Dear Members Gujarat Gas Limited
Your Directors have pleasure in presenting the 8th Annual Report and the AuditedFinancial Statements for the Financial Year ended on 31st March 2020.
| ||Financial Highlights |
| || || || ||(Rs. in Crores) |
| ||Standalone Financials ||Consolidated Financials |
|Particulars || |
12 Months ended
12 Months ended
12 Months ended
12 Months ended
| ||31/03/2020 ||31/03/2019 ||31/03/2020 ||31/03/2019 |
|Revenue from Operations ||10526.49 ||7962.48 ||10526.49 ||7962.48 |
|Other income ||83.66 ||111.28 ||83.89 ||111.56 |
|Total income ||10610.15 ||8073.76 ||10610.38 ||8074.04 |
|Profit before interest depreciation and tax ||1717.93 ||1078.05 ||1718.16 ||1078.33 |
|Less: Interest ||192.17 ||196.19 ||192.17 ||196.19 |
|Depreciation ||317.98 ||288.01 ||317.98 ||288.01 |
|Profit before tax ||1207.78 ||593.85 ||1208.01 ||594.13 |
|Share of Profit /(Loss) from equity accounted investee ||- ||- ||(0.03) ||1.49 |
|Minority Interest ||- ||- ||- ||- |
|Profit Before Tax and share of profit of associate ||1207.78 ||593.85 ||1207.98 ||595.62 |
|Tax expenses ||14.46 ||176.82 ||9.16 ||177.17 |
|Net Profit after tax for the period ||1193.32 ||417.03 ||1198.82 ||418.45 |
|Other Comprehensive Income ( after tax)(OCI) || || || || |
|Equity Instruments through OCI ||0.95 ||(0.03) ||0.95 ||(0.03) |
|Remeasurements of post-employment benefit obligation net of tax ||(4.65) ||(2.03) ||(4.65) ||(2.03) |
|Share of Other comprehensive income of equity accounted investee || || ||(0.05) ||(0.03) |
|Total Comprehensive Income ||1189.62 ||414.97 ||1195.07 ||416.36 |
|RETAIN EARNINGS : || || || || |
|Profit carried to retained earnings ||1193.32 ||417.03 ||1198.82 ||418.45 |
|Impact of Changes in accounting policy ||- ||(36.96) ||- ||(36.96) |
|Impact of Changes in accounting policy- share of equity accounted investee ||- ||- ||0.01 ||(0.08) |
|Other Comprehensive Income carried to retained earnings ||(4.65) ||(2.03) ||(4.70) ||(2.06) |
|Refund of earlier year's Dividend distribution tax ||- ||25.96 ||- ||25.96 |
|Add: Undistributed profit /(loss) of earlier years ||1276.66 ||939.05 ||1297.94 ||959.02 |
|Balance available for Appropriation ||2465.33 ||1343.05 ||2492.07 ||1364.33 |
|Less : Appropriations : || || || || |
|Transfer to general reserve ||- ||- ||- ||- |
|Preference dividend ||- ||- ||- ||- |
|Equity dividend ||(68.84) ||(55.07) ||(68.84) ||(55.07) |
|Corporate dividend tax on Equity dividend ||(14.15) ||(11.32) ||(14.15) ||(11.32) |
|Surplus / (Deficit) retained ||2382.34 ||1276.66 ||2409.08 ||1297.94 |
|Earnings per Share (Face value of Rs. 2 each) ||17.33 ||6.06 ||17.41 ||6.08 |
|(Basic & Diluted) || || || || |
FINANCIAL PERFORMANCE HIGHLIGHTS
Revenue from Operations
During the financial year 2019-20 the revenue from operations grew by 32.20% toRs10526.49 crores from Rs 7962.48 crores in the previous year 2018-19.
PBT and PAT
The Company registered a rise in profit before tax (PBT) by 103.38% to Rs 1207.78crores in financial year 2019-20 from Rs 593.85 crores in financial year 2018-19.
The Company registered a robust growth in profit after tax (PAT) by 186.15 % to Rs1193.32 crores in financial year 2019-20 from Rs 417.03 crores during financial year2018-19. This included Rs 287 crores on account of re-measurement of deferred taxliabilities pursuant to taxation ordinance dated 20th September 2019 and company optingfor concessional tax rates.
The Company recorded earnings per share (EPS) of Rs17.33 per share having Face Value ofRs 2 each in financial year 2019-20 as compared to Rs 6.06 per share having Face Value ofRs 2 each in financial year 2018-19.
Your Company has an expanse of around 169700 square kilometre of licensed area underits umbrella and continues to hold the leadership position of being the largest CGDCompany in terms of market share catering to more than 14.4 lakh residential consumersover 12600 commercial customers dispensing CNG from 396 CNG stations for vehicularconsumers and providing clean energy solutions to over 3700 industrial units through itswide spread operations with around 24300 kilometre of Natural Gas pipeline network.
Your Company has continued its focused efforts for developing and growing PNG(Domestic) and CNG business. GGL added more than 93000 residential customers and erected/ commissioned 52 new CNG stations during the year. Your Company has been able to sustainthe volumes with growth of around 6% in the residential sector and around 10% in CNG(transport) sector. However the last week of the year witnessed drop in volumes onaccount of lockdown. Your company is aggressively planning for penetration in PNG(domestic) PNG (commercial) and CNG (transport) sector which is comparatively lessvolatile.
Your Directors recommend for consideration of the shareholders at the 8th AnnualGeneral Meeting the Dividend of Rs. 1.25/- per fully paid up equity share of Rs. 2/- each(62.50%) on 688390125 equity shares for the Financial Year 2019-20. The DividendDistribution Policy is being disclosed in the Annual Report for FY 2019-20 as perrequirement of Regulation 43A of the SEBI (Listing Obligations and DisclosureRequirements) Regulations 2015.
SUBSIDIARIES JOINT VENTURES AND ASSOCIATES
Your Company does not have any subsidiary and joint venture. Guj Info Petro Limited isthe Associate of your Company and the statement containing salient features of financialstatements of Guj Info Petro Limited under first proviso to sub section (3) of section 129in form AOC-1 is attached at Annexure-6.
CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Financial Statements of the Company represents consolidation ofFinancial Statements of Guj Info Petro Limited (GIPL) the associate company and GujaratGas Limited Employees Welfare Stock Option Trust (ESOP Trust) in accordance with IND AS.
During the year under review your Company has not accepted deposits from the publicfalling within the ambit of Section 73 of the Companies Act 2013 read with Companies(Acceptance of Deposits) Rules 2014.
PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS
The details of Loans Guarantees Securities and Investments if any covered under theprovisions of Section 186 of the Companies Act 2013 are given in the Notes to theFinancial Statements.
PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES
All Related Party Transactions that were entered into during the financial year were onan arm's length basis and were in the ordinary course of business. A statement givingdetails of all Related Party Transactions is placed before the Audit Committee forapproval/ ratification on a quarterly basis as the case may be. The policy on materialityof related party transactions and dealing with related party transactions as approved bythe Board is uploaded on the Company's Website. None of the Directors has any pecuniaryrelationships or transactions vis-a-vis the Company. The particulars of contracts orarrangements with Related Parties referred to in Section 188 (1) of the Companies Act2013 as prescribed in Form AOC - 2 of the Companies (Accounts) Rules 2014 is enclosedherewith as Annexure -4 to this Report.
Disclosures of transactions of the Company with person or entity belonging to thePromoter/Promoter Group which hold(s) 10% or more shareholding in the Company
| || || || ||(Rs. in Crores) |
|Name of Related Party ||Relationship ||Nature of Transactions & Balances ||For Year ended 31st March 2020 ||For Year ended 31st March 2019 |
|Gujarat State Petronet Limited - GSPL ||Holding Company ||Gas Transmission Expense ||476.50 ||321.06 |
| || ||Recharge of Salary - Expense ||0.09 ||0.07 |
| || ||Right of Way Expense (ROW) ||0.21 ||0.14 |
| || ||Reimbursement of Expenses ||0.003 ||0.19 |
| || ||Dividend Paid ||37.29 ||29.83 |
| || ||Rent Expense ||1.41 ||1.56 |
| || ||PNG Sales - Income ||0.02 ||0.03 |
| || ||O&M Charges Recovered - Income ||0.04 ||0.04 |
| || ||Rent - Income ||0.03 ||0.03 |
| || ||Reimbursement of expenses - Income ||3.02 ||- |
| || ||Recharge of Salary - Income ||0.07 ||- |
| || ||Recharge of Capex (by GGL to GSPL) ||1.73 ||1.97 |
| || ||Recharge of Material - Income ||0.68 ||- |
| || ||Facilitation Charges - Income ||0.25 ||- |
| || ||Deposit Given - Paid / (Refund) ||16.94 ||2.48 |
| || ||Balance at the period end || || |
| || ||Amount Receivable/(Payable) ||(10.50) ||(14.60) |
| || ||Deposits Asset / (Liability) - Net ||21.39 ||4.47 |
| || ||Bank Guarantee - by GGL to GSPL ||48.31 ||31.36 |
| || ||Letter of Credit - by GGL to GSPL ||0.05 ||0.10 |
STATEMENT ON COMPLIANCES OF APPLICABLE SECRETARIAL STANDARDS
Your Directors hereby confirm that during the year the Company has been compliant withthe applicable Secretarial Standards issued by the Institute of Company Secretaries ofIndia.
CORPORATE SOCIAL RESPONSIBILITY
The Company has constituted a Corporate Social Responsibility (CSR) Committee inaccordance with Section 135 of the Companies Act 2013 read with Companies (CorporateSocial Responsibility Policy) Rules 2014. Pursuant to provisions of Section 135 of theCompanies Act 2013 the Company has also formulated a Corporate Social ResponsibilityPolicy which is available on the website of the Company athttp://www.gujaratgas.com/corporate-governance/policies/. The Annual Report on CSRactivities as required under the Companies (Corporate Social Responsibility Policy) Rules2014 is enclosed herewith as Annexure - 2 to this Report.
BOARD OF DIRECTORS AND KEY MANAGERIAL PERSONNEL APPOINTMENT AND RESIGNATION OFDIRECTORS
Dr. T. Natarajan IAS ceased to be Director of the Company with effect from 22ndAugust 2019 on account of his transfer as Senior Advisor to ED IMF. Your Directors wishto place on record appreciation for the services rendered by him as the Director of theCompany.
Dr. Manjula Devi Shroff has resigned as Independent Woman Director with effect from23rd November 2019 on account of her preoccupation. Your Directors wish to place onrecord appreciation for the services rendered by her as the Independent Woman Director ofthe Company.
Shri Pankaj Joshi lAS has ceased to be Director of the Company with effect from 16thDecember 2019 on account of his transfer and appointment as Additional Chief SecretaryFinance Department Govt. of Gujarat. Your Directors wish to place on record appreciationfor the services rendered by him as the Director of the Company.
Dr. J.N. Singh IAS (Retd.) has ceased to be the Director and Chairman of the Companywith effect from 1st April 2020 on account of Resolution from Energy &Petrochemicals Department Government of Gujarat. Your Directors wish to place on recordappreciation for the services rendered by him as the Director and Chairman of the Company.
Shri Milind Torawane IAS had been reappointed as the Director by the shareholders atthe 7th Annual General Meeting held on 20th September 2019. He will retire by rotationand it is proposed to reappoint him as the Director of the Company in the ensuing 8thAnnual General Meeting.
Shri Sanjeev Kumar IAS had been appointed as the Additional Director with effect from20th September 2019. Shri Sanjeev Kumar IAS had been appointed as the Managing Directorof the Company with effect from 18th December 2019. It is proposed to appoint ShriSanjeev Kumar IAS in the ensuing 8th Annual General Meeting. Smt. Sunaina Tomar IASAdditional Chief Secretary Energy and Petrochemicals Department Government of Gujarathas been appointed as Additional Director with effect from 8th January 2020. It isproposed to appoint Smt. Sunaina Tomar IAS in the ensuing 8th Annual General Meeting.
Shri Anil Mukim IAS Chief Secretary Government of Gujarat has been appointed asAdditional Director and Chairman with effect from 1st April 2020. It is proposed toappoint Shri Anil Mukim IAS in the ensuing 8th Annual General Meeting. A brief resume ofthe Directors to be appointed at the ensuing Annual General Meeting nature of expertisein specific functional areas and details regarding the Companies in which the Directorshipis held together with the Membership / Chairmanship of Committees of the Board will begiven in the Explanatory Statement forming part of the Notice of the 8th Annual GeneralMeeting.
Appointment & Cessation of Key Managerial Personnel
Shri Nitin Patil has ceased to be Chief Executive Officer with effect from 20thFebruary 2020 and Smt Rajeshwari Sharma has ceased to be the Company Secretary witheffect from 20th February 2020.
Shri Sandeep Dave Group General Manager (S&L) has been appointed as the CompanySecretary Compliance Officer and Key Managerial Personnel of the Company with effect from30th March 2020.
Pursuant to the provisions of Section 149 (6) of the Companies Act 2013 theIndependent Directors of the Company have given confirmation/declaration to the Board thatthey meet with the criteria of Independence and are Independent in terms of Section 149(6) of the Companies Act 2013. Further they have also given the confirmations onindependence as per provisions of Regulation 16(1)(b) and 25 (8) of the ListingRegulations.
Pursuant to the provisions of the Companies Act 2013 the performance evaluation ofthe Board Committees and individual Directors for FY 2019-20 was carried out as per theterms and conditions of their appointment based on the various parameters.
MEETINGS OF THE BOARD OF DIRECTORS
The Board meets at regular intervals to discuss and decide on Company / business policyand strategy apart from other Board business. The Board / Committee Meetings arepre-scheduled to enable the Directors to plan their schedule and to ensure meaningfulparticipation in the Meetings. However in case of a special and urgent business need theapproval is taken by passing resolutions through circulation to the Directors aspermitted by law which are noted in the subsequent Board/Committee Meetings.
During the period beginning from 1st April 2019 up to 16th May 2020 Six (6) BoardMeetings were convened and held the details of which are given in the CorporateGovernance Report. The intervening gap between the Meetings was within the periodprescribed under the Companies Act 2013.
AUDITORS (STATUTORY & CAG AUDIT)
As your Company is a Government Company the Statutory Auditors are appointed by theComptroller & Auditor General of India (C&AG). Accordingly the C&AG hadappointed M/s. S. R. Goyal & Co. Chartered Accountants as the Statutory Auditors ofthe Company for the Financial Year 2019-20. The C&AG has carried out supplementaryaudit of your Company pursuant to provisions of Section 143(6) of the Companies Act 2013.The Company has received Report from the Comptroller & Auditor General of India(C&AG) on the accounts of the Company for the Financial Year ended on 31st March 2020and the Management response to comments of C&AG is enclosed as Annexure-8 and formspart of this Boards' Report.
Pursuant to the provisions of Section 204 of the Companies Act 2013 and the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 the Board of Directorsof the Company had appointed M/s Manoj Hurkat and Associates Practising CompanySecretaries to conduct the Secretarial Audit of the Company for the Financial Year2019-20. The Report of Secretarial Auditor on Company's Secretarial Audit for theFinancial Year 2019-20 is enclosed herewith as Annexure-3 to this Report. The SecretarialAudit Report is self explanatory in nature.
Your Company is required to carry out Cost Audit pursuant to Section 148 of theCompanies Act 2013 read with the Companies (Cost Records and Audit) Rules 2014. TheBoard of Directors has on the recommendation of the Audit Committee appointed M/s AshishBhavsar & Associates Cost Accountants as the Cost Auditor to audit the Cost Accountsof the Company for financial year 2020-21 on remuneration of Rs. 130000/- (Rupees OneLakh Thirty Thousand Only) plus GST and out of pocket expenses.
As required under the Companies Act 2013 the remuneration payable to the Cost Auditoris required to be placed before the Members in General Meeting for their ratification.Accordingly the necessary resolution seeking Member's ratification for the remunerationpayable to the Cost Auditors for FY 2020-21 will be included in the Notice convening the8th Annual General Meeting. The Cost Audit Report for FY 2019-20 will be submitted to theCentral Government in the prescribed format within stipulated time period.
The Audit Committee at its Meeting held on 5th June 2020 approved the FinancialStatements for the Financial Year ended on 31st March 2020 and recommended the same forapproval of the Board which had been subsequently approved by the Board of Directors atits meeting held on 5th June 2020.
RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM
The Company has a well-defined Risk Management Framework for reviewing the major Risksand has adopted a Business Risk Management Policy. Further pursuant to the requirement ofRegulation 21 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations2015 the Company has constituted a Risk Management Committee inter-alia to monitor theRisk Management Plan of the Company.
Internal Control System
The Company has a proper and adequate system of Internal Controls commensurate with itssize of operations and nature of business. These are regularly tested and certified byAuditors. Significant audit observations of audit team and follow up actions thereon arereported to the Audit Committee. The details about the identification of elements of Riskand Internal Control Systems are provided in detail in the Management Discussion &Analysis Report forming part of this Board's Report.
INTERNAL FINANCIAL CONTROLS
The Company has in place adequate internal financial controls with reference tofinancial statement. The internal financial controls have been documented in the businessprocesses. Such controls have been assessed during the year under review and wereoperating effectively.
WHISTLE BLOWER POLICY/VIGIL MECHANISM
The Company has established a Whistle Blower Policy/Vigil Mechanism for DirectorsEmployees to report their genuine concerns details of which have been given in theCorporate Governance Report forming part of this Boards' Report. Though there was nocompliant under Whistle Blower Policy/Vigil Mechanism the Company has filed FIR againstan employee who has committed Fraud/Financial Irregularity in connivance with DirectMarketing Agency amounting approx. to Rs. 44 lakhs. The Company has withheld for recoverypart of the amount involved. The Company has also lodged an insurance claim in thisregard. Therefore management is confident of recovering the balance amount. This has beenbrought to the notice of Statutory Auditors and the Audit Committee.
HEALTH SAFETY AND ENVIRONMENT (HSE)
Health Safety and Environment (HSE) is a core value in GGL. GGL believes thatoutstanding business performance requires outstanding HSE performance. GGL recognizes thatHSE is everyone's responsibility and every individual has a duty to intervene and preventunsafe actions and to reinforce safe behaviors.
GGL has established its Quality Occupational Health Safety & Environment (QHSE)management system with reference to international standards ISO 9001:2015 ISO 14001:2015& OHSAS 18001:2007 and has been certified by a third party certification body afterrigorous audit. The certificates demonstrate company's commitment to quality healthsafety and environment management and customer satisfaction which is the key tosustainable business performance. GGL ensures that all management decisions reflect itsQuality Health Safety & Environment (QHSE) intentions and QHSE management systemsreflect best industry practices and are properly resourced. GGL aims to be an industryleader in City Gas Distribution business through its QHSE performance.
GGL recognizes that the protection of the health and safety of all those involved inits operation and public at large and protection of the environment is the primeresponsibility of company and its' management at every level. GGL assets have beendesigned constructed commissioned operated and maintained such that the risks topersonnel are reduced to as low as reasonably practicable (ALARP).
GGL conducts its business in a safe and responsible manner and ensures compliance withthe all legal and regulatory requirements. Assurance of the same is confirmed throughaudits covering all geographical areas of GGL. The safe delivery of projects and safeoperations of assets is a critical success factor for the company's business. GGL sets HSEtargets and closely monitors it to achieve continual improvement in QHSE performance.
GGL recognizes that leadership commitment is fundamental for continual improvement inHSE performance. GGL management team members review HSE performance on regular basis. Themanagement team members also regularly carry out HSE tour at different worksites (projectO&M) across various locations to engage and involve site staff in HSE processes toreinforce best HSE practices and to understand and address their HSE related concerns.
GGL is committed to protect safety health and well-being of people working for theorganization. Lost Time Injury Frequency (LTIF) is the industry standard key indicatorwhich is used to measure GGL's occupational safety performance. GGL has achieved Lost TimeInjury Frequency of 0.237 for the FY 2019-20. Total man-hours of GGL in FY 2019-20 is21.072 Million. GGL as a responsible organization recognizes and understands the variousglobal challenges with respect to environmental degradation and climate change. Buildingawareness among the employees and community about these challenges is an effective way ofaddressing these challenges. GGL raises the awareness through various activities likeknowledge sharing programs quiz various other competitions etc. throughout the entireorganization as well as sapling plantation drives. GGL also educates and influencesvarious third party utility companies authorities and their contractors who undertakedigging activities on or near the underground GGL gas pipeline network. This is done tofocus on the safety risks and environmental impact of the release of Natural gas which canoccur as a result of damaging GGL's natural gas pipelines while digging/excavationoperations. The third parties are urged to dial in to GGL to confirm the location prior tostarting any digging/excavation activities so that damage to Natural gas pipeline networkcan be prevented. onsite 73 Level-1 Mock-drills 14 Level-2 Mock-drills & 14 Level-3Mock-drills including participation.
GGL has defined Lifesavers rules for all the critical activities and monitors lifesavercompliance. In FY 2019-20 GGL has achieved close to 93% compliance to lifesavers rules.
To improve HSE performance various HSE initiatives and programs are implemented aspart of HSE improvement plan. In FY 2019-20 GGL has achieved more than 98% compliance toits HSE improvement plan.
GGL always ensures that safety training programs are conducted periodically foremployees and contractor staff which includes basic safety practical fire-fighting firstaid defensive driving and other technical competency trainings in various areas such asplumbing CNG filling Welding Working at height etc. More than 630 Safety &Technical competency training programs have been conducted during FY 2019-20.
GGL organizes various safety awareness programs including awareness regarding NaturalGas related safety for its customers general public employees contractors and otherstakeholders such as third party utility. Around 1050 safety awareness programs have beenconducted during FY 2019-20.
GGL has also established a system for evaluating contractor performance on monthlybasis. Quality & HSE performance has been made an essential part of this performanceevaluation with pre-defined key indicators.
GGL conducts monthly online HSE Quiz based on monthly HSE focus area to raise awarenessacross GGL.
As part of HSE improvement plan this year GGL has conducted training sessions to raiseawareness on basics of Behavior Based Safety (BBS) process and introduced safetyintervention process across GGL.
Considering asset & process risk management as one of the crucial aspects of citygas distribution GGL rolled out e-leaning module along with related certification processon Asset Integrity Risk Management in the FY 2019-20 for all its employees. GGL has put inplace HSE reward and recognition scheme to acknowledge significant HSE contribution ofemployees and contractor staff.
GGL cares about the health of all its employees and its family members. GGL hascompleted annual medical check-up for all of its employees in FY 2019-20. GGL has alsoarranged medical health check-up camps for contractor staff at various locations inGujarat in collaboration with BOCW Government of Gujarat.
GGL encourages participation and involvement of its employees and contractor staff inHSE related activities through monthly HSE committee meetings Hazard and Near missreporting monthly quiz risk assessment and numerous safety awareness programs. GGLbeing a prudent organization celebrates various HSE related events like National SafetyWeek Road Safety Week and World Environment Day. Under these umbrella GGL organizesvarious initiatives such as display of custom banners pledge ceremony quiz / postermaking / slogan competitions Skit / drama / song programs and number of awarenesssessions etc. with an aim to involve employees and contractors and enhance their awarenessregarding importance of HSE and related best practices.
GGL operations are driven by the goal of zero injuries with the aim to ensure thatevery individual working for and on behalf of the company returns home safely at the endof each working day.
On the onset of Coronavirus pandemic and hard time of lockdown across country GGLbeing a responsible company and as an essential service has continued its operations withstaff reduced to must essential at field & offices and rest working from home withsupport of information technology to ensure uninterrupted supply of Piped Natural Gas(PNG) to its residential commercial and Industrial customers and to ensure continuity ofits CNG operation. To safeguard the life of its employee contractor staff customers andother stakeholders against COVID-19 GGL has developed guidelines in line with variousorders & advisories released by Ministry of Health & Family Welfare and Ministryof Home affairs and has initiated awareness and training about precautions againstCOVID19. GGL is ensuring compliance with the guidelines at offices and operation &project sites including travel.
MANAGEMENT DISCUSSION & ANALYSIS
The Management Discussion & Analysis is as under:
1. INDUSTRY STRUCTURE AND DEVELOPMENTS
Natural Gas is the cleanest and most efficient of the fossil fuels. It is the onlyfossil fuel whose share of the primary energy mix is expected to grow as it has thepotential to play an important role in the world's transition to a cleaner moreaffordable and secure energy future due to its high energy content which results in loweremissions of carbon and volatile organic compounds (VOCs) at combustion relative to coaland oil. These characteristics of gas provide substantial environmental benefits such asimproved air quality and reduced CO2 emissions.
World energy demand has been increasing steadily with Natural Gas accounting nearlyhalf of increased consumption. Gas demand growth was especially strong in China and theUnited States where cheap gas continues to replace coal for electricity generation. Asper the International Energy Agency India along with China is highly dependent on naturalgas imports as domestic production exceeds consumption.
Crude Oil prices have always been at the forefront for all energy prices includingNatural Gas. The crude oil prices have softened in FY 2019-20 compared to FY 2018-19mainly influenced by economical and geo-political factors and off late by Pandemic COVID19.
The oil prices in FY 2019-20 had not seen major volatility in first three quarters ofFY 2019-20. The oil prices stayed range-bound between US$ 50/bbl to US$65/bbl. There wassome spike in the oil prices swing was on account of drone attack on Saudi Arabia oilinstallations in Sept 2019 but did not sustain for long. There had been continued rapidgrowth in oil production (shale oil) in the United States. Growth of India's share in theglobal energy market is expected to increase in the coming years. India has been mainlydependent on high polluting fuels viz. coal Furnace Oil to meet its ever growing energyneeds. Government of India; realizing the importance of protecting the environment hasannounced; one of its important initiatives for a more sustainable future; an aggressivetarget to increase the share of Natural Gas in the overall energy consumption mix to 15percent from the current levels of 6 percent by 2030.
Historically the Natural Gas usage in India has seen a slowdown with power sectorshifting back to coal from Natural Gas due to lower availability of cheap domestic gas andincreased dependency on costly R-LNG. However with R-LNG prices expected to be low someof the power producers may shift back to Natural Gas. The City Gas Distribution(CGD) business in India contributes around 17.57% of total natural gasconsumption in India and leading the way with the highest CAGR amongst all sectors in thecoming decade. The sector regulator Petroleum and Natural Gas Regulatory Board during theyear awarded 50 CGD licenses for the Geographical Areas (GAs) announced during the 10thCGD Bidding Round on 8th November 2018 covering 124 districts (112 complete and 12 part)in 14 states 18% of India's geographical area and 24% of its population. Your company wasawarded 6 new CGD licenses which are:
1. Sirsa Fatehabad and Mansa (Punjab) Districts in the States of Haryana and Punjab
2. Ujjain (Except area already authorized) District Dewas (Except area alreadyauthorized) District and Indore (Except area already authorized) District in the State ofMadhya Pradesh
3. Jhabua Banswara Ratlam and Dungarpur Districts in the States of Rajasthan andMadhya Pradesh
4. Ferozepur Faridkot and Sri Muktsar Sahib Districts in the State of Punjab
5. Hoshiarpur and Gurdaspur Districts in the State of Punjab
6. Jalore and Sirohi Districts in the State of Rajasthan
2. OPPORTUNITIES AND THREATS
The Government is promoting the usages of clean and green fuel i.e. Piped Natural Gas(PNG) and Compressed Natural Gas (CNG) by expanding the coverageof CGD network in the country. In order to promote the natural gas usage in the countrythe Government has issued guidelines for making available domestic gas to the CGD entitiesfor meeting the entire requirement of CNG for transport sector and PNG for Domestic.
In the coming Financial Year it is also expected that the PNGRB shall be announcing the11th CGD Bidding Round wherein it is likely that many new GAs which are contiguous to yourcompany's existing CGD operations shall also be included. This shall give your companyanother opportunity to expand its foot prints.
Similar to any other business the Company faces challenges in the form of stiffcompetition from other conventional fossil fuels due to accessibility and availability.The fuel also faces threat in the form of disparity in the tax structure compared toalternate fuels as PNG and CNG are still out of GST ambit. Notwithstanding these yourCompany shall continue to focus placing environmentally clean Natural Gas to affordablemarkets for sustainable growth.
3. SALES AND MARKET PERFORMANCE
Your Company has total 25 CGD licenses and operates in 42 districts and six states andone Union territory which accounts to c. 11% of total CGD licenses and c. 10% totalAuthorized areas issued by PNGRB in India and one transportation pipeline license.
Your Company has an expanse of around 169700 square kilometres of licensed area underits umbrella and continues to hold the leadership position of being the largest CGDCompany in terms of market share with catering to more than 14.4 lakh residentialconsumers over 12600 commercial customers dispensing CNG from 403 CNG stations forvehicular consumers and providing clean energy solutions to over 3700 industrial unitsthrough its wide spread operations with more than 24400 kilometres of Natural Gaspipeline network.
Despite the dynamic business environment and intensely competitive energy market; YourCompany has been resilient to connect around 329 new industrial units during the year.
Your company has witnessed steep volume growth in industrial customers of around 63%compared to previous year. The volume increase was mainly on account of Ban on usage ofCoal Gasifier in the Morbi industrial cluster (which is considered as Ceramic Hub ofIndia) resulting in switchover to natural gas. This was challenging task technically aswell as commercially but your company was able to meet this challenge through concentratedefforts. For this to happen your company laid 6 inch steel pipeline of 5 kms in recordtime of 28 days. However the last week of the year witnessed drop in volumes on accountof lockdown. The volume in commercial category has also grown by around 9% during thefiscal. Your Company has continued its focused efforts for developing and growing PNG(Domestic) and CNG business. GGL added more than 93000 residential customers and erected/ commissioned 62 new CNG stations during the year. Your Company has been able to sustainthe volumes with growth of around 6% in the residential sector and around 10% in CNG(transport) sector. Your company is aggressively planning for penetration in PNG(domestic) PNG (commercial) and CNG (transport) sector which is comparatively lessvolatile.
The future outlook for natural gas in India depends on the growth in demand theevolution of the pricing regime and the pace of gas infrastructure expansion. Withoutbreak of pandemic COVID-19 the demand for oil & gas has slumped and pulling downthe price. The demand will steadily rise with opening of the economy after the pandemic.
Your company has already adopted digitization of its critical processes and due to thatthese processes were least impacted during the Covid-19 lockdown period. Going forwardalso your company shall leverage its endeavors for more digitization and aims to setbenchmark in the CGD industry for complete E-Office benefiting all the stakeholders viz.consumers vendors suppliers and employees. India's Natural Gas supply and demand outlookis changing. The Government of India (GoI) wants to make India a gas-based economy byboosting domestic production and buying cheap LNG. India has set a target to raise theshare of gas in its primary energy mix to 15% by 2030. To improve the share of Natural Gasand promote a gas-based and clean fuel economy the GoI has adopted a systematic approachto focus on all aspects of the gas sector viz upstream midstream and downstream includingCGD network development.
Your Company has been continuously growing and expanding its horizon by venturing intonew geographic areas and is committed to reach every possible Natural Gas user across itslicensed expanse of around 169700 square kilometres through its ever growing pipelinenetwork spread across 42 districts and six states and one UT. Your Company shall continueto focus on growing the penetration in the current operating areas by increasing the PNGconnections and additional CNG stations while tapping the untapped potential byexpeditious rollout of distribution network in the newly acquired geographic areas aswell. With this focused endeavour GGL shall continue its efforts in providing clean fuelsolutions across all operational area to augment an energetic top-line and bottom-line incoming years.
5. RISKS AND CONCERNS
The world runs on energy. Conventional fuels such as petrol and diesel have been in usefor transportation for decades. But the current demand supply gap in energy depletion ofoil-based fuels and environmental constraints have created a necessity for alternateenergy resources which are cleaner and environment friendly. Natural gas is beingconsidered as the fuel for today and is being looked as transportation as well as adomestic fuel. CGD is a growing business sector and it aims to provide uninterruptedsupply of gas to domestic commercial and industrial customers in the form of PNG and CNG.Natural Gas Distribution or CGD system is a pipeline system for transport of gas and theirdistribution among consumers. The distribution system includes gas distribution mains andservice lines. The pressure is regulated in the system and is usually designed as closedring or loop systems in order to ensure uninterrupted gas supply. The sector hasattracted many engineers managers and practitioners. The CGD sector has seen atremendous growth over the past few decades but as the sector is still in the developmentstage especially in India many challenges are being faced by all the stakeholders of theCGD sector. Challenges and issues are now discussed in many forums and corrective actionsare being taken. In CGD sector most of the issues are complex and the mechanism forcombating the same are jointly worked out by the government and CGD entities.
CGD business like any other business is also exposed to inherent business risks due tointernal and/ or external factors. To name a few the risks could vary from continuousavailability of economic gas supplies pipeline connectivity for expansion in unconnectedareas abundant availability of economical alternate fuels global economic downturncrude market volatility delay in permissions from various statutory bodies for laying theinfrastructure etc. While some of these risks may be beyond the mitigation capability ofany company or industry as a prudent and responsible Company all possible measures arebeing taken to safe guard the interest of the Company from being impacted due to the abovelisted risks and concerns. Your Company has adequate internal control procedure forassessing various business risks which the Company is likely to face in near to mid-termfuture and also prepares mitigation measures.
INTERNAL CONTROL SYSTEM AND ADEQUACY
The Company has a proper and adequate system of Internal Controls commensurate with itssize of operations and nature of business. The Company's Internal Control Systems arefurther supplemented by extensive programs of audits i.e. Internal Audit ProprietaryAudit by the Comptroller & Auditor General of India (C&AG) and Statutory Audit byStatutory Auditors appointed by the C&AG. The Internal Control System is designed toensure that all financial and other records are reliable for preparing financialstatements and other data and for maintaining accountability of assets and compliance withstatutory requirements. The Company has mapped a number of business processes on to SAPsystem thereby leading to significantly improved controls & transparency. YourCompany also continues to invest in Information Technology to support various businessprocesses.
FINANCIAL AND OPERATIONAL PERFORMANCE
The stand-alone net profit after tax (Total comprehensive income) for the currentfinancial year 2019-20 increased to Rs 1189.62 Crores from Rs 414.97 Crores in theprevious year. The Company had healthy net cash inflows from operations of Rs. 1422.06Crores during the financial year 2019-20.
Investments were made in extension of pipeline network to reach new areas and inreinforcements and upgradation of existing network as required. Investments were also madeto connect residential customers and augmenting the CNG infrastructure. Investments werealso made to upgrade the IT infrastructure and integrate SAP to enhance reliability andenable scalability. Appropriate provisions have been made in the accounts wherevernecessary for contingencies bad debts and diminution in value of investments. No amounthas been transferred to the General Reserve during the year.
Details of significant changes (i.e. change of 25% or more as compared to theimmediately previous financial year) in key financial ratios along with detailedexplanations therefor including:
|Particulars ||FY 2019-2020 ||FY 2018-2019 ||Remarks ||Reason for changes |
|Debtors Turnover ||20.63 ||17.65 ||Revenue From Operation / Average Trade Receivable ||NA |
|Inventory turnover ||- ||- ||Not relevant from company perspective ||NA |
|Interest Coverage Ratio ||7.11 ||4.45 ||(EBITDA-current tax)/ Interest Cost ||Interest Coverage Ratio is improved due to increase in profitability |
|Current Ratio ||1.58 ||1.22 ||Current assets / Current liabilities net of customer deposit ||Current ratio of company has changed on account of increase in liquidity due to increase in profitability. |
|Debt Equity ||0.61 ||1.01 ||Total Borrowing / Total Equity ||Debt Equity ratio has improved due to increase in retained earnings & repayment of Debt. |
|Operating Profit Margin (%) ||15.53% ||12.37% ||Operating income / Revenue from operations ||Operating Profit Margin (%) is improved mainly on account of increase in turnover and reduction in procurement cost. |
|Net Profit Margin (%) ||11.34% ||5.24% ||PAT / Revenue from operations ||Net Profit Margin (%) is improved due to mainly on account of increase in turnover and reduction in procurement cost. |
|Return on Net Worth ||42% ||20% ||PAT / Average net worth ||Return on Net Worth is improved due to increase in profitability. |
Previous year's ratios have been reclassified wherever necessary to confirm tothe current period's presentation.
IMPACT OF COVID-19
Subsequent to the outbreak of Coronavirus (COVID-19) followed by countrywide lock downthe Company continued its uninterrupted supply of Natural Gas to its customers based ontheir requirement. However the lockdown had an impact in the immediate natural gasdemand mainly from Industrial and CNG customers. As restrictions are being liftedgradually in many of Company's operating areas demand has started showing up anincreasing trend both in industrial and CNG segments.
The Company has considered the possible effects of the pandemic on the carrying amountof current assets and assessed the carrying amounts of property plant and equipmentinvestments inventories receivables and other current assets. Based on internal andexternal sources of information and economic forecasts the Company expects the carryingamount of these assets will be recovered and sufficient liquidity would be available asand when required to fund the business operations. The company also invoked the provisionof Force Majeure under the gas purchase agreement with its suppliers to secure itself fromany liability. The Company currently has a comfortable liquidity position and continues toassess its cash flow and liquidity position in both normal and stressed situation. TheCompany has not availed moratorium from term loan lenders and continues to service itsdebt obligations. The Company's financial management is further supported by its strongexternal credit ratings. The Company has adequate financial reporting and control systemand has been operating throughout while adhering to internal financial controls. TheManagement does not see any risks to the Company's ability to continue as a going concernand meet its liabilities as and when they become due based on the current indicators.
A definitive assessment of the impact at this stage is not possible in view of thehighly uncertain economic environment and the situation is still evolving. The Company iscontinuously monitoring material changes in such information and economic forecasts.
HUMAN RELATIONS AND PARTICULARS OF EMPLOYEES
Your Company employed 1089 employees as on 31st March 2020. Your Company has a focus onbuilding capabilities and developing competencies of its employees. The Company believesthat training and development is of vital importance to create a climate where peoplemaximize their technical skills and inner potential which can help the Company incapitalizing the emerging business opportunities through their involvement. During theyear employees were sent for various training programs and seminars to enhance theirskills/knowledge. Your Company has in place an attractive policy of performance linkedincentive to encourage and reward employee performance. There was no strike or lock-outduring the year under review.
The Company believes that good governance can deliver continuous good businessperformance. The particulars on Corporate Governance as required under SEBI (ListingObligations and Disclosure Requirements) Regulations 2015 is incorporated as a part ofthis Board's Report at Annexure - 1.
EXTRACT OF ANNUAL RETURN
The details forming part of the extract of the Annual Return in Form MGT - 9 isenclosed herewith as Annexure 5.
The Annual Return of the Company in the Form MGT 7 is available on the website of theCompany at https://gujaratgas.com/GGL/annual-return.pdf
CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION FOREIGN EXCHANGE EARNINGS AND OUTGO
The details about conservation of energy technology absorption foreign exchangeearnings and outgo is attached at Annexure 7.
Foreign Exchange Earnings and Outgo -
The Company has incurred expenditure in Foreign Exchange to the extent of Rs. 1.50Crores during FY 2019-20 (Previous year FY 2018-19 Rs. 1.48 Crores) and the ForeignExchange Earnings during FY 2019-20 were Rs. NIL (Previous year FY 2018-19 Rs. NIL)
SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS
There are no significant material orders passed by the Regulators/Courts during theyear which would impact the going concern status of the Company.
DIRECTORS' RESPONSIBILITY STATEMENT
To the best of their knowledge and belief and according to the information andexplanations obtained by them your Directors make the following statements in terms ofSection 134(3) (c) of the Companies Act 2013:
a. that in the preparation of the annual accounts financial statements for the yearended 31st March 2020 the applicable accounting standards have been followed and nomaterial departures have been made from the same;
b. that accounting policies have been selected and applied consistently and judgmentand estimates have been made that are reasonable and prudent so as to give a true and fairview of the state of affairs of the Company as at 31st March 2020 and of the profit ofthe Company for the year ended on that date;
c. that proper and sufficient care has been taken for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act 2013 forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities;
d. that the annual financial statements have been prepared on a going concern basis;
e. that proper internal financial controls were in place and that the financialcontrols were adequate and were operating effectively.
f. that systems to ensure compliance with the provisions of all applicable laws were inplace and were adequate and operating effectively.
The Directors place on record their deep appreciation to employees of the Company atall levels for their hard work dedication and commitment. The Directors are extremelygrateful for all the support given by the Government of Gujarat at all levels. TheDirectors place on record their sincere thanks to the Promoters Shareholders SuppliersLenders and Customers for their valuable support trust and confidence reposed in theCompany.