Fundamental Analysis of Adani Total Gas: ATGL is the least leveraged company of the ports-to-power conglomerate the Adani Group. Its debt-to-equity ratio is only 0.41. Yes, ‘only’ when comparing it with other Adani Group companies. If Adani were to repeat the saga, ATGL can expand multi-fold by piling more debt from the present levels.
With the government going bullish on awarding gas distribution networks, do you think Adani Total Gas is set for explosive growth? Let us try to find out by performing fundamental analysis of Adani Total Gas
We shall start by getting an overview of the company itself followed by an understanding of India’s gas distribution landscape. After that, we take a look at the previous five years of financial data. Along with this, we take a look at the profit margins, return ratios, and leverage ratios.
A short section is devoted to getting an idea of what lies ahead for the company. A summary concludes the article in the end. So without further ado, let us jump in.
Fundamental Analysis of Adani Total Gas
Company Overview
Adani Total Gas(ATGL) is a joint venture between the Adani Group and TotalEnergies SE, a French multinational energy and petroleum company. The Adani Family and TotalEnergies own a 37.4% stake each in ATGL, taking the total promoter ownership to 74.8%.
The company was incorporated in 2005. In 2019, TotalEnergies acquired a stake in Adani Gas Ltd. Subsequently, the name of the company was changed to Adani Total Gas Ltd. It was eventually listed in 2021.
ATGL develops city gas distribution (CGD) networks that supply Piped Natural Gas (PNG) for industrial, commercial, and domestic uses. Additionally, the company provides Compressed Natural Gas (CNG) to the transport sector.
It has authorization for 52 geographical areas such as Ahmedabad, Vadodara, Faridabad, Allahabad, Chandigarh, Panipat, and more. 19 out of those licenses are jointly owned with Indian Oil Corporation.
The figure below presents the structure of Adani Total Gas Ltd.
It presently owns 349 CNG stations. The gas distributor has a network of over 9,800 inch-km pipelines serving 5,96,000 households and 5,885 non-domestic customers across 124 districts.
Having known the company, let us move on to understand the industry landscape of city gas distribution and piped natural gas in India.
Industry Overview
India’s total natural gas consumption is estimated to grow at a CAGR of 4.18% from 58.10 million tonnes (MnT) in 2018 to 143.08 MnT in 2040. To support this growth, the country will have to expand its natural gas grid and regasification capacity.
Industrial consumers are expected to account for almost 40% of the total demand. As the user base will grow, 49% of the demand will be met by domestic production and the rest from imports.
This is where the gas distribution sector comes into perspective. Much of the rise in demand will be led by fertilizer units and city gas distribution networks because of favorable policies of the government and the development of gas infrastructure.
Against the overall demand growth of 4.18%, the CGD market is projected to grow at a CAGR of 10% during the 2020-30 period. Increasing gas demand from automotive, industrial, commercial and residential segments is expected to drive this growth.
In addition to this, CNG consumption is set to grow at an average annual growth of 9% to 25 billion cubic meters (bcm) by 2024. The government has set a target of 1,000 CNG stations across the country by 2025.
Thus we can conclude that Adani Total Gas has many opportunities as part of India’s growing gas distribution market.
In the next section, we cover how the company has grown over the last five years as part of our fundamental analysis of Adani Total Gas Ltd.
Adani Total Gas – Financials
Over the last five years, the revenues of ATGL have grown at a CAGR of 17.20% every year. During the same period, net profit grew at an annual rate of 25.73%. It has mostly grown organically through the acquisition of geographical areas whenever the Petroleum and Natural Gas Regulatory Board (PNGRB) conducted bidding rounds.
The table below presents revenues and net profit figures for Adani Total Gas along with its profit margins.
| Year | Revenue (Rs. Cr.) | Net Profit (Rs. Cr.) | OPM (%) | NPM (%) |
| 2022 | 3,038 | 509 | 25 | 17 |
| 2021 | 1,696 | 463 | 42 | 27 |
| 2020 | 1,875 | 436 | 32 | 23 |
| 2019 | 1,719 | 229 | 26 | 13 |
| 2018 | 1,374 | 162 | 27 | 12 |
| 5-Yr CAGR (%) | 17.20 | 25.73 | NA | NA |
In FY22, the profit margins of the company decreased on the account of a sharp rise in energy prices. They may remain affected in the near future as gas prices hit record-high levels.
Debt/Equity and Interest Coverage Ratios
The debt-to-equity ratio and interest coverage ratio of Adani Total Gas has gotten better over the years. In FY22, the debt-to-equity ratio surged from 0.22 to 0.41 as the company financed debt toward the development of the newly acquired geographical areas.
The table below presents debt-to-equity and interest coverage ratio figures for the previous five years.
| Year | Debt/Equity | Interest Coverage |
| 2022 | 0.41 | 15.45 |
| 2021 | 0.22 | 16.95 |
| 2020 | 0.24 | 14.33 |
| 2019 | 0.31 | 5.28 |
| 2018 | 1.21 | 3.07 |
Return Ratios
As a city gas distributor, Adani Total Gas boasts high return ratios for its shareholders. Historically, both return on equity and return on capital employed has remained at impressive levels.
The table below highlights the return ratios for the last five years.
| Year | RoCE (%) | RoE (%) |
| 2022 | 24.79 | 21.08 |
| 2021 | 28.64 | 23.93 |
| 2020 | 31.21 | 29.66 |
| 2019 | 30.45 | 20.75 |
| 2018 | 15.76 | 15.93 |
Future Plans
So far we looked at how the company has performed in the past. Let us try to have an idea of what lies ahead for the company and its investors.
- The company incurred Rs. 951 crores toward capital expenditure for the development of the newly acquired 14 geographical areas in the recent bidding rounds of PNGRB. These acquisitions will translate into higher earnings in the future as the company commissions these networks.
- ATGL entered into a joint venture with Indian Oil Corporation to leverage the strong profile of IOC to further diversify its efforts in the city gas distribution space. With this JV, the company now has a presence in 19 geographical areas.
- Additionally, the company purchased a 50% stake in Smart Meter Technologies to manufacture gas meters with a key focus on prepaid smart meters. Although a small investment, it may result in significant future gains if the management decides to scale the operations.
- ATGL’s 5% stake in Indian Gas Exchange, a trading platform launched by Indian Energy Exchange shall turn out to be a strategic investment as the national firm itself for growing gas demand.
Adani Total Gas – Key Metrics
We are now almost at the end of our fundamental analysis of Adani Total Gas Let us take a quick look at its key metrics.
| CMP | ₹3,376 | Market Cap (Cr.) | ₹371,000 |
| Stock P/E | 735 | Face Value | ₹1.0 |
| ROCE | 24.79% | Book Value | ₹22 |
| ROE | 21.08% | Price to Book Value | 154 |
| Debt to Equity | 0.41 | Promoter Holding | 74.80% |
| Net Profit Margin | 17% | Operating Profit Margin | 25% |
| Interest Coverage Ratio | 15.45 | Dividend Yield | 0.01% |
In Conclusion
Since its listing in January 2021, the stock of Adani Total Gas has generated multi-bagger returns of over 819% to date. One-year returns stand at a whopping 133%.
During the same period, the company increased its revenues even though profits suffered because of rising energy prices. In the long term, the energy prices shall revert to mean. To keep the stock returns at the same pace, ATGL will have to steadily increase its revenues as it did in the past.
In your opinion, what lies ahead for ATGL? Do you think it can keep growing fast as part of India’s growing CGD market? How about you let us know in the comments below?
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