| Gujarat Gas Limited | ||||
| Rating upgraded to ‘CRISIL AAA/Stable’ | ||||
| Rating Action | ||||
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| 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 upgraded its rating on the long-term bank facilities of Gujarat Gas Ltd (GGL) to ‘CRISIL AAA/Stable’ from ‘CRISIL AA+/Positive’.
The rating upgrade reflects CRISIL Rating’s expectation that the credit risk profile of the company will improve backed by growth in its cash accruals and minimal reliance on external debt as the incremental capex is likely to be funded by internal accruals. This will result in further strengthening of debt protection metrics over the near to medium term.
The ratings also derive comfort from the company's sizeable scale of operations as the largest city gas distribution (CGD) entity in India. These rating strengths are however partially offset by its exposure to volatility in re-gasified liquefied natural gas (R-LNG) and domestic natural gas prices, the project risk involved on timely and cost-efficiently setting up its CGD network in the new geographical areas (GAs) awarded, and susceptibility to regulatory risks.
Operating performance continues to remain healthy as revenue has grown by 67% y-o-y in fiscal 2022. The growth was driven by 14% growth in gas volume in fiscal 2022 coupled with hike in natural gas prices being passed on to the customers. There has been ramp-up in gas sale volumes to 10.7 mmscmd in fiscal 2022 from 9.39 mmscmd in fiscal 2021 driven by growth in piped natural gas -industrial (PNG-I) and compressed natural gas (CNG) segment. Revenue growth was supported by healthy operating profits which is expected to sustain going forward. However, gas volumes in first half of fiscal 2023 has declined to 8.68 mmscmd owing to price sensitive PNG-I customers partially shifting to the more economic propane gas. As such, volumes are expected to grow over the medium term, supported by positive outlook for the ceramic players as well as contributed by the volume growth expected from the seven new GAs won by GGL in the 9th and 10th CGD bidding rounds.
GGL is expected to incur an annual capital expenditure of around Rs. 1000-1200 crore over the medium term, to be largely funded through internal accruals. Contributed by the healthy annual accruals earned, the company has become debt free as on November 30, 2022. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of GGL and its subsidiaries/associates to arrive at the rating.
Please refer Annexure - List of a Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Largest CGD player in India with diversified customer profile GGL’s strong and established market position in the CGD industry in India is indicated by its industry-leading presence with 27 CGD licenses spread across 43 districts in 6 states and 1 Union Territory in the state of Gujarat, Maharashtra, Rajasthan, Haryana, Punjab and Madhya Pradesh and Union Territory of Dadra & Nagar Haveli. The company’s user base comprised of more than 17.8 lakh domestic households, over 13,647 commercial customers, 741 CNG stations, and close to 4,300 industrial units as on September 30, 2022; thus providing strong revenue diversity. The recent favourable Supreme Court order also paves way for GGL to develop one more GA - Ahmedabad Rural, won in bidding round in 2016, thereby increasing the potential of its business.
Healthy operating performance GGL is one of the major CGD player in India in terms of gas sales volumes, with strong and established market share of more than 30%. The company has depicted a healthy track record of being able to sustain its operating performance, despite volatility faced especially in movement of RLNG prices.
While GGL’s customer base mix is skewed towards the price sensitive PNG-I segment, it has been able to grow its volumes and absolute profitability levels. This is owing to company’s ability to pass on rise in input prices in CNG & PNG-D segments and balance its volumes in PNG-I segment to maximise its cash accruals. Despite the unprecedented steep rise witnessed in input gas prices in current fiscal, GGL has sustained the momentum in its operating profits.
Improved financial risk profile GGL’s financial risk profile is driven by the healthy annual cash accruals earned, its strong debt protection metrics and adequate liquidity maintained. Gearing improved to 0.09 times as on March 31, 2022 as compared to 0.22 times as on March 31, 2021. The annual cash accruals generated in excess of Rs 1,500 crore is expected to be sufficient to fund its annual capital expenditure plans of Rs 1000-1200 crores over the medium term. Even if the company evaluates further growth opportunities going forward, its net debt to earnings before interest, tax, depreciation and amortisation (Ebitda) ratio is not likely to exceed 1 time.
Weakness: Moderate risk in gas availability As per the government directives announced in 2014, CGD companies were to be given a priority in terms of allocation of the cheaper domestic gas; for CNG and domestic PNG sales. However, considering the pace at which the CGD industry is expected to grow its volumes, domestic administered pricing mechanism (APM) gas may not be sufficient to meet its entire requirements and the companies would increasingly have to resort to the costlier non-APM domestic gas/imported R-LNG to suffice its supply requirements. GGL’s ability to pass on the price hikes to its end consumers, thus, will be a key monitorable.
Exposure to competition from alternate sources Post the end of the marketing exclusivity period for the authorised GAs, the company remains exposed to competition that could set in from the other CGD players, though limited to 20% open access. Approximately 65% of GGL’s current volume mix accrues from the industrial/commercial segment, which is generally price sensitive to the pricing of alternate fuels. However, GGL has demonstrated a healthy track record of supplying gas in its authorised GAs, wherein it has been able to grow its customer base, despite competition setting in from alternate fuels. |
Liquidity: Strong Liquidity is strong with healthy cash and bank balance maintained of around Rs. 405 crore as on September 30, 2022, as compared to Rs 70 crore as on March 31, 2022 and Rs 827 crore as on March 31, 2021. The company has utilized it cash and cash equivalent position to prepay the existing long-term debt. The annual cash accruals generated in excess of Rs 1500 crore is expected to be sufficient to fund the capex plans. Liquidity is further supported by unutilized working capital bank lines. |
Outlook Stable CRISIL Ratings believes GGL will continue to maintain its market leading position in the industry with a robust operating performance, backed by healthy volume growth and stable realisation levels. |
Rating Sensitivity factors Downward factors
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About the Company GGL is India's largest CGD Company, with 27 CGD licenses spread across 43 districts in 6 states and 1 Union territory across the states of Gujarat, Maharashtra, Rajasthan, Haryana, Punjab and Madhya Pradesh and Union Territory of Dadra & Nagar Haveli.
For the first half of fiscal 2023, GGL reported profit after tax (PAT) of Rs 786 crore on revenues of Rs 9,146 crore, against a PAT of Rs 726 crore on revenue of Rs 6,625 crore for the corresponding period of the previous fiscal. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Interchangeable with fund-based working capital limits |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||
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Criteria Details
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