India Ratings Revises Outlook on Gujarat Gas to Positive; Arms 'IND AA+', CP Armed at 'IND A1+'

India Ratings and Research (Ind-Ra) has revised its Outlook on Gujarat Gas Limited (GGL) to Positive from Stable while affirming the Long-term Issuer Rating at 'IND AA+'.

Ind-Ra continues to take a standalone view of GGL while arriving at the ratings. The agency does not expect GGL to extend/receive any financial support to/from its 54.17% parent, Gujarat State Petronet Limited (GSPL). Ind-Ra has not factored any linkages between GGL and GSPL, apart from GSPL being the promoter shareholder in GGL. In case GGL steps in to support GSPL in any tangible form in the future, Ind-Ra will re-evaluate its rating approach.

The Outlook revision reflects the continued improvement in GGL's business profile, driven by the National Green Tribunal (NGT) order of March 2019 that banned the use of coal gasifiers in the Morbi region. With the ability of end-users to switch to other fuels having diminished significantly, GGL's pricing power has improved post the ruling. Hence, Ind-Ra believes GGL would be able to maintain healthy EBITDA margins in line with its peers in the near-to-medium term. Additionally, the company has moved forward with respect to tying up long-term volumes, increasing the overall share of long-term gas in the sourcing mix. The ramp-up in GGL's volume sales to the Morbi cluster has made it the largest city gas distributor (CGD) entity in the country, and Ind-Ra expects the company to retain the position for a considerable time, given that other CGD companies are still in the rampup phase. Lastly, Ind-Ra expects the introduction of electric vehicle (EV) fleet in the state transport undertakings (STUs) to cause only limited disruption in the volumes of GGL, as the threat of EVs would be the highest for companies that mainly operate in the metro cities of India, and also for those companies for which compressed natural gas (CNG) volumes from STUs form a significant proportion of overall CNG sales volumes. GGL is also likely to see a healthy increase in the geographical India Ratings Revises Outlook on Gujarat Gas to Positive; Arms 'IND AA+'; CP Armed at 'IND A1+' presence through new geographical areas won under the ninth and 10th rounds of the city gas distribution licence auctions, which were focussed on CNG and domestic piped natural gas (PNG). This is likely to support the diversification of customer as well as margin profiles in the medium term. On the financial front, GGL's RoCE and net leverage continue to be healthy. Furthermore, with the volume ramp-up and rise in margins, the cash flow generation would be sufficient to help the company meet its capex requirements through internal accruals, leading to positive free cash flows.

Shares of Gujarat Gas Ltd was last trading in BSE at Rs.540.55 as compared to the previous close of Rs. 544. The total number of shares traded during the day was 45836 in over 2385 trades.

The stock hit an intraday high of Rs. 550.4 and intraday low of 534.1. The net turnover during the day was Rs. 24982473.

Source : Equity Bulls

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