­­Strong operational and financial support from promoters
GGPL is a joint venture between APGDC and HPCL with shareholding of 74 percent and 26 percent respectively. APGDCL and HPCL are owned by the state and central government (through subsidiaries) respectively. Additionally, GGPL has signed a five-year agreement ending in June 2026 with GAIL for purchase of natural gas at APM (Administered Pricing Mechanism) for domestic PNG and CNG (transport) and S1 Non APM price for commercial and industrial PNG supply. Further, GAIL is also the promoter of APGDCL. The promoters have supported GGPL as and when required through infusion of funds in the form of equity. The latest equity infusion of Rs. 29.08 Cr. by the promoters was done in Q3 FY2025 and further Rs. 47.17 Cr. worth equity infusion is expected by end of March 2025 or early FY2026. The senior management of GGPL comprises employees from APGDC and HPCL which provides strong operational support. Apart from this, both APGDC and HPCL have extended Letter of Comfort (LOC) for the borrowings of GGPL.

Therefore, this continued support from promoters is expected to improve the business & financial profile of the company and shall be a key rating sensitivity.

Continued improvement in operating performance on account of the addition of new clientele and capex completion
Post completion of Phase 1 in August 2024, at a total cost Rs. 360.53 Cr. (including some additional spends in Q3FY2025), the operating performance improved with increase in the commercial and industrial consumption. The company generated revenue of Rs. 58.70 Cr. for 9MFY2025 as against Rs. 46.13 Cr. in FY2024 and Rs. 57.68 Cr. in FY2023. The revenue is expected to improve further as there has been addition of new industrial consumers from February 2025 onwards. Additionally, with completion of the Phase II of the project by September 2026 the performance is expected to improve further on account of increasing connections. Further, the EBITDA margin of the firm has been also been improving for the past three years which stood at 17.48 percent for 9MFY2025 as against 15.15 percent in FY2024 and 12.41 percent in FY2023 on account of stabilisation of natural gas prices. Moreover, Acuite understands that in the near term the company shall focus on increasing its domestic PNG connections which shall yield them healthy margins.

Going forward, timely completion of capex along with addition of further connections leading to improvement in the revenue and profitability will be key rating sensitivity.

Positive outlook on CGD Sector with high entry barriers due to market and infrastructure exclusivity
Natural Gas is currently used in India for both domestic and industrial consumption. The gas consumption in the country is expected to increase significantly due to population growth, development and transition towards clean energy. The major industrial consumers of gas are fertilizers, refineries, petrochemicals and power generation. There are other industries including glass, ceramics and pharma units who also prefer to utilise gas as it is a more efficient and clean fuel. However, these industries are largely dependent on Naphtha and Fuel Oil (FO) due to slow infrastructure development. The Government of India (GoI) has taken various policy measures to promote the use of natural gas over other energy sources as it is more efficient and clean fuel. GoI has also mandated provision of entire domestic gas for domestic PNG and CNG segment. Further, Petroleum and Natural Gas Regulatory Board (PNGRB) has taken various initiatives to expedite the bidding and pre-approval procedures. Further, the State Pollution Control Board is encouraging the industry to switch from conventional fuel sources such as coal to natural gas. Acuité believes that the CGD segment is to sustain the growth in medium term on account of healthy offtake from end-use segments and government initiatives and players such as GGPL are expected to benefit from this growth.
Additionally, GGPL has 5 years of marketing and 25 years of infrastructure exclusivity for supply of gas in the East and West Godavari districts of Andhra Pradesh. This ensures that, no other player can enter the CGD business in the East and West Godavari region till the completion of the exclusivity. Post completion, other players may enter the space but the stringent policy frameworks, high costs and regulated procurement requirements for natural gas would act as entry barriers for the new players.

­­Average financial risk profile
The financial risk profile of GGPL continues to remain average with modest networth, high gearing and moderate debt protection indicators. The tangible networth of GGPL stood at Rs. 91.12 Cr. on March 31, 2024 as against Rs. 85.25 Cr. on March 31, 2023 on account of infusion of funds by the promoters. This also reduced the gearing at 2.06 times on March 31, 2024 as against 2.17 times on March 31, 2023. However, the Debt-EBITDA level stood high at 25.25 times on March 31, 2024 as against 24.74 times on March 31, 2023 on account of decline in the absolute levels of EBITDA in FY2024. The debt protection indicators stood average with Interest Coverage Ratio (ICR) at 0.73 times and Debt Service Coverage Ratio (DSCR) at 0.64 times in FY2024. Currently, GGPL is servicing the interest on debt through the promoters funds due to insufficient funds from operations.
Acuite expects the gearing of GGPL to remain high in the near to medium term considering the debt to be raised for Phase II of the project. 

Implementation and funding risk
The construction of Phase II of the project is currently under progress. The total cost of the project is estimated at Rs. 273.24 Cr. which will be funded through equity of Rs. 47.17 Cr. and debt of Rs. 226 Cr. While the equity infusion is expected by end of March 2025 or early FY2026, the debt tie-up is still pending. Only once the debt tie-up is completed, further construction can commence. Therefore, significant funding risk remains, since the debt tie-up is pending. Also, historically the company has faced challenges in completion of Phase I due to unavailability of funds which delayed the operations.
Therefore, timely completion of the project and materialization of the same leading to generation of additional revenue will remain a key rating sensitivity.

Sensitivity to alternative fuel prices
The demand for natural gas is guided by the alternate fuel prices. The demand for natural gas in the commercial and industrial PNG segment is highly sensitive to the price of its alternate fuels such as coal, non-domestic LPG, furnace oil, pet coke and others. In the industrial segment, furnaces are designed for easy switch of fuel and during times of relatively higher gas prices, they easily shift to alternate fuels. There was a significant rise in the natural gas prices in FY2023 due to geo-political issues, leading to shift in the preference from natural gas to alternative fuels. Therefore, movement in the price of alternative fuel can significantly affect the demand for natural gas; positive as well as negative.