Rating Rationale
February 28, 2020 | Mumbai
Petronet LNG Limited
'CCR AAA/Stable' rating assigned
 
Rating Action
Corporate Credit Rating CCR AAA/Stable (Assigned)
Rs.600 Crore Non Convertible Debentures CRISIL AAA/Stable (Withdrawn)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CCR AAA/Stable' corporate credit rating to Petronet LNG Limited (Petronet). CRISIL has also withdrawn its rating on the NCDs of Rs 600 crore.
 
The rating reflects Petronet's strong business risk profile, backed by a dominant market position in the re-gasified liquified natural gas (RLNG) business, its superior operating efficiency, and healthy financial risk profile reflected by its low gearing and high financial flexibility. These strengths are partially offset by continued low capacity utilisation at the Kochi terminal. Petronet is evaluating various proposals to further expand its reach, mainly in the international market. Petronet is likely to invest prudently in new projects that will be undertaken only after tying up with offtakers and ensuring presence of requisite transportation infrastructure.

Key Rating Drivers & Detailed Description
Strengths:
* Strong business risk profile
Petronet controls nearly 40% of the domestic RLNG capacity, which includes its flagship terminal at Dahej (Gujarat), with capacity of 17.5 million tonne per annum (mtpa; the largest and oldest facility in India) and a 5-mtpa terminal in Kochi (Kerala). It has an established track record and strong relationships with suppliers (RasLaffan Liquefied Natural Gas Co Ltd, Qatar) and intermediate offtakers such as Gail India Ltd, Indian Oil Corporation Ltd (IOCL; 'CRISIL AAA/Stable/CRISIL A1+'), and Bharat Petroleum Corporation Ltd (BPCL; 'CRISIL AAA/Watch Developing/CRISIL A1+'). While domestic regasification capacity is likely to increase over the medium term, Petronet may retain its dominant position in the RLNG business.
 
The capacity at Dahej is almost tied up through take-or-pay contracts or tolling agreements, providing stability to operating profit. These agreements protect Petronet from risks pertaining to capacity utilisation, gas price variability, exchange rate fluctuations, and counterparties. Of the total tied-up capacity, 7.5 mtpa at Dahej and 1.44 mtpa at Kochi are under take-or-pay contracts with suppliers/customers. Additionally 8.25 mtpa is under tolling arrangement. Counterparty risks remain low as intermediate offtakers have a strong credit risk profile. Furthermore, the Dahej terminal has been consistently operating at a capacity utilisation of more than 100% in the past three years. The capacity utilisation is expected to remain healthy post capacity expansion in Dahej. Low capital cost compared to other greenfield terminals, provides superior bargaining power. CRISIL believes Petronet will continue to maintain its superior operating efficiencies, owing to continued high capacity utilisation and stable operating profits.
 
* Healthy financial risk profile
Financial risk profile continues to be strong, marked by healthy gearing of 0.07 time as on March 31, 2019, and comfortable debt protection metrics, with interest coverage and net cash accrual to total debt ratios of over 20.11 times and 1.14 times, respectively, for fiscal 2019. Cash and equivalents were adequate at Rs 4,390 crore as on September 30, 2019, imparting healthy financial flexibility. 2.5 mtpa capacity expansion of the Dahej LNG terminal was entirely funded through internal cash accrual. While the company is exploring multiple project expansion options, it may exercise prudence in their implementation, phasing and funding. Accordingly, the financial risk profile is expected to remain strong over the medium term.
 
Weaknesses:
* Low capacity utilisation at Kochi terminal
The Kochi terminal was commissioned in September 2013, with about 30% capacity tied up in contractual agreements. However, it faces ramp-up risks due to absence of pipeline connecting the terminal to Bengaluru and Mangaluru. Offtake is however expected to improve going forward on recommencement of gas utilisation by FACT plant and commissioning of GAIL's Kochi'Mangaluru pipeline, expected to commission by March 2020. The terminal currently offers value-added services, including bunkering, storage and reload, gassing up, and cooling down.
 
* Execution risks for new projects
Petronet is currently evaluating other potential investments, including small-scale terminals in India, entry into retail sales, and terminals overseas. CRISIL believes that while these projects may carry implementation and offtake risks over the medium term, Petronet may mitigate these by prudently phasing out large regasification terminal projects, maintaining a funding balance with respect to project debt, and ensuring full pipeline connectivity for evacuation of gas and substantial minimum capacity tie-up for the projects. These will remain key monitorables.
Liquidity Superior

Liquidity is healthy, driven by healthy cash accrual of around Rs 1,000 crore. Cash and cash equivalents stood at over Rs 4,390 crore as on September 30, 2019. Petronet also has access to secured fund-based limit of Rs 200 crore (Rs 100 crore interchangeable into non-fund-based limit), with minimum utilisation. Petronet is currently evaluating other potential investments, including small-scale terminals in India, entry into retail sales, and terminals overseas. Petronet is expected to be prudent in implementing these by phasing out large regasification terminal projects, maintaining a funding balance with respect to project debt, and ensuring full pipeline connectivity for evacuation of gas and substantial minimum capacity tie-up for the projects.  Investments in new projects will remain a key monitorable. With gearing of 0.07 time as on March 31, 2019, Petronet has sufficient gearing headroom, to raise additional debt to meet its capital expenditure (capex) requirement.

Outlook: Stable
CRISIL believes Petronet's credit risk profile will remain stable over the medium term due to healthy plant utilisation and stable profitability. While the company is exploring multiple project options, CRISIL believes it will exercise prudence in their implementation, phasing, and funding.

Rating Sensitivity factors
Downward factors
* Changes in contractual or tolling structure, impacting overall capacity utilisation levels to below 70%
* Weakening of credit metrics due to large, debt-funded capex, acquisition, or diversification
About the Company

Petronet was formed by the government in 1998, to import LNG and set up LNG terminals. It commenced commercial operations in April 2004. It is a joint venture of GAIL, Oil and Natural Gas Corporation Ltd, IOCL, and BPCL; each have 12.5% equity share totalling 50%, with the balance held by the public. Petronet has a 17.5-mtpa regasification facility in Dahej and a 5-mtpa regasification facility in Kochi.
 
For the nine months ended December 31, 2019, profit after tax (PAT) was Rs 2,330 crore on net sales of Rs 26,885 crore, against Rs 1,765 crore and Rs 30,012 crore, respectively, for the corresponding period in the previous fiscal.

Key Financial Indicators
As on / for the period ended March 31   2019 2018
Revenue Rs crore 38,309 30,541
PAT Rs crore 2,231 2,110
PAT margin % 5.8 6.9
Adjusted debt/adjusted networth Times 0.07 0.15
Interest coverage Times 20.1 16.5

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 Crore)		 Rating Assigned
with Outlook
NA NA NA NA NA NA NA
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
--  CCR  0.00  CCR AAA/Stable    --    --    --    --  -- 
Non Convertible Debentures  LT  0.00
27-02-20 		 Withdrawn      30-12-19  CRISIL AAA/Stable  28-12-18  CRISIL AAA/Stable  20-12-17  CRISIL AAA/Stable  CRISIL AA+/Positive 
All amounts are in Rs.Cr.
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies

For further information contact:
Media Relations
 Analytical Contacts
 Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

 Sachin Gupta
Senior Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3023
Sachin.Gupta@crisil.com

Nitesh Jain
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3329
nitesh.jain@crisil.com

Joanne Gonsalves
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 22 4254 4071
Joanne.Gonsalves@crisil.com 		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.

CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL