Stock Pick From The Plastic Products

HERE IS WHY:

• Market leader in front load washing machine, which is growing at rate of 20 per cent. 
• Engineering division showing growth, despite sector witnessing a contraction. 
• Strong balance sheet with no long term debts.

Increasing disposable income, greater media exposure and increased retail penetration has helped many companies to reach vast middle class of India. This has even helped to boost the demand of the consumer appliances and auto industries in India. IFB Industries (IFB) is one of such companies that will be benefited by such factors.

IFB operates in home appliances and engineering segment. In the home appliances, which contributed 80 per cent of company’s total revenue and sells a wide range of white products. The company manufactures these products at the facility of Goa, while some parts of the products are imported. IFB is the market leader in front loader washing machines and has more than 50 per cent market share in this segment. The segment is growing at a rate of 20 per cent, as penetration level is still very low at around 7 per cent. IFB being a market leader will benefit more as total market size increases.

Further, to increase the sales of the appliances, the company is planning to increase their IFB points. The IFB points are franchise run retail stores. These IFB points cater to tier 1, tier 2 and tier 3 cities. As on December 2013 the company had total 481 service franchisees across India and it is expected to cross 500 numbers till the end of first quarter of FY15. Sales from IFB Points are more profitable compared with sales through retail channels. The company is also targeting to increase their sales through exports. It has started exporting to France, and is also in talks to export to Nigeria and Middle East. In addition to increased sales, company is also going to be benefited by indigenisation of its top loading washing machines that have been imported till now.

While the other segment in which the company operates is the engineering segment. The engineering segment mainly caters to the automobile sector. It manufactures and sells fine blanked auto components. Inspite of weak performance by automobile sector in India the engineering segment of the company has improved its revenue by 23 per cent during the Q3FY14 as compared to the same quarter of previous year, due to its strong focus on the two-wheeler segment.

On financial front, IFB has posted a weak set of numbers during the third quarter of the fiscal year 2014. The company’s topline showed a growth of 3.7 per cent on yearly basis reporting to Rs.278.06 crore for Q3FY14. The bottomline of the company has deteriorated by 26 per cent on yearly basis to Rs.8.84 crore for quarter ended December 2013. This was mainly due to increase in depreciation (up by 27 per cent YoY) and due to forex losses (Rs.1.1 crore) during this quarter. We believe, going forward as the company’s strategies unfold and economy turns the corner, it will post better numbers. On the valuation front, the stock trades at a TTM PE of 21.60x, which is cheaper as compared to its listed peers. Hence we advice our readers to enter the counter with price target of Rs.110 in next one year.