| Gujarat Gas Limited | ||||
| Rating outlook revised to 'Positive', rating reaffirmed | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank facilities of Gujarat Gas Limited (GGL) to 'Positive' from 'Stable' while reaffirming the rating at 'CRISIL AA+'.
GGL is expected to incur an annual capital expenditure of around Rs. 1000 crore over the medium term, to be largely funded through internal accruals. Contributed by the healthy annual accruals earned, the company is expected to become net debt free by next fiscal.
The rating also takes 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 newer GAs awarded and the exposure to regulatory risks. |
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 - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths
GGL’s strong and established market position in the CGD industry in India is indicated by its industry-leading presence in 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 15.7 lakh domestic households, over 13,100 commercial customers, 564 CNG stations, and close to 4,100 industrial units as on June 30, 2021; 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.
GGL is the largest CGD player in India, with strong and established market share. 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 volumes during the first quarter of fiscal 2021 were impacted by the Covid-19 induced lockdown restrictions, subsequent ramp up in performance enabled the company to report average volumes of 9.39 mmscmd which were in line with fiscal 2020’s average volumes of 9.44 mmscmd. The major revival in performance during fiscal 2021 was contributed by the Morbi ceramic players who were able to maintain their volumes by enhancing their reach in the export market during times when the domestic sales were weak. While the second wave of Covid-19 too had some impact on the volumes, there has still been an improvement to 10.01 mmscmd when compared to the past fiscal’s average performance. Going forward, a positive demand outlook from CNG and industrial segments combined with healthy ramp up expected on commercialisation of new geographical areas (GAs) should support the volume growth.
Operating margins have remained elevated at 21.54% in fiscal 2021 and 24.01% during the first quarter of fiscal 2022, as GGL was able to take advantage of the pricing arbitrage between the then prevailing spot and contracted LNG prices. However, over the medium, CRISIL Ratings expects the margins to normalise to 13-15%, with revival expected in the contracted LNG prices.
GGL’s financial risk profile is driven by the healthy annual cash accruals earned, its comfortable debt protection metrics and adequate liquidity maintained. Gearing improved to 0.22 times as on March 31, 2021 as compared to 0.67 times as on March 31, 2020. The annual cash accruals generated in excess of Rs 1,500 crore is expected to be sufficient to fund its annual capital expenditure plans over the medium term. Even if the company evaluates further growth opportunities going forward, its net Debt/EBITDA position is not likely to exceed 1 time.
Weaknesses:
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.
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 80% 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. 630 crore as on June 30, 2021, as compared to Rs 827 crore as on March 31, 2021. The annual cash accruals generated in excess of Rs 1500 crore is expected to be sufficient to service the debt repayments of the company. The healthy cash accruals earned of Rs 1533 crore in fiscal 2021 enabled the company to prepay term loans amounting to Rs 937 crore in addition to its scheduled repayments of Rs 164 crore. During the first quarter of fiscal 2022 too, the company has prepaid term loans of Rs 170 crore. Expected annual capital expenditure of Rs 1000 crore would mainly be met through internal accruals. Liquidity is further supported by unutilized working capital bank lines. |
Outlook: Positive GGL's credit risk profile may improve in near to medium term on back of growth in sales volumes resulting in sustenance of strong operating performance, robust financial risk profile and healthy liquidity position. |
Rating Sensitivity factors Upward 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 quarter of fiscal 2022, GGL reported profit after tax (PAT) of Rs 477 crore on revenues of Rs 3,011 crore, against a PAT of Rs 59 crore on revenue of Rs 1,083 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: 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. 1 crore interchangeable with fund based working capital limits $Rs. 150 crore 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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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||
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Criteria Details
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