Rating Rationale
October 24, 2017 | Mumbai
ITC Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.1750 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities of ITC Ltd (ITC) at 'CRISIL AAA/Stable/CRISIL A1+'.
 
The ratings continue to reflect ITC's excellent business risk profile with a presence in diverse businesses, dominant position in the Indian cigarette market, and strong sustainable profitability. The ratings also factor in the company's exceptionally strong financial position. These rating strengths are partially offset by ITC's exposure to risks inherent in its various businesses.

Key Rating Drivers & Detailed Description
Strengths
* Dominant position in the Indian cigarette industry
ITC is the leader in the Indian cigarettes market. Strong brand, wide product portfolio, established distribution network, and strong research and development capability, have enabled the company to consolidate its position as the market leader. The company benefits from the strong brand loyalty of cigarette smokers, as reflected in its sustained market share over the years. ITC's cigarette business revenue grew at around 10% CAGR over the past three years and profitability maintained, notwithstanding the increase in duties. The company also exports cigarettes to the US and the Middle East.
 
* Healthy revenue diversity
ITC over the years 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, branded apparel, stationery, safety matches, agarbatti (incise sticks) and other fast-moving consumer goods (FMCGs). The company has also added luxury chocolates and ghee business to its branded packaged foods segment. 
 
* Strong financial risk profile
ITC's strong financial position is reflected in its healthy internal accrual, low debt, and robust liquidity. For fiscal 2017, ITC, on a consolidated level, posted net profit margin of 24.5% (24.2% in fiscal 2016). The company had a minimal debt of below Rs 50 crore against a large networth of over Rs 46,000 crore as on March 31, 2017. It has exceptionally strong liquidity, with cash and liquid investments (bonds, debentures, mutual funds and bank deposits) of over Rs 19,000 crore as on March 31, 2017. Consequently, ITC is expected to fund a significant part of its expansion plans through internal accrual.
 
Weakness
* Exposure to regulatory risk in the cigarette business, and vulnerability of other business segments to economic cycles
ITC, however, remains exposed to risks inherent in the individual business segments in which it operates. These include regulatory risks in the cigarette business such as increase in taxes, and competitive pressures in the FMCG segment. These risks are partially offset by focus on building cost efficiencies, and strong backward integration in the cigarette business through its leaf tobacco and packaging businesses, and also in the agricultural commodity and packaged food business through its e-choupal initiative.
Outlook: Stable

CRISIL believes ITC will maintain its robust financial risk profile and strong position in the cigarettes, paperboards, printing and packaging, agricultural commodities, hotels, branded packaged foods, personal care products, branded apparel, stationery, safety matches, agarbatti (incise sticks) and other fast-moving consumer goods (FMCGs) over the medium term. 
 
Downside scenario
* Large debt-funded acquisition, adversely impacting financial risk profile

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, branded apparel, stationery, safety matches, agarbatti (incise sticks) and other fast-moving consumer goods (FMCGs); however, cigarette manufacturing and sales remain its largest economic activity in revenue terms. 

In the three months ended June 30, 2017, on a standalone basis, net profit was Rs 2561 crore on operating income of Rs 9,955 crore, against Rs 2385 crore on net sales of Rs 10,054 crore in the previous corresponding period.

Key Financial Indicators (Consolidated)
As on/for the period ended March 31 Units 2017 2016
Revenue Rs crore 42,804 39,192
Profit after tax Rs crore 10,477 9,501
PAT margins % 24.5 24.2
Adjusted debt/Adjusted networth Times 0.00 0.00
Interest coverage Times 316 186

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)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size
(Rs crore)		 Rating assigned with outlook
NA Long Term Bank Facility* NA NA NA 1000.0 CRISIL AAA/Stable
NA Short Term Bank Facility** NA NA NA 750.0 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 - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  1750  CRISIL AAA/Stable/ CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL AAA/Stable/ CRISIL A1+ 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Long Term Bank Facility* 1000 CRISIL AAA/Stable Long Term Bank Facility* 1000 CRISIL AAA/Stable
Short Term Bank Facility** 750 CRISIL A1+ Short Term Bank Facility** 750 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
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Fast Moving Consumer Goods Industry
CRISILs Criteria for Consolidation

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