IFB Industries Ltd Management Discussions.

a) Structure and Developments, Opportunities and Threats, Performance, outlook, Risks and Concerns:

The good news that came a year ago may not hold good for long due to a severe contraction in gross domestic product, India is set to lose its gradually improving position in global gross domestic product. The International Monetary Fund (IMF) data shows that India became the world’s fi h largest economy in 2019, surpassing U.K and France. The latest IMF data, however, puts India back in the sixth position in 2020 and further down to 7 in 2021.

As India ba les the second wave of coronavirus infection, 98% of the nation is under some kinds of restrictions and lockdown which once again is leading to a crumbling economy. The Indian economy, by far, has been su ering since the pre-pandemic times and a er the surge in infection, the nation’s economy has been hit hard.

Indian auto component industry’s revenue dropped significantly in FY 2020-21. However, a er market demand for automotive components remained stable.

The CORONA virus pandemic has taken a toll on the Indian automobile industry by bringing down vehicle sales to figures lower than those recorded in 2019, which was the worst year for the Indian automobile industry in the last two decades. The COVID-19 outbreak, which started showing its effect in March 2020, not only impacted sales but also disrupted the global supply chain. This worsened things for the Indian automobile component industry which was already struggling because of the vehicle sales slowdown in the country. Going forward ACMA has once again recommended a uniform 18% GST rate across the automotive industry in India. Currently, almost 60 percent of auto component a racts 18 percent GST while the remaining a ract 28 percent GST.

The year 2020 has been full of unwelcome surprises and unavoidable new realities. What started out as a health challenge escalated rapidly into an economic and humanitarian crisis. For the automotive industry- already under a shadow cast by sales slow-down in 2019-20, the spread of COVID-19 darkened the outlook further. The pandemic came with fluctuating supply chain scenarios, restricted people’s relationship with mobility and sparked o new growth areas such as a ermarket. As auto component manufacturers set their course for the future, strategizing to build locally to meet local and global demand, expanding to complementary sectors and optimizing costs could help regain growth momentum and shape the next normal a er 2nd strain of the COVID is over.

The G.O.I encourages foreign investment in the automobile sector and has allowed 100 percent FDI under the automatic route.

Going forward, with transition to BSVI and implementation of safety norms, the value-addition from the component industry is expected to progressively increase.

The survey to assess impact of Coronavirus by different agencies reveal that besides the direct impact on demand and supply of goods and services, businesses are also facing reduced cash flows due to slowing economic activity which in turn is having an impact on all payments including to those for employees, interest, loan repayments and taxes.

Subdued vehicle demand, recent investments made for transition from BS 4 to BS 6, liquidity crunch, lack of clarity on policy for electrification of vehicles among others, had also an adverse impact on the expansion plans of the auto component sector. The situation was so grim even before COVID-19 that discounts and freebies failed to spur any major demand.

Covid-19 which has so far disrupted the global complex auto-component supply chains and in immediate term automotive demand. This could manifest into a demand shock lasting multiple quarters for the domestic industry. As novel coronavirus is spreading across the country, the auto component manufacturing companies are all set to defer their planned capex till 2022 to preserve cash and cope with supply chain disruption. The domestic auto industry is set to decline in double digit this year and therefore almost all the companies in the component space are re-drawing their strategic road map. Going forward the majority of the tier-1 component maker will focus more on consolidating capacities rather than expanding at least for the short-term in order to preserve cash. The crisis has been further aggravated post COVID outbreak. The current situation demands government’s handholding to help component makers to emerge from this crisis situation. We started our financial year 20-21 with zero revenue. The demand generation will only be possible if Government motivates the consumers by incentivizing or by providing tax relaxations etc.

Government Initiatives

Electric cars in India are expected to get new green number plates and may also get free parking for three years along with toll waivers. The GOI is also mulling the idea of granting the EV sector favourable terms in registration etc.

The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the country for introduction of electric vehicles (EVs) in their public transport systems under the FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India) scheme.

In the backdrop of the pandemic and the lock down, the automotive industry faced unprecedented challenges in the first half of 20-21. The auto component industry through agility, flexibility and financial discipline, has displayed remarkable resilience and has come back strongly with the unlocking of the economy. Going forward the performance of the industry during 2nd half was heartening. The increased focus by the auto industry on deep-localization and the recent announcement of PLI schemes for the automotive sector and cell/ ba ery manufacturing by Govt, augur well towards making the auto-component industry a self-reliant one.

Fine blanking Division (FBD) was already under pressure during FY2019-20 due to slowdown in automobile sector. Situation went into adverse mode a er country wide lockdown was imposed in the last week of March 2020. However, situation started to show signs of improvement since second week of May 2020 & production started in our factories located in Kolkata and Bangalore. Though initially dispatches were in low scale but things improved rapidly and the schedules received by both plants from different OEMs and Tier 1 suppliers were high. The Raw Material crisis which set in from September 2020 and is still continuing which has restricted the Divisions ability to service the schedules received in full thereby depriving the Division from the much-needed topline.The division could achieve a turnover of Rs 44989 lacs which was marginally higher by 6.2% over last year and PBDIT earned Rs 5,397 lacs higher by 6.1% over last year. Despite lock down, turnover was higher due to increase in turnover of AFM and pent-up demand in Automobile industry post lock down.

Currently Most states are extending lockdown-like restrictions till second week of June due to the second wave of the pandemic and this will again have a detrimental impact on the turnover of the company for Q1 of FY 2021-22.

Stamping Division

This Division was acquired from IFB Automotive Pvt. Ltd. in October’19, keeping in mind the operational synergy with the Fine Blanking Division. In FY ‘20-’21, due to outbreak of

COVID-19 Pandemic and subsequent lockdowns imposed by government, there was negligible turnover in the 1st Quarter. However, things improved in the balance three quarters, which improved the YTD revenue. The 3rd and 4th quarter order value was Rs 20.60 crore and Rs 17.57 crore respectively. However, we could only achieve Rs 12.81 crore and Rs 12.77 crore respectively due to reasons such as material crisis, the impact of COVID-19 pandemic etc. The product has been well accepted and order book of FY’21-’22 is also robust. The strategic decision to buy this business and integrate it with Fine Blanking Division was well received by the customers. Unfortunately COVID-19 and the related shutdown have affected the division, a situation faced by many other countries. The company has enhanced its marketing thrust to garner additional revenue from existing customers while also accelerating its efforts to increase revenue from the non-auto segment.

The issues that FBD is successfully addressing include

i. Countering the reduction in demand of auto components.

ii. Strong pricing pressure from customers & competitors.

iii. Higher cost of CRC and HRC steel.

iv. Consistent increase in power cost.

v. Rapid increase in minimum wages.

vi. High cost for new machinery & technology.

vii. Timely Raw material availability.

viii. Fluctuations in demand forecasting by the automobile sector has created pressure in meeting inventory, debtors and margin metrics.

The Appliance Division has ended the year on a marginal growth of 6.4% in revenue terms and achieved a turnover of Rs 2,24,809 lacs including service income of Rs 7637 lacs. However, EBITDA margins reached to Rs 19319 lacs, and registered a growth of 90.9% as compared to 2019-20. The performance improved due to favorable product mix, price hike, material cost control, reduction in operating and administrative cost etc.

Our focus remains on the key agenda of localization for some of our high cost imports. This is a key de-risking mechanism against future currency fluctuations which has an impact on our business. Our focus on localizing manufacturing within India has resulted in a new generation of electronic components for models being manufactured in India. The work resulted in a significant portion of electronic controller imports being substituted by localized production in the washer segment. For this year, the key focus is in localization of controllers in the air conditioning segment. The expected customer demand, combined with the launch of new models and plans to reduce material costs, provide a positive outlook for the division.

With most states extending lockdown-like restrictions till 2nd week/ 3rd week of June 2021 due to the second wave of the pandemic, the consumer durable industry has started the financial year with a significant drop in sales and a washed-out summer season. With consumer sentiment negatively affected due to the intensity of the second wave, there are concerns on the pace of recovery in demand for consumer durables once restrictions are li ed. Air-conditioners did witness strong sales momentum in March and the early part of April 21, before the second wave hit the country. Last year, there was strong pent-up demand witnessed in the second half of the year as consumers prioritized spending on appliances. But this time, with consumers experiencing the pain of the pandemic more seriously than the last year, there are concerns about whether the second half of the year will be as good as the last year. The market saw only less than 15 percent of the consumer durables retail stores operational in the country, that too under restrictions and limited footfalls. It is expected that if the spread is curbed and with the focus on vaccinations, consumer sentiment will see a revival in the second half of the year especially during the festive season. The industry is hoping to see pent up demand for appliances from June onwards. As on date, consumer appliance retailers are saddled with large inventories of cooling products as they began stocking up due to projections of an intense summer as early as February. Due to above situation most of the appliance companies have either completely shut down all their plants or have cut production significantly in April and May 21.

The Appliance Division continues to deliver a well-positioned and differentiated range of products in both domestic and industrial categories. The products include domestic washing machines, industrial washing systems (including dry cleaning and other finishing equipment like ironers etc), microwave ovens, domestic and industrial dishwashers, clothes dryers, modular kitchens, kitchen appliances (hobs, chimneys and built-in ovens), air conditioners, a range of service products etc. The industrial laundry division of the company has added a significant product portfolio in the ~11kg semi-commercial segment which will drive business volumes and has also finished field testing of a new water-less technology of washing laundry. The commercial laundry and dishwashing range of the company is unique. The key action we have taken since FY 2019-20 (March 20) is localizing the manufacturing for inverter ranges of air conditioners. The impact of the increased forex levels and additional customs duties is also being addressed through price increases, which are regularly rolled out. Customer demand for the products of the Appliance Division remains healthy. The models introduced and to be introduced include a new series of front load and top load washing machines as well as new microwave models. Along with plans to grow the markets, targeted reduction in material costs in manufacturing are being addressed through projects. The price increases and material cost reductions under implementation will help to improve the bo om line margins in order to negate impact of the current forex levels and customs duties.

Post last year’s lock down, demand increased from the 2nd Qtr 2020 and remained healthy upto the Q4 2020-21. However, supply chain stresses, especially in areas of electronic components, remain high. Also, commodity prices have significantly increased since November ‘20 and continue to rise. These issues pose a serious risk to market pricing and profitability. We have taken price increases in both washers and air conditioners – however, these have partially o set the impact of the price increases.

Tier 2 and Tier 3 towns are seeing a significant rise in demand towards high capacity washers as well as in categories like dishwashers etc.

The updates on the products and the relative market position of our future plans are as given hereunder:

Washing Category

Front Loaders (Domestic Segment)

The range of models is well differentiated, both by aesthetics and performance. The demand for these is high and we have also addressed gaps against competition models. The Company continues to maintain a dominant market share in this segment. The key task is to drive an increase in shares in this segment through its distribution network and also through increases in revenue shares from large Key Accounts. This will be done through the introduction of new models, which has already been completed. The volume potential going forward from the existing market reach and the current direct and indirect channels is high and will be released shortly. A range, with the technology to significantly reduce/ eliminate water usage during the clothes cleaning process.

Top loading washing machines (Domestic Segment)

Demand has been high in the top loader washing machine segment as well over the last few quarters. The new models introduced in the 6.5 Kg segment, including ones with inbuilt hearers, have generated good demand. The key task is to ensure availability of the new models and to drive further placements of them across market segments. There is increasing demand for models of higher capacities in the market and we are improving our supply chain capabilities to address this need. Additions made to the range and the new range will now fully address market segments, including the high growth higher capacity segments in which IFB now has very well differentiated models and features.

Clothes Dryers and Dishwashers (Domestic Segment)

Demand in the clothes dryers segment increased in the 3rd & 4th quarter. This is no longer a seasonal product and its demand has been consistently high since the 2nd quarter of 20-21.This category may partially move to the washer-dryer-refresher segment. The domestic dishwasher segment has seen significant growth for the company and continues to be under-served in terms of displays / availability to all customers touchpoints across India. The availability scenario for dishwashers has been fixed in theQ4 of 20-21 and we are preparing the distribution network to sell > 100,000 dishwashers per annum from the current fiscal year. Both dishwashers and cloth dryers will be strong growth categories, going forward.

Dish washing and Laundry Equipment (Industrial Segment)

IFB range covers the categories of glass washers, under counter dishwashers as well as hood type and rack conveyor type dishwashing equipment. The company has significant presence in varied customer segments including defense establishments, pubs, bars, large institutions, hotels and restaurants etc.

The revenues in both the commercial categories have been low, given that all major institutions in the education, hotel and restaurant categories have remained closed upto the 3rd quarter of 20-21. We expected a turnaround in demand from 4th quarter 20-21, including tender-based sales, for which we have a healthy pipe line. However, 2nd phase of Covid 19 has further dampened the demand.

Kitchen Appliances

In this category, the range includes products like chimneys, hobs and built-in-ovens. These are products which are aspiration led- and with the modernizing of the Indian kitchens and the rising disposable incomes- your company expects significant growth from these products in the medium term of 2-3 years.

Built-in Ovens, cooker hoods and Hobs

We have targeted market placements in this category at 1500 counters, likely to be completed by the Q3 of this current financial year. This includes the displays in the IFB Points. The IFB Points accounts for ~50 % of sales in this category, The Company is investing in full range product displays for increasing its presence in multi-brand channels to 1000 nos. The kitchen appliances category is a key segment for expansion and is also accretive to margins.

The IFB Points are a key vertical for driving growth in this segment and ~50% of the company’s sales in this category is generated from IFB Points. IFB Point sales were affected in the 4th Quarter as compared to 3rd Quarter due to a partial lockdown at the end of March’21. Organic growth initiatives have been put in place that focus on growth in conversion, footfall and revenue of like for like stores. Retail experience enhancement will also be undertaken to showcase our complete portfolio across the laundry, living and kitchen categories. The addition of new stores will be delayed due to the lockdown. Instead, we will closely watch whether the third wave comes and how the market reacts. Therea er, we will decide on enhancing geographic coverage etc.

Microwave Ovens

IFB continues to be a dominant player in this category. The key delivery targets ahead are to address the new model introductions, including those with new technology for automating and improving the cooking process. There has been a surge in demand in this segment over last few quarters and we have been unable to service the demand fully due to COVID related supply chain issue etc. With the new range, the company continues to innovate with new cooking programs eg. cooking with variations like olive oil for healthier cooking options.

Modular Kitchens

We have expanded the kitchen format presence in Goa and Bangalore by adding another three outlets in last financial year. The new design format combines the modular kitchens with appliances. This format will be a part of future retail expansion. In the current year, we will reformat ~30 stores to expand the modular kitchen business to selected locations.

This is a segment in which we have not delivered the desired results and our processes and operating structures are key focus areas for business delivery as commi ed.

The IFB design offering for this category is of high quality with unique customer offerings. The products are well priced and include a ractive EMI offers and an enabling range of accessories for the various storage modules.

Cooling category

Air conditioner

Our range of Air conditioners feature rich energy efficient and deliver superior performance products at high ambient temperatures. The IFB range is uniquely placed in the market, with features such as 58 degrees complaint compressors across all models with green gas and copper piping features designed for high-end performance. IFB is also unique in terms of having a complete green range of products at par with the best in the market. This category was affected by the COVID-19 pandemic last year. We achieved sales volume of 81K in the fiscal year as compared to 90K in previous year. This deficit was due to a complete washout in April and May’20. However, sales in 4th Quarter were significantly higher over last year’s volume. The 1st Quarter of new fiscal year was also severly affected by the second wave of pandemic. Sadly, the AC plant was supposed to start operating from January’20 but the technicians from China who were here to do installations went back in January’20 and did not return due to outbreak of COVID-19 pandemic. As a result, the installation was delayed. Operation began on 17 March, ‘20 but unfortunately faced a shutdown again within three days (from 20 March,’20) due to a lockdown. In the process, we lost season in ‘20-21. Sales started to pick up therea er and the 4th Quarter volumes were good. However, the business was disrupted once again in the 1st Quarter of FY ‘21-‘22 due to the second wave of the pandemic. However, we foresee good sales going forward from 2nd Quarter onwards based on new and pent-up demand etc.

The range has been well received in the market and is differentiated and benchmarked to the best in the industry. In addition, a new series is being introduced in the 2nd Quarter of the new fiscal year with lower price positioning and features benchmarked to the middle of high volume segment. This will increase Company’s penetration in segments like distribution etc.

Commodity price changes have been the largest in the AC raw materials segment and the pricing area remains crucial, given the high stocks in the market and competitors’ reluctance to pass on price increase to customers. The Company has invested in marketing, for increased communication related to the quality and features of the IFB range.

One of the key strengths for the Appliances Division is the service function and its reach to the customers. We have a total of ~1200 service franchisees across India. Currently, we have 29 service training centers, which are fully equipped to impart training on all aspects of assembly, dismantling, installation and troubleshooting of our products.

Sales of additives and accessories continue to be a key focus area and are expected to continue to contribute significantly, both to the topline and bo om line in the current year. IFB’s 6 million plus customer base has a high potential for the company to generate revenues through the sale of additives and accessories. The company’s own contact centers in Goa, Delhi and Bangalore - which we call "service centers" continue to be effective in issue resolution and customer feed-back / cross selling initiatives with a total manning of ~250 people as on date. IFB has also outsourced call centers at Munnar and Hyderabad. The service centers focus on outbound calls to track and improve customer satisfaction and drive reduction in the number of pending customer issues.

In the Company’s Customer Contact Program, we continue to contact customers directly and then visit them. This is increasing customer satisfaction and is also enabling higher revenues from the customer visits.

Amongst the major issues, Appliances Division is addressing are:

1. Competition is increasing. To manage this, company is in continuous process of improving its placement of products and managing multiple channels effectively.

2. The impact of significant commodity price increases, increased duties.This is being addressed through multiple projects to drop material costs.

Your company continues to answer against the above challenges and to be focused on differentiating itself by be er product range planning continuously. Local challenges are addressed as applicable and needed. We are confident of our ability to remain a dominant market player across categories as it is now and we will keep investing in building market networks and product development capability.

Motor Division

The division started operation in 1993, producing motors for our washing machine plant in Goa. In 2019, the Motor Division acquired Automotive Motor Division from IFB Automotive Pvt. Ltd. and merged it with existing business, keeping in mind the operational synergy between the two. The Division is supplying to our Appliance Division as well as to automotive companies such as Hanon Automotive, M&M, Subros, Sanden Vikas etc. Business trends were down over the last year due to COVID-19 pandemic and we forecast that in coming months the o ake from OEMs will improve. b) Internal Control Systems and their Adequacy :

Your Management has put in place effective Internal Control Systems to provide reasonable assurance for:

• Safeguarding Assets and their usage.

• Maintenance of Proper Accounting Records and

• Adequacy and Reliability of the information used for carrying on Business Operations.

Key elements of the Internal Control Systems are as follows: (i) Corporate policies for Financial Reporting and Accounting.

(ii) A Management information system updated from time to time as may be required.

(iii) Annual Budgets and Long Term Business Plans. (iv) Internal Audit System.

(v) Periodical review of opportunities and risk factors depending on the Global / Domestic Scenario and to undertake measures as may be necessary.

(vi) Application of Internal Financial Control - Your company has in place adequate internal financial controls with reference to the Financial Statements. Such controls have been tested at during the year and no reportable material weakness in the design or operations was observed. Moreover, regular review of the processes ensure that such systems are reinforced on an ongoing basis. Over and above Company’s in house Internal Audit team, the Company has appointed PWC and Maheswari Associates to ensure compliance and effectiveness and of the Internal Control Systems. The Audit Commi ee regularly reviews the Internal Audit/ Internal Control Reports for the auditing carried out in all the key areas of the operations. Additionally the Audit Commi ee approves all the audit plans and reports for significant issues raised by the Internal and External Auditors. Regular reports on the business development, future plans and projections are given to the Board of Directors. Internal Audit Reports are regularly circulated for perusal of Senior Management for appropriate action as required.

Normal foreseeable risks of the Companys assets are adequately covered by comprehensive insurance.

c) Financial and Operational Performance :

The Highlights of Financial Operational Performance are given below :

(Rs. in lacs)

Particulars

Standalone

Consolidated

2020-21 2019-20 2020-21 2019-20
1 Revenue from operations 2,71,652 2,55,142 2,80,080 2,63,697
2 Other Income 1,914 1,276 2,236 1,250
3 Sub-total 2,73,566 2,56,418 2,82,316 2,64,947
4 Total Expenditure (Before interest and depreciation) 2,50,766 2,43,248 2,59,092 2,51,616
5 PBDIT before exceptional item 22,800 13,170 23,224 13,331
6 PBDIT % 8.33% 5.14% 8.23% 5.03%
7 Profit A er Tax 6,174 2,799 6,411 2,577

d) Human Resources Development and Industrial Relations :

IFB is a knowledge-driven organization and its greatest asset is the experience and skill of its employees. Recognizing that the workforce will provide critical competitive edge in its growth endeavor, IFB has laid major emphasis on recruiting, maintaining and developing its human asset base. Ito er’s a wide range of career development programmes including on the job training and job rotation amongst others. A highly evolved Human Resource Policy has ensured a minimal rate of a rition amongst executives.

IFB’s welfare activities for employees include Medical Care, Group Insurance etc.

e) Ke y Financial Ratios :

Key Financial Ratios for the financial year ended 31 March 2021 to be enclosed as a part of this report as Annexure - H.

f) Cautionary Statement :

Statements in the Management Discussion and Analysis and Directors Report describing the Companys strengths, strategies, projections and estimates, are forward-looking statements and progressive within the meaning of applicable laws and regulations. The Actual results may vary from those expressed or implied, depending upon economic conditions, Government Policies and other incidental factors. Readers are cautioned not to place undue reliance on the forward looking statements.

For and on behalf of the Board of Directors

Bikramjit Nag

(DIN: 00827155)

Joint Executive Chairman

& Managing Director

Prabir Chatterjee

(DIN: 02662511)

Director & CFO

Place : Kolkata

Date : 14th June 2021