IFB Industries Limited Q4 FY22 Earnings Conference Call Insights

Key highlights from IFB Industries Limited (IFBIND) Q4 FY22 Earnings Concall

Q&A Highlights:

• Bhargav from Kotak Mutual Fund asked about the reason for gross margin decline on a QonQ basis. Rajshankar Ray MD said that the percentage sale of air conditioners is higher in Q4 vs. Q3. And as on date the air conditioners are running at a lower gross margin compared to the washer segment. Secondly, there were further material cost increases in 4Q that were not recovered within 4Q.

• Bhargav from Kotak Mutual Fund enquired about the utilization of the company’s AC factory as of now. Rajshankar Ray MD replied that in 4Q, the demand on the plant was more than what the capacity is, and IFBIND lost sales in the month of April and May because it couldn’t supply. Looking at current situation, IFBIND is nearly fully booked.

• Bhargav from Kotak Mutual Fund asked if the company is on track to clock a run rate guidance of about 150,000 to 200,000 of OEM sales. Rajshankar Ray MD clarified that the company is on track to achieve that guidance.

• Bhargav from Kotak Mutual Fund also asked that on the comment of gross margin on the OEM sales being lower vs. branded sales, if it’s a significant or a minor difference. Rajshankar Ray MD clarified that it’s a significant difference. But said that it’s because below GM on the brand sales, there are expenses sitting in the field but for OEM sales once it leaves the gate there are no additional costs.

• Bhargav from Kotak Mutual Fund enquired that if the EBITDA margin in AC business will be in the high-single digits as the business scales up. Rajshankar Ray MD said that yes it should be and this is the peak agenda for IFBIND to fix for FY23.

• Amish Thakkar from SG India asked about the difference between gross margins in AC division versus rest of home appliances division. Prabir Chatterjee CFO said that the AC margins are significantly lower as of now. Last year, import content was quite high. So IFBIND has taken significant steps to reduce the import content. Going forward, IFBIND expects things to improve substantially.

• Prasheel Gandhi of Nirmal Bang enquired about the price growth taken across various segments in FY22. Rajshankar Ray MD answered that seeing from Jan. ’21 to March ’22, the total increase in price has been around 12-13%. And for FY22, April to March, another 2-3%.

• Prasheel Gandhi of Nirmal Bang asked about the capex plan for FY23. Prabir Chatterjee CFO replied that for Engineering Division capex, other than routine capex, there is nothing. But for the Appliance division, IFBIND is working on it. For Motor, there is a plan of around INR34 crores because of the new BLDC line.

• Prasheel Gandhi of Nirmal Bang asked about the incremental cost of BLDC motor versus a normal motor. Anand Reddy, CEO of Motor Division said BLDC motor will be cheaper in comparison with the universal motor, but that savings, whatever IFBIND gets, will get mitigated by increasing cost of the controller. So net-net, as a package, motor and controller, the cost may increase by INR1,000-1,500.

• Prasheel Gandhi of Nirmal Bang asked about Q4 sales from the e-commerce channels. Prabir Chatterjee CFO answered that e-commerce in 4Q22 was only 9% of total sales. And during the whole year, it was 16% of total sales.

• Prasheel Gandhi of Nirmal Bang also asked if IFBIND expects e-commerce sales likely to go up to 20%, 25%. Rajshankar Ray, MD said that IFBIND doesn’t expect that, but expect the off-line and online sales both to rise. On an average YTD basis, 15%, 16% would be the e-commerce sales.

• Chirag M of Centrum Broking asked if realizations are increasing in line with price hikes. Rajshankar Ray, MD replied that the realization is rising in line with the price hikes, so the company has not increased the discounting in the market. However, IFBIND is not been able to pass through the material cost increase as quickly as it should have been done.

• Prasheel Gandhi from Nirmal Bang asked about the company’s targets in the EV space. Anand Reddy, CEO of Motor Division said the company is looking at opportunities in 2-wheelers and 3-wheelers to start with. As well as looking at opportunities in commercial vehicles like 1 tonner, 2 tonner kind of vehicles, motor and controllers.

• Prasheel Gandhi from Nirmal Bang asked about turning EBITDA positive in the Motor segment and if trend is expected to continue. Anand Reddy, CEO of Motor Division clarified that IFBIND expects the trend to continue. With the commodity prices pulling down, IFBIND hopes to have a positive EBITDA.