Fitch said that RIL's ratings are supported by its superior refining asset quality, solid market position in petrochemicals, diversified cash flow streams with leading positions in telecom and retail and its expectation of low leverage.
The credit ratings agency Fitch Ratings has upgraded the long-term foreign-currency issuer default rating (IDR) of Reliance Industries (RIL) to 'BBB', from 'BBB-', with a negative outlook.
The agency has also affirmed RIL's long-term local-currency IDR at 'BBB+' with a stable outlook.
The upgrade is driven by Fitch's expectation that RIL's hard-currency (HC) external debt-service ratio will remain at above 1.0x over the next 12 months. Fitch's non-financial corporates exceeding the country ceiling rating criteria states that a company with a ratio of above 1.0x over at least 12 months can be rated one-notch above the country ceiling. India's Country Ceiling is 'BBB-'.
The negative outlook reflects the outlook on India's sovereign rating (BBB-/negative); should the sovereign IDRs be downgraded, the country ceiling may be revised down in tandem. This would constrain RIL's foreign-currency IDR to one notch above the country ceiling.
RIL's local-currency IDR reflects the company's strong business profile, with market leading positions and diversified cash flow from a mix of oil to chemical (O2C) and consumer businesses, as well as lower net leverage.
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Fitch Ratings expects RIL's HC external debt-service ratio to remain above 1.0x over the next 12 to 18 months. The stronger ratio is driven by a 36% reduction in foreign-currency borrowings outside India following pre-payments of USD7.8 billion in the financial year ending March 2021 (FY21). This was achieved using part of the proceeds from the stake sales of digital-service and retail subsidiaries as well as a rights issue.
Fitch expects RIL's EBITDA to increase to around Rs 1.1 trillion in FY22, supported by a recovery in petrochemical spreads, transportation fuel cracks, higher refining throughput and a continued rise in digital services EBITDA.
RIL's ratings benefit from cash flow generation across diversified business segments with unrelated industry drivers. This was reflected in FY21, when strong cash flow from telecom mitigated the impact on overall cash generation from the pandemic-affected O2C segment.
Consumer businesses, including digital services and retail, contributed around half of overall EBITDA generation in FY21 and we expect this to be the case over the medium term, even as O2C and upstream EBITDA rises.
The credit ratings agency expects deleveraging to continue, with net leverage falling to around 0.5x in FY22 (FY21: 1.3x, FY20: 2.3x), supported by positive free cash flow generation and the receipt of the balance of funds from the rights issue. Capex is also likely to fall, averaging at Rs 550 billion a year in FY22-FY25 (FY21: Rs 1.1 trillion), as most planned capex has been completed.
RIL is the largest private sector corporation in India. Its activities span hydrocarbon exploration and production, petroleum refining and marketing, petrochemicals, retail and digital services.
On a consolidated basis, RIL reported 108.36% surge in net profit to Rs 13,227 crore on 9.59% increase in net sales to Rs 149,575 crore in Q4 March 2021 over Q4 March 2020.
Shares of oil-to-telecom conglomerate were currently down 1.22% at Rs 2178.30 on the BSE.
The 44th annual general meeting (AGM) of the members of RIL will be held on today, 24 June 2021, at 14:00 IST.
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