Global rating agency Moody’s Investors Service has reaffirmed Reliance Industries Limited’s (RIL) Baa2 rating, maintaining a stable outlook. This decision reflects the conglomerate’s significant market presence and the strong performance across its diverse business sectors.
“The affirmation of RIL’s Baa2 ratings reflects the company’s large scale and leading market position across its diverse businesses as well as management’s strong execution track record,” said Sweta Patodia, Moody’s Assistant Vice President and Analyst. Patodia, who also serves as Moody’s Lead Analyst for RIL, added, “The ratings affirmation also reflects our expectation that continued earnings growth will keep RIL’s credit metrics strongly positioned for its current ratings despite high ongoing capital spending.”
Moody’s projects a substantial growth in RIL’s consolidated EBITDA, estimating an increase of around 14% to ₹1.7 trillion (around $21 billion) for the fiscal year ending March 31, 2024. This growth is anticipated to be driven by the robust performance of its consumer businesses, which includes digital services, retail, and its upstream oil and gas segment. Over the next two years, these segments are expected to contribute to an annual EBITDA growth of approximately 10%-12%.
For the digital services segment, specifically Reliance Jio Infocomm Ltd (Jio), Moody’s predicts a steady growth in the subscriber base, fueled by the roll-out of 5G services, expansion of home broadband services, and the introduction of the Jio Bharat phone. These initiatives are expected to contribute to a 15%-20% annual EBITDA growth for this segment over the next two years.
In the retail sector, operated under Reliance Retail Ventures Limited (RRVL), an EBITDA growth of 22%-27% is forecasted over the same period, supported by India’s growing consumption, urbanization, and rising income levels.
However, earnings from RIL’s oil-to-chemicals segment are expected to remain flat in comparison to fiscal 2023, with refining margins normalizing after 2022’s multi-year highs and petrochemical spreads staying subdued. Conversely, the upstream oil and gas segment is projected to witness a strong growth in fiscal 2024, attributed to higher production volumes and strong gas prices.
RIL’s consolidated capital spending is expected to stay elevated at around $15 billion-$17 billion over the next two years, focusing on setting up its new energy segment and continuing investments in existing businesses. Despite this, the company’s internal accruals from existing businesses are likely to fund a large part of this expenditure, thereby limiting the increase in consolidated borrowings.
Moody’s expects RIL’s leverage, as indicated by adjusted net debt/EBITDA, to remain at 1.5x-1.6x over the next 12-18 months. The retained cash flows/net debt ratio is also expected to stay around 40%-45%, positioning RIL strongly for its current ratings.
Despite RIL’s robust credit metrics, its rating is capped at no more than one notch above India’s sovereign rating due to its increasing exposure to the domestic economy through its consumer businesses.
The stable outlook on RIL’s ratings mirrors the stable outlook of the Indian sovereign rating, with Moody’s expecting RIL’s earnings to continue growing across most of its business segments.
Reliance Industries Limited, an Indian conglomerate with a presence in oil-to-chemicals, digital services, and retail, reported a market capitalization of around $200 billion as of December 8, 2023. The company is also expanding into a ‘new energy’ business, in line with its strategy to achieve net-zero status by 2035. For the last twelve months ended September 2023, RIL reported consolidated revenues and EBITDA of around ₹8.8 trillion ($107.6 billion) and ₹1.6 trillion, respectively ($19.6 billion).
