| ITC Limited | ||||||
| Ratings reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| 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
|
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):
|
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)
& 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. |
Annexure – List of entities consolidated
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||
|