ICRA has upgraded the long-term rating assigned to Rs. 25.0 crores (reduced from Rs. 33.0 crores) fund based facility of Adani Gas Limited (AGL) from LBBB (pronounced as L triple B) to LBBB+ (pronounced as L triple B plus). The outlook on the long-term rating is Stable‘. ICRA has also upgraded the short-term rating assigned to Rs. 30.0 crores (reduced from Rs. 35.0 crores) short-term loan facility and Rs. 73.0 crores (reduced from Rs. 79.0 crores) non-fund based facility of AGL from A2 (pronounced as A two) to A2+ (pronounced as A two plus). ICRA has withdrawn the LBBB (pronounced as L triple B) rating assigned to the Rs. 275.0 crore long-term loan facility of AGL, at the request of the company, as there is no amount outstanding against the rated programme. The rating revision reflects the improvement in AGL‘s credit metrics with the infusion of funds from the promoter entity by way of interest free unsecured loans during FY 10 and FY 11 which have been used to repay the term loans borrowed for the currently non-operational cities. Further, significant volume growth during the last two years and lower interest costs with the repayment of the term loan & reduction in interest rates on loans outstanding have led to higher profitability margins and return indicators. The ratings continue to reflect the favourable demand prospects for the CGD business and a healthy mix of consumers for CNG and PNG which renders stability to the revenue model. ICRA notes that, post marketing exclusivity period, the margins on the network are expected to remain comfortable in view of the pretax RoCE (of 21%) allowed under the PNGRB regulations governing the sector for the authorised incumbents. The ratings are however, constrained by the pending authorization of AGL‘s operations by PNGRB at all the project locations, for which the company has made applications; delay in commissioning of CGD operations in Khurja, Lucknow and Noida due to pending authorization from PNGRB and moderate scale capex programmes for CGD network expansion. ICRA notes that AGL has witnessed fall in its contribution margins in FY 10 and FY 11 from the peak levels observed in FY 09 on account of lower realisation levels and relatively higher spot gas purchase costs. The margins should further undergo downward correction as there is no visibility on cheaper domestic gas availability in the near term and rising spot gas prices. Furthermore, AGL‘s ability to tie-up new sources of cost competitive gas to meet the incremental demand would remain critical for its growth.