In this blog, we will conduct a 6 Point Analysis of Adani Total Gas Limited. So, to have a broader insight into the business, read this blog.
Adani Total Gas Limited is engaged in the City Gas Distribution business and supplies natural gas to domestic, commercial, industrial, and vehicle users. In this 6 point Analysis of Adani Enterprises, we will evaluate the company on the following parameters:
Adani Total Gas Limited- 6 Point Analysis
ATGL is engaged in City Gas Distribution (CGD) Network business to supply Petroleum Natural Gas (PNG) to Industrial, Commercial, Domestic (Residential) sectors and Compressed Natural Gas (CNG) to the Transport sector.
ATGL is a Joint Venture between Adani Group & Total Group, France as a strategic partner wherein 37.4% of the stake is held by Adani Group and 37.4% by Total Group, together amounting to 74.8% as promoter holdings.
There are no pledged shares by the Promoters.
Further, there is a 50:50 Joint Venture between Adani Gas & Indian Oil Corporation (IOCL), India’s most significant downstream PSU by the name of Indian Oil- Adani Gas Pvt Ltd.
ATGL has a multipronged presence across Natural Gas Value Chain in India. Adani Gas has 38 Authorized Geographical Areas (GAs), 19 under Adani Total Gas, and 19 under Indian Oil-Adani Gas JV.
ATGL is India’s Largest Private City Gas Distribution (CGD) Company. Other players in the market like IGL, MGL is the PSU companies. Also, ATGL is the Only Private CGD Entity Listed on the Indian Stock Exchange.
ATGL has a presence in 38 Geographical areas that cater to 8% of the country’s total population.
ATGL has a network presence in 15 States and 71 Districts, with 151 CNG Stations across the networks. Further, the company is having a Total Pipeline Network of 7,800+ KMs.
As of now, Company serves more than 1,550 Industrial Customer and more than 3,100 Commercial Customers. Also, ATGL has 4.6 Lakh Residential Customers.
The average Gas supply of ATGL is 1.78 Million Standard Cubic Meters per Day.
Adani Total Gas is having diversified Customer bases, which are as follows:
ATGL- Diversified Customer Base
i) Sales Volume:
In FY20, the Sales Volume of PNG and CNG were at similar levels of 291 Million Cubic meters each.
But in Q3FY21, the Sales Volume of PNG has grown by 8% YoY to 85 Million Cubic Meter from 79 Million Cubic Meter in Q3FY20. Whereas, CNG Sales Volume has gone down by 9% YoY from 75 Million Cubic Meter in Q3FY20 to 68 Million Cubic Meter in the quarter ended 31st December 2020.
Sales Volume CAGR of 3 Years is 10% in CNG, 16% in PNG, and 13% in total.
Geography-wise, Volume Mix in Q3FY21 presents the concentration of the company’s business in Gujarat. As Ahmedabad Contributes the highest 50% to the volume mix, then comes Faridabad with 29%, Khurja with 8%, Vadodara with 4%, and the rest new areas contribute 10% to the volume mix.
ATGL- Sales Volume & Volume Mix
3 Years CAGR growth of Revenue of the ATGL is around 20% which has grown from Rs. 1,162 Cr. in FY17 to Rs. 1,991 Cr. in FY20.
EBITDA of the company has increased at a 3-year CAGR rate of 26% from Rs. 317 Cr. in FY17 to Rs. 639 Cr. in FY20.
Since Growth in EBITDA is more than Growth in Revenue, it has led to improvement in EBITDA Margin. EBITDA Margin of ATGL has increased from 27% in FY17 to 32% in FY20.
Profit After Tax (PAT) growth of the company is also quite impressive. PAT of the company has grown at a 3-year CAGR rate of massive 63% from Rs. 101 Cr. in FY17 to Rs. 162 Cr. in FY18, to Rs. 229 Cr. in FY19 and to Rs. 436 Cr. in FY20.
ATGL- Revenue, EBITDA, PAT
iii) Revenue- Q3FY20 Vs. Q3FY21
The revenue growth of the company between Q3FY20 and Q3FY21 has remained flat. The revenue of the company was Rs. 522 Cr. in Q3FY21.
Further, the EBITDA of ATGL has increased by 34% YoY from Rs. 166 Cr. in Q3FY20 to Rs. 222 Cr. in Q3FY21.
In the same period, EBITDA Margin has also shot up by 11% YoY from 32% in Q3FY20 to 43% in Q3FY21.
While growth in PAT is 27.2% YoY from Rs. 114 Cr. in Q3FY21 to Rs. 145 Cr. in Q4FY21.
The robust growth in EBITDA and expansion in EBITDA Margin is due to Improved Gas Sourcing efficiency, which has led to an increase in Gross Margins, and Cost Optimisation initiatives have resulted in lower Operational Expenditure.
ATGL- Revenue, EBITDA & PAT: Q3FY20 Vs. Q3FY21
Adani Total Gas Limited is also not strict with its core business but focuses on non-core and other related companies.
On January 21, 2021, Adani Total Gas acquires a 5% stake (36.9 Lakh Equity Shares) in IGX from its parent company Indian Energy Exchange (IEX).
On June 15, 2020, the Indian Energy Exchange set up the IGX Natural Gas Trading Hub as a wholly-owned subsidiary.
And on December 2, 2020, IGX has secured authorization from Petroleum and Natural Gas Regulatory Board & became India’s 1st authorized gas exchange.
Major Acquisitions that took place in IGX and Shareholding of IGX is as follows:
Major Acquisitions in IGX and its Shareholdings
Government’s Focus on Natural Gas as an Alternative for Energy Resource.
The current Market Share of Natural Gas is around 6.2% which is expected to grow at around a CAGR Rate of 11%-12% in the next ten years. Further, Government has set the target to raise the share to 15% by 2030, accounting for 150% growth in the natural gas market share.
Hence, with organic and non-organic growth in the sector, this sector is expected to grow at a healthy CAGR rate of 15%-20%.
The government has taken various Initiatives to Boost Demand in this sector are:
i) Natural Gas, a Priority Sector
ii) Smart city
iii) Start of Gas Exchange
iv) LNG corridor along Golden Quadrilateral, Blue Corridor
v) Expansion of City Gas Distribution Network
vi) Phase-out of LPG Subsidies
A) Return Ratios- ROCE & ROE:
ATGL has strong return ratios. The company has a Return on Capital Employed (ROCE) of 34.92% and a Return on Equity (ROE) of 33.91%.
One needs to be cautious in the Return Ratio as there was restructuring in the company during FY18-FY19.
Two key factors majorly drive significant uplift in ROCE in FY19 & FY20 from FY18:
a) Rise in Numerator: Robust growth in Operating Profits (EBITDA 3 year CAGR: 26%)
b) Decline in Denominator: Shareholders' Equity = (Share Capital + Retained Earnings, i.e., Free Reserves)
Fall in Share Capital: Adani total gas limited share price history
In FY19, Adani total gas limited share price capital declined to Rs.110 Cr from Rs.257 Cr in FY18, considering the Rearrangement scheme between Adani Gas & Adani Enterprise.
Where cancellation of the existing share capital of Adani Gas executed
Equity shares of Adani Gas (worth Rs.146.76 Cr) were cancelled and allotted to the shareholders of Adani Enterprises in the SWAP Ratio of 1:1
The Excess value is recorded as Capital Reserves and not the Free Reserves
Thus, share capital declined but not reflected in Retained Earnings
As a result, the Equity portion of Denominator declined
Fall in Debt component with the Repayment of Borrowings
The most important thing to look out for here is how the company’s Return Ratio plays out from these levels.
ATGL- Return Ratio: ROCE & ROE
B) Leverage Ratio:
Till FY18, ATGL had massive borrowings, which was around Rs. 1,345 Cr. in March 2018.
Debt to Equity Ratio in FY18 was at 1.32, and Interest Coverage Ratio was around 3.07 at the same time.
Now, ATGL is Building a Strong Balance sheet with
i) Repayment of Borrowings: Consistently declining Debt to Equity Ratio with Improved Interest Coverage (FY20- Debt to Equity: 0.27 & Interest Coverage Ratio: 14.3)
ii) Rising Reserves
ATGL is currently trading at a PE ratio of 290.
The company’s one-year Median PE is around 55.2, and 3 years Median PE is approximately 55.9, which shows that company is currently trading at a premium valuation.
The valuation of peer companies like Indraprastha Gas Limited (IGL), Mahanagar Gas Limited (MGL), and Gujarat Gas is 32.9, 18.82, and 31.
Overall, our analysis shows the availability of organic as well as inorganic growth in the sector. Hence, one should be a little cautious on this stock, as the high valuations of the ATGL stock are a prime concern here. An Aggressive Investor can take a call on this counter. Furthermore, one should do proper research and study before investing in the stock.