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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 2325.00 | ACUITE C | Downgraded | - |
| Bank Loan Ratings | 120.00 | ACUITE D | Downgraded | - |
| Bank Loan Ratings | 2024.50 | - | ACUITE A4 | Downgraded |
| Total Outstanding | 4469.50 | - | - |
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Erratum: In the PR published on 4th Dec 2023, the name of the Chairman and Managing Director was erroneously captured in "About the Company
" section which has been rectified in this version of the PR.
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Rating Rationale
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Acuité has downgraded the long-term rating to ‘Acuité C’ (read as Acuité C) from ‘Acuité BBB’ (read as Acuité triple B) and the short-term rating to 'Acuité A4' (read as Acuité A four) from 'Acuité A3+' (read as Acuité A three plus) on the Rs. 4349.50 Cr. bank facilities of ITI Limited (ITIL).
Further, Acuité has downgraded the long term rating to ‘Acuité D’ (read as Acuité D) from ‘Acuité BBB’ (read as Acuité triple B) on the Rs. 120 Cr. bank facilities of ITIL. Rationale for rating The downgrade reflects ITIL’s delays in timely servicing of one of its term loan facilities of Canara Bank of Rs. 120 Cr. There have been delays during the month of October 2023 in servicing the debt obligations of Rs. 10 Cr. as per the intimation received by the company owing to delays in project realization from its clients leading to poor liquidity position. Further, there have been instances of delays in servicing the Interest amount for the Cash Credit facilities as well, however the same have been paid within 30 days. The poor liquidity is marked by deteriorated operating performance of ITIL reflected in its deteriorated scale of operations, and negative EBITDA margins during FY2023 & H1FY2024. The revenues stood at Rs. 1448 Cr. in FY2023 (~31% lower) against Rs. 2081 Cr in FY2022. The revenues have been suppressed due to delays in getting PoC and technical clearances from the government authorities, along with delay in getting RoW permission from PWD. Further, due to lower turnover, the company could not achieve the required margins to meet its fixed costs turning its EBITDA negative affecting the company’s coverage indicators adversely. However, the company has reported improvement in its revenue from operations during Q2FY2024 which stood at Rs. 246.47 Cr. against 157.04 Cr. during Q1FY2024 while Rs. 403.51 Cr. in H1FY2024 against Rs. 363.83 Cr. during corresponding H1FY2023. The company is expecting realization to the tune of Rs. 80 Cr. from its ASCON Project by December 10th 2023, through which it would pay off all its current outstanding and immediate future obligations. Further, company is expecting net project realizations to the tune of Rs. 540 Cr. by March 2024. However timely collection of the receivables and regularization of the debt along with timely repayment of the future debt obligations will remain key monitorable. |
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| About the Company |
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Incorporated in 1948, ITIL, India's first public sector undertaking became a public limited company in 1975. It is based out Bangalore and its Chairman and Managing Director is Mr. Rajesh Rai. The company manufactures telecom equipment including electronic switching exchanges, transmission equipment, microelectronic and telephone instruments to name a few. The company has six manufacturing facilities across India at Bengaluru (Karnataka), Naini (Uttar Pradesh), Rae Bareli (Uttar Pradesh), Mankapur (Uttar Pradesh), Palakkad (Kerala) and Srinagar (Jammu and Kashmir) with a network system unit at Bengaluru. Additionally, ITIL has three research and development units at Bengaluru, Karnataka.
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| Unsupported Rating |
| Not Applicable. |
| Analytical Approach |
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Acuité has considered the standalone business and financial risk profile of ITIL while arriving at the rating. Earlier, Acuité
had also factored in the financial support from Department of Telecommunication (DoT), the same has been removed.
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Key Rating Drivers
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| Strengths |
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Established track record of operations.
ITIL has been engaged in the manufacturing of telecom equipment since 1948. The company is a preferred contractor for Bharat Sanchar Nigam Limited (BSNL), Mahanagar Telephone Nigam Limited (MTNL), and Indian Defence Services. As of March 31, 2023, the GoI held a 90 percent stake in the company. ITIL currently has executable projects worth more than Rs. 12,000 crore. Recently, it received an order from BSNL worth Rs. 4000 crore. Further, the company has been implementing projects such as BharatNet Phase I and Phase II. It has also won three tenders, viz., MahaNet, GujNet, and West Bengal, under the BharatNet Phase II Project, worth Rs. 4784 crore. Additionally, the company has its biggest order in progress for the Ministry of Defence for its ASCON Phase 4 project of around Rs. 8000 crore. The project has already been started and will be executed over the next 7 years. Acuité believes that a healthy order book position, continued assistance from the government, and the long track record of the management will continue to support the business of the company. |
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Weaknesses |
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Delays in servicing of debt obligations
The latest feedback received from the bankers along with written intimation from the company comfirm that ITIL has delayed the servicing of its debt obligations to the tune of Rs 10 Cr. for one of it's Term Loanfor the month of October-23. The stretch in liquidity is due to lower net cash accruals causing cash flow mismatches vis-à-vis repayment obligations. This has also caused delays in interest payments for the CC facilities however same have been regularised within 30 days as confirmed by the banker. Significant deterioration in the operating performance along with the working capital-intensive nature of operations. The company reported revenue of Rs. 1448 crore in FY2023, which has decreased by around 31% compared to Rs. 2081 crore in FY2022 and Rs. 2434.26 crore in FY2021. The revenues during FY2023 have been suppressed due to delays in getting PoC and technical clearances from the government authorities, along with delays in getting RoW permission from PWD. Further, due to lower turnover, the company could not achieve the required margins to meet its fixed costs, resulting in cash losses. The company reported negative EBITDA of Rs. 101 crore in FY2023 against Rs. 329 crore in FY2022. Further, ITIL’s operations are working capital intensive in nature, as reflected in its high GCA days. The GCA days stood at 1655 in FY2023 against 1154 in FY2022 and 841 in FY2021. These are dominated by elongated receivables (debtor days: 687 during FY2023 against 582 days in FY2022) on account of old legacy projects with slow-moving receivables. Until a long-term resolution of those issues is reached, operations are expected to remain working capital intensive. However, this has led to a higher reliance on bank borrowings, and bank limits are almost fully utilised for the six-month period ending May 2023. Acuité believes that operations of ITIL are expected to remain working capital intensive over the medium term, and its ability to restrict further elongation of working capital will remain a key rating sensitivity. Exposure to customer concentration risk ITIL's customer base is heavily dominated by the Ministry of Defence, major PSUs, and government agencies like BSNL, MTNL, etc. Its current order book constitutes more than 60% of the order value from the Ministry of Defence alone. The company has a limited order base from private players. However, the risk is mitigated to quite some extent by the fact that ITIL holds a priority quota in the tenders floated by the GOI for any of the telecommunication projects. Acuité believes that the ability of the company to expand its customer base in order to further mitigate the risk will be critical. |
| ESG Factors Relevant for Rating |
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Environment
Carbon emissions, biodiversity, and energy efficiency are material issues for the communications industry. The installation and maintenance of fibre-optic cables, mobile base stations, radios, and satellite dishes can contribute to greenhouse gas emissions and negatively impact biodiversity. The company has undertaken initiatives to reduce overall energy consumption. Social Social issues are a key risk for the telecommunications industry, with occupational health and safety being a prominent issue due to the worker's close proximity to electromagnetic fields, exposure to electricity, and extreme heights. Consistent service delivery and the desired customer experience are key to achieving product quality. Diversity and inclusion practises, data privacy, and security are other vital matters. The social performance score of ITI Limited has experienced an increase since the last report, primarily due to community support and development, employee safety, and product responsibility. The company has adopted a policy on data privacy and human rights. Additionally, it offers training and career development programmes to its employees. Governance The telecommunications industry is highly exposed to risks associated with regulatory compliance and ethical business practises during bids, spectrum auctioning, and licencing. Furthermore, board administration, committee functioning, and financial auditing are material issues for this industry. The company has undertaken programmes to prevent corruption and improve business ethics. Further, the company complies with the Companies Act 2013 for external auditor rotation and audit committees, SEBI listing regulations for related party transactions, and the prohibition of insider trading. |
| Rating Sensitivities |
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| All Covenants |
| Not Applicable. |
| Liquidity Position |
| Poor |
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The latest feedback received from the bankers along with written intimation from the company comfirm that ITIL has delayed the servicing of its debt obligations to the tune of Rs 10 Cr. for one of it's Term Loan for the month of October-23. The stretch in liquidity is due to lower net cash accruals causing cash flow mismatches vis-à-vis repayment obligations. This has also caused delays in interest payments for the CC facilities however same have been regularised within 30 days as confirmed by the banker.
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| Outlook: Not Applicable |
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| Other Factors affecting Rating |
| Not Applicable. |
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| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 1448.00 | 2081.00 |
| PAT | Rs. Cr. | (360.10) | 121.06 |
| PAT Margin | (%) | (24.87) | 5.82 |
| Total Debt/Tangible Net Worth | Times | 0.80 | 0.62 |
| PBDIT/Interest | Times | (0.48) | 1.89 |
| Status of non-cooperation with previous CRA (if applicable) |
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Not Applicable.
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| Any other information |
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None
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| Applicable Criteria |
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• Default Recognition :-
https://www.acuite.in/view-rating-criteria-52.htm
• Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm • Service Sector: https://www.acuite.in/view-rating-criteria-50.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
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