| ITC Limited | ||||||
| Ratings reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank facilities of ITC Ltd (ITC).
Operating income was flattish in fiscal 2024 after growing by 17% and 23% in fiscals 2023 and 2022, respectively. While growth in cigarettes, FMCG (fast-moving consumer goods) and hotels businesses was robust, agri and paperboard businesses was impacted. Operating margin improved by over 70 basis points (bps) supported by sustenance of healthy margins in cigarette segment and improvement in profitability across FMCG, hotels and agri commodity segments with paperboard seeing a moderation in margin. Financial risk profile remained strong supported by negligible debt and healthy debt protection metrics.
CRISIL Ratings has also taken note of the scheme of arrangement (the scheme) announced by ITC wherein the hotel business shall be demerged into a new entity. ITC will hold 40% stake in the new entity and balance 60% will be held by the company’s shareholders in proportion to their shareholding in ITC. The scheme has been approved by the shareholders of the Company and is awaiting approval from the National Company Law Tribunal (NCLT).
The ratings continue to reflect the company’s excellent business risk profile due to its presence in diverse businesses, a dominant position in the Indian cigarette market and strong sustainable profitability. The ratings also factor in ITC’s exceptionally strong financial risk profile. These strengths are partially offset by exposure to risks inherent in the various businesses. |
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: Leadership position in the Indian cigarette industry A strong brand, wide product portfolio, 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 sustained market share and profitability over the years, notwithstanding the increase in duties. ITC’s cigarettes are also exported to the Middle East.
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 FMCGs. It has also added chocolates, ghee, dairy and frozen food products to its branded packaged foods segment.
Strong financial risk profile Healthy internal cash accrual, low debt and robust liquidity have strengthened the financial risk profile. For fiscal 2024, the consolidated operating margin was 37.0% (36.3% in fiscal 2023). Debt was minimal at ~Rs 11 crore, against large tangible networth of over Rs 71,422 crore as on March 31, 2024. Liquidity was exceptionally strong because of cash and liquid investments (bonds, debentures, mutual funds and bank deposits) of over Rs 37,000 crore as on March 31, 2024.
Weakness: Exposure to regulatory risk in the cigarettes business and vulnerability of other business segments to economic cycles Regulatory risks in the cigarettes business include increase in taxes while there are competitive pressures in the FMCG segment. These risks are partially offset by the company’s focus on building cost efficiency and strong backward integration in the cigarettes business through the leaf tobacco and packaging businesses, and in the agricultural commodity and packaged food businesses through the robust supply chain and agri-farm network. |
Liquidity- Superior Liquidity is driven by superior cash surplus of over Rs 37,000 crore and cash accrual of over Rs 2600 crore as on March 31, 2024 after payment of ~ Rs 19,899 crore of dividend. Long-term debt is also negligible. Cash accrual should be sufficient to finance capex and working capital requirement over the medium term.
ESG profile CRISIL Ratings believes the environment, social and governance (ESG) profile of ITC supports its credit risk profile. The tobacco sector has a high environmental impact because of its raw material sourcing strategies and waste-intensive processes. It also has a high social impact owing to the health hazards associated with the use of tobacco, including smoking addiction and underage consumption, as well as risk of government intervention by way of restriction on sales, regulation of marketing practices and higher tax. The company’s strong focus on addressing some of these ESG risks supports its already strong credit risk profile. Key ESG highlights:
There is growing importance of ESG among investors and lenders. CRISIL Ratings believes the company’s continuous commitment to embed sustainability principles across the organisation and its value chain will partly offset the inherent impact of the tobacco sector on the environment and social aspects. |
Outlook Stable CRISIL Ratings 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. |
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):
CRISIL Ratings adjusted financials |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
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.
< - Interchangeable between letter of credit and bank guarantee.
|
Annexure – List of entities consolidated (as on March 31, 2024)
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Criteria Details
|