Gujarat Gas maintains strong AAA rating amid strategic merger

Gujarat Gas Limited (GGL) has received a reaffirmation of its long-term/short-term bank facilities at "CARE AAA; Stable / CARE A1+" by CARE Ratings Limited, as per an announcement dated September 29, 2025. This strong rating reflects GGL's leadership in the city gas distribution (CGD) business, extensive operations, and sound natural gas sourcing strategies. The company reported a satisfactory financial performance for FY25, with total operating income (TOI) growing by approximately 5% to INR 16,488 crore, driven by volume growth and increased realisations. However, PBILDT margins slightly moderated to 11.61% in FY25 (from 12.14% in FY24) due to reduced allocation of administered price mechanism (APM) gas.

The ratings also highlight GGL's comfortable leverage and debt coverage, maintaining a robust financial profile with nil debt and strong liquidity. As of March 31, 2025, GGL was debt-free, excluding lease liabilities of INR 150 crore, and held free cash and cash equivalents of approximately INR 1,633 crore. A key factor in the rating is the ongoing scheme of arrangement where Gujarat State Petroleum Corporation Limited (GSPCL), Gujarat State Petronet Limited (GSPL), and GSPC Energy Limited (GEL) will amalgamate into GGL. This merger is expected to streamline the corporate structure and enhance GGL's scale and PBILDT margin, with no anticipated adverse impact on GGL's financial profile given GSPCL's debt-free status.

Despite these strengths, GGL faces challenges from demand susceptibility due to price dynamics of competing fuels, domestic natural gas availability, and regasified liquefied natural gas (RLNG) prices. The company's customer mix in FY25 was 68% PNG (industrial, commercial, and domestic) and 32% CNG, with a shift to 62% PNG and 38% CNG in Q1FY26. Capital expenditure plans of INR 800-1,000 crore annually for the next three years for CGD network development are expected to be funded by internal accruals, maintaining a comfortable debt coverage.