| Godfrey Phillips India Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 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 Ltd (GPIL).
The revenues of GPIL are expected to grow 8-10% while operating margin is likely to sustain at around 20% for fiscal 2022. For the first quarter of fiscal 2022, the operating income grew by around 50% as the operations in the corresponding quarter in the previous fiscal were severely impacted owing to the lockdown imposed by the Centre to contain the spread of Covid-19. Operating profitability improved to 24% (14% in the first quarter of fiscal 2021) 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 borrowings, healthy debt protection metrics and superior liquidity.
In fiscal 2021, revenues de-grew 13% due to the temporary closure of factories and distribution points on account of the lockdown imposed and also restrictions on movement mainly in the first half of fiscal 2021. Despite the impact on the operating income, operating margin remained stable in fiscal 2021 at 21% on account of various cost control measures adopted by GPIL. The financial risk profile remained strong with gearing of 0.03 time as on March 31, 2021 and healthy debt protection metrics with interest cover of more than 17.50 times and net cash accrual to total debt of more than 6.50 times for fiscal 2021. Liquidity remained superior with cash surplus of Rs 1,398 crore.
The ratings continue to reflect the GPIL’s healthy market position in the Indian cigarette industry and a 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 For arriving at its ratings, CRISIL Ratings has considered the standalone financial and business risk profiles of GPIL because operations of wholly-owned subsidiaries—International Tobacco Company Ltd and investment companies—do not have a 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. It has a portfolio of established cigarette brands including Four Square, Red & White, Stellar and Cavenders, which enjoy strong customer loyalty. The company also has a strong distribution network, which helps it 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, 2021, gearing was low at 0.03 time. Interest coverage and net cash accrual to total debt ratios for fiscal 2021 were healthy, at over 17.7 times and 6.6 times, respectively. Liquidity was strong, with surplus of Rs 1398 crore as on March 31, 2021 and negligible utilisation of bank lines.
Weaknesses Geographical concentration in revenue, and exposure to intense competition GPIL’s operations are concentrated in northern and western India, which contributes to over 90% of its cigarette sales. GPIL is a distant second in the Indian tobacco industry, accounting for around 12% 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 the one hand, the industry faces a high tax structure, and on the other, there are limitations on promotion, consumption, and packaging of cigarettes, constraining growth. |
Liquidity: Superior Liquidity is superior, driven by expected cash accrual of over Rs 350-400 crore per annum in fiscals 2022 and 2023 against repayment obligation of Rs 60 crore in fiscal 2021. Cash and equivalents were strong at Rs 1398 crore as on March 31, 2021. Average utilisation of the fund-based bank limit of Rs 100 crore was negligible during the 12 months through August 2021. Cash accrual should be sufficient to finance any capital expenditure (capex) and working capital requirement over the medium term. |
Outlook: Stable CRISIL Ratings believes 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 47.73% 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, and zarda, and retail. It has retail stores, named 24SEVEN (TFS), in the National Capital Region and Chandigarh. |
Key Financial Indicators
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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)
*Interchangeable with other fund-based facilities $Interchangeable with other fund-based/non-fund based facilities (BG of Rs 3.5 cr and LC of Rs 10 cr.) #Fund-based facility; interchangeable with other fund-based and one way interchangeable with non-fund based facilities %Interchangeable with other non-fund-based facilities @Interchangeable with letter of credit |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||
| Facility | Amount (Rs.Crore) | Rating |
| Bank Guarantee%@ | 7 | CRISIL AA+/Stable |
| Bank Guarantee%@ | 10 | CRISIL AA+/Stable |
| Cash Credit$ | 10 | CRISIL AA+/Stable |
| Cash Credit* | 10 | CRISIL AA+/Stable |
| Cash Credit* | 19 | CRISIL AA+/Stable |
| Cash Credit# | 31 | 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/non-fund based facilities (BG of Rs 3.5 cr and LC of Rs 10 cr.)
#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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