Product Quantum (Rs. Cr) Long Term Rating Short Term Rating
Bank Loan Ratings 85.00 ACUITE A | Stable | Upgraded | Positive to Stable -
Bank Loan Ratings 15.00 - ACUITE A1 | Upgraded
Total Outstanding 100.00 - -
 
Rating Rationale

­Acuité has upgraded its long-term rating to ‘ACUITE A' (read as ACUITE A) from 'ACUITE A-' (read as ACUITE A minus) to the Rs. 85 crore long-term bank facilities, and its short-term rating to ‘ACUITE A1' (read as ACUITE A one) from ‘ACUITE A2+’ (read as ACUITE A two plus) to the Rs. 15.00 crore of short-term bank facilities of Confidence Enterprises Private Limited (CEPL). The outlook is revised from 'Positive' to ‘Stable’.


Rationale for the rating
The rating upgrade takes into account the augmentation in the revenues in FY23 to Rs. 2208.83 Cr. from Rs. 1427.69 Cr. in FY22; marking a 55% growth. Increased scale has also resulted in an increased EBDITA to Rs. 222.62 Cr. in FY23 from Rs.186.02 Cr. in FY22. The rating upgrade also considers the substantial increase in the net-worth base of the company in FY23 and FY24 mainly with healthy accruals coupled with equity infusion through issue of warrants and preferential allotments. The group’s debt protection metrics remain strong albeit moderation. The rating draws comfort from CG's foray into CNG segment thus further diversifying its revenue profile. The group has successfully commissioned over 32 CNG stations in Bengaluru out of 100 planned CNG stations. Acuite factors in the experience of the management and the company’s established track record of operations. However, the rating remains constrained on account of exposure to tender-based business in a regulated industry and large funding requirements for the import of LPG. Acuite will continue to monitor the progress of the completion of the ongoing capex.

About Company

­CEPL is a 100% subsidiary of Confidence Futuristic Energetic Ltd, which is a part of Confidence group, & is a subsidiary of flagship company Confidence Petroleum (I) Limited (CPIL) of the Confidence group. CPIL majorly, is a supplier of Auto LPG in India with its network of bottling plants and ALDS Stations across India and has forayed in CNG segment. CEPL has established a CNG cylinder manufacturing unit in  Umred, Nagpur with a production capacity of around 5.40 lacs cylinders per anum.
 
About the Group

Maharashtra based, Confidence Group is promoted by Mr. Nitin Poonamchand Khara. The group has two of its companies, viz; Confidence Petroleum (I)Limited (CPIL) & Confidence Futuristic Energetic Limited listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Most of the business concentration comes under CPIL which is engaged in the manufacturing of LPG cylinders, ALDS (Auto LPG dispensing Station) and is a supplier of LPG in India with its network of bottling plants and across India. The group has wide spread network of 2000+ dealers & distributors across India spreading in over 22 states. The group has recently forayed into CNG segment business through 1) Setting up of CNG Mobile Refuelling Units (MRUs) with Maharashtra Natural Gas Limited (MNGL). 2) Entered in agreement with GAIL Gas Limited to set up 100 CNG stations in the city of Bengaluru of which 32 has commenced operations and 5 are awaiting approval for commencement. 3) Commenced  CNG cylinder manufacturing plant in Umred, Nagpur and has taken over a running CNG cylinder manufacturing unit (Sarju Impex Limited) at Dahej, Gujarat.
 
Unsupported Rating
­Not Applicable,
 
Analytical Approach

Extent of Consolidation
•Full Consolidation
Rationale for Consolidation or Parent / Group / Govt. Support
­Acuité has considered the consolidated view of business and financial risk profiles of CPIL with its subsidiaries to arrive at this rating together referred to as Confidence Group (CG). List of subsidiaries consolidated has been added below, separately in the Annexures-2.
Key Rating Drivers

Strengths

Established presence in the industry with considerable experience of promoters
CG is promoted by Mr. Nitin Khara along with his brothers Mr. Nalin Khara and Mr. Elesh Khara, possess more than two decades in the LPG distribution business. The operations of the group are spread across the country with a total of 15-cylinder manufacturing units, 68 LPG bottling and blending plants and 254 ALDS stations. CG has recorded a significant increase in revenue which stood at Rs. 2208.83 Cr. in FY2023, marking a 55% growth from Rs. 1427.69 Cr. in FY2022. The increase was majorly attributable to the Packed gas segment wherein the company started bulk gas selling along with ALDS segment wherein the stations increased to 227 in FY23 from 209 in FY22. Owing to its established track record of operations and management experience, the group has been able to build reputed client profile spanning both private as well as government companies in the energy and oil industry, viz. IOCL, BPCL and HPCL among others. The group also has well-established relationships with suppliers such as Steel Authority of India (SAIL), Essar group, etc. Acuité believes that CG will continue to leverage its healthy relationships with customers and suppliers, operational track record and management expertise to further grow its presence in the industry.

Strong financial risk profile albeit moderation
The financial risk profile of CG is strong marked by strong net worth, healthy leverage levels and debt protection metrics. The net worth of the group stood healthy at Rs. 788.98 Cr. as on March 31, 2023 as against Rs.667.54 Cr. The net worth levels have seen significant improvement over the last three years on account of healthy profitability and persistent infusion of funds by promoters. Also, there has been a further equity infusion to the extent of Rs.282.63 Cr. in the current fiscal through preferential allotments and issuance of warrants. The debt of the company has increased to fund the increased working capital requirements and to fund capex for CNG Stations, CNG manufacturing unit in Umred and adding storage tanker fleet. The working capital requirements have increased in FY23 with the company’s entrance in the bulk gas supply segment. It has led to an increase in the gearing ratio to 0.51 times as on March 31, 2023 as against 0.14 times as on March 31, 2022. Nonetheless, the group has followed a conservative financial policy, which is reflected through comfortable gearing and total outside liabilities to tangible net worth (TOL/TNW) levels.  The coverage indicators though moderated stood healthy marked by debt-service coverage-ratio and interest coverage ratio at 6.05 times (11.46 times in FY2022) and 10.26 times (20.95 times in previous year) respectively.  Acuité believes the overall financial risk profile is expected to remain strong given the healthy accruals and equity infusion to fund the capex.


Weaknesses

­Exposure to risk inherent in tender-based business
CG manufactures LPG cylinders and is also engaged in the bottling of LPG for PSU Oil majors, which accounts for almost ~30-32 per cent of its revenue. The group gets orders through tenders and operates in a highly fragmented industry, which limits its bargaining power, and may impact its profitability. However, the tenders include an escalation/ de-escalation clause on a monthly basis that restricts the risk to the extent of inventory carried by the group.
Presence in highly regulated industry with volatile margins
The group is exposed to regulatory risks associated with tariff rates and changes in government policies for fuel. The group faces intense competition from other gas filling companies and gas pipeline companies with increased usage of gas pipeline in urban area. In addition to this, the group has to sell the cylinders only through permitted dealers with adequate/required/licensed infrastructure due to explosive/ PESO norms. This risk is to an extent mitigated on account of established network of 2000+ dealers across the country. Further, the group is exposed to volatility of margins as the total raw material cost forms 77% plus of the total sale value. The prices of gases are decided by PSUs & being volatile in nature may affect group's ability to pass on the incremental prices to its customers. The impact of LPG availability due to geopolitical issues was reflected in decline in company's EBITDA margins to 10.08 percent in FY23 from 13.03 percent in FY22 and 14.02 percent in FY2021. The decline was partially also on account of increase in the revenues from the Packed 'Go Gas' cylinder (including the bulk gas) as it is comparatively a lower margin business. Nonetheless, the EBDITA margins have improved to 12% in 9MFY2024.

Rating Sensitivities

 

  • Sustainable improvement in the revenues along with improved margins emanating from the completion of the ongoing capex.

  • Higher than projected debt funded capex or significant increase in its working capital requirement leading to deterioration in the working capital profile and the liquidity profile.
 
Liquidity Position
Strong

The group has strong liquidity profile marked by healthy net cash accruals to its maturing debt obligations. The group generated cash accruals of Rs. 170.35 Cr. during FY2023, while its maturing debt obligations were modest at Rs. 10.15 Cr. for the same period. Further, the company has a buffer in its working capital limits as reflected by moderately utilized limits at ~62 per cent during the last seven months ended February 2024. The group plans to incur a capex of Rs. 657 Cr. over FY24 and FY25. Against the said capex, the company has brought in term loans of Rs. 63.84 Cr. and equity infusion of ~Rs. 282 Cr. and the remaining is to be funded through issuance of warrants and internal accruals. Going forward, the liquidity position of the company is expected to remain strong with an expected annual cash accrual of Rs. 232 to 300 Cr. against annual repayments of Rs. 46 Cr. to 57 Cr.

 
Outlook: Stable

Acuité believes that the CG will maintain a ‘Stable outlook over the medium term on account of extensive experience of management and the stable operating performance of its LPG segment and growth expected from the CNG business. The outlook may be revised to positive in case of higher-than-expected scale up of operations while maintaining its profitability and financial risk profile. Conversely, the outlook may be revised to 'Negative' in case significant cost and time overruns in completion of planned capex leading to lower than expected scale of operations and cash accruals or in case of deterioration in the company's financial risk profile or significant elongation in working capital cycle.
 
Other Factors affecting Rating
­None
 

Particulars Unit FY 23 (Actual) FY 22 (Actual)
Operating Income Rs. Cr. 2208.83 1427.69
PAT Rs. Cr. 88.14 87.84
PAT Margin (%) 3.99 6.15
Total Debt/Tangible Net Worth Times 0.51 0.14
PBDIT/Interest Times 10.26 20.95
Status of non-cooperation with previous CRA (if applicable)
­Not Applicable
 
Any Other Information
None­
 
Applicable Criteria
• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm
• Consolidation Of Companies: https://www.acuite.in/view-rating-criteria-60.htm
• Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm
• Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm
• Trading Entitie: https://www.acuite.in/view-rating-criteria-61.htm
Note on Complexity Levels of the Rated Instrument

­In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
 

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook
17 Jan 2023 Bank Guarantee (BLR) Short Term 5.00 ACUITE A2+ (Reaffirmed)
Cash Credit Long Term 20.00 ACUITE A- | Positive (Reaffirmed)
Letter of Credit Short Term 10.00 ACUITE A2+ (Reaffirmed)
Proposed Long Term Bank Facility Long Term 15.00 ACUITE A- | Positive (Reaffirmed)
Term Loan Long Term 50.00 ACUITE A- | Positive (Reaffirmed)
01 Dec 2021 Bank Guarantee (BLR) Short Term 5.00 ACUITE A2+ (Assigned)
Cash Credit Long Term 20.00 ACUITE A- | Positive (Assigned)
Letter of Credit Short Term 10.00 ACUITE A2+ (Assigned)
Proposed Long Term Bank Facility Long Term 15.00 ACUITE A- | Positive (Assigned)
Term Loan Long Term 50.00 ACUITE A- | Positive (Assigned)
­

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum
(Rs. Cr.)		 Complexity Level Rating
State Bank of India Not avl. / Not appl. Bank Guarantee (BLR) Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 7.50 Simple ACUITE A1 | Upgraded ( from ACUITE A2+ )
State Bank of India Not avl. / Not appl. Cash Credit Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 15.00 Simple ACUITE A | Stable | Upgraded | Positive to Stable ( from ACUITE A- )
State Bank of India Not avl. / Not appl. Letter of Credit Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 7.50 Simple ACUITE A1 | Upgraded ( from ACUITE A2+ )
Not Applicable Not avl. / Not appl. Proposed Long Term Bank Facility Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 50.00 Simple ACUITE A | Stable | Upgraded | Positive to Stable ( from ACUITE A- )
State Bank of India Not avl. / Not appl. Term Loan 16 Nov 2021 Not avl. / Not appl. 30 Apr 2027 20.00 Simple ACUITE A | Stable | Upgraded | Positive to Stable ( from ACUITE A- )
*Annexure 2 - List of Entities (applicable for Consolidation or Parent / Group / Govt. Support)
­
Sr.  No.  Particulars Relationship Listing Status
1 Confidence Petroleum India Limited Parent Company Listed
2 Confidence Go Gas Limited Subsidiary Unlisted
3 Gaspoint Bottling Private Limited Subsidiary Unlisted
4 Unity Cylinders Private Limited Subsidiary Unlisted
5 Confidence Technologies Private Limited Subsidiary Unlisted
6 Agwan Coach Private Limited Subsidiary Unlisted
7 Keppy Infrastructure Developers Private Limited Subsidiary Unlisted
8 Hemkunt Petroleum Limited Subsidiary Unlisted
9 Nine Infra Projects Private Limited Subsidiary Unlisted
10 Chhattisgarh Gaspoint Bottling Private Limited Subsidiary Unlisted
11 Papusha Gaspoint Private Limited Subsidiary Unlisted
12 Blueflame Petroleum Private Limited Subsidiary Unlisted
13 Confidence Futuristic Energetech Limited Subsidiary Listed
14 Taraa LPG Bottling Private Limited Subsidiary Unlisted
15 PT Surya Go Gas Indonesia Subsidiary Unlisted
16 Sneha Petroleum (acquired in FY2019-20) Subsidiary Unlisted
17 North East Cylinders (acquired in FY2019-20) Subsidiary Unlisted
18 Blue flame Industries Limited (acquired in FY2019-20) Subsidiary Unlisted
19 SV Engineering Private Limited (acquired in FY2019-20) Subsidiary Unlisted
20 Uma Gaspoint Bottling Private Limited Subsidiary Unlisted
21 Confidence Enterprise Ltd ( Confidence Futuristic) Stepdown Subsidiary Unlisted
22 Sarju Impex Ltd (Confidence Futuristic) (Acquired in FY2021-22) Stepdown Subsidiary Unlisted
 

Contacts




About Acuité Ratings & Research
© Acuité Ratings & Research Limited. All Rights Reserved.www.acuite.in