| Gujarat Gas Limited | ||||
| Rated amount enhanced for Bank Debt | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable’ rating on the long-term bank facilities of Gujarat Gas Limited (GGL).
The rating reflects strong financial risk profile, backed by healthy cash accruals and negligible reliance on external debt. The rating also derives 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 geographical areas (GAs) awarded, and the exposure to regulatory risks.
Operating performance for the company continue to remain healthy. For fiscal 2023, revenues remained flattish versus fiscal 2022 as steep rise in input gas prices impacted its competitiveness vis-à-vis alternate fuels and stunted gas demand. As a result, company recorded a fall in its sales volumes by ~22% to around 8 mmscmd during fiscal 2023 as against 10.7 mmscmd in fiscal 2022. Sales volumes were most impacted in the piped natural gas -industrial (PNG-I) segment as ceramic plants – largest end-user industry for GGL – switched to propane or curtailed operations because of hike in natural gas prices and reduction in ceramic demand. The compressed natural gas (CNG) segment, however, recorded volume growth of 22% owing to addition of new CNG stations. Profitability of the company improved, despite lower volumes, underpinning its ability to pass on the rise in input costs and balance overall margins.
GGL is expected to incur an annual capital expenditure of around Rs. 1000-1200 crore over the medium term, to be largely funded through internal accruals. Contributed by the healthy annual accruals earned, the company continue to remain net debt free as on March 31, 2023. |
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, for details of the entities considered and their analytical treatment for 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 with 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 18.85 lakh domestic households, over 14,390 commercial customers, 808 CNG stations, and close to 4,365 industrial units as on March 31, 2023; 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.
Sustained healthy operating performance GGL is the largest CGD player in India in terms of gas sales volume, and command a sizeable market share of over 30%. 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 GGL’s customer base mix is skewed towards the price sensitive PNG-I segment, it has been able to grow its absolute profitability levels. This is owing to company’s ability to pass on rise in input prices in CNG & piped natural gas - domestic (PNG-D) segments and balance its volumes in PNG-I segment to maximise its cash accruals. Despite the unprecedented steep rise witnessed in input gas prices during fiscal 2023, GGL has been able to sustain the growth momentum in its operating profits.
Strong financial risk profile The company enjoys a strong financial risk profile backed by growth in accruals and negligible reliance on external debt. Increase in cash accruals have been used by the company to fund its capex and prepayment of existing term liabilities. For fiscal 2023 debt/EBITDA remained well below 1x. Further, RoCE continues to remain healthy at >25%, despite having a higher concentration towards the PNG-I segment.
Weakness: Moderate risk in gas availability As per the government directives announced in 2014, CGD companies were to be given a priority in terms of allocation of the cheaper domestic gas; for CNG and domestic PNG sales. However, considering the pace at which the CGD industry is expected to grow its volumes, domestic administered pricing mechanism (APM) gas may not be sufficient to meet the entire requirements of the CGD companies. As such, companies would increasingly have to resort to the costlier non-APM domestic gas/imported R-LNG to suffice its supply requirements. GGL’s ability to pass on the price hikes to its end consumers, thus, will be a key monitorable.
Exposure to competition from alternate sources Post the end of the marketing exclusivity period for the authorized GAs, the company remains exposed to competition that could set in from the other CGD players, though limited to 20% open access. Approximately 63% 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 authorized GAs, wherein it has been able to grow its customer base, despite competition setting in from alternate fuels. |
Liquidity: Superior Liquidity is strong with healthy cash and bank balance maintained of around Rs.681 crores as on March 31, 2023, as compared to Rs 70 crore as on March 31, 2022 and Rs 827 crore as on March 31, 2021. The company has utilized it cash and cash equivalent position to prepay the existing long term debt. The annual cash accruals generated in excess of Rs 1600 crore shall be sufficient to fund the debt obligations and the capex plans of the company over the medium term.
Annual capex is expected to be in the range of Rs 1000-1200 crores which is likely to be met through internal accruals. Liquidity is further supported by unutilized working capital bank lines. |
Outlook: Stable CRISIL Ratings believes GGL will continue to maintain its market leading position in the industry with a robust operating performance, backed by healthy volume growth and stable realization levels. |
Rating Sensitivity Factors Downward Factors
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About the Company GGL is India's largest CGD Company by gas sales volumes. It has 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. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*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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