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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 1890.00 | ACUITE BB- | Stable | Upgraded | - |
| Bank Loan Ratings | 188.97 | Not Applicable | Withdrawn | - |
| Bank Loan Ratings | 2390.53 | - | ACUITE A4 | Reaffirmed |
| Total Outstanding | 4280.53 | - | - |
| Total Withdrawn | 188.97 | - | - |
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Rating Rationale |
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Acuite has upgraded its long term rating to ‘ACUITE BB-‘ (read as ACUITE double B minus) from 'ACUITE C' (read as ACUITE C) and ‘ACUITE D‘ (read as ACUITE D) of Rs. 1890.00 Cr. bank loan facilities of ITI Limited (ITIL). The outlook is ‘Stable’.
Acuite has reaffirmed its short term rating to ‘ACUITE A4’ (read as ACUITE A four) of Rs 2390.53 Cr. bank loan facilities of ITI Limited (ITIL). Acuite has withdrawn the proposed long-term facility of Rs 188.97 Cr. without assigning any rating as this proposed facility of ITI Limited (ITIL). The rating withdrawal is in accordance with Acuite’s policy on withdrawal of ratings as applicable to the respective instruments/facility. The rating is being withdrawn on the account of request received from the company. Rationale for rating The rating upgrade reflects ITIL’s regularisation in debt servicing which is evident from timely servicing of its debt obligations from March 2024. Earlier the rating was downgraded due to delay in timely servicing of one of its term facilities of Canara bank of Rs 120.00 Cr. However, term loan facility of Canara bank had been regularised in the month of Jan-24 and extinguished in the month of July-24. The rating also factors continued support from Government of India, despite discontinance of letter of comfort from Department of Telecom (DoT) and established track of operations. In addition to that , albeit deterioration in scale of operations and increase in losses Y-0-Y from FY22 to FY24 ,improvement in scale of operations and reduction in losses in the Q1FY25 had been witnessed and expected to improve further in coming quarters and financial years on account of healthy order book position of Rs 11,227.32 crore as on 30th June 2024, providing a revenue visibility in the near to medium term. The rating further factors that the liquidity of the company was poor due to delay in order execution elongated working capital cycle, weak profitability but the same is going to improve in coming period on account of better execution of projections, expected sale proceeds from the sale of land to be utilised towards repayment of borrowings would leads to reduction of interest burden cost of borrowings to the company. In addition to that company had got approval for capex of Rs 2264 Cr. , Rs 1132.56 Cr. had been received and Rs 1131.44 Cr. pending to be received from CCEA (Cabinet Committee on Economic Affairs) .Further, capex support of Rs 168.00 Cr. has been provided in the union budget for FY 24-25 announced on 23th July 2024.These strengths are partly offset by high working capital intensive nature of operations and customer concentration risk. |
| 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 one research and development units at Bengaluru, Karnataka.
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| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
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Acuite has considered the standalone business and financial risk profile of ITIL while arriving at the rating. |
| Key Rating Drivers |
| Strengths |
| 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, 2024, the Government of India (GoI) held a 90 percent stake in the company. ITIL currently has executable projects worth of Rs. 11227.32 crore as on June 2024, providing a revenue visibility in the near to medium term. The order book stands at ~8.85 times of the company’s OI in FY 2024. Acuité believes that a healthy order book position and the experience of management will continue to support the business of the company. Continued support from Government of India (GOI) GOI continues to hold more than 90% stake in the entity. It is the preferred entity of many Government companies and departments. Since 2014, the government has been supporting ITIL financially as part of its revival plan for sick units. As per the CCEA (Cabinet Committee on Economic Affairs) approval as on 12th February 2014, it had approved the funds of Rs 4156.79 Cr. , out of which Rs 1131.44 Cr. pending to be received. In addition to that, capex support of Rs 168.00 Cr. has been provided in the union budget for the FY 24-25 which was announced on 23rd July 2024. Earlier DOT has also extended a letter of comfort in case of any support ITI needs to service its repayment obligations. ITI’s resource mobilization ability remains high on account of support available from DOT. However, the letter of comfort was valid till July 31, 2023. Acuite believes that despite the expiry of letter of comfort, GOI is expected to continue to support ITIL over medium to long term. |
| Weaknesses |
| Significant deterioration in the operating performance
The company had reported revenue of Rs 1272.24 Cr. in the FY2024 as against Rs 1402.45 C.r in the FY2023 and Rs 2081 Cr. in the FY2022. The company had incurred net loss of Rs 569.06 Cr. in the FY2024 as against net loss of Rs 360.10 Cr. in the FY2023 and profit of Rs 121.06 Cr. in the FY2022. The decline in the revenue is mainly due to facing the technical challenges w.r.t. Proof of Concept [PoC] clearance of two major projects i.e. ASCON Phase IV Project of Ministry of defense and BSNL 4G Mobile Network Project, which has resulted in delays in execution, affected performance and profitability during last 2-3 years. However there has been improvement in operating performance and recovering of the losses in the current fiscal year FY25 where the company had reported revenue of Rs 519.98 Cr. for the period of 3MFY25 as against the revenue of Rs 157.04 Cr. for the period of 3MFY24. Moreover, company had mitigated the losses also and recorded Net loss of Rs 64.61 Cr. (Excluding exceptional item) and net loss of Rs 91.08 Cr. (including exceptional item) for the period of Q1FY25 as against net loss of Rs 102.61 Cr. for the period of Q1FY24. Acuite believes that operations of the ITIL are expected to be improved in coming years on account of better performance of the company in the Q1FY25, healthy order book position in hand, continued assistance from the Government of India and the long track record of management will continue to support the business of the company. Highly working capital-intensive operations The company’s working capital cycle is elongated marked by GCA days of 1203 days in FY2024, 1129 days in FY2023 and 795 days in FY2022. This is primarily driven by high receivable outstanding. Out of its debtors outstanding as on March 31, 2024, majority of them are from legacy orders from BSNL which consist of ~41%. These have been pending for long time and resolution efforts are ongoing. However, the company has flexibility with creditors where they can be paid post realization of debtors. The creditor days have increased and stood at 543 days in FY2024, 288 days in FY2023 and 385 in FY2022. These also include payables pertaining to the legacy debtors of BSNL and would be paid only post collection from them. The inventory holding period had been improved and stood at 51 days in FY2024, 58 days in FY2023 and 39 days in FY2022. 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 59% 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 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 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 to the telecommunication industry. The installation & maintenance of fiber-optic cables, mobile base stations, radio 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 telecommunication industry with occupational health & safety being a prominent issue due to the worker's proximity to electromagnetic fields, exposure to electricity & extreme heights. Consistent service delivery and the desired customer experience are key to achieving product quality. Diversity & inclusion practices, data privacy & 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 & 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 programs to its employees. Governance The telecommunication industry is highly exposed to risks associated with regulatory compliance and ethical business practices during bids. Furthermore, board administration, committee functioning, and financial audit are material issues for this industry. The company has undertaken programs to prevent corruption and improve business ethics. Further, the company complies with the Companies Act 2013 for external auditor rotation & audit committee and SEBI listing regulations for related party transactions & prohibition of insider trading. |
| Rating Sensitivities |
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| Liquidity Position |
| Poor |
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Company has high working capital-intensive operations with GCA of 1203 days in FY2024 as against 1129 days in the FY2023. This makes the company dependent on bank borrowings to fund its working capital requirement adversely impacting its liquidity profile. Its bank limit utilization stood at ~99 percent for 6 month ending June 30, 2024. Delay in order execution, elongated working capital cycle, weak profitability has created pressure on the company’s liquidity position.
Acuite believes that liquidity position of the company would improve in medium term on account of better execution of projections, expected proceeds from the sale of land to be utilised towards repayment of borrowings would lead to reduction of interest cost burden to the company. In addition to that company had got approval of capex portion of Rs 2264 Cr., Rs 1132.56 Cr. had been received and Rs 1131.44 Cr. pending to be received from CCEA. Further, capex support of Rs 168.00 Cr. has been provided in the Union Budget for FY 24-25 announced on 23th July 2024. |
| Outlook: Stable |
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Acuité believes that the ITIL will maintain a ‘Stable’ outlook over the medium term on account of extensive experience of management, healthy order book position and support of GOI. The outlook may be revised to positive in case of higher than expected improvement in operating performance or improvement in working capital cycle. Conversely, the outlook may be revised to 'Negative' in case lower than expected improvement in operating performance or further deterioration in working capital position impacts the liquidity profile of ITIL.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 24 (Actual) | FY 23 (Actual) |
| Operating Income | Rs. Cr. | 1272.24 | 1402.45 |
| PAT | Rs. Cr. | (569.06) | (360.10) |
| PAT Margin | (%) | (44.73) | (25.68) |
| Total Debt/Tangible Net Worth | Times | 1.03 | 0.80 |
| PBDIT/Interest | Times | (1.44) | (0.80) |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| 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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