Rating Rationale
March 22, 2021 | Mumbai
ITC Limited
Ratings reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.1750 Crore
Long Term RatingCRISIL AAA/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank facilities of ITC Limited (ITC) at 'CRISIL AAA/Stable/CRISIL A1+'.

 

The ratings continue to reflect an excellent business risk profile due to a presence in diverse businesses, a dominant position in the Indian cigarette market, and strong sustainable profitability. The ratings also factor in an exceptionally strong financial risk profile. These rating strengths are partially offset by exposure to risks inherent in the various businesses.

 

Operating performance for the nine months ended December 31, 2020 has been healthy with operating income of Rs 34,931 crore (compared to Rs 37,622 crore for the same period in the previous fiscal) with consolidated operating margin of around 35%. The financial risk profile remains strong with robust liquidity of over Rs 27,000 crore as on September 30, 2020 and nil net debt.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of ITC and its subsidiaries, step down subsidiaries, associates, and joint ventures (JVs) because of significant business and financial linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Healthy revenue diversity

ITC has evolved from a pure tobacco company into a well-diversified business conglomerate, with a strong presence in paperboards, printing and packaging, agricultural commodities, hotels, branded packaged foods, personal care products, stationery, safety matches, agarbatti (incense sticks), and other fast-moving consumer goods (FMCGs). It has also added luxury chocolates, ghee, dairy and frozen food products to its branded packaged foods segment. The share of FMCG-others segment has increased from 17% in fiscal 2017 to 25% in fiscal 2020.

 

Dominant position in the Indian cigarette industry

A strong brand, a wide product portfolio, an established distribution network, and robust research and development capability have enabled the company to consolidate its position as the leader in the Indian cigarettes market. The strong brand loyalty of cigarette smokers is reflected in the sustained market share and profitability over the years, notwithstanding the increase in duties. Cigarettes are also exported to the US and the Middle East.

 

Strong financial risk profile

Healthy internal cash accrual, low debt, and robust liquidity have strengthened the financial risk profile. As on September 30, 2020; debt was minimal at around Rs 28 crore, against a large tangible networth of over Rs 56,000 crore. Liquidity was robust because of cash and liquid investments (bonds, debentures, mutual funds, and bank deposits) of over Rs 27,000 crore. Consequently, a significant part of the expansion plans are expected to be funded through internal cash accrual of over Rs. 5000 crore per fiscal (net of dividend payout) and available liquidity over medium term.

 

Weakness:

Exposure to regulatory risk in the cigarette business, and vulnerability of other business segments to economic cycles

Regulatory risks in the cigarette business include increase in taxes, and there are competitive pressures in the FMCG segment. These risks are partially offset by the focus on building cost efficiency, and strong backward integration in the cigarette business through the leaf tobacco and packaging businesses, and also in the agricultural commodity and packaged food business through the e-choupal initiative.

Liquidity- Superior

Liquidity is superior, driven by expected cash accrual of over Rs 5,000 crore per fiscal (net of dividend payout) in fiscals 2022 and 2023 and cash and cash equivalents of over Rs 27,000 crore as on September 30, 2020. Long-term debt is also negligible. Cash accrual should be sufficient to finance capex and working capital requirement over the medium term.

Outlook Stable

CRISIL Ratings believes ITC will maintain its exceptionally strong financial risk profile and strong market position in the various segments in which it operates, over the medium term.

Rating Sensitivity factors

Downward factors

  • Large, debt-funded capital expenditure (capex) or acquisition, adversely impacting the financial risk profile with the gearing increasing to above 0.5 time.
  • Any adverse impact of changes in regulations in the cigarette industry
  • Considerable decline in cash and liquid investments

About the Company

ITC operates in a variety of business segments, including cigarettes, paperboards, printing and packaging, agricultural commodities, hotels, branded packaged foods, personal care products, stationery, safety matches, agarbatti, and other FMCGs. However, cigarette manufacturing and sales remain its largest economic activity in revenue terms.

Key Financial Indicators (Consolidated):

As on/for the period ended March 31

Units

2020

2019

Operating income

Rs crore

49,417

48,353

Profit after tax (PAT)

Rs crore

15,593

12,836

PAT margin

%

31.6

26.5

Adjusted debt/Adjusted networth

Times

0.00

0.00

Interest coverage

Times

238.08

259.53

 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)

SIN

Name of Instrument

Date of Allotment

Coupon Rate (%)

Maturity Date

Issue Size (Rs crore)

Complexity Level

Rating Assigned

NA

Long Term Bank Facility &

NA

NA

NA

140.0

NA

CRISIL AAA/Stable

NA

Short Term Bank Facility ^

NA

NA

NA

1610.0

NA

CRISIL A1+

& Interchangeable between cash credit limit, working capital demand loan, export packing credit (rupee and foreign currency), inland bill discounting, short-term line of credit, packaging credit, and forwarding credit.
^ Interchangeable between letter of credit and bank guarantee.

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

ITC Infotech India Limited

100%

Wholly-owned subsidiary

ITC Infotech Limited (100% subsidiary of ITC Infotech India Limited)

100%

Step down subsidiary

ITC Infotech (USA), Inc. (100% subsidiary of ITC Infotech India Limited)

100%

Step down subsidiary

Indivate Inc. ( 100% subsidiary of ITC Infotech (USA), Inc.)

100%

Step down subsidiary

Surya Nepal Private Limited

100%

59% Subsidiary

Technico Pty Limited

100%

Wholly-owned subsidiary

Technico Agri Sciences Limited

100%

Wholly-owned subsidiary

Technico Technologies Inc. (100% subsidiary of Technico Pty Limited)

100%

Step down subsidiary

Technico Asia Holdings Pty Limited (100% subsidiary of Technico Pty Limited)

100%

Step down subsidiary

Technico Horticultural (Kunming) Co. Limited (100% subsidiary of Technico Asia Holdings Pty Limited)

100%

Step down subsidiary

Srinivasa Resorts Limited

100%

68% Subsidairy

Fortune Park Hotels Limited

100%

Wholly-owned subsidiary

Landbase India Limited

100%

Wholly-owned subsidiary

Bay Islands Hotels Limited

100%

Wholly-owned subsidiary

WelcomHotels Lanka (Private) Limited

100%

Wholly-owned subsidiary

Russell Credit Limited

100%

Wholly-owned subsidiary

Greenacre Holdings Limited (100% subsidiary of Russell Credit Limited)

100%

Step down subsidiary

Wimco Limited

100%

98.21% Subsidiary

Gold Flake Corporation Limited

100%

Wholly-owned subsidiary

ITC Investments & Holdings Limited

100%

Wholly-owned subsidiary

MRR Trading & Investment Company Limited (100% subsidiary of ITC Investments & Holdings Limited)

100%

Step down subsidiary

North East Nutrients Private Limited

100%

76% Subsidiary

Prag Agro Farm Limited

100%

Wholly-owned subsidiary

Pavan Poplar Limited

100%

Wholly-owned subsidiary

Espirit Hotels Private Limited

26%

Joint Venture

Logix Developers Private Limited

27.90%

Joint Venture

ITC Essentra Limited  (joint venture of Gold Flake Corporation Limited)

50%

Joint Venture

Maharaja Heritage Resorts Limited

50%

Joint Venture

International Travel House Limited

48.96%

Associate

Russell Investments Limited

25.43%

Associate

Gujarat Hotels Limited

45.78%

Associate

Divya Management Limited

33.33%

Associate

ATC Limited

47.50%

Associate

Antrang Finance Limited

33.33%

Associate

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 1750.0 CRISIL A1+ / CRISIL AAA/Stable   -- 04-11-20 CRISIL A1+ / CRISIL AAA/Stable 17-09-19 CRISIL A1+ / CRISIL AAA/Stable 20-09-18 CRISIL A1+ / CRISIL AAA/Stable CRISIL A1+ / CRISIL AAA/Stable
      --   -- 30-06-20 CRISIL A1+ / CRISIL AAA/Stable   --   -- --
All amounts are in Rs.Cr.
 
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Long Term Bank Facility& 140 CRISIL AAA/Stable Long Term Bank Facility& 140 CRISIL AAA/Stable
Short Term Bank Facility^ 1610 CRISIL A1+ Short Term Bank Facility^ 1610 CRISIL A1+
Total 1750 - Total 1750 -
& - Interchangeable between cash credit limit, working capital demand loan, export packing credit (rupee and foreign currency), inland bill discounting, short-term line of credit, packaging credit, and forwarding credit.
^ - Interchangeable between letter of credit and bank guarantee.
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 Consolidation

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