| Maharashtra Natural Gas Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale: CRISIL Ratings has revised its outlook on the long-term bank facilities of Maharashtra Natural Gas Limited (MNGL) to ‘Positive’ from ‘Stable’ while reaffirming the long term rating at ‘CRISIL AA-’, the short term rating is reaffirmed at 'CRISIL A1+’.
The outlook revision reflects the expectation that MNGL’s credit risk profile will improve in the near term backed by sustenance of the improvement in operating performance and continued comfortable financial risk profile.
Post the mid-term hiccups in operating performance in fiscal 2021, there was a robust growth in sales volume to 353 mmscm (million metric standard cubic metre) in fiscal 2022 from 247 mmscm in the previous fiscal. Operating performance improved despite the steep rise in input gas prices, as reflected in blended earnings before interest, tax, depreciation and amortisation (Ebitda) per standard cubic metre (scm) increasing to Rs 15.22 in fiscal 2022 from Rs 13.10 in fiscal 2021. The improvement in operating performance should sustain, backed by increase in sales volume from the new geographical areas (GAs) where the city gas distribution (CGD) network is being set up. That said, MNGL’s ability to sustain its profitability amidst concerns faced by the industry in terms of adequate allocation of required low-cost administered pricing mechanism (APM) gas, would be a key rating monitorable.
The financial risk profile remains comfortable despite continued capital expenditure (capex), benefited by healthy cash accrual and the modular nature of capex. CRISIL Ratings believes the company will continue to fund capex prudently and maintainhealthy capital structure.
Under the recently concluded 11th CGD bidding round by the Petroleum and Natural Gas Regulatory Board (PNGRB), MNGL has received authorisation to set up CGD network in two new GAs. Feasibility study for these GAs is currently under progress. The company is largely on track towards achieving its minimum work programme (MWP) targets with respect to setting up compressed natural gas (CNG) stations and laying out the required pipeline connectivity in the three GAs awarded during the 9th CGD bidding round.
The ratings continue to reflect the comfortable business risk profile of the company, backed by monopoly in the supply of CNG and PNG in the awarded GAs. Furthermore, it continues to receive the required managerial and technical support from its promoters, GAIL India Ltd (GAIL), Bharat Petroleum Corporation Ltd (BPCL; 'CRISIL AAA/Watch Developing/CRISIL A1+') and Indraprastha Gas Ltd (IGL). These strengths are partially offset by continued project risk in terms of timely and cost-efficient implementation of the CGD network in the GAs awarded in the 9th and 11th rounds. |
Analytical Approach: CRISIL Ratings has considered the standalone credit risk profile of MNGL. |
Key Rating Drivers & Detailed Description: Strengths:
MNGL is the sole distributor of CNG and piped natural gas (PNG) in the CGD projects bagged in the PNGRB auctions. As per PNGRB regulations, marketing exclusivity rights are granted by PNGRB for 8 years (5 years till the 8th bidding round) and network exclusivity rights for 25 years. Even with the marketing exclusivity right ending for the Pune GA in April 2014, no new player entered the area indicating the high entry barriers to the business. MNGL is, therefore, well-positioned to tap the expected growth in the sector in its GAs.
The company also has authorisation for setting up CGD networks in three new geographies under round 9 of the PNGRB auctions—Ramanagara in Karnataka; Valsad (except areas already authorised) in Gujarat, Dhule, Nashik in Maharashtra; and Sindhudurg in Maharashtra. Considering the extensions permitted by PNGRB for the execution delays because of the pandemic, MNGL will have marketing exclusivity up to 2027 and network exclusivity up to 2043 for these GAs.
Under the recently concluded 11th CGD bidding round, MNGL has received authorisation to set up CGD network in two new GAs—Buldana, Nanded and Parbhani in Maharashtra; and Nizamabad, Adilabad, Nirmal, Mancherial, Kumuram Bheem Asifabad and Kamareddy districts in Telangana. Feasibility study for these GAs is in progress.
Operating performance improved in fiscal 2022, driven by ramp up in volume both from the existing as well as the new GAs. Gas volume sales have grown to 353 mmscm in fiscal 2022 as compared to 247 mmscm in fiscal 2021. Further ramp up in volumes could be expected, to accrue mainly from the new GAs where the CGD network is being set up.
Operating profits have also improved despite the steep rise witnessed in input gas prices, with a blended Ebitda per scm increasing to Rs 15.22/scm in fiscal 2022, from Rs. 13.10/scm in fiscal 2021. MNGL’s ability to sustain its profitability amidst the concerns faced by the industry in terms of adequate allocation of required low-cost APM gas, would be a key rating monitorable.
MNGL was set up as a joint venture (JV) between GAIL and BPCL, each with 22.50% stake, with the balance held by financial institutions. In August 2014, IGL acquired 50% stake from financial institutions. GAIL and BPCL are amongst the leading players in the oil and gas segment in India and have strong business and financial risk profiles. They have been successfully managing many such JVs, and possess strong operational and technical expertise. IGL, also promoted by GAIL and BPCL, is a leading CGD player with an exclusive position in Delhi. MNGL benefits from the strong managerial and technical support from the promoters; its senior personnel have been deputed from the parents. Project implementation and ramp-up in operations should continue to benefit from the continued operational and technical support from IGL, BPCL and GAIL.
Weaknesses:
For the three GAs awarded in the 9th round, the budgeted capex is around Rs 3,480 crore, to be incurred over a period of eight years. This capex would be funded in a debt-to-equity ratio of 67:33.
Considering the healthy cash accruals earned from the existing operations, no additional equity infusion is expected.
For the two GAs awarded under the recently concluded 11th CGD bidding, the feasibility study is currently under progress post which the financial closure would be undertaken. CRISIL Ratings however believes that the company will continue to prudently fund its capex, along with maintaining an overall healthy capital structure.
The company largely is on track in achieving its MWP targets with regards to setting up CNG stations and laying out the required pipeline connectivity in the three GAs that were awarded during the 9th CGD bidding round. However, a continued track record of the company being able to timely and cost-efficiently implement the CGD network in the awarded GAs would be closely monitored.
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 APM gas may not be sufficient to meet its entire requirements and Hence the companies would increasingly have to resort to the costlier non-APM domestic gas/imported R-LNG to suffice its supply requirements. The Government has recently revised its guidelines on allocation and supply of pooled gas wherein GAIL along with monitoring the supply of APM domestic gas will also be responsible for sourcing the required non-APM gas/imported LNG to meet the players CNG and domestic PNG sale requirements. While MNGL has been able to pass on a maximum increase of the price hikes to its end consumers as alternate fuels are priced even higher, its sustainability will be a key monitorable; as it would be a key determinant in enabling the company to maintain its operating profitability. |
Liquidity: Strong Cash accruals are likely to be sufficient to support the capex plans and debt repayment obligations. Capex of around Rs 550 crore and Rs 1000 crore is budgeted to be incurred in fiscal 2023 and fiscal 2024 respectively, to be funded through internal cash accruals and debt. For the fresh debt availed for the new GAs, the repayment obligation would begin only in fiscal 2025, thus providing further comfort to the cash flow position. |
Outlook: Positive MNGL’s credit risk profile may improve in the near term, supported by sustained growth in sales volumes and improved profitability. Timely and cost-efficiently Achieving its MWP targets in the newly awarded GAs would maintain its comfortable financial risk profile. |
Rating Sensitivity factors: Upward Factors:
Downward Factors:
|
About the Company: MNGL was incorporated in January 2006 to implement a CGD project in Pune. It was set up as a JV between GAIL and BPCL, each holding 22.5%, and the balance held by financial institutions. In May 2009, PNGRB granted MNGL exclusive rights for laying, building, operating, and expanding city or local natural gas distribution network in Pune, including Pimpri-Chinchwad and the adjoining contiguous areas of Hinjewadi, Chakan and Talegaon. The company has been distributing CNG since October 2008, PNG to domestic consumers since November 2009, and PNG to commercial consumers since January 2010 in Pune city. The marketing exclusivity period was for 5 years through April 2014 and network exclusivity is for 25 years.
In August 2014, IGL acquired 50% stake in MNGL from financial institutions for Rs 190 crore. In fiscal 2016, Maharashtra Industrial Development Corporation bought 5% stake through fresh issuance of equity shares of Rs 5 crore.
The company won three geographies in the 9th CGD bidding round and two in the recently concluded 11th round. |
Key Financial Indicators:
*Provisional financials |
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 - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
|
This Annexure has been updated on 13-May-2022 in line with the lender-wise facility details as on 07-Dec-2021 received from the rated entity.
Criteria Details
|