Significant delay in commercial launch of 4G telecom services of Reliance Industries will impact expected improvement in the company's credit metrics, Moody's Investors Services said today.
"The commercial launch of Reliance's telecom service (Jio) has been delayed from our expectation of early 2016. Significant delays in commercial rollout will defer ebidta generation, which in turn will impact the expected improvement in credit metrics," Moody's said in a note on RIL's FY16 earnings.
While RIL remains committed to commercially launch telecom service in 2016, Moody's said it did not "expect the telecom business to generate positive cash flows for the next three years, as it will continue to require further investment over the same time frame."
RIL on Friday had declared FY16 earnings, but did not indicate when Jio will launch 4G telecom and high-speed broadband services.
The company said a 13 per cent year-on-year ebitda growth for fiscal 2016 backed by improved refining margins and product spreads.
RIL reported a gross refining margin (GRM) of USD 10.8 per barrel for fiscal 2016 compared to USD 8.6 in the last fiscal.
The firm is currently in the midst of its largest ever capex cycle wherein it is investing over Rs 2.3 lakh crore across its energy and telecom business.
"Half of this investment has been funded by external borrowings, as a result of which there has been an increase in debt levels.
"Net borrowings have increased from Rs 76,400 crore in fiscal 2015 to Rs 95,000 crore in fiscal 2016. Consequently, RIL's net debt to ebitda ratio has weakened to 1.8x as of March 2016 compared to 1.7x in the previous year, which resulted in credit metrics being at its weakest level in the past seven years despite an improvement in earnings," it said.
Moody's expected the credit metrics to improve once the ongoing projects start contributing to ebitda over the next 12-18 months while the company completes the current expansion by fiscal 2017.
"We expect fiscal 2018 to be the first full year cash flows coming in from the new projects," it said.
Earnings from upstream business continue to decline owing to falling production levels. "Production levels within the upstream segment continued to decline in a low oil price environment, which impacted the performance of the segment," it said.
Also, earnings from the US shale business reduced despite an increase in production as the average realised prices declined to USD 1.97 per million cubic feet during the quarter ended March compared to USD 3.43 for the quarter March 2015.
Moody's said RIL's refining margins remain strong backed
by improved light distillate cracks which strengthened by robust demand.
"We expect gasoline cracks to remain firm over the next 2-3 quarters buoyed by strong demand and scheduled refinery maintenance," it said.
However on quarter-on-quarter basis gross margins declined by 4 per cent owing to a weakness in middle distillate cracks resulting from increased supplies coming from China, which in turn was on account of slowdown in the Chinese domestic demand.
RIL continued to outperform the regional benchmark, the Singapore complex in fiscal 2016 by USD 3.3 per barrel.
"We expect RIL's GRM to improve further by USD 2 a barrel once it completes its ongoing expansion projects by fiscal 2017, while the Singapore complex is expected to average USD 7-7.5 per barrel for the year as the upcoming refinery closures in China and Japan, will provide support to the margins," Moody's said.
Also, earnings from the petrochemical segment saw growth of 23 per cent backed by strong product spreads, as low product prices led to higher product demand.
The start-up of new Purified Terephthalic Acid (PTA) and Polyethylene Terephthalate (PET) capacities at Dahej in Gujarat led to an increase in polyester production during the year amidst a growing demand scenario which contributed to earnings improvement during the year.
"We expect earnings from the segment to improve substantially over the next 18-24 months as the company completes its expansion projects," it added.
