International ratings agency Standard & Poor's (S&P) today affirmed the BBB+ rating on Reliance Industries with stable outlook, citing likely fall in its leverage due to improved operational performance.
"We reaffirm the rating of RIL to reflect our expectation of significant improvement in its operating performance over the next three years. This will help return RIL's financial leverage back to levels comfortable for the rating," S&P said in a note.
On the stable outlook, the agency said, "It reflects our expectation that RIL's leverage will significantly improve over the next two years with the debt-to-Ebitda ratio close to 2 times.
"It also shows our expectation that RIL will continue to maintain its operating performance, and its competitive position will be supported by timely commissioning of large projects in refinery and petrochemical business over the next 12 months."
The agency further said it expects improvement in RIL's operating performance over the next three years from commissioning of large refinery and petrochemical projects as well as rollout of its much-delayed telecom operations, S&P's Global Ratings Analyst Mehul Sukkawala said.
He expects RIL to report an Ebitda CAGR of about 23 per cent over the next three years as the low oil prices have already helped its operating performance.
RIL is close to commissioning its multi-billion dollar expansion of its petrochemical project, ethane import project, a petcoke gasification unit, and a refinery off-gas cracker facility over the next 12 months.
"We believe improvement in operating performance will enable RIL to reduce its leverage over the next three years. This is despite our expectation that its capex will be 70 per cent higher over the next two years, primarily because of faster and wider rollout of telecom operations.
"We expect the ratio of debt-to-Ebidta to decline to about 2 times by fiscal 2018 and fall further to below 1.5 times by fiscal 2019 from the current moderately high level of about 2.8 times in fiscal 2016," he said.
In addition to increasing petrochemical capacity, the projects will increase the integration of refinery and petrochemical operations as well as improve the cost position of the petrochemical and refinery business, he said.
"We also expect RIL to commercially launch its 4G telecom operations RJio over the next six months and roll out by the end of the current fiscal. We believe 4G combined with its telecom spectrum portfolio offers a competitive advantage to provide high-quality voice and high-speed data services," Sukkawala said.
