Rationale

The rating reaffirmation for Adani Total Gas Limited (ATGL) considers its promoters' strong profile with equal holding (37.4%) by Total Energies SE (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. As 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 raising capital to meet the capex funding requirements. The ratings continue to factor in the healthy financial risk profile of ATGL, characterised by adequate return metrics and debt protection metrics because of the stable cash generation from its ongoing business. The ratings favourably factor 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 ratings also take 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, tenth and eleventh CGD bid rounds, which will drive the growth in scale, going forward. The ratings, however, are constrained by the execution and funding risks associated with the large ongoing capex planned over the next seven to eight years for the operationalisation of the CGD network in the 29 newly awarded geographical areas (GA) 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 ratings also consider the large, planned equity commitment by ATGL towards its joint venture Indian Oil Adani Gas Private Limited's (IOAGPL) newly awarded 10 GAs and the corporate guarantees extended to IOAGPL for issuing performance bank guarantee (PBG) to the regulator for its CGD operations. Further, any significant upward revision in domestic gas prices or changes in gas allocation policy could impact the competitive advantage over liquid fuels/liquefied petroleum gas (LPG) and would be a rating sensitivity. The Stable outlook reflects ICRA's expectation that given the favourable medium-term demand outlook and availability of lowcost domestic gas for CNG and PNG (domestic), the credit profile performance of ATGL should remain comfortable over the next few years.