Reliance Industries Ltd’s operating performance is likely to remain resilient over the next two years, as the firm’s growing presence in the digital and retail segments will temper softer earnings in the energy business, S&P Global Ratings said on Thursday.
The rating agency affirmed its ‘BBB+’ rating — equivalent to the sovereign rating assigned to India — to Reliance (RIL) with a stable outlook, reflecting the view that RIL’s cash flows will help it preserve its financial profile, despite elevated investments over the next 24 months.
In a statement, S&P said Reliance’s expansion plans for the next two years are manageable. Capex will remain elevated, but lower than the levels of fiscal 2023 (ended March 31, 2023).
The company’s leverage will remain at a level commensurate with the current rating, it said.
“RIL’s operating performance will remain resilient over the next 24 months,” it said.
“Earnings growth from RIL’s digital and retail segments will continue. This will temper weakness in the O2C business.”
The company, which operates the world’s largest single-location oil refining complex at Jamnagar in Gujarat and is India’s biggest petrochemical producer, has in recent years diversified into telecom and digital space, including OTT as well as physical and online retail.
“We believe the company’s oil-to-chemicals (O2C - a significant contributor to the company’s revenue and EBITDA) segment will continue to maintain more stable and superior margins relative to peers’.
This is because RIL is one of the largest and most complex refiners globally.
“The company should therefore be able to withstand a likely weakening in refining margins in Asia amid an economic slowdown and a high base,” S&P said.
Petrochemical demand, it said, is expected to pick up, with China reopening its economy earlier this year, after a pandemic-induced lockdown.
This will drive up petrochemical margins from the lows of fiscal 2023.
“We expect EBITDA for RIL’s O2C segment to decline 23 per cent in fiscal 2024, before improving 6 per cent to Rs 50,500 crore in fiscal 2025. EBITDA was Rs 62,100 crore in fiscal 2023,” it said.
