ITI Limited

Brickwork Ratings upgrades the ratings with a revision in outlook for the Bank Loan Facilities of Rs.3854.34 Crs. of ITI Limited.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (31 Dec 2020)	Present
Fund Based	1295.00	1295.00	Long Term	BWR BBB+ (CE)/Positive Reaffirmation and change in Outlook	BWR A - (CE) /Stable Upgrade
Non Fund Based	2559.34	2559.34	Short Term	BWR A2 (CE) Reaffirmation and change in Outlook	BWR A2 + (CE) Upgrade
Grand Total	3854.34	3854.34	(Rupees Three Thousand Eight Hundred Fifty Four Crores and Thirty Four lakhs Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure

The ratings for the bank loan facilities of ITI Limited (ITIL or the company) are based on explicit credit enhancement by way of support from the Government of India (GoI) in the form of a Letter of Comfort (LoC) issued by the Ministry of Communications, Department of Telecommunications, GoI. The LoC is issued in favour of the company’s Consortium Bankers and states that the Department of Telecommunications (DoT) will continue to ensure that ITIL meets its payment obligations in a timely manner in respect of the working capital facilities, as it is under the administrative control of the Ministry. The GoI has regularly been issuing such LoCs. The latest LoC dated 19 September 2019 is valid up to 31 July 2022 and is issued in respect of working capital limits (fund-based and non-fund-based, including proposed limits) of Rs.3854.34 Crs, the present rated amount. The unsupported (standalone) rating as assessed by Brickwork Ratings (BWR) without considering the explicit Credit Enhancement is BWR BBB+/Stable/BWR A2 (upgraded from BWR BBB/Positive/BWR A3+ with a revision in the outlook).

RATING ACTION / OUTLOOK

The upgradation of the ratings of ITIL’s bank loan facilities reflects the sustained improvement in the business profile, supported by an improvement in the capital structure and liquidity position during the last two fiscals. The company recorded revenue growth of 23% and 15% on an annual basis during the last two fiscals amid the execution challenges pertaining to the Covid-19 pandemic. The rating action also considers the company’s demonstrated ability of improved execution while maintaining a strong order book position with fresh orders from the Ministry of Defence (MoD) and various state governments. During FY21, the company had received an order worth Rs.7796 Crs from the MoD to execute the prestigious Army Static Switched Communication Network (ASCON) Phase IV project, the biggest ever order won in the company’s history. Additionally, fresh orders of ~Rs.833 Crs have been received from state governments during FY22. Moreover, the company’s thrust on upgrading its facilities, focus on newer initiatives and the latest technologies have improved operating margins during the last two years and are expected to aid not only in the growth momentum, but also in cash accrual generation. The improvement in its debtor realisation resulted in the optimum utilisation of working capital facilities and an adequate cash position as on 30 September 2021. 

The ratings continue to factor the company’s position as a strategically important PSU (GoI holding of ~90%), continued financial support from the government in the form of a revival package, as well as LoCs, extensive industry experience of the management and the company’s established track record, supported by its long-standing relations with reputed customers, namely MoD, BSNL, BBNL and MTNL. The rating also factors in the diversified product portfolio, enhanced business opportunities through the GoI’s Atmanirbhar Bharat Abhiyan, Make in India, Digital India and Smart City initiatives. Nevertheless, the ratings continue to be constrained by the average financial risk profile, working-capital-intensive nature of operations due to high receivables, high dependence on government aid, rising prices of inputs, increasing market competition from a large number of international players and the need for continuous investment to enable the company to keep pace with technological upgradation. 

The Stable outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be revised to Positive in case there is sustained growth in revenues, profitability, an improved product/client-wise diversification, and a further improvement in the financial risk profile through the timely realisation of receivables, improved working capital management and improved liquidity and debt protection metrics. The rating outlook may be revised to Negative in case of sustained decline in revenue, a deterioration in new order accretion, a significant deterioration in profitability margins, significant delays in the execution of orders and/or a deterioration in the liquidity profile, thereby impacting the company’s debt coverage metrics and credit profile. Any significant disruption in the supply chain due to the emerging Omicron scenario globally will be a key monitorable. 

KEY RATING DRIVERS

Credit Strengths:

• Established track record, experienced management, and strategic importance :

  The company is a pioneer in the Indian Telecom equipment market, having an established position since its incorporation in 1948 with a diversified product portfolio, and enjoys established relations with reputed customers namely MoD, BSNL, BBNL and MTNL.  ITIL has an experienced and a technically sound management. The key management personnel are well-qualified and experienced professionals. As of 30 September 2021, the GoI held an over 90% stake in the company. The company actively partners in schemes such as Atmanirbhar Bharat, Make in India, Digital India and Smart City, and is engaged in the key projects of strategic importance such as BharatNet, Network For Spectrum (NFS) and ASCON project. The Cabinet Committee on Economic Affairs (CCEA) had approved a financial package of Rs. 4156.79 Crs as on 12 February 2014, for the company’s revival. The company receives revenue and Capex grants from the GoI (through budgetary allocation) under the approved revival package. The financial package includes funding support of Rs 1892.79 Crs as grant-in-aid (Non-Plan Scheme) for the clearing of a part of ITI’s liabilities and Rs 2264 Crs (Plan Scheme) towards financial assistance for project implementation. The entire grant-in-aid has been received. ITI received Rs 874 Crs of the Capex Fund in tranches until FY21. Furthermore, the GoI has regularly been issuing LoCs in favour of the consortium bankers for the entire working capital facilities enjoyed by the company and has also extended unsecured loans. Through strategic partnerships with Indian companies, the company is trying to reduce dependency on the import of telecom equipment and also build a native strategic platform for networks, including defence communication, supporting the government’s Atmanirbhar Bharat initiative.

• Improved operational performance and strong order book :

  ITIL achieved a total operating income of Rs.2365.64 Crs in FY21 against Rs.2064.51 Crs for FY20, registering topline growth of ~15% YoY. On an unaudited basis, revenue during H1FY22 was Rs.581.91 Crs. Unbilled revenue as of 30 September 2021 was Rs.1602.70 Crs (PY: Rs.713.50 Crs). The improved performance in FY21, despite Covid-19-related disruptions, was backed by the company’s strong order book position and proven execution capabilities. The company continues to maintain an adequate order accretion rate. During FY21, the company won in the mega tender of ASCON Phase IV project and received an order worth Rs. 7796 Crs from the MoD with subsequent maintenance for the next 10 years. Additionally, ITIL had signed a contract worth Rs.414 Crs, including an AMC with the Indian Air Force during FY21. During FY22, ITIL has received a work order for Rs.432.97 Crs from the Government of Tamil Nadu, under the BharatNet Phase-II project, which is backed by Universal Service Obligation (USO) funds worth ~Rs.48000 Crs, ensuring the timely realisation of bills. BWR also notes that ITIL has received a Letter of Intent (LOI) from the Government of Maharashtra worth Rs.400 Crs for the implementation of a centralised monitoring system based on Information And Communications Technology (ICT) for solid waste management procedures in all urban local bodies of Maharashtra. The company also benefits from the GoI’s Preferential Market Access policy, where indigenous manufacturers are given preference in procurement by government agencies. CCEA, in November 2018, approved the continuation of the Reservation Quota policy for the company, by reserving 30% of the procurement orders placed by BSNL, MTNL and BBNL for ITIL for products manufactured by it and for outsourced items in which there is a minimum 20% value addition and 20% of the orders for turnkey projects (such as GSM network roll-out and Wi-Fi of BSNL and MTNL, and BharatNet project network roll-out, etc., of BBNL). 

• Fresh business initiatives :

  The company continues to leverage its market position with new tie-ups with prominent public/private sector players such as DRDO, Tech Mahindra, TCS and Bharti Airtel to work together in the diverse areas of 4G and 5G wireless technology, Artificial Intelligence (AI), cloud services, equipment manufacturing, smart cities, healthcare services, IT projects and solutions, medical electronics, cybersecurity, Fibre To The Home (FTTH) and IoT device manufacturing. ITIL has tied-up with a start-up, which has an AI-based solution for testing infectious diseases, including Covid-19, and also a blockchain-based solution for Electronic Medical Record System, to augment the GoI’s National Health Mission initiative. It is also taking up the manufacturing of 4G radios and has plans afoot in setting-up a Security Operations Centre (SoC) to offer cloud services from the ITI Data Centre, which is augmented with additional capacity. An MoU has been signed with Tata Consultancy Services (TCS) to work in different IT projects and solutions including business opportunities with GoI PSUs, BSNL, MTNL and for collaboration into smart cities, medical electronics, healthcare and IoT device manufacturing. The company plans to expand the 120-seater start-up hub at the ITI Bangalore plant to a 1000-seater capacity. Many start-ups working in the areas of IoT devices, medical electronics, home automation, aeronautics are operational from this hub. Furthermore, the synergy between ITI and the other organisations under the Ministry of Communications such as C-DoT, Department of Posts is also being explored, and new products are being planned. Under the Modified Electronics Manufacturing Clusters (EMC 2.0) scheme of the Ministry of Electronics and Information Technology (Meity), the company is setting-up an electronic manufacturing cluster in Bengaluru. The said opportunities are expected to support the company’s business and aid in the reduction of inherent cyclicality in revenue booking. These new business tie-ups give scope for further diversification and improvement in the company’s business, going forward.

Credit Risks:

• Average financial risk profile :

  Despite the improved performance in FY21, the company’s financial risk profile remains average, characterised by low profitability margins and average debt coverage indicators due to high interest and finance costs. The EBITDA and PAT for FY21 were Rs.121.68 Crs and Rs.11.20 Crs, respectively, as against Rs.151.78 Crs and Rs.147.48 Crs, booked during FY20. The YOY decline in margins was mainly because the major projects such as ASCON Phase IV were in the initial stages and the Covid-situation had an adverse impact on the margins. The FY20 net profit includes a one-time non-operating income in the form of a revenue grant-in-aid from GoI.  The company is a sick company and receives financial support from the government through the revival plan for technology upgradation and capex investment. The continued funding through government grants has supported the company in its meeting its operational requirements. BWR expects an improvement in the debt protection metrics on the back of better margins in FY22 and FY23, primarily from the ongoing ASCON phase IV project and Bharatnet Phase-II projects, among others. ITIL's capital structure was strong, as reflected by a TNW of ~Rs.2420 Crs and a low gearing level of 0.62 times, as of 31 March 2021. 

• Working capital intensive nature of operations :

  The company’s operations remain working-capital-intensive on account of an elongated receivables period, which though moderated during last two years, remain at elevated levels. Although the elongated receivables are inherent, considering the customer profile, the company's fresh tie-ups with reputed businesses are expected to offset the cyclicality of inflows to some extent. The sanction of working capital facilities by the lenders eased the liquidity position to some extent. The timely implementation of the company’s plans for raising funds in order to achieve SEBI’s minimum 25% public shareholding requirement, will be crucial in improving the company’s liquidity position and financial flexibility.

• Customer concentration and need for regular technological upgradation :

  The company is dependent on and derives a substantial portion of revenue from a limited number of PSU customers and other GoI entities, as well as state governments. Although these are long-standing relations and the company enjoys a preferred supplier status, the revenue stream is exposed to the associated customer concentration risks. The telecommunications technology market and telecommunications equipment manufacturing market are characterised by rapid technological changes, and if the company is unable to keep abreast of the technological changes and new product introductions, the business, results of operations and financial condition may be adversely affected. The company is also exposed to the rising prices of inputs and increasing market competition from a large number of international players. To be competitive, there is a need for the company to continuously invest to keep pace with technological changes.

ANALYTICAL APPROACH - CE

The ratings for the bank loan facilities of ITI Limited are based on explicit credit enhancement by way of the support from the GoI in the form of  LoCs issued by the Ministry of Communications, Department of Telecommunications, Government of India. ITI Ltd has a joint venture viz., India Satcom Ltd (ISL), whose financial information is included in the consolidated financial statements of the company. ISL's operations are not meaningful. Hence, while assigning the ratings, BWR has adopted a standalone approach and applied its rating methodology as detailed in the Rating Criteria (hyperlinks provided at the end of this rationale).

RATING SENSITIVITIES

Going forward, continued ownership and support from the GoI (in the form of LoC/Sovereign Guarantee), the implementation of the Revival Package with the timeliness of funding, the achievement of targeted performance and the strengthening of its overall credit risk profile would remain the key rating sensitivities. The company’s ability to ensure the efficient management of working capital will remain crucial determinants of its credit profile.

Positive:

• Sustained improvement in revenue, profitability and receivables realisations
• Reduction in debt levels, improvement in capital structure and overall strengthening of financial risk profile

Negative:

• Sustained decline in revenue and profitability and/or a deterioration in new order accretion
• Any significant delays in the completion of ongoing projects with a cost overrun, in view of the emerging Omicron scenario globally, thereby weakening the financial risk profile and liquidity position

LIQUIDITY INDICATORS - Adequate

ABOUT THE ENTITY

Incorporated in 1948, ITIL is India’s first Public Sector Undertaking, which became a public limited company on 23 November 1985. ITIL is listed on the NSE and BSE. The company is a pioneer in the Indian Telecom equipment market with a diversified product portfolio that includes electronic switching exchanges, transmission equipment, microelectronic equipment, telephone instruments, equipment for Defence, turnkey telecom services and ground stations for satellite communications. The Central Government (President of India) held 90.06% and the Government of Karnataka held  0.03% of the share capital, as of 30 September 2021.

ITI Limited has six manufacturing units in Bangalore, Naini, Rae Bareli, Mankapur, Pallakad and Srinagar. The manufacturing facilities of ITIL have been accredited with a quality management system as per ISO 9001-2015, environmental management system as per ISO 14001-2015, customer satisfaction as per ISO : 10002:2018, OHSAS 18001, and so on. The company’s various products and services are having approvals/certifications from recognised bodies such as the Technical Specification Evaluation Certificate (TSEC) issued by QA and Inspection Circle of BSNL, International Electrotechnical Commission (IEC), Bureau of Indian Standards (BIS), National Payments Corporation of India (NPCI), Vikram Sarabhai Space Center (VSSC), Telecommunication Engineering Center (TEC), MasterCard and so on.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	2432.59	2064.51
EBITDA	Rs.Crs.	121.68	151.78
PAT	Rs.Crs.	11.20	147.48
Tangible Net Worth	Rs.Crs.	2420.06	2282.60
Total Debt/Tangible Net Worth	Times	0.62	0.59
Current Ratio	Times	0.95	0.91

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction include standard covenants normally stipulated for such facilities.

NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY

NA

ANY OTHER INFORMATION

Nil

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2022)			2021		2020		2019
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	1295.00	BWR A-(CE)/Stable (Upgrade)	NA	NA	31Dec2020	BWR BBB+ (CE)Positive (Reaffirmation and change in Outlook)	26Jun2019	BWR BBB+ (SO)Stable (Reaffirmation with SO suffix)
		NA	NA	NA	NA	NA	NA	31Dec2019	BWR BBB+ (CE)Stable (Reaffirmation with CE suffix)
Non Fund Based	ST	2559.34	BWR A2+(CE) (Upgrade)	NA	NA	31Dec2020	BWR A2 (CE) (Reaffirmation and change in Outlook)	26Jun2019	BWR A2 (SO) (Reaffirmation with SO suffix)
		NA	NA	NA	NA	NA	NA	31Dec2019	BWR A2 (CE) (Reaffirmation with CE suffix)
Grand Total		3854.34	(Rupees Three Thousand Eight Hundred Fifty Four Crores and Thirty Four lakhs Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria

• General Criteria
• Approach to Financial Ratios
• Manufacturing Companies
• Short Term Debt
• Credit Enhancement based on Corporate Guarantee, letter of comfort, pledge of shares etc.
• Ratings based on Government Support

Analytical Contacts
Naveen S Manager - Ratings Board : +91 80 4040 9940 naveen.s@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 | media@brickworkratings.com

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Bank of Baroda	Cash Credit - Sanctioned	528.60	_	528.60
2	Bank of Baroda	Bank Guarantee - Sanctioned	_	760.03	760.03
3	Bank of Baroda	Letter of Credit - Sanctioned	_	289.40	289.40
4	Bank of Baroda	Covid -19 Emergency Line Credit - Sanctioned	3.36	_	3.36
5	Canara Bank	Covid -19 Emergency Line Credit - Sanctioned	90.00	_	90.00
6	Canara Bank	Letter of Credit - Sanctioned	_	8.60	8.60
7	Canara Bank	Bank Guarantee - Sanctioned	_	10.00	10.00
8	Canara Bank	Cash Credit - Sanctioned	77.40	_	77.40
9	Central Bank of India	Cash Credit - Sanctioned	44.00	_	44.00
10	Central Bank of India	Bank Guarantee - Sanctioned	_	1.00	1.00
11	Central Bank of India	Letter of Credit - Sanctioned	_	30.00	30.00
12	Indian Bank	Letter of Credit - Sanctioned	_	5.00	5.00
13	Indian Bank	Bank Guarantee - Sanctioned	_	5.00	5.00
14	Indian Bank	Cash Credit - Sanctioned	10.00	_	10.00
15	Punjab National Bank	Cash Credit - Sanctioned	46.00	_	46.00
16	Punjab National Bank	Bank Guarantee - Sanctioned	_	36.00	36.00
17	Punjab National Bank	Letter of Credit - Sanctioned	_	48.00	48.00
18	State Bank Of India (SBI)	Credit Exposure Limit (CEL) - Sanctioned	_	2.50	2.50
19	State Bank Of India (SBI)	Bank Guarantee - Sanctioned	_	290.00	290.00
20	State Bank Of India (SBI)	Letter of Credit - Sanctioned	_	109.00	109.00
21	State Bank Of India (SBI)	Cash Credit - Sanctioned	385.00	_	385.00
22	Un tied portion from consortium of banks	Cash Credit - Proposed	56.64	_	56.64
23	Un tied portion from consortium of banks	BG/ILC - Proposed	_	888.81	888.81
24	Union Bank of India	Letter of Credit - Sanctioned	_	55.00	55.00
25	Union Bank of India	Cash Credit - Sanctioned	54.00	_	54.00
26	Union Bank of India	Bank Guarantee - Sanctioned	_	21.00	21.00
Total			1295.00	2559.34	3854.34
TOTAL (Rupees Three Thousand Eight Hundred Fifty Four Crores and Thirty Four lakhs Only)