Detailed Rationale CRISIL Rating on the bank facilities of Gujarat Gas Limited (GGL) continues to reflect the company’s sizeable scale of operations as the largest CGD entity in India, its healthy operating performance and comfortable financial risk profile. These strengths are partially offset by its exposure to volatility in R-LNG and domestic natural gas prices and exposure to regulatory risks.
GGL has received the authorisation to set up city gas distribution (CGD) network in 7 Geographical Areas (GAs) that were won during the Round 9 and Round 10 bid conducted by the Petroleum and Natural Gas Regulatory Board (PNGRB). The Company would be incurring an annual capex of Rs 700-800 crore over the medium term, to be largely funded through internal accruals. Further, it also plans to expand the network within existing GAs. The project risk on account of sizeable capex and newer geographies is partially mitigated by GGL's long standing experience in the CGD business. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of GGL and its subsidiaries/associates to arrive at the ratings.
Please refer Annexure - Details of Consolidation, 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 in 23 districts spread across Gujarat, Dadra and Nagar Haveli, and Maharashtra. Further, the Company has also won bids during the 9th and 10th CGD bidding round to set up CGD networks in 7 new GAs in the states of Gujarat, Rajasthan, Haryana, Punjab and Madhya Pradesh. New GAs should help attain geographical diversification while expanding the scale of operations. The Company’s user base comprised of over 15 lakh domestic households, more than 3900 industrial customers, more than 12,800 commercial establishments and more than 480 CNG stations, as on December 31, 2020, thus providing strong revenue diversity. PNGRB has, vide letters dated June 29, 2020, accepted the proposal for the transfer of authorization of the Amritsar District GA and Bhatinda District GA from Gujarat State Petronet Limited (GSPL) to GGL, subject to certain conditions. Accordingly, PNGRB has permitted the Company to take over activities of laying, building, operating or expanding CGD network of Amritsar District GA and Bhatinda District GA.
Healthy operating performance GGL is the largest CGD player in India, with strong and established market share. The Company has been able to sustain improvement in its operating performance, despite volatility in RLNG and domestic gas prices.
Operating performance improved in fiscal 2020, contributed by rise in the gas volumes sold and improved margin levels. Average gas volumes sold grew by 44% to 9.44 mmscmd in fiscal 2020 (from 6.54 mmscmd in fiscal 2019). The significant growth in volumes was mainly contributed by rise in sales in the Morbi industrial area, wherein the NGT has banned the usage of coal gasifiers.
While volumes were impacted during the first quarter of fiscal 2021 largely by the Covid-19 induced lockdown restrictions placed, business has revived since then with the company achieving its pre-Covid volumes by second quarter of fiscal 2021. Average gas sale volumes for the second quarter of fiscal 2021 was at 9.85 mmscmd, which further improved to 11.44 mmscmd during the third quarter of fiscal 2021. Commercialisation of new GAs would further support the volume growth.
Improvement in operating margins to 16% in fiscal 2020 (from 13% earned in the fiscal 2019) and 24.75% during nine months of fiscal 2021, was mainly contributed by the decline in the spot LNG prices. The sourcing mix has tilted towards the cheaper spot LNG to meet the incremental demand of industrial customers. CRISIL Ratings however expects the margins to normalise to 12% - 14% going forward, with revival expected in the spot LNG prices.
Comfortable financial risk profile GGL’s financial risk profile is driven by healthy cash accruals, comfortable debt protection metrics, and adequate liquidity. Cash accruals increased to Rs 1,434 crore during fiscal 2020 from Rs 640 crore in fiscal 2019. Despite the Covid-19 induced lockdown restrictions placed, the Company was able to report healthy cash accruals of Rs 1,180 crore during the nine months of fiscal 2021. Gearing improved to 0.67 times as on March 31, 2020 as compared to 1.18 times as on March 31, 2019. The annual cash accruals generated in excess of Rs 1,000 crore is expected to be sufficient to fund the capex plans of the company over the medium term, and accordingly the net Debt/EBITDA position is not expected to exceed 2.5 times.
Weakness: Exposure to regulatory risks Regulation of natural gas, including CGD, is still in the initial stage in India and hence there is considerable uncertainty regarding the regulatory norms for natural gas allocation and distribution. Though the uncertainty in regulation is expected to subside as the industry attains maturity, any unexpected change in regulations regarding allocation of natural gas and pricing of end-product can adversely impact CGD players like GGL.
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. ~78% of GGL’s 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 Rs. 653 crore as on March 31, 2020, as compared to Rs 271 crore as on March 31, 2019. The annual cash accruals generated in excess of Rs 1000 crore is expected to be sufficient to service the debt repayments of the Company. GGL has prepaid term loans of Rs 988 crore during the nine months of fiscal 2021. Expected annual capex of Rs 700-800 crore would mainly be met through internal accruals. Liquidity is further supported by largely unutilized working capital bank lines. |
Outlook Stable CRISIL believes GGL will continue to depict a steady growth in operating performance, backed by healthy volume growth and stable realisation levels. |
Rating Sensitivity factors Upward factors
Downward factors
|
About the Company GGL is India's largest CGD Company, with 25 CGD licenses spread across 42 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. Moreover, PNGRB has, vide letters dated June 29, 2020, accepted the proposal for the transfer of authorization of the Amritsar District GA and Bhatinda District GA from Gujarat State Petronet Limited (GSPL) to GGL, subject to certain conditions. Accordingly, PNGRB has permitted the Company to take over activities of laying, building, operating or expanding CGD network of Amritsar District GA and Bhatinda District GA.
For the nine months ended December 31, 2020, GGL reported profit after tax (PAT) of Rs 926 crore on revenues of Rs 6,425 crore, against a PAT of Rs 948 crore on revenue of Rs 7,634 crore for the corresponding period of the previous fiscal. |
Key Financial Indicators
|
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*Rs.0.05 crore interchangeable with fund based working capital limits **Rs.150 crore interchangeable with fund based working capital limits |
Annexure – List of entities consolidated
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Name of Lender | Amount (Rs.Crore) | Rating |
| Non-Fund Based Limit** | HDFC Bank Limited | 630 | CRISIL AA+/Stable |
| Non-Fund Based Limit* | ICICI Bank Limited | 60 | CRISIL AA+/Stable |
| Non-Fund Based Limit | YES Bank Limited | 730 | CRISIL AA+/Stable |
| Term Loan | HDFC Bank Limited | 587 | CRISIL AA+/Stable |
| Term Loan | HDFC Bank Limited | 343 | CRISIL AA+/Stable |
Criteria Details
|