Moody’s Affirms Reliance Industries’ Baa2 Rating with Stable Outlook Amidst Strong Growth Prospects

Moody’s has confirmed Reliance Industries Limited’s (RIL) credit rating at Baa2 with a stable outlook. The affirmation is based on RIL’s significant market presence, diverse businesses, and successful management track record. Moody’s anticipates a 14% growth in RIL’s consolidated EBITDA for the fiscal year ending March 2024, supported by consumer businesses like digital services and retail, as well as the oil and gas segment.

The stable outlook is attributed to expectations of continued earnings growth, particularly in Reliance Jio’s subscriber base and the retail segment. Despite ongoing capital spending, RIL’s credit metrics are expected to remain strong, with leverage forecasted to stay at 1.5x-1.6x over the next 12-18 months. The stable outlook aligns with India’s sovereign rating.

Reliance Industries is expected to see steady earnings in its oil-to-chemicals segment for the next 12-18 months, with refining margins and petrochemical spreads stabilizing. However, the upstream oil and gas segment is anticipated to experience robust growth in fiscal 2024 due to increased production and favorable gas prices. Beyond that, growth in this segment may slow as production peaks and gas prices stabilize. Despite high capital spending of $15 billion-$17 billion over the next two years, mainly in the new energy sector, Moody’s predicts that RIL’s credit metrics will stay strong, with leverage at 1.5x-1.6x and retained cash flows around 40%-45%. These solid metrics position RIL favorably for its current credit ratings.

RIL’s new energy segment is under development, and while capital spending is high, much will be funded internally. The company’s liquidity remains robust, with cash and equivalents exceeding reported debt. Moody’s factors in RIL’s strong ESG (environmental, social, governance) standing, and any potential negative impact is deemed manageable within its current rating.

Potential upgrades hinge on sustained positive credit metrics, but RIL’s rating can only surpass the sovereign rating, and downgrades could result from a significant deterioration in metrics or a downgrade of India’s sovereign rating. Overall, the affirmation reflects Moody’s confidence in RIL’s resilience and growth prospects over the coming months.

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