Press Release

Central U.P Gas Limited

February 13, 2019
Ratings
1
Facilities Amount Ratings Rating Action
(Rs. crore)
CARE A1+ Revised from CARE A1
Short term Bank Facilities 75.00
(A One Plus) (A One)
75.00
Total
(Rupees Seventy five crore only)
Details of instruments/facilities in Annexure-1

Detailed Rationale & Key Rating Drivers

The revision in the rating assigned to the bank facilities of Central U.P. Gas Limited (CUGL) takes into account significant
improvement in the financial performance of the company in FY18 and H1FY19, strong capital structure with nil debt and
comfortable liquidity position. Further, CUGL continues to derive strength from strong parentage and experienced
management team, monopolistic position in CNG distribution in the authorized cities, consistent operational
performance and gas sourcing tie-up in place. The rating also factors in favorable demand outlook and Government
impetus on the City Gas Distribution (CGD) business.
The above strengths are however partially offset by the regulatory risk associated with CGD operations and CUGLs capex
plans.
Going forward, CUGL’s ability to complete the capex within budgeted cost and timelines, achieve the envisaged gas sales
volume and the ability to pass on the increase in gas prices in order to maintain the profitability would remain the key
rating sensitivities. Further, any change in the funding pattern for future capex would also remain key rating sensitivity.

Detailed description of the key rating drivers

Key Rating Strengths
Financial risk profile marked by significant improvement in total operating income, strong capital structure and
comfortable liquidity position
The company has demonstrated a consistent increase in its total operating income and cash accruals, increasing
profitability margins coupled with net worth and healthy solvency and other debt protection matrices.
CUGL witnessed a growth of 11.46% in its total operating income to reach Rs. 250.76 crore in FY18, on account of
increasing volume of gas sold. The company has been reporting healthy cash accruals of above Rs 58.50 crore which
provides adequate funds for its working capital purposes.
The PBILDT margin declined in FY18 to 31.66% from 37.26% in FY18 on account of setting up of 7 CNG stations in FY18
itself. The pickup in the volumes of newly installed stations generally takes 1 year but the fixed costs and maintenance
costs begin. Thus the same would be stabilized by next year.
CUGL had nil debt as on September 30, 2018. Further, the company also had a comfortable liquidity profile marked by a
current ratio of 1.90x as on March 31, 2018 (PY: 2.86x). The company had free cash and bank balance of Rs.87.85 crore as
on March 31, 2018.
H1FY19 performance: CUGL achieved a significant growth of 20.66% in the total operating income in H1FY19 vis-à-vis
H1FY18 on account of increase in customer base. Further the company has installed additional 3-4 CNG stations in
H1FY19.

Strong parentage and group support

Central U.P. Gas Limited (CUGL), is a 50:25:25 joint venture between Indraprastha Gas Limited (IGL, rated ‘CARE AAA’),
Gail (India) Limited (GAIL, rated ‘CARE AAA; Stable, CARE A1+’) and Bharat Petroleum Corporation Limited (BPCL, rated
‘CARE AAA; Stable, CARE A1+’). CUGL derives technical and managerial strength from its promoters who have supported
during implementation phase and continue to support it in the operations. Furthermore, there exists significant
operational synergy as GAIL supplies natural gas to CUGL through its pipelines. The company has been able to draw upon
the natural gas distribution skills of GAIL, the retail marketing skills of BPCL and the knowledge and project
implementation skills of IGL.

Experienced and professional management team

CUGL is being managed by professional and experienced management team, having extensive experience with respect to
various aspects of the gas industry in India. Mr. Amarendra Kumar, Managing Director has been associated with GAIL for
almost three decades. He has been deputed from GAIL in CUGL as MD since November 2017. Shri Kumar has rich

2
Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications

1 CARE Ratings Limited

 Press Release

experience in handling procurement activities of major Upstream and Midstream Oil & Gas Companies. Mr. Pardeep
Goyal is currently appointed as Director-Commercial and has joined CUGL from Bharat Petroleum Corporation Limited. He
has more than two decades of experience in retail. Mr. Asheesh Agarwal, FCA, LLB is Chief Financial Officer of CUGL, he
has diverse & versatile experience of more than two decades in financial management and operations control. He brings
rich working experience in India and overseas and played vital role in making the company profitable and sustaining
strong financials.

Monopolistic position in CNG in authorized cities given the entry barriers:

CUGL has authorization for supply of CNG in cities of Kanpur, Bareilly and Jhansi and is the sole distributor of CNG in these
cities. The Petroleum and Natural Gas Regulatory Board (PNGRB) had granted CUGL market exclusivity which made CUGL,
the only company to market CNG and PNG in the Kanpur and Bareilly thus creating a monopolistic position in these
regions. Although, the marketing exclusivity available for Kanpur and Bareilly expired in March 2014 (5 years from
authorization), it continues to retain Network exclusivity as ‘city gas carrier’ in those regions till FY2034.
Given the large capex requirement and gestation period with respect to creation of infrastructure for a CGD business,
there exist significant entry barriers and thus the company is expected to continue its monopolistic position in the
authorized cities even after expiry of the marketing exclusivity.

Consistent operational performance

The company has witnessed consistent improvement in its operational performance on the back of continued improving
infrastructure. In FY18, the CNG sales volume increased by 4.82% and PNG sales volume increased by around 5.43% on
account of increased CNG stations as well as increased number of PNG clients. The company has been able to roll-out
CNG and PNG distribution network across the authorized cities, by installing key project and marketing infrastructure
such as pipeline network, compressor stations and a marketing network.

Gas sourcing tie-up in place

MoP&NG, Government of India has emphasized on usage of natural gas in the country and thus been providing
Administered Price Mechanism (APM) gas to the maximum extent to the CGD players. In continuation to this agenda,
MoP&NG issued revised guideline in Aug, 2014 towards the allocation of APM gas. As per the guideline, GAIL would
provide 100% requirement of CNG and PNG (domestic) to individual CGD players under the APM mechanism. The
allocation would be revised every six months based on actual usage. Post the guideline, CUGL has also been receiving
100% of its CNG and PNG (domestic) gas requirement from GAIL at APM price. The Gas purchase agreement with GAIL
and BPCL not only assures CUGL of receiving firm quantities but also ensures priority supply in the event of any
stoppage/disruption in gas supply. In order to cater growing gas demand of industrial & commercial consumers, CUGL is
procuring R-LNG, both on term & spot basis.

Key Rating Weaknesses

Regulatory risk
PNGRB set up in 2007 by the Government of India (GoI) is the regulating body of CGD business in India. Thus, all the CGD
players including CUGL are subject to the regulations of PNGRB. CUGL’s operating margin is vulnerable to the mix of APM
gas allocation available and costlier imported gas used in its product mix. Thus, any increase in APM price might impact
CUGL’s margins. Though companies in the CGD space have the flexibility to increase the price of CNG and pass the rise in
cost of raw material to customers through marketing margins. Thus going forward, the extent to which CUGL is able to
pass on the incremental price to its customers and its consecutive impact on demand would be crucial.

Future capex plans

CUGL has established CNG stations at Kanpur and Bareilly (25 stations as on March 31, 2018). The company has also
received authorization of CGD business for Jhansi in March 2014, however, there has been marginal progress in
Geographical Area (GA) of Jhansi due to non-availability of gas in the region.
CUGL plans to incur capex for addition of 22 CNG stations and additional 100 km steel & 1000 km MDPE pipelines
network over next 5 years. The same is expected to be funded from the accumulated cash & bank balance and internal
accruals.
Also, if the company plans to bid for additional licenses in other cities in future, the extent to which the capex would be
debt funded would be crucial and remains to be the key rating sensitivity

Industry Scenario
Care Ratings believes that the gas demand in CGD sector is well positioned for growth over the medium term because of
favorable economics of CNG usages when compared with the liquid fuels, convenience in use of PNG (domestic) for
households, and cheaper fuel to PNG (industrial and commercial) consumer in manufacturing sector.
The award of new geographical areas is expected to gather pace and to boost natural gas demand further. Around
~11,900 kilometers of new gas transmission pipelines would also aid expansion of the CGD into newer areas. With the
2 CARE Ratings Limited
 Press Release

government’s support on gas allocation, CGD companies with higher share of priority sector sales would be better placed
to leverage this growth momentum.
The growth opportunities for companies arise from participating in future bidding rounds of PNGRB, wherein careful
selection of cities with good potential, coupled with prudent bidding can translate to profitable growth.
Moreover, the predicted total demand by MoPNG till year 2020 for CGD sector is 53 MMSCMD. Presently the
consumption of natural gas in the CGD sector is around 20 MMSCMD vis-à-vis the demand of 47 MMSCMD. There is a
huge gap between the demand supply dynamics. In order to overcome this gap all the measures listed above should be
adopted and implemented. In keeping with the overall objectives of the government, the steps in favor of enhanced
domestic production could help to sustain a balanced demand supply scenario and budgetary deficit targets.

Analytical approach: Standalone; factoring promoter support in operations.

CUGL derives technical and managerial strength from its promoters and significant operational synergy as GAIL supplies
natural gas to CUGL through its pipelines.

Applicable Criteria
CARE’s Criteria on assigning Outlook to Credit Ratings
CARE’s Policy on Default Recognition
CARE’s methodology for Short-term Instruments
CARE’s methodology for financial ratios (Non-Financial sector)

About the Company

Central U.P. Gas Limited (CUGL), is a 50:25:25 joint venture between Indraprastha Gas Limited (IGL, rated ‘CARE AAA’),
Gail (India) Limited (GAIL, rated ‘CARE AAA; Stable, CARE A1+’) and Bharat Petroleum Corporation Limited (BPCL, rated
‘CARE AAA; Stable, CARE A1+’). The company was incorporated on February 25, 2005 for the implementation of City Gas
Distribution (CGD) projects initially in Kanpur (Uttar Pradesh) and areas in the vicinity thereof.
CUGL is engaged in the business of supplying compressed natural gas (CNG) to the transport Sector (bus, car and other
vehicles etc.) and piped natural gas (PNG) to domestic and commercial sectors and in areas authorized to them by
Petroleum and Natural Gas Regulatory Board (PNGRB). As on December 31, 2018, CUGL has authorization in three cities
of Uttar Pradesh viz. Kanpur, Bareilly and Jhansi (operations yet to start). During FY18 (refers to the period April 01 to
March 31), CUGL earned approximately 74% of its total income from the CNG business segment and 26% through the
PNG business segment.
Brief Financials (Rs. crore) FY17 (A) FY18 (A)
Total operating income 224.97 250.76
PBILDT 83.82 79.39
PAT 48.49 46.10
Overall gearing (times) - -
Interest coverage (times) - -
A: Audited

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

Rating History for last three years: Please refer Annexure-2

Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This
classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to
care@careratings.com for any clarifications.

Analyst Contact:
Name: Mr Manek Narang
Tel: 0114533 3233
Mobile: 9810596225
Email: manek.narang@careratings.com

**For detailed Rationale Report and subscription information, please contact us at www.careratings.com

3 CARE Ratings Limited

 Press Release

About CARE Ratings:

CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating
agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit
Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market
built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital
for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own
risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the
methodologies congruent with the international best practices.
Disclaimer
CARE’s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank
facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to
be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not
responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank
facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments.
In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the
partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of
capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant
factors.

Annexure-1: Details of Instruments/Facilities

Name of the Date of Coupon Maturity Size of the Rating assigned
Instrument Issuance Rate Date Issue along with Rating
(Rs. crore) Outlook
Non-fund-based - ST- - - - 75.00 CARE A1+
BG/LC

Annexure-2: Rating History of last three years

Sr. Name of the Current Ratings Rating history
No. Instrument/Bank Type Amount Rating Date(s) & Date(s) & Date(s) & Date(s) &
Facilities Outstanding Rating(s) Rating(s) Rating(s) Rating(s)
(Rs. crore) assigned in assigned in assigned in assigned in
2018-2019 2017-2018 2016-2017 2015-2016
1. Non-fund-based - ST- ST 75.00 CARE - 1)CARE A1 1)CARE A1 1)CARE A1
BG/LC A1+ (06-Nov-17) (23-Mar-17) (17-Dec-15)

4 CARE Ratings Limited

 Press Release

CONTACT
Head Office Mumbai
Ms. Meenal Sikchi Mr. Ankur Sachdeva
Cell: + 91 98190 09839 Cell: + 91 98196 98985
E-mail: meenal.sikchi@careratings.com E-mail: ankur.sachdeva@careratings.com

Ms. Rashmi Narvankar Mr. Saikat Roy

Cell: + 91 99675 70636 Cell: + 91 98209 98779
E-mail: rashmi.narvankar@careratings.com E-mail: saikat.roy@careratings.com
CARE Ratings Limited
(Formerly known as Credit Analysis & Research Ltd.)
Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai -
400 022
Tel: +91-22-6754 3456 | Fax: +91-22-6754 3457 | E-mail: care@careratings.com

AHMEDABAD 401, Ashoka Scintilla, 3-6-502, Himayat Nagar,

Mr. Deepak Prajapati Hyderabad - 500 029.
32, Titanium, Prahaladnagar Corporate Road, Cell : + 91 90520 00521
Satellite, Ahmedabad - 380 015 Tel: +91-40-4010 2030
Cell: +91-9099028864 E-mail: ramesh.bob@careratings.com
Tel: +91-79-4026 5656
E-mail: deepak.prajapati@careratings.com JAIPUR
Mr. Nikhil Soni
BENGALURU 304, Pashupati Akshat Heights, Plot No. D-91,
Mr. V Pradeep Kumar Madho Singh Road, Near Collectorate Circle,
Unit No. 1101-1102, 11th Floor, Prestige Meridian II, Bani Park, Jaipur - 302 016.
No. 30, M.G. Road, Bangalore - 560 001. Cell: +91 – 95490 33222
Cell: +91 98407 54521 Tel: +91-141-402 0213 / 14
Tel: +91-80-4115 0445, 4165 4529 E-mail: nikhil.soni@careratings.com
Email: pradeep.kumar@careratings.com
KOLKATA
CHANDIGARH Ms. Priti Agarwal
Mr. Anand Jha 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.)
SCF No. 54-55, 10A, Shakespeare Sarani, Kolkata - 700 071.
First Floor, Phase 11, Cell: +91-98319 67110
Sector 65, Mohali - 160062 Tel: +91-33- 4018 1600
Chandigarh E-mail: priti.agarwal@careratings.com
Cell: +91 85111-53511/99251-42264
Tel: +91- 0172-490-4000/01 NEW DELHI
Email: anand.jha@careratings.com Ms. Swati Agrawal
13th Floor, E-1 Block, Videocon Tower,
CHENNAI Jhandewalan Extension, New Delhi - 110 055.
Mr. V Pradeep Kumar Cell: +91-98117 45677
Unit No. O-509/C, Spencer Plaza, 5th Floor, Tel: +91-11-4533 3200
No. 769, Anna Salai, Chennai - 600 002. E-mail: swati.agrawal@careratings.com
Cell: +91 98407 54521
Tel: +91-44-2849 7812 / 0811 PUNE
Email: pradeep.kumar@careratings.com Mr.Pratim Banerjee
9th Floor, Pride Kumar Senate,
COIMBATORE Plot No. 970, Bhamburda, Senapati Bapat Road,
Mr. V Pradeep Kumar Shivaji Nagar, Pune - 411 015.
T-3, 3rd Floor, Manchester Square Cell: +91-98361 07331
Puliakulam Road, Coimbatore - 641 037. Tel: +91-20- 4000 9000
Tel: +91-422-4332399 / 4502399 E-mail: pratim.banerjee@careratings.com
Email: pradeep.kumar@careratings.com
CIN - L67190MH1993PLC0716

HYDERABAD
Mr. Ramesh Bob
5 CARE Ratings Limited