Rating Rationale
September 20, 2018 | 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 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.

Key Rating Drivers & Detailed Description
* Dominant position in the Indian cigarette industry
A strong brand, a wide product portfolio, an established distribution network, and strong 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.

* Healthy revenue diversity
The company 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). It has also added luxury chocolates, ghee, and pouch milk businesses to its branded packaged foods segment.

* Strong financial risk profile
That's driven by healthy internal cash accrual, low debt, and robust liquidity. For fiscal 2018, the consolidated net profit margin was 26.5% (24.5% in fiscal 2017). Debt was minimal at below Rs 50 crore, against a large networth of over Rs 52,000 crore, as on March 31, 2018. Liquidity was exceptionally strong because of cash and liquid investments (bonds, debentures, mutual funds, and bank deposits) of over Rs 25,000 crore as on March 31, 2018. Consequently, a significant part of the expansion plans is expected to be funded through internal cash accrual.

* 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 efficiencies, and the 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.
Outlook: Stable

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

Downside scenario
* Large debt-funded acquisition, adversely impacting the 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, and other FMCGs. However, cigarette manufacturing and sales remain its largest economic activity in revenue terms.

In the three months ended June 30, 2018, on a standalone basis, net profit was Rs 2,819 crore on operating income of Rs 10,707 crore, against Rs 2,561 crore on operating income of Rs 9,955 crore in the corresponding period of the previous fiscal.

Key Financial Indicators (Consolidated)
As on/for the period ended March 31 Units 2018 2017
Revenue Rs crore 43,449 42,804
Profit After Tax (PAT) Rs crore 11,493 10,477
PAT Margin % 26.5 24.5
Adjusted debt/Adjusted networth Times 0.00 0.00
Interest coverage Times 144 316

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 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  1750.00  CRISIL AAA/Stable/ CRISIL A1+      24-10-17  CRISIL AAA/Stable/ CRISIL A1+  22-08-16  CRISIL AAA/Stable/ CRISIL A1+  24-07-15  CRISIL AAA/Stable/ CRISIL A1+  CRISIL AAA/Stable/ CRISIL A1+ 
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* 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

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