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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 1829.84 | ACUITE BBB+ | Stable | Reaffirmed | - |
| Bank Loan Ratings | 2024.50 | - | ACUITE A2 | Reaffirmed |
| Bank Loan Ratings | 615.16 | ACUITE BBB+ | Stable | Assigned | - |
| Total Outstanding Quantum (Rs. Cr) | 4469.50 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed and assigned the long-term rating of ‘ACUITE BBB+’ (read as ACUITE triple B plus) and the short term rating of 'ACUITE A2' (read as ACUITE A two) on the Rs. 4469.50 crore bank facilities of ITI LIMITED (ITIL). The outlook is 'Stable'.
Rationale for reaffirmation The rating reaffirmation takes into account extensive experience of the ITIL’s management and healthy order book position of more than Rs. 8800 Cr. It also draws comfort from the support and strong shareholding of the Government of India (GoI) with ~90% stake in ITI Limited and its support to ITIL through revival package and letter of comfort. These strengths are partially offset by the high working capital intensive nature of operations and below average standalone financial risk profile. The company’s ability to maintain its scale of operations while improving profitability will continue to remain a key rating sensitivity. |
| 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. Rakesh Mohan Agarwal. 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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| Analytical Approach |
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Acuite has considered the standalone business and financial risk profile of ITIL while arriving at the rating. Acuite has also factored in the financial support ITIL will receive from Department of Telecommunication (DoT) on account of the Letter of Comfort extended by the later.
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Key Rating Drivers
| Strengths |
| Extensive experience and established track record of the management
ITIL is 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. The management is equally supported by well qualified team of professionals. As on March 31, 2022 the GoI holds 90 per cent stake in the company. ITIL currently has executable projects of more than Rs. 8,800 Cr. The Company has been implementing projects of National Importance such as BharatNet Phase – I & Phase II Projects. ITI has bagged turnkey orders for supply, installation, commissioning and maintenance of GPON Equipment covering about 47400 Gram panchayats (GP) from BBNL & BSNL. This project will extend high-speed broadband services on GPON platform to rural masses. ITI has won three tenders viz. MahaNet, GujNet and West Bengal under BharatNet Phase II Project worth Rs. 4784 crores. In October 2020 the company also received order for Ministry of Defense ASCON Phase 4 worth Rs. 7796 crores and project has already been started and will be executed over a period of 7 years providing revenue visibility over the medium term. Acuité believes that strong order book position, continued assistance from the government, and strong experience and technical background of the management will continue to support the business of the company. Improved operating performance and coverage indicators ITI has reported revenue of Rs. 2081 Cr. in FY2022 against Rs. 2434.26 in FY2021. The company has unbilled revenues to the tune of Rs. 2300 Cr. during FY2022 which are currently reported under current assets in FY2022. Further, ITIL on operating level has reported high margins owing to orders with better realizations and reduced costs. Operating and profitability margins stood at 15.85 percent and 5.82 percent in FY2022 against 5.48 percent and 0.46 percent in FY2021 respectively. However, the growth in operating profits is largely driven by grants to the tune of Rs. 214 Cr. extended to ITIL by GOI during FY2022 against grants of around Rs. 67 Cr. extended during FY2021. Further ITIL has reported improved financial risk profile during FY2022 marked by stable gearing of around 0.62 times as on March 31, 2022 against 0.61 times as on March 31, 2021 and improved coverage indicators with ICR and DSCR at 1.89 times each against 1.33 times in FY2021. Further, the company has a healthy order book position of around Rs. 8,800 Cr. and its current ASCON project is expected to yeild high margins in the near future. Another key point has been the support from GOI under the revival plan. The Cabinet Committee on Economic Affairs (CCEA), during February 2014, has approved the Revival plan of ITI of Rs.4156.79 Cr. This package consists of Rs.2264 Crore in the form of equity for financial assistance in all the plants of ITI for implementation of new projects and Rs.1892.79 Crore to be financial assistance as grant-in-aid. ITI also is the preferred supplier for other PSUs, Government orders and orders for Defence services. Although over the medium term improvement in operating performance is expected on the back of a healthy revenue visibility . Acuité believes the company’s ability to maintain its scale of operations and profitabilty with timely execution of existing orders will remain a key rating sensitivity. |
| Weaknesses |
| Working capital intensive nature of operations
ITIL’s operations are working capital intensive in nature reflected in the high GCA days of 1154 in FY2022 against 841 in FY2021. This is partialy on account of unbilled revenues to the tune of Rs. 2300 Cr. reported under current assets and rest due to high collection period which stood at 582 days in FY2022 compared to 449 days in the previous year. Inventory holding period stood at 40 days in FY2022 against 31 days in FY2021. This has led to higher reliance of bank borrowings and bank limits are almost fully utilized for six month period ended June, 2022. The company's creditor days also stretched to 517 days in FY2022 against 344 days in FY2021. The elongated receivable position is on account of old legacy projects with slow moving receivables. Until a long term resolution of those, operations are expected to remain working capital intensive. Receivable position on newer projects is better compared to legacy projects.
Acuité believes that operations of ITI are expected to remain working capital intensive over the medium term and its ability 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 constitues for more than 75% of the order value from Ministry of Defence alone. The company has a limited order base from Private players. However, the risk is mitigated to quite some extent basis the fact that ITIL holds a priority quota in the tenders floated by GOI for any of 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 effi ciency are material issues to the telecommunicati on 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 close 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, spectrum auctioning and licensing. 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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| Material covenants |
| None |
| Liquidity Position |
| Adequate |
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ITIL is expected to generate NCA in range of Rs. 148 Cr. to 176 Cr. for FY2023-FY2024 against repayment obligations of around Rs. 2 Cr. for the same period. However, ITI has highly working capital intensive operations with GCA of 1154 days in FY2022. This is majorly because of the unbilled revenues reported under currents assets. 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 96 percent the month ending June 30, 2022. However, this impact is mitigated as the company receives support from the DOT to meet its repayment obligations. ITI’s liquidity profile will remain adequate on account of adequate NCAs and support available from the DOT partially impacted by elongated working capital cycle.
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| Outlook: Stable |
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Acuité believes that the ITI will maintain a ‘Stable’ outlook over the medium term on account of extensive experience of management, healthy order book position and improved operating performance. The outlook may be revised to positive in case of higher than expected improvement in operating performance. Conversely, the outlook may be revised to 'Negative' in case lower than expected improvement in operating performance or further deterioration in working capital position impacting the liquidity profile of ITIL.
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| Other Factors affecting Rating |
| Not Applicable |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 2081.00 | 2434.26 |
| PAT | Rs. Cr. | 121.06 | 11.20 |
| PAT Margin | (%) | 5.82 | 0.46 |
| Total Debt/Tangible Net Worth | Times | 0.62 | 0.61 |
| PBDIT/Interest | Times | 1.89 | 1.33 |
| Status of non-cooperation with previous CRA (if applicable) |
| Not Applicable |
| Any other information |
| Not Applicable |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Entities In Manufacturing Sector:- 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 |
| https://www.acuite.in/view-rating-criteria-55.htm |
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