july 10, 2017 adani gas limited - icraadani gas -r... · july 10, 2017 adani gas limited summary of...
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July 10, 2017
Adani Gas Limited
Summary of Rated Instruments
Instrument* Rated Amount
(in crore)
Rating Action
Term Loans Rs 394 crore
(enhanced from Rs 107 crore)
Reaffirmed at [ICRA]A+ (Stable)
Short Term Fund Based
Limits
Rs 55 crore
(enhanced from Rs 25 crore)
Reaffirmed at [ICRA]A1+
Short Term Non Fund Based
Limits
Rs 228 crore#
(reduced from Rs 398 crore)
Reaffimed at [ICRA]A1+
Unallocated limits Rs 24 crore Reaffirmed at
[ICRA]A+(Stable)/[ICRA]A1+
Long Term Fund Based
Limits
Nil
(reduced from Rs 90 crore)
-
*Instrument Details are provided in Annexure-1
#Contains Rs 75 Cr interchangeable with FB limits
Rating Action
ICRA has reaffirmed the long term rating of [ICRA]A+ (pronounced as ICRA A plus) on the Rs 394
crore (enhanced from Rs 107 crore) term loans of Adani Gas Limited (AGL). The outlook on the long
term rating is Stable. ICRA has also reaffirmed the short term rating of [ICRA]A1+(pronounced as ICRA
A one plus) on the Rs 55 crore (enhanced from Rs 25 crore) short term fund based facilities and the Rs
228 crore (reduced from Rs 398 crore) short term non fund based facilities of AGL. ICRA has also
reaffirmed the ratings of [ICRA]A+(Stable)/[ICRA]A1+ to the unallocated limits of Rs 24 crore. The
short term non fund based facility (of Rs 228 crore) includes a facility of Rs 75 crore which is
interchangeable as a fund based facility.
Detailed Rationale
The ratings continue to factor in the healthy financial risk profile of AGL characterized by adequate
return metrics and debt protection metrics supported by stable cash generation from its ongoing business.
The ratings favorably factor in the improvement in marketed gas volumes during FY2017, strong
contribution margins and the balanced revenue mix of AGL amongst CNG and PNG consumers which
together continue to lend stability to the revenue model.
The ratings, however, continue to remain constrained by the high payouts/advances to parent - AEL
which have limited the de-leveraging at AGL. ICRA has considered the management’s stated stance of 1)
Bringing down the existing payouts to Rs 385 Cr by FY 2018 end at the rate of Rs 25 each quarter
starting Q1FY2018, 2) Limiting any payouts from FY 2019 onwards to a maximum of 50% of PAT and
3) Adding debt for incremental capex at a D:E ratio of 3:1 or lower. ICRA believes that the above shall
ensure that the company undergoes de-leveraging in a sustained manner going forward. Further, the
ratings are constrained by the pending authorization of AGL’s operations in some cities and the
continuing moderate scale capital expenditure (capex) programmes for CGD network expansion. Any
significant upward revision in domestic gas price or change in gas allocation policy could impact the
competitive advantage over liquid fuels/LPG. ICRA notes that volume growth in PNG-Industrial segment
in key operational areas – Ahmedabad and Faridabad remains under pressure on account of lower
competitiveness against alternative fuels and the introduction of GST may increase the disadvantage
further. The ratings are also constrained by the equity commitments/significant indirect exposure to JV
company – Indian Oil Corporation – Adani Gas Private Limited (IOC-AGPL) in the form of corporate
guarantees for its CGD operations.
Key rating drivers
Credit Strengths
Prospects for CNG and PNG domestic segment volume growth remain favourable as healthy
competitive advantage over liquid fuels continues, with the allocation of cheaper domestic gas
Reduced debt (adjusted) levels result in healthy margins, returns and debt protection metrics
Authorization for Ahmedabad and Khurja reduces regulatory risk for CGD operations going forward;
provides protection under the PNGRB Act as per which it will enjoy monopoly with regard to
network provision, further supported by RoCE of 21% (pre-tax)
Healthy revenue mix (55% from CNG, 45% from PNG) renders stability to the revenue model
Credit Concerns
Significant increase in advances to AEL resulting in limited de-leveraging; While total advances
increased by Rs 179 Cr in FY 2017 the same would be brought down by March 2018
Volume growth in PNG-Industrial segment in key operational areas – Ahmedabad and Faridabad
remains under pressure on account of lower competitiveness against alternative fuels and the
introduction of GST may increase the disadvantage further
PNGRB is yet to approve AGL’s CGD operations in other cities; the presence of more than one CGD
player in the expansion areas and the pending approval of charge areas of operations for each player
by PNGRB result in uncertainty in scope of AGL’s operations
Moderate project implementation risks
Equity commitments towards Indian Oil Adani Gas Private Limited (IOC-AGPL); Large contingent
liability arising from the Rs 2500 Cr corporate guarantee exposure – although the same is mitigated to
some extent on account of adequate progress in the projects
Refinancing risks on commercial paper borrowings
Sensitivities
Improvement in volumes and contribution margins resulting in improvement of debt coverage
indicators and liquidity position
Any payout of dividend/advance to AEL in excess of 50% of PAT or any material increase in debt
levels for the purpose of extending advances/dividend to AEL in contravention of stated
commitments
Any substantial direct/indirect support extended to IOC-AGPL beyond the committed equity
contribution towards the 7 existing GAs
Encashment of any portion of Bank Guarantee provided for adherence to MWP by IOC-AGPL
Detailed description of key rating drivers highlighted above:
AGL’s ratings favorably factor in the improvement in marketed gas volumes during FY 17, strong
contribution margins and the balanced revenue mix of AGL amongst CNG and PNG consumers which
together continue to lend stability to the revenue model. The company’s contribution margins have been
on an uptrend over the last three years, supported by continuing competitive advantage against alternate
fuels in CNG and PNG (domestic) segments. ICRA notes that the company would continue to be
supported by the current domestic gas allocation policy wherein the GoI has sanctioned 100% allocation
of domestic gas towards the CNG and PNG (domestic) segments of CGD entities which is a positive in
terms of future volume growth and also allows the company better pricing power especially in the CNG
segment.
The ratings also favourably consider the authorization of its Ahmedabad and Khurja operations resulting
in lower regulatory risk for its CGD operations and providing protection under the PNGRB Act as per
which it will enjoy monopoly with regard to network provision, further supported by market determined
returns.
ICRA also notes that AGL has reduced its commercial paper borrowings to Rs 150 crore (an amount
which would adequately be covered by unused sanctioned fund based bank facilities to mitigate
refinancing risks to a large extent) from Rs 300 crore in FY 17. For this purpose, AGL has raised Rs 150
crore through a long term loan which reduces re-financing risk for AGL significantly. However, during
FY 17, the company has advanced an additional amount of Rs 179 crore to AEL taking total advances
extended to AEL to Rs 485 crore as on March 2017 from Rs 306 crore as on March 2016. Further, ICRA
has considered the management’s stated stance of 1) Bringing down the existing payouts to Rs 385 Cr (or
lower) by FY 2018 end at the rate of Rs 25 Cr (or higher) each quarter starting Q1FY2018, 2) Limiting
any payouts from FY 2019 onwards to a maximum of 50% of PAT and 3) Adding incremental debt for
capex at a D:E ratio of 3:1 or lower. ICRA believes that the above shall ensure that the company
undergoes de-leveraging in a sustained manner from current levels of 2.0x in the medium term. Any
payout of dividend/advance to AEL in excess of 50% of PAT or any material increase in debt levels for
the purpose of extending advances/dividend to AEL in contravention of stated commitments would be a
key rating sensitivity.
Further, the gas sourcing for Industrial and Commercial customers is done through costlier R-LNG
resulting in a lower price advantage over alternate liquid fuels results in pressure on demand from these
customer segments. ICRA notes that the introduction of GST may increase the disadvantage for PNG
Industrial and Commercial segments. Also, any significant upward revision in domestic gas price or
change in gas allocation policy could impact the competitive advantage over liquid fuels/LPG and thus
impact demand and profitability in the CNG and PNG domestic segments.
The ratings are also constrained on account of the equity commitments and significant indirect exposure
to JV company – Indian Oil Corporation – Adani Gas Private Limited (IOC-AGPL) in the form of
corporate guarantees for its CGD operations. However, the company has achieved healthy progress in
most of the awarded Geographical Areas (GA) and remains on target to achieve the Minimum Work
Programme (MWP) targets in a timely manner limiting the indirect risk on account of the high value of
corporate guarantees extended to IOC-AGPL to some extent.
Key Financial Indicators
FY 16 FY 17
Operating Income (OI) (Rs Crore) 1133 1091
Profit After Tax (PAT) (Rs Crore) 81 101
OPBDITA/OI (%) 23% 26%
ROCE (%) 16.7% 15.0%
Total Debt/TNW (times) 1.1 1.1
Total Debt/OPBDITA (times) 2.5 2.7
Interest Coverage (times) 6.2 6.4
NWC/OI (%) 7% 7%
Note: Amounts in Rs. crore; OPBDITA: Operating Profit before Depreciation, Interest, Taxes and
Amortisation; PAT: Adjusted Profit after Tax;; TNW: Tangible Net Worth; NWC: Net Working Capital.
Source: Financial statements of AGL and ICRA estimates
Links to applicable Criteria
Rating Methodology for City Gas Distribution Companies
Corporate Credit Rating Methodology
About the Company:
Adani Gas Limited (AGL), incorporated in 2005, is in the city gas distribution (CGD) business which
involves marketing and distribution of natural gas (piped and compressed). AGL currently supplies piped
natural gas (PNG) to industrial, commercial, domestic customers and compressed natural gas (CNG) to
transport sector in the areas of Ahmedabad, Vadodara and Faridabad. It has also recently started its
operations in Khurja (Uttar Pradesh). AGL has also set-up pipeline infrastructure in cities of Udaipur,
Jaipur, Noida and Lucknow based on erstwhile issued State Governments’ NOC. However, its
permissions for operations in these cities remain sub-judice and the company is seeking authorisations to
distribute natural gas in these mentioned regions. Currently, AGL is a 100% subsidiary of Adani
Enterprises Limited (AEL).
For the year FY17, the company reported an operating income of Rs. 1091.3 crore and profit after tax of
Rs. 101.2 crore. For the year FY16, the company reported an operating income of Rs. 1132.8 crore and
profit after tax of Rs. 81.5 crore.
Rating History for last three years:
Table: Rating History for BLR Rating
S.No Name of
Instrument
Current Rating Chronology of Rating History for the past 3 years
Type
Rated
amount
Month-
year &
Rating
Month- year & Rating in
FY2017
Month-
year &
Rating in
FY2016
Month-
year &
Rating in
FY2015
July 2017 January
2017
September
2016
July
2015
December
2014
1 Term
Loans
Long
Term
Rs 394
crore
[ICRA]A+
(Stable)
[ICRA]A+
(Stable)
[ICRA]A+
(Stable)
[ICRA]A+
(Stable)
[ICRA]A-
(Stable)
2 Non Fund
Based
Limits
Short
Term
Rs 228
crore
[ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A2+
3 Fund Based
Limits
Short
Term
Rs 55
core
[ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A1+ [ICRA]A2+
4
Unallocated
Limits
Long
term/
Short
term
Rs 24
crore
[ICRA]A+
(Stable)/
[ICRA]A1+
- - - -
Complexity level of the rated instrument:
ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly
Complex". The classification of instruments according to their complexity levels is available on the
website www.icra.in
Annexure-1
Details of Instrument
Name of the
instrument
Date of
issuance
Coupon rate Maturity
Date
Size of the
issue
Current Rating and
Outlook
Term Loans - 8.20%-8.45% FY 2025 Rs 394 Cr [ICRA]A+ (Stable)
Short term Fund based
–Bill Discounting - - - Rs 25 Cr [ICRA]A1+
Short term Fund based - - Rs 30 Cr [ICRA]A1+
Non-Fund based - - - Rs 228 Cr [ICRA]A1+
Unallocated limits - - - Rs 24 Cr [ICRA]A+ (Stable)/
[ICRA]A1+
#Contains Rs 75 Cr interchangeable with FB limits
Source: Adani Gas Limited
Contact Details
Name and Contact Details of the Rating Analyst(s):
Analyst Contact
K.Ravichandran
+91 22 6114 3408
Aashay Choksey
+91 79 4027 1526
Ankit Patel
+91 79 4027 1509
Relationship Contact
L. Shivakumar
+91 22 61143406
About ICRA Limited:
ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and
financial services companies as an independent and professional investment Information and Credit
Rating Agency.
Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a
Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock
Exchange. The international Credit Rating Agency Moody’s Investors Service is ICRA’s largest
shareholder.
For more information, visit www.icra.in © Copyright, 2017, ICRA Limited. All Rights Reserved
Contents may be used freely with due acknowledgement to ICRA
ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to
a process of surveillance, which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA’s current
opinion on the relative capability of the issuer concerned to timely service debts and obligations, with reference to the instrument
rated. Please visit our website www.icra.in or contact any ICRA office for the latest information on ICRA ratings outstanding.
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