| Petronet LNG Limited | ||
| Rating reaffirmed at 'CCR AAA / Stable' | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CCR AAA/Stable’ corporate credit rating on Petronet LNG Ltd (Petronet).
The rating reflects Petronet’s strong business risk profile, backed by its dominant market position in the re-gasified liquified natural gas (RLNG) business, its superior operating efficiency, and healthy financial risk profile reflected by its low gearing and high financial flexibility.
The long-term take-or-pay contracts and tolling agreements executed majorly insulates performance of the Dahej terminal, from any fluctuations faced in its utilisation levels. Pending the completion of the Kochi-Bengaluru pipeline and amidst the spike witnessed in R-LNG prices, the Kochi terminal continues to operate at low utilisation levels of approx. 25%.
Further, Petronet is also evaluating various proposals to further expand its reach, both in the domestic as well as international market. It plans to expand the capacity of its Dahej terminal from current 17.5 MTPA to 22.5 MTPA, in two tranches of 2.5 MTPA each. CRISIL Rating believes that Petronet would prudently invest in new projects that will be undertaken only after tying up with offtakers and ensuring presence of requisite transportation infrastructure. |
Key Rating Drivers & Detailed Description Strengths: * Strong business risk profile Petronet controls nearly 40% of the domestic RLNG capacity, which includes its flagship terminal at Dahej (Gujarat), with capacity of 17.5 million tonne per annum (mtpa; the largest and oldest facility in India) and a 5-mtpa terminal in Kochi (Kerala). It has an established track record and strong relationships with suppliers (RasLaffan Liquefied Natural Gas Co Ltd, Qatar) and intermediate offtakers such as Gail India Ltd, Indian Oil Corporation Ltd (IOCL; ‘CRISIL AAA/Stable/CRISIL A1+’), and Bharat Petroleum Corporation Ltd (BPCL; ‘CRISIL AAA/Watch Developing/CRISIL A1+’). While domestic regasification capacity is likely to increase over the medium term, Petronet may retain its dominant position in the RLNG business.
The capacity at Dahej is almost tied up through take-or-pay contracts or tolling agreements, providing stability to operating profits. These agreements protect Petronet from risks pertaining to capacity utilisation, gas price variability, exchange rate fluctuations, and counterparties. Of the total tied-up capacity, 7.5 mtpa at Dahej and 1.44 mtpa at Kochi are under take-or-pay contracts with suppliers/customers. Additionally, 8.25 mtpa is under tolling arrangements. Counterparty risks remain low as intermediate offtakers have a strong credit risk profile. Furthermore, the Dahej terminal has been consistently operating at a capacity utilisation of more than 100% in the past few years. The capacity utilisation is expected to remain healthy post capacity expansion in Dahej. Low capital cost compared to other greenfield terminals, provides superior bargaining power. CRISIL Rating believes Petronet will continue to maintain its superior operating efficiencies, owing to continued high-capacity utilisation and stable operating profits.
* Healthy financial risk profile Financial risk profile continues to be strong, marked by healthy gearing of 0.01 times as on March 31, 2021, and comfortable debt protection metrics, with interest coverage and net cash accrual to total debt ratios of over 15.11 times and 22.70 times, respectively, for fiscal 2021. Liquidity position was adequate at Rs 7,204 crore as on September 30, 2021, imparting healthy financial flexibility. While the company is exploring multiple project expansion options, it may exercise prudence in their implementation, phasing and funding. Over the medium term, it plans to expand the capacity of its Dahej terminal from current 17.5 MTPA to 22.5 MTPA, in two tranches of 2.5 MTPA each. Rs. 2000-2,500 crore of investments are estimated over the next 2-3 years, to undertake further facility expansion for the existing terminal and to expand the terminalling capacity by 2.5 MTPA. These investments would entirely be funded through internal accruals. Accordingly, the financial risk profile is expected to remain strong over the medium term.
Weaknesses * Execution risks for new projects Petronet is currently evaluating other potential investments, including small-scale terminals in India, entry into retail sales, and terminals overseas. CRISIL Ratings believes that while these projects may carry implementation and offtake risks over the medium term, Petronet may mitigate these by prudently phasing out large regasification terminal projects, maintaining a funding balance with respect to project debt, and ensuring full pipeline connectivity for evacuation of gas and substantial minimum capacity tie-up for the projects. These will remain key monitorables.
* Low-capacity utilisation at Kochi terminal The Kochi terminal was commissioned in September 2013, with about 30% capacity tied up in contractual agreements. However, it faced ramp-up risks due to absence of pipeline connecting the terminal to Bengaluru and Mangaluru, wherein utilisations were low at around 18% over the past three years.
Commissioning of the Kochi-Mangaluru pipeline in November 2020 was expected to improve the utilisations to around 30% in fiscal 2022. Utilisation levels however continue to remain low at approximately 25%, amidst the spike witnessed in R-LNG prices. However, over the medium term, moderation in R-LNG prices combined with commissioning of the Kochi-Bengaluru pipeline should gradually improve the utilisation levels for this terminal. Additionally, the Kochi terminal also offers various value-added services, including bunkering, storage and reload, gassing up, and cooling down. |
Liquidity: Superior Liquidity is healthy, driven by healthy annual cash accruals of more than Rs 2,500 crore. Liquidity position stood at around Rs. 7,204 crore as on September 30, 2021. Petronet also has access to secured fund-based intra-day limit of Rs 500 crore with minimum utilisation. Ample liquidity coupled with healthy accruals would enable Petronet to internally fund its near term expansion plans. With gearing of 0.01 time as on March 31, 2021, Petronet has sufficient gearing headroom, to raise additional debt to meet its capital expenditure (capex) requirements, if need be. |
Outlook Stable Petronet’s credit risk profile is expected to remain stable over the medium term due to healthy terminal utilisation and stable profitability. While the company is exploring multiple project options, CRISIL Ratings believes it will exercise prudence in their implementation, phasing, and funding. |
Rating Sensitivity factors Downward factors
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About the Company Petronet was formed by the government in 1998, to import LNG and set up LNG terminals. It commenced commercial operations in April 2004. It is a joint venture of GAIL, Oil and Natural Gas Corporation Ltd, IOCL, and BPCL; each have 12.5% equity share totalling 50%, with the balance held by the public. Petronet has a 17.5-mtpa regasification facility in Dahej and a 5-mtpa regasification facility in Kochi.
For the nine months ended December 31, 2021, profit after tax (PAT) was Rs 2,939 crore on net sales of Rs 26,023 crore, against Rs 2,301 crore and Rs 18,448 crore, respectively, for the corresponding period in 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)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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