Rating Rationale
August 25, 2020 | Mumbai
Great Eastern Energy Corporation Limited
Rating Outlook revised to 'Stable'; rating reaffirmed 
 
Rating Action
Total Bank Loan Facilities Rated Rs.438.92 Crore (Reduced from Rs.485.56 Crore)
Long Term Rating CRISIL BBB/Stable (Outlook revised from 'Positive' and rating reaffirmed)
 
Rs.71.3 Crore Non Convertible Debentures (Reduced from Rs.78 Crore) CRISIL BBB/Stable (Outlook revised from 'Positive' and rating reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised its rating outlook on the long-term bank facilities and Non-Convertible Debentures (NCDs) of Great Eastern Energy Corporation Ltd (GEECL) to 'Stable' from 'Positive', while reaffirming the rating at 'CRISIL BBB'.
 
CRISIL has withdrawn its rating on Rs 46.64 crore of bank facilities, following a request from the company and an outstanding balance confirmation received from the bank. The outstanding amount of NCDs rated are reduced to Rs 71.30 crore, since a proportionate portion amounting to Rs 6.7 crore has been redeemed. The withdrawal is in line with CRISIL's policy on withdrawal of ratings. 
 
The revision in outlook reflects the expected impact of ongoing covid-19 pandemic on the operating performance of GEECL in fiscal 2021, as a weaker gas offtake could be expected from the end-user industries (mainly steel players) owing to a weaker demand environment and plant shutdowns during the first quarter. 
 
Further, fiscal 2020's operating performance has been impacted as volumes declined by 9% on a y-o-y basis. This has largely been on account of a muted demand environment experienced during the second half, caused by an overall industrial slowdown which has impacted the steel sector in particular.
 
However, financial risk profile was supported by adequate liquidity maintained (~Rs 88 crore as on March 31, 2020). Despite a decline in operating performance during fiscal 2020, GEECL has prepaid ~Rs 10 crore of debt in addition to ~Rs 50 crore of scheduled repayments. An improvement in financial risk profile is expected over the medium term, with improvement in cash accruals and no major capital expenditure plans.
 
The rating continues to reflect the company's healthy business risk profile, driven by its commercially operational Raniganj block with reserves of 2.62 trillion cubic feet, integrated infrastructure, and long-term sales agreement with Steel Authority of India Ltd (SAIL). The above mentioned rating strengths are however partially offset by the moderate, but improving financial risk profile of the company.

Key Rating Drivers & Detailed Description
Strengths:
* Commercially operational Raniganj block with proven gas reserves and integrated infrastructure
GEECL is the first company to commercially produce coal-bed methane (CBM) in India. 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 possible of extension by 5 years. It has laid a dedicated pipeline of around 116 kilometer for distribution of gas to customers.
 
* Long-term sale agreements with SAIL, and MGO contracts executed with customers mitigates volume risk to an extent
The company has long-term sale agreements with SAIL's IISCO steel plant in Asansol and alloy steel plant in Durgapur. The agreements are attractively priced at Rs. 23/SCM (standard cubic meter) and SAIL IISCO has a minimum guaranteed off-take of 0.16 mmscmd (million metric standard cubic meter per day) with the company. SAIL accounted for ~ 60% of GEECL's sales in fiscal 2020.
 
Further, minimum guarantee offtake contracts are being executed with other customers, for contract terms varying between 1 to 2 years. This enables to mitigate volume risk to an extent. The actual offtake by the customers have however been higher than the MGO requirements. Also, GEECL has been able to renew MGO contracts at a higher rate during first half of fiscal 2021, which depicts its ability to retain its customer base.
 
* Expected ramp-up in sales volume and healthy outlook for the natural gas sector in India
The company will benefit from increased demand from SAIL, addition of customers, and access to new markets with implementation of the Jagdishpur-Haldia-Bokaro-Dhamra pipeline of GAIL India Ltd. The demand outlook for the natural gas sector in India remains healthy. Further, maintenance capex incurred by the company can lead to higher gas volumes.
 
Weaknesses:
* Average, albeit improving, financial risk profile
The financial risk profile has been constrained by average debt coverage indicators, with adjusted interest coverage ratio of 2.22 times and net cash accrual to adjusted debt ratio of 0.19 time in fiscal 2020. The financial risk profile is expected to improve post fiscal 2021 with expected ramp-up in sales volumes resulting in better accruals. No major capital expenditure plans over the medium term should also improve the overall financial risk profile.
Liquidity Adequate

GEECL maintains adequate liquidity in its books, wherein Rs 88 crore was maintained as on March 31, 2020 (compared to Rs 76.98 crore as on March 31, 2019). In addition to the scheduled repayment of Rs 50 crore in fiscal 2020, the company has prepaid ~Rs 10 crore. Around Rs 68 crore and Rs 56 crore are due for repayment in fiscals 2021 and 2022, respectively. The cash accruals generated combined with the cash balance maintained will be sufficient to meet its repayment obligations. No major capital expenditure is expected over the medium term which would also support liquidity. 

Outlook: Stable

Backed by proven gas reserves, integrated infrastructure, pricing freedom and steady improvement expected in sale volumes.

Rating Sensitivity factors
Upward factors
* Ramp-up in sale volumes, resulting in sustained improvement in cash accruals
* Reduction in debt levels, leading to sustained improvement in debt protection metrics such as an interest coverage ratio of ~3 times
 
Downward factors
* Higher than expected capex and decline in sales leading to sustained weakening of debt protection metrics like interest coverage ratio to below ~2 times
* Increase in competitive intensity impacting sales volume and profitability
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
Particulars Unit 2020 2019
Revenue Rs Cr. 251 299
Profit after tax Rs Cr. 64 57
PAT margin % 25.6 19.2
Adjusted debt/Adjusted networth Times 0.77 0.93
Interest coverage Times 2.22 2.92

Status of non cooperation with previous CRA:
GEECL has not cooperated with CARE Ratings which has classified it as issuer not cooperative vide release dated March 25, 2020. The reason provided by CARE Ratings is non-furnishing of information and payment of annual surveillance fees for monitoring of ratings.

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity
Date		 Issue Size
(Rs Cr)		 Complexity
level		 Rating Assigned
with Outlook
NA Rupee Term Loan NA NA 31-Mar-30 158.33 NA CRISIL BBB/Stable
NA External Commercial Borrowing NA NA 31-Mar-30 159.34 NA CRISIL BBB/Stable
NA Corporate Loan NA NA 31-Mar-22 42.10 NA CRISIL BBB/Stable
NA Corporate Loan NA NA 31-Mar-23 31.03 NA CRISIL BBB/Stable
NA Corporate Loan NA NA 31-May-21 15.04 NA CRISIL BBB/Stable
NA Long-Term Loan NA NA 05-Sep-27 30.59 NA CRISIL BBB/Stable
NA Long-Term Loan NA NA 08-Apr-21 2.49 NA CRISIL BBB/Stable
NA Rupee Term Loan NA NA NA 9.76 NA Withdrawn
NA Corporate Loan NA NA NA 33.48 NA Withdrawn
NA Long-Term Loan NA NA NA 3.40 NA Withdrawn
INE882G07017 Non- convertible debentures 30-Dec-13 14% 31-Mar-30 11.88 Simple CRISIL BBB/Stable
INE882G07025 Non- convertible debentures 15-Mar-14 14% 31-Mar-30 59.42 Simple CRISIL BBB/Stable
 
Annexure - Details of Rating Withdrawn
ISIN Name of Instrument Date of Allotment Coupon
Rate (%)		 Maturity
Date		 Issue Size
(Rs Cr)		 Complexity
level
INE882G07017 Non- convertible debentures 30-Dec-13 14% 31-Mar-30 1.38 Simple
INE882G07025 Non- convertible debentures 15-Mar-14 14% 31-Mar-30 5.32 Simple
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures  LT  71.30
25-08-20  		CRISIL BBB/Stable      09-08-19  CRISIL BBB/Positive  05-09-18  CRISIL BBB/Stable    --  -- 
Fund-based Bank Facilities  LT/ST  438.92  CRISIL BBB/Stable      09-08-19  CRISIL BBB/Positive  05-09-18  CRISIL BBB/Stable    --  -- 
                14-08-18  CRISIL BBB/Stable       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Corporate Loan 88.17 CRISIL BBB/Stable Corporate Loan 126.81 CRISIL BBB/Positive
Corporate Loan 33.48 Withdrawn External Commercial Borrowings 154.18 CRISIL BBB/Positive
External Commercial Borrowings 159.34 CRISIL BBB/Stable Long Term Loan 36.48 CRISIL BBB/Positive
Long Term Loan 33.08 CRISIL BBB/Stable Proposed Long Term Bank Loan Facility 86.75 Withdrawn
Long Term Loan 3.4 Withdrawn Rupee Term Loan 168.09 CRISIL BBB/Positive
Rupee Term Loan 158.33 CRISIL BBB/Stable -- 0 --
Rupee Term Loan 9.76 Withdrawn -- 0 --
Total 485.56 -- Total 572.31 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings

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