Recommendation From Household Appliances Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

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COOL COMPANY TO GROW WITH 

HERE IS WHY
Robust financials
New product launches
Focus on domestic manufacturing

BSE Code: 505726
CMP: Rs1460
FV: Rs10
BSE Volume: 500
Date:16/01/2

IFB Industries, started its operations in India in collaboration with Hienrich Schmid AG of Switzerland in 1974. The company operates in two divisions, fine blanked components. and appliances. The fine blanking division has manufacturing facility located at Kolkata and Bangalore, whereas the appliances division has a manufacturing facility in Goa. 

The fine blanking division mainly caters to the automobile sector, covering both the 2-wheeler and 4-wheeler segments. IFB is strengthening the supply chain to cater to the expected increase in automotive demand in the coming quarters. The company is also focusing on increasing its business in non-auto segments like electrical, railways, defence, etc. 

The appliances division includes products like washing machines, microwave ovens, dish washers, air conditioners, etc. for domestic and industrial appliances segment. The outlook for the appliances division remains positive on the back of strong customer demand. Also, the company plans to launch new products and reduce material costs. IFB is increasing its capacity in top load washing machines, while new product launches would increase capex in the home appliance segment. 

The company is also focusing on localising manufacturing within India to reduce on high import costs. This will result in a significant portion of electronic controller imports being substituted by localised production in the ongoing quarter itself 

On the financial front, the net sales of the company increased by 37.20 per cent to Rs602.78 crore in the second quarter of FY18, as against Rs439.35 crore in the same quarter of the previous year. This was on the back of healthy 41 per cent YoY growth in the home appliances division and 19 per cent YoY growth in the fine blanking division. The company’s PBDT increased 81.13 per cent to Rs63.56 crore in the second quarter of FY18 on a yearly basis. The company’s net profit also jumped by 105.45 per cent to Rs36.57 crore in Q2FY18, as against a net profit of Rs17.8 crore in the second quarter of the previous year. 

On an annual basis, the company’s net sales increased 15.97 per cent to Rs1740.65 crore in FY2017 on a year-onyear basis. The company’s PBDT increased 30.93 per cent to Rs105.44 crore in FY17 as against Rs80.53 crore in the previous fiscal.The net profit of the company rose 62.53 per cent to Rs50.97 crore in FY17, as against Rs31.36 crore in the previous fiscal. 

On the valuation front, the company has a PE ratio of 96.70x as against its peer V-Guard Industries (70.90x). The company’s return on equity (RoE) and return on capital employed (RoCE) stood at 11.22 per cent and 14.80 per cent, respectively. The company, with a debt-to-equity ratio of 0.06x is virtually debt-free. The Q2 results of the company exceeded expectations and recorded highest quarterly growth in the last nine years on the back of increasing share of domestic appliances, healthy operating leverage and prudent cost management. Also, the company is introducing new product range which would drive growth going forward. We recommend our reader-investors to BUY the stock.