Rating Rationale
August 30, 2022 | Mumbai
Godfrey Phillips India Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.167 Crore
Long Term RatingCRISIL AA+/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
 
Rs.100 Crore Commercial PaperCRISIL A1+ (Reaffirmed)
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).

 

Revenue is expected to grow (on-year) above 8% in fiscal 2023, with the operating margin steady at around 22%. Operating income grew by around 36% during the first quarter of fiscal 2023 as operations in the corresponding quarter of the previous fiscal was severely impacted by the second wave of the Covid-19 pandemic. Operating profitability improved to 25% (24% in the first quarter of fiscal 2022) due to better scale of operations and focus on cost efficiency. The financial risk profile is expected to remain strong due to negligible reliance on debt, healthy debt protection metrics and superior liquidity.

 

Revenue grew by 7.4% (on-year) in fiscal 2022 due to increase in customer footfall with the easing covid restrictions, resumption of offices and improving demand scenario; operating margin also improved to 23.7% owing to various cost-control measures adopted by GPIL. The financial risk profile remained strong with gearing of 0.01 time as on March 31, 2022, and healthy debt protection metrics (interest coverage and net cash accrual to total debt ratios were around 20 times and 15 times, respectively, for fiscal 2022). Liquidity remained superior, with cash surplus of Rs 1,558 crore as on March 31, 2022.

 

The ratings continue to reflect healthy market position of GIPL in the Indian cigarette industry and strong financial risk profile. These strengths are partially offset by geographical concentration in revenue, exposure to intense competition, and susceptibility to changes in regulations.

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 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, Cavenders and also undertake manufacturing & distribution of Marlboro brand of cigarettes, which enjoy strong customer loyalty. The company also has a strong distribution network, which helps to promote its other products such as chewing products and confectionery.

 

  • Strong financial risk profile

Capital structure and debt protection metrics are healthy. As on March 31, 2022, gearing was low at 0.01 time. Interest coverage and net cash accrual to total debt ratios for fiscal 2022 were healthy, at over 20 times and 15 times, respectively. Liquidity was strong, with surplus of Rs 1,558 crore as on March 31, 2022 and negligible utilisation of bank lines.

 

Weaknesses:

  • Geographical concentration in revenue and exposure to intense competition

Operations are concentrated in northern and western India, which contribute to over 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 ITC Ltd (‘CRISIL AAA/Stable/CRISIL A1+’), the dominant player.

 

  • 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

Cash accrual is projected at around Rs 350-400 crore per annum for fiscals 2023 and 2024, sufficient to meet the capital expenditure (capex) and working capital requirements. Cash and cash equivalents were strong at Rs 1,558 crore as on March 31, 2022. Utilisation of the fund-based bank limit was negligible during the 12 months through June 2022.

Outlook: Stable

GPIL will continue to benefit from its healthy market position and strong financial risk profile.

Rating Sensitivity factors

Upward factors

  • Substantial and sustained increase in market share to over 25%
  • Significant and sustained improvement in operating margin

 

Downward factors

  • Weakening of operating performance with operating margin falling below 10%
  • Substantial decline in market share to less than 8%
  • Large, debt-funded capex or acquisition
  • Any adverse regulatory change in the cigarette industry
  • Considerable decline in cash and liquid investments

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 47.73% of the company’s equity shares, and Philip Morris owns 25.1%. GPIL primarily manufactures cigarettes. It has diversified into segments such as mouth fresheners, paan masala, zarda, and retail. It has retail stores, named 24SEVEN (TFS), in the National Capital Region and Chandigarh.

Key Financial Indicators

As on / for the period ended March 31

Units

2022

2021

Operating income

Rs crore

2677

2492

Profit after tax (PAT)

Rs crore

432

357

PAT margin

%

16.1

14.3

Adjusted debt/adjusted networth

Times

0.01

0.03

Interest coverage

Times

19.54

17.69

 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of allotment

Coupon rate (%)

Maturity date

Issue size

(Rs crore)

Complexity level

Rating assigned

with outlook

NA

Commercial paper

NA

NA

7-365 days

100.00

Simple

CRISIL A1+

NA

Overdraft Facility*

NA

NA

NA

15.00

NA

CRISIL AA+/Stable

NA

Cash Credit*

NA

NA

NA

29.00

NA

CRISIL AA+/Stable

NA

Cash Credit#

NA

NA

NA

10.00

NA

CRISIL AA+/Stable

NA

Cash Credit^

NA

NA

NA

31.00

NA

CRISIL AA+/Stable

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

62.00

NA

CRISIL AA+/Stable

NA

Letter of credit & Bank Guarantee%

NA

NA

NA

3.00

NA

CRISIL A1+

NA

Bank Guarantee%@

NA

NA

NA

17.00

NA

CRISIL AA+/Stable

*Interchangeable with other fund-based facilities

^Interchangeable with other fund-based and one way interchangeable with non-fund-based facilities

#Interchangeable with other fund-based/non-fund-based facilities

%Interchangeable with other non-fund-based facilities

@Interchangeable with letter of credit

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 147.0 CRISIL AA+/Stable   -- 20-09-21 CRISIL AA+/Stable 24-09-20 CRISIL AA+/Stable / CRISIL A1+ 14-10-19 CRISIL AA+/Stable / CRISIL A1+ CRISIL AA+/Stable / CRISIL A1+
      --   --   --   --   -- CRISIL AA+/Stable
Non-Fund Based Facilities LT/ST 20.0 CRISIL AA+/Stable / CRISIL A1+   -- 20-09-21 CRISIL AA+/Stable / CRISIL A1+ 24-09-20 CRISIL AA+/Stable / CRISIL A1+ 14-10-19 CRISIL AA+/Stable / CRISIL A1+ CRISIL AA+/Stable / CRISIL A1+
      --   --   --   --   -- CRISIL A1+
Commercial Paper ST 100.0 CRISIL A1+   -- 20-09-21 CRISIL A1+ 24-09-20 CRISIL A1+ 14-10-19 CRISIL A1+ CRISIL A1+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Bank Guarantee%@ 7 CRISIL AA+/Stable
Bank Guarantee%@ 10 CRISIL AA+/Stable
Cash Credit* 10 CRISIL AA+/Stable
Cash Credit* 19 CRISIL AA+/Stable
Cash Credit^ 31 CRISIL AA+/Stable
Cash Credit# 10 CRISIL AA+/Stable
Letter of credit & Bank Guarantee% 3 CRISIL A1+
Overdraft Facility* 15 CRISIL AA+/Stable
Proposed Long Term Bank Loan Facility 62 CRISIL AA+/Stable

*Interchangeable with other fund-based facilities

^Interchangeable with other fund-based and one way interchangeable with non-fund-based facilities

#Interchangeable with other fund-based/non-fund-based facilities

%Interchangeable with other non-fund-based facilities

@Interchangeable with letter of credit

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Fast Moving Consumer Goods Industry
CRISILs Criteria for rating short term debt

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