Rating Rationale
February 23, 2018 | Mumbai
Gujarat Gas Ltd
Rating Reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.2350 Crore
Long Term Rating CRISIL AA/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AA/Stable' rating on the long-term bank facilities of Gujarat Gas Ltd (GGL)
The rating continues to reflect the company's sizeable scale of operations as the largest city gas distribution (CGD) entity in India, its diversified customer profile, and healthy financial risk profile because of adequate cash accrual and comfortable adequate debt protection metrics. These strengths are partially offset by susceptibility to volatility in the price of re-gasified liquefied natural gas (R-LNG), large capital expenditure (capex) plans for the medium term, and exposure to regulatory risks.
In the first nine months of fiscal 2018, sales volume rose 16% on account of increased demand from industrial and commercial customers. Volumes were slightly lower in fiscal 2017 compared to fiscal 2016 on account of lower demand from industrial customers. In first nine months of fiscal 2018, the company has reported earnings before interest, depreciation, tax and amortization (EBITDA) of Rs 672 crores on revenues of Rs 4,441 crores as against EBITDA of Rs 597 crores on revenues of Rs 3,692 crores in the corresponding period last year.

Analytical Approach

For arriving at the rating, CRISIL has combined the business and financial risk profiles of GGL and its subsidiaries/associates.

Key Rating Drivers & Detailed Description
* 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 leading position in 22 districts across Gujarat, Dadra and Nagar Haveli, and Maharashtra. Its user base comprised 0.11 crore domestic households, around 3050 industrial units, over 12,750 commercial customers, and 252 CNG stations, as on March 31, 2017, providing strong revenue diversity. Its total daily gas sale was about 5.41 million metric standard cubic metres per day (mmscmd) in fiscal 2017. CRISIL expects a moderate uptick in GGL's total gas volume over the medium term on account of entry into new districts, and favourable government policies for expansion of CGD services.
* Healthy financial risk profile
GGL's financial risk profile is driven by healthy cash accrual, comfortable debt protection metrics, and adequate liquidity. Cash accrual rose to Rs 429 crore in the first nine months of fiscal 2018 from Rs 379 crore in the corresponding period of the previous fiscal on account of higher sales volume. The financial risk profile is expected to remain healthy in fiscal 2018.

* Large capex plans over the medium term
GGL will undertake capex for network expansion in newly won geographies such as Dadra and Nagar Haveli, Dahej-Vagra, Dahod, Amreli, and Panchmahal, as well as in Thane, Anand, and Ahmedabad (excluding areas authorised to other CGD companies), and in existing areas of operations. Any material increase in debt will be a key rating sensitivity factor. CRISIL believes GGL will not extend any support to its parent or group company, in line with the past track record.
* Exposure to regulatory risks and volatility in R-LNG price
Regulation of natural gas, including CGD, is still in the initial stage in India, and hence, there is uncertainty regarding regulatory norms for natural gas allocation and distribution. Though the uncertainty in regulation is expected to reduce as the industry attains maturity, any unexpected change in regulations regarding allocation of natural gas and pricing of end-product can adversely impact the CGD players such as GGL. The company will remain vulnerable to volatility in R-LNG price. As most of GGL's customers are in industrial and commercial segments, they are price sensitive and switch to other fuels easily. Hence, the ability of the company to maintain volumes and margins will remain a key monitorable.
Outlook: Stable

CRISIL believes GGL will maintain strong cash accrual over the medium term, supported by its established market position.

Upside scenario
* Sustained improvement in financial risk profile, backed by healthy volume growth and stable gross margin

Downside scenario
* Significant decline in operating performance, or deterioration in capital structure on account of debt-funded capex

About the Company

GGL is India's largest natural gas distribution company, with operations concentrated in Gujarat. It was formed by the amalgamation of GSPC Gas Company Ltd, Gujarat Gas Company Ltd, Gujarat Gas Financial Services Ltd, and Gujarat Gas Trading Company Ltd with GSPC Distribution Networks Ltd. GGL has presence in 22 districts in Gujarat, Union Territory of Dadra and Nagar Haveli, and Maharashtra.

Key Financial Indicators
Particulars Unit 2017 2016
Revenue Rs crore 5,093 6,106
Profit after tax (PAT) Rs crore 186 156
PAT margin % 3.7 2.5
Adjusted debt/adjusted networth Times 1.78 1.83
Interest Coverage Times 3.57 3.11
These are CRISIL adjusted numbers and do not match directly with the numbers reported by the company 
The deferred tax liability of Rs 641.89 crore has been adjusted from the company's networth.

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs Cr) Rating Assigned with Outlook
NA Term Loan NA NA Sep-27 428.00 CRISIL AA/Stable
NA Term Loan NA NA Dec-27 550.00 CRISIL AA/Stable
NA Term Loan NA NA Sep-27 1300.00 CRISIL AA/Stable
NA Proposed Term Loan NA NA NA 72.00 CRISIL AA/Stable
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
--  CCR    --    --    --  22-11-16  Withdrawal  01-07-15  CCR AA  -- 
Fund-based Bank Facilities  LT/ST  2350  CRISIL AA/Stable    No Rating Change    No Rating Change    No Rating Change  01-07-15  CRISIL AA/Stable  -- 
Non Fund-based Bank Facilities  LT/ST    --   No Rating Change    No Rating Change    No Rating Change  30-09-15  CRISIL AA/Stable/ CRISIL A1+  -- 
                    01-07-15  CRISIL A1+   
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Proposed Term Loan 72 CRISIL AA/Stable Proposed Term Loan 43 CRISIL AA/Stable
Term Loan 2278 CRISIL AA/Stable Term Loan 2307 CRISIL AA/Stable
Total 2350 -- Total 2350 --
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 Criteria for Consolidation

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