See there is no consolidated place where you get the market shares because obviously, there is an online business. There's an offline business. So there is no consolidated place where you -- where I would be able to say what is my market share and how it is growing and things like that. However, we believe that our market shares are improving because the volume growth that we are seeing, we believe that our market shares are growing, both in front-loader as well as in top-loaders.

So you can say we'll be in the top 2 or top 1 in both the categories, sir?

Difficult to say. But yes, front-loader, we would be definitely in the top 2. And top-loader could be a little -- would be less.

Top 4 at least, or there, we have to...

Yes, we should. I'm not able to give you a number per se because there is no published market share data that is available.

And we see these market shares improving because we are growing faster than the market?

Yes, we do. We do. And front-loader, as I said, some of the segments that we are not there, once we get a product there, apart from the growth that we are seeing now, we should get the benefit of that also.

Sir, if you can elaborate more on AC because there are so many players, how do you expect to garner the 10% to 15% market share that Bikram sir was saying and you were also alluding in last con call? Because -- what is your strategy or the outline on where we are? And there are so many people -- I don't know, maybe there are not many. But in my -- whenever we go and visit -- in the channel, we see so many brands. So what is your strategy to go ahead and take the -- and what factors are helping us to really achieve that market share?

Yes. There are -- as you said, there are multiple players as far as AC is concerned. Our focus has been on strengthening our execution, which is basically, as I said, getting more counters where our products are placed, getting the right displays in, ensuring that there is a promoter out there who is retailing our products and things like that. So I think there is no substitute to that. No matter how many players are there, if you get all those acts right, then you will do well. So we do not comment on what others are doing and things like that. But we believe that, yes, in a multiplayer market, we should get our rightful share.

So your comment -- you will go to 10% by when, sir? And what would be our current market share?

It will be -- as I said, market share, I can't give you a number. But yes, 7% to 10% is what our aspiration is.

So how many years it will take, sir, for that?

I wish I could tell you that.

Second question -- but you are confident that you are seeing AC segment growing above the market growth?

Yes.

Second question is on the -- no, I was asking that you are confident that our AC growth can be above the market growth.

Yes, that's right.

And second question is on the cost. There is a limit to the extent we can cut cost. So if you can explain us at what point we will be forced to increase the prices even -- like is there a point where this keeps increasing? And do you think competition also will be forced? Or we have -- industry has not reached the point? How should -- we are not as competitive in cost with respect to our competition. So we will lose out the moment we start increasing prices. How should we look at this, price increase, losing sales to competition because they are more cost competitive than us?

No. So if you look at cost, there will always be opportunities to debottleneck and look at your processes and make it tighter and things like that. So there are definitely -- I don't think we can ever say that we are at 100% of optimal cost kind of a thing. There will always be opportunities for -- we, as a company, have said that we would not reduce cost at the cost of quality or customer experience. So we are not diluting our product. We continue to maintain the high standards that IFB is well known for. We will not dilute that. And therefore, all our cost initiatives are to ensure that whatever debottlenecking or inefficiencies or leakages that are there, how do we work on that. And that, I believe, is a constant process. Even when you look at your manufacturing processes, there are more and more technologies that are coming in. So with the same capacity, how can you deliver more. These are activities that we will continue to invest in. So answering your question, cost -- I'm saying that we will continue to look at how is it that we can take that extra bit out of efficiencies being built. As far as prices are concerned, we were not -- we could not pass on the entire thing. However, that has not stopped us from increasing our prices. We have taken price increases in the last quarter across all our categories. It is not enough to cover the commodity and ForEx, but wherever there's an opportunity, we have been able to take that. In certain cases, we have decided to lead that also and take a price increase even if the market is not taking that kind of a price increase. So we have taken some bold steps wherever it is required.

So you don't see -- because if this continues, the whole industry will be forced to pass on the price, right? No, nothing like that would happen. It would be.