| IPM India Wholesale Trading Private 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 of IPM India Wholesale Trading Private Limited (IPM).
The ratings continue to factor in the strong business and financial linkages that IPM shares with the ultimate parent, Philip Morris International Inc (PMI; rated 'A/Stable/A1' by S&P Global Ratings). The ratings also reflect healthy volume growth of the Marlboro brand and improvement in operating performance of IPM. These strengths are partially offset by a weak capital structure and susceptibility to regulatory changes. |
Analytical Approach CRISIL Ratings has applied its parent notch-up criteria to factor in support from the ultimate parent, PMI. |
Key Rating Drivers & Detailed Description Strengths * Strong business and financial linkages with PMI The strong business, financial and operational linkages with the parent should continue to support IPM’s credit risk profile. IPM holds the licence to PMI’s flagship brand, Marlboro, for the Indian market. The parent has strong control over the company's product and sales strategy with integrated systems and processes. In addition, it exercises control over the board of directors and oversees the daily operations. The parent’s stake in IPM is held through its wholly owned indirect subsidiary, Philip Morris Brand Sarl of Switzerland. The indirect subsidiary has provided a letter of indemnity to IPM's bankers for the facilities provided by them.
* Healthy volume growth of the Marlboro brand, leading to gain in market share Marlboro’s market share rose to above 2% in calendar year 2021 from 1.1% in calendar year 2015, driven by strong growth in volume during this period. Products such as Marlboro Gold Advance and Fuse Beyond have witnessed healthy volume growth in recent years. While the impact of the second wave of the pandemic resulted in subdued volumes in the quarter ending June 2021, volumes have shown healthy recovery subsequently. Marlboro is likely to maintain a healthy market position in India over the medium term.
* Healthy operating performance Operating profit before depreciation, interest and tax (OPBDIT) margin was healthy at 26.3% in calendar year 2020 despite the impact of the pandemic, compared with nominal loss in fiscal 2016. The improvement in performance over the years was driven by strong growth in volume, higher realisations and cost rationalisation measures. Although the overall industry volumes are not expected to grow significantly in the near term, IPM’s gradually improving market share, along with timely price hikes, should ensure healthy profit over the medium term.
Weaknesses * Weak, albeit improving, capital structure Large accumulated losses led to negative networth of Rs 407 crore as on December 31, 2020. These losses were funded via borrowings over the years. Given healthy accrual, debt has reduced and stood at Rs 278 crore as on December 31, 2020, compared to Rs 464 crore as on December 31, 2019. Debt protection metrics have also improved with interest coverage ratio of over 8 times in calendar year 2020, compared with 5.2 times in fiscal 2019. Improving cash generation is expected to reduce debt further, while healthy profitability should result in networth turning positive over the medium term.
* Susceptibility to regulatory changes: Government policies and regulations impact all market participants in the domestic cigarette industry, including IPM. There have been successive increases in tax rates, latest being the hike in National Calamity Contingency Duty in February 2020, and therefore the industry is one of the largest taxpayers in India. Also, government regulations regarding the promotion, distribution and consumption of cigarettes, tend to have a negative impact on sales growth. |
Liquidity: Superior The company had liquidity of over Rs 800 crore as of June 2021, in the form of unutilised bank lines. Liquidity is aided by the letter of indemnity provided by PMI, which enables the company to have significant cushion in its bank limit. Utilisation of fund-based limit of Rs 1,032 crore, averaged 30% in the 12 months through June 2021. Furthermore, in the absence of any long-term debt or significant capital expenditure, healthy net cash accrual should suffice to cover the incremental working capital requirement. |
Outlook: Stable CRISIL Ratings believes IPM will continue to benefit from its association with its ultimate parent, PMI, and maintain a healthy business risk profile, backed by its licence for sale of the Marlboro brand in India. |
Rating Sensitivity Factors Upward Factors:
Downward factors:
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About the Company Incorporated in 2009, IPM is a joint venture between Philip Morris Brands Sarl (a wholly owned indirect subsidiary of PMI) and two Indian partners, Godfrey Phillips India Ltd (rated 'CRISIL AA+/Stable/CRISIL A1+') and KK Modi Investment and Financial Services Pvt Ltd. Philip Morris Brands Sarl holds 50.1% stake in IPM, whereas the other two partners hold 24.8% and 25.1%, respectively. IPM holds the licence for the flagship brand of PMI, Marlboro, for the Indian market. The company is a wholesale trader of Marlboro cigarettes in India. IPM has an arrangement with Godfrey Philips India Ltd, which manufactures the cigarettes on its behalf. |
Key Financial Indicators
*9 months numbers |
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)
*DB has sanctioned USD 14 million (reduced from USD 20 million from September 2021). It has been converted at 75 for reporting purpose ^Interchangeable with short-term loan |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||
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This Annexure has been updated on 25-Oct-2021 in line with the lender-wise facility details as on 02-Aug-2021 received from the rated entity.
*DB has sanctioned USD 14 million (reduced from USD 20 million from September 2021). It has been converted at 75 for reporting purpose
^Interchangeable with short-term loan
Criteria Details
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