Fitch Ratings affirms GAIL India’s ‘BBB-‘ rating, outlook stable

Fitch Ratings affirmed a ‘BBB-‘ rating on gas utility GAIL (India) Ltd, with a stable outlook, on the premise that the company’s financial profile will remain strong.

Its rating is capped by India’s sovereign rating of ‘BBB-‘. The government owns 51.52 percent of GAIL.

“GAIL’s stand-alone credit profile (SCP) is ‘bbb’, supported by its dominant market position in the regulated utility gas transmission business, diversification into other business segments and healthy credit metrics,” Fitch said.

GAIL is the largest gas transmission and trading company in India, with a pipeline network of 14,502 kilometers and a capacity of 206 million standard cubic meters per day. Its natural gas pipeline network covers 21 states.

It has also increased its integration throughout the natural gas value chain in downstream segments, such as petrochemicals, LPG and other liquid hydrocarbons.

“We expect GAIL’s cash flow from operations (CFO) to be strong at around Rs 10,000 crore a year in the short to medium term, compared to around Rs 9,600 crore in the fiscal year ended in March 2022 (FY22).

“CFO will be supported by growth in the gas transmission business, which benefits from regulated returns and cash flow from its other business segments,” the ratings agency said.

With a ‘strong’ state link, Fitch believes the socio-political implications of a GAIL default are ‘moderate’ as it is unlikely to severely disrupt the company’s gas transmission service as long as pipeline infrastructure is maintained.

He expected GAIL’s CFO to remain stable, benefiting from its diversified business segments. Cash generation will benefit from its gas pipelines under construction once they come into service under the tariff regulatory mechanism.

“We expect higher commodity prices to put some pressure on EBITDA from GAIL’s petrochemicals, LPG and liquid hydrocarbons segments, but the contribution from these businesses will remain positive and add to GAIL’s overall cash generation. “, said.

GAIL’s gas trading segment is expected to benefit from high crude oil and LNG prices in FY23.

Fitch expected ongoing pipeline projects to enhance GAIL’s market dominance in the medium term, supporting its rating.

“The stable, non-cyclical and regulated transmission business will continue to be the key contributor to operating income, driving cash flow predictability,” it said.

GAIL owns around 70 per cent share of the gas transmission network and more than 50 per cent share of natural gas sales in India.

Fitch expects GAIL’s financial profile to remain strong.

Capex for expanding the gas pipeline network and petrochemical segments is likely to keep GAIL’s overall spending high at around Rs 8.3 billion rupees a year during FY23-FY26 (FY22: Rs 7000 crore).

Fitch expects shareholder returns, including through share buybacks, to remain high at around 60 percent of prior year net income for the next three to four years (FY22: 65 percent). .

(Only the headline and image in this report may have been modified by Business Standard staff; all other content is auto-generated from a syndicated source.)

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