Demand Slowdown Pushes Ifb Industries Into The Red

Most companies manufacturing auto ancillaries and home appliances have witnessed a fall in profit margins in the financial year of 1996-97 on account of the slow-down in demand, higher supplies from new commissioned capacities, and cost increases.

The Calcutta-based IFB Industries which announced its results for the 18 months ended 31 December, 1997 on March 30, 1998 was no exception.

On an annualised basis, sales declined 5 per cent compared to the previous year. Operative profit slipped by over 79 per cent despite a slow down in total expenditure which rose only 10.59 per cent (31 per cent in the previous year and 119 per cent the year before). But it was the interest burden which was responsible for the company registering its first ever loss since 1985.

 

In the 18-month period, IFB incurred a loss of Rs 61.58 crore, which on an annualised basis works out to Rs 41 crore against a profit of Rs 26.59 crore profit in the previous year. Hence, it is no wonder that the company registered negative profitability ratios in 1997. Further, reserves, excluding revaluation reserve, of the company declined from Rs 197.19 crore to Rs 135.61 crore in the last 18 months.

According to R N Sen, executive director, the high interest component was due to investments in new products in the engineering, automotive ancillaries and home appliances segments. On an annualised basis, the interest component increased by nearly 160 per cent in 1997. In the previous year too, the interest burden had risen by nearly 98 per cent compared to the year before. However, despite the increase in the interest component, the company managed a profit of Rs 26.59 crore in 1996.

The companys accounting year was supposed to end on June 30, 1997. But, due to strategic reasons, the accounting year was extended to December 31, 1997. So, if the results are compared on a six-month basis, they show a different picture. In the six months ended June 30, 1997, IFB recorded a net profit Rs 4.56 crore. Hence, it was in the later part of the changed accounting year that the company incurred a considerable loss which is reflected in IFBs audited results.

According to the executive director of the company, sales of home appliances rose 31 per cent, tea 51 per cent and auto engineering 10 per cent during the 18 months. The companys export turnover dropped 40 per cent.

A new plant at Goa for manufacturing dishwashers and other home appliances was to commence production last year. But commissioning of the plant was delayed due to some technical problems. In the last year, IFB undertook a major restructuring exercise in management hierarchy and in its business outlook following the departure of the chairman, A C Chakraborty.

The companys flagship division fine blanking which specialises in the manufacture of precision tools, fine blanked components and sub-assemblies for automotive applications, has two manufacturing bases at Calcutta and Bangalore both of which enjoy ISO 9002 quality management system certification. With the entrance of global car makers into India, the IFB expects a phenomenal surge in the demand for its automotive parts.