| Godfrey Phillips India Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL AA+/Stable/CRISIL A1+' ratings on the bank facilities and commercial paper of Godfrey Phillips India Limited (GPIL).
Operating income grew by around 33% in fiscal 2023, driven by recovery in demand post pandemic and steady taxation. Operating profitability remained healthy at 23.1% in fiscal 2023 as against 23.7% in the previous year. Revenue is likely to grow by 10% over the medium term while the operating margin remains steady at 23-24%. Financial risk profile is expected to remain strong due to nil repayment obligation, healthy debt protection metrics and superior liquidity; cash surplus was over Rs 2,200 crore as on March 31, 2023.
The ratings continue to reflect healthy market position of GPIL in the Indian cigarette industry and strong financial risk profile. These strengths are partially offset by exposure to risks related to geographical concentration in revenue, intense competition, and unfavourable regulatory changes. |
Analytical Approach CRISIL Ratings has considered the standalone financial and business risk profiles of GPIL because operations of wholly-owned subsidiaries - International Tobacco Company Ltd, Godfrey Phillips Middle East DMCC (Under closure) and investment companies - do not have any material bearing on its financials. |
Key Rating Drivers & Detailed Description Strengths: Healthy market position GPIL has been in the cigarette business in India for over eight decades. Its portfolio comprises established cigarette brands such as Four Square, Red & White, Stellar, and Cavenders; the company also manufactures and distributes the Marlboro brand of cigarettes, which enjoy strong customer loyalty. The strong distribution network helps promote other products such as chewing products and confectionery.
Strong financial risk profile Financial risk profile should remain supported by the absence of any repayment obligation over the medium term. Gearing was low at 0.01 time as on March 31, 2023. Debt protection metrics were robust, with interest coverage ratio more than 240 times and net cash accrual to total debt ratio of 17 times for fiscal 2023. Liquidity has been superior, with surplus of over Rs 2,200 crore as on March 31, 2023.
Weaknesses: Exposure to geographical concentration in revenue and intense competition Operations are concentrated in northern and western India, which contribute to more than 90% of its cigarette sales. Further, GPIL is a distant second in the Indian tobacco industry, accounting for around 13% of volume share, and faces intense competition from the dominant player -- ITC Ltd (‘CRISIL AAA/Stable/CRISIL A1+’).
Susceptibility to regulatory changes The cigarette industry continues to be highly vulnerable to changes in government policies and regulations. On one hand, the industry faces a high tax structure, while on the other, there are limitations on promotion, consumption, and packaging of cigarettes, constraining growth. |
Liquidity: Superior In the absence of any repayment obligation, the entire cash accrual -- projected at Rs 500-600 crore per annum for fiscals 2024 and 2025 – will be used to meet the capital expenditure (capex) and working capital requirements. Cash and cash equivalents were strong at over Rs 2,200 crore as on March 31, 2023. Utilisation of the fund-based bank limit was negligible during the 12 months through July 2023.
ESG profile The environment, social and governance (ESG) profile of GPIL supports its already strong credit risk profile.
The tobacco sector has a high environmental impact because of its raw material sourcing strategies and waste-intensive processes. It also has a high social impact owing to health hazards associated with the use of tobacco, including smoking addiction and underage consumption, as well as risk of government intervention by way of restriction on sales, regulation of marketing practices and higher tax.
Key ESG highlights
There is growing importance of ESG among investors and lenders. Continuous commitment of GPIL to embed sustainability principles across the organisation and its value chain will partly offset the inherent impact of the tobacco sector on environment and social aspects. |
Outlook: Stable GPIL will continue to benefit from its healthy market position and strong financial risk profile. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company GPIL is an associate of the KK Modi group of companies and Philip Morris Global Brands Inc (Philip Morris; a subsidiary of Altria Group Inc [rated ‘BBB/Stable/A-2’ by S&P Global Ratings]). The KK Modi group owns 47.48% equity shares of the company, and Philip Morris owns 25.1%. GPIL primarily manufactures cigarettes. It has diversified into segments such as mouth fresheners, and retail. It has retail stores, named 24SEVEN (TFS), in the National Capital Region, Hyderabad and Chandigarh. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Fund-based facility; interchangeable with other fund-based facilities $Interchangeable with other fund-based/non-fund-based facilities #Fund-based facility; interchangeable with other fund-based and one way interchangeable with non-fund-based facilities %Interchangeable with other non-fund-based facilities @Interchangeable with letter of credit |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||||||||||||||||||||||||||
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*Fund-based facility; interchangeable with other fund-based facilities
$Interchangeable with other fund-based/non-fund-based facilities
#Fund-based facility; interchangeable with other fund-based and one way interchangeable with non-fund-based facilities
%Interchangeable with other non-fund-based facilities
@Interchangeable with letter of credit
Criteria Details
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