Fitch affirms RIL's rating with stable outlook on robust biz

Fitch today affirmed Reliance Industries' rating at 'BBB-' with a stable outlook on robust refinery and petrochemical business as also "strong growth potential" in recently launched telecom venture.
It said the robust operating cash flows from its refining and petrochemical businesses will provide some cushion against any weak cash generation from the telecom operations for some time. RIL launched its telecom business under the Jio brand in September 2016.
Fitch Ratings has affirmed Reliance Industries' (RIL) Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BBB-', and its Long-Term Local-Currency IDR at 'BBB'. The outlook on the ratings is 'stable', the US-based agency said in a statement.

"RIL's ratings are supported by its strong business profile - a large-scale refinery with capacity of around 1.24 million barrels per day - and robust asset quality, which enables it to consistently deliver gross refining margins (GRM) above regional benchmarks. The company also has a strong market position in petrochemicals," it said.
Large investments nearing completion will further enhance the company's competitiveness in these areas, Fitch added.
It said robust refining and petrochemical operations are supported by their large scale, asset quality and the company's leading position in the two segments.

During the six months to September 30, RIL recorded Gross Refining Margin (GRM) of USD 10.8 per barrel.

"We expect the GRM to narrow in the near term in line with the industry trends; although the commissioning of a gasification unit in FY'17 should result in a sustained increase in RIL's GRMs by around USD 1.5-2.5 per barrel," it added.
Fitch expects the benefits from its investments in the refinery and petrochemical operations to start accruing from 2017-18 and support improvement in its profitability and operational cash flows.
"We also expect lower overall capex after FY'18 although the company may continue to invest in its telecom business," it said, adding RIL has already planned a total capex of Rs 1.5 lakh crore for telecom business and acquired additional spectrum for Rs 13,700 crore in the recently held government auction in October 2016.

Fitch said it expects strong growth potential in telecom business, and we expect RIL to be able to take advantage of the strong growth potential in the India telecom market.
"RIL has invested significantly in its telecom infrastructure and expects to cover 90 per cent of the population by end-FY18. We expect the robust infrastructure along with its affordable 4G data offerings to support Jio's growth," it said.
Fitch said that Jio will face intense competition from the financially strong incumbent Indian telecom players, but falling data tariffs will support significant expansion of overall data consumption in India over the medium term.

"We also expect Jio's wide range of offerings, including media and entertainment content (offered free till end-2017), to help in subscriber additions and data consumption, which will drive cash generation. Future capex relating to Jio will depend on the growth of its customer base," it said.