Rationale

 The rating reaffirmation for Adani Total Gas Limited (ATGL) considers its promoters' strong profile with equal holding (37.4%) by Total Energies SA (Total; rated A1(Stable)/P1 by Moody's) through Total Holdings SAS and the Adani family. ICRA expects ATGL to have significant operational synergies with Total over the long-term, since Total is among the leading liquefied natural gas (LNG) players in the world, ATGL can benefit from a favourable long-term LNG sourcing tie-up for its operations. Moreover, with its strong promoter profile, ATGL has strong financial flexibility in terms of raising capital to meet capex funding requirements. The rating continues to factor in the healthy financial risk profile of ATGL, characterised by adequate return metrics and debt protection metrics supported by stable cash generation from its ongoing business. The rating favourably factors in the strong contribution margins and the balanced revenue mix of ATGL among compressed natural gas (CNG) and piped natural gas (PNG) consumers, which together continue to lend stability to the revenue model. The rating also takes into account the healthy competitive advantage of CNG and PNG (domestic) over liquid fuels as well as the expected jump in gas volumes post operationalisation of the city gas distribution (CGD) network in the newly awarded GAs in the ninth and tenth CGD bid rounds, which will drive the growth in scale, going forward. The rating, however, is constrained by the execution and funding risks associated with the large ongoing capex planned over the next seven to eight years for operationalisation of the CGD network in the 15 newly awarded geographical areas (GA) (13 GAs in the ninth round and two GAs in the tenth round) to ATGL. ICRA notes the minimum work programme (MWP) associated with each of the GAs and achievement of the same will be critical to avoid any penalties. The rating factors in the moderation in gas sales volume in FY2021 as well as slower infrastructure creation witnessed in FY2021 following the phased nationwide lockdown announced by the Government of India (GoI). However, ICRA notes that a rapid recovery in sale volume has been witnessed in H1 FY2022. The rating also takes into consideration the large planned equity commitment by ATGL towards its joint venture (JV), Indian Oil Adani Gas Private Limited's (IOAGPL's) newly awarded 10 GAs (nine GAs in ninth round and one GA in the tenth round) and corporate guarantees extended to IOAGPL for securing facility towards issuance of performance bank guarantee (PBG) to the Regulator its CGD operations. Further, any significant upward revision in domestic gas price or changes in gas allocation policy could impact the competitive advantage over liquid fuels/liquefied petroleum gas (LPG) and would be a rating sensitivity.