| Great Eastern Energy Corporation Limited | ||||
| Rating upgraded to 'CRISIL BBB+/ 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 upgraded its ratings on the long-term bank facilities and non-convertible debentures (NCDs) of Great Eastern Energy Corporation Limited. (GEECL) to ‘CRISIL BBB+/Stable’ from 'CRISIL BBB/Stable’. Rating on Rs 68.95 crore of bank facilities and Rs 4.92 crore (refer Annexure – Details of Rating Withdrawn table) of NCDs have been withdrawn since these have been repaid/redeemed. The withdrawal is in line with CRISIL Ratings’ policy on withdrawal of ratings.
The upgrade reflects CRISIL Rating’s expectation of an improvement in the company’s credit risk profile, with expected rise in sales realizations, benefited by steep increase in global natural gas prices. While the long-term sale agreement with its key customer Steel Authority of India Ltd. (SAIL) is due for a renewal shortly and we expect it to be renewed at significantly higher price, the minimum guaranteed off-take agreements (MGOs) with the other customers have already been renewed at significantly higher prices. The renewal of MGO with SAIL and the terms therein are thus a key monitorable for the ratings.
Sales volume have grown by 4% on a y-o-y basis in fiscal 2022. The growth was restricted due to a natural decline in output from the existing 156 wells drilled. However, the company is in the process of undertaking an efficiency capital expenditure (capex) to address this decline, benefits of which is expected to reflect from fiscal 2024 onwards.
GEECL’s moderate financial risk profile has been improving and shall benefit from adequate cash accruals and minimum capex plans. The company maintained a cash balance of Rs 60 crore as on 31st March, 2022. Leverage measured as debt to equity has been comfortable at around 0.56 times as of March 2022 and it is expected to remain below 1 time over the medium term.
Business risk profile continues to remain healthy, driven by its commercially operational Raniganj block with original gas in-place (OGIP) of 10.62 trillion cubic feet, its integrated infrastructure, minimum guaranteed off-take agreements (MGOs) with customers and pricing freedom which ensures certain revenue visibility as well as profitability over the medium term.
The above-mentioned rating strengths are however partially offset by the regional and end-user industry concentration risks, stagnant volumes as well as moderate, though improving, financial risk profile of the company. |
Analytical Approach For analysis, the standalone business and financial risk profile of the company is considered. |
Key Rating Drivers & Detailed Description Strengths:
GEECL is the pioneer of coal-bed methane (CBM) in India and was the first company to commercially produce CBM in 2007. Its primary operational asset is a 210 square kilometer (sq. km) block in Raniganj (South) in West Bengal's Asansol-Raniganj-Durgapur industrial belt. GEECL has a 100% participating interest in the block until 2036 with a possible extension of 5 years. It has laid a dedicated pipeline of around 116 kilometers for distribution of gas to its customers.
The company has long-term sale agreements with SAIL's IISCO steel plant in Asansol and Kulti. SAIL IISCO has a MGO of 0.16 mmscmd (million metric standard cubic meter per day) with the company. The current contract is expected to be renewed shortly, at a significantly higher pricing. SAIL accounted for majority of GEECL's sales volume in fiscal 2022.
Further, MGO contracts are executed with other customers, for contract terms varying between 1 to 3 years. During the current renewal, GEECL has also been able to almost double the MGO volumes with these customers. This would further help mitigate the volume risk to a large extent.
Weakness:
Financial risk profile, while improving, continues to remain moderate. Interest coverage ratio has improved to 2.55 times in fiscal 2022, from 1.77 times in the previous year. Net cash accruals to adjusted debt ratio has moderately improved to 0.16 times in fiscal 2022, from 0.09 times in the previous year. The financial risk profile is expected to improve going forward, with expected ramp-up in sale volumes and improved realizations. The company budgets to incur an efficiency capex of around Rs 100 crore over the next two years, to be mainly funded through a mix of debt and internal accruals.
GEECL’s customer base is mainly concentrated towards the steel industry players, with around 70% off-take confined to SAIL alone in fiscal 2022. This exposes GEECL’s performance to the market trend of the steel industry. Going froward, access to GAIL’s Jagdishpur-Haldia-Bokaro-Dhamra pipeline could provide the company an access to newer markets, thereby minimizing this risk and providing a further support in terms of ramping up the gas sales volume. |
Liquidity: Adequate GEECL maintains adequate liquidity in its books, wherein around Rs 60 crore was maintained as on March 31, 2022 similar to previous year. Around Rs 35-37 crore is due for repayment each in fiscals 2023 and 2024. The cash accruals generated combined with the cash balance maintained would be sufficient to meet its repayment obligations. Also, the efficiency capex planned of around Rs 100 crore over the next two years, is majorly expected to be funded through debt & internal accruals. |
Outlook Stable Backed by proven gas reserves, integrated infrastructure, and improvement in pricing. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company GEECL (earlier known as Modi Mckenzie Ltd), promoted by Mr Yogendra Kumar Modi, is a public limited company listed on the London Stock Exchange and was incorporated in 1992. GEECL produces CBM and is based in Asansol (West Bengal). The company has two CBM blocks, one at Raniganj at West Bengal and the other at Mannargudi in Tamil Nadu.
The company was allotted the Raniganj (South) block on nomination basis by the Ministry of Petroleum and Natural Gas (MoPNG), pursuant to a memorandum of understanding it had signed with Coal India Ltd in 1993. Accordingly, the company entered into a production sharing contract in May 2001 with MoPNG for 35 years, which can have a possible extension by 5 years. The Government of West Bengal, through a production exploration license dated November 9, 2001, gave approvals to the company to undertake its activities in the block. The wells dug in this block are well connected with gas gathering stations and gas is fed into GEECL’s dedicated pipeline network. The Mannargudi block is currently under arbitration. |
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)
Annexure – Details of Rating Withdrawn
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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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