| 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.
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| 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.
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