Country: India
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Fundamental View
AS OF 20 Jan 2023- Reliance Industries Ltd. (RIL) is positioned as India’s largest company by revenues, profits and exports. It dominates a few of the country’s key sectors, such as crude oil refining, petrochemicals, telecom and retail.
- RIL’s diversified operations across the consumer business continue to help it wade through the COVID-19 economic downturn and keep its earnings buoyant.
- It has strengthened its balance sheet considerably, with the help of a flurry of global investments into its retail and telecom (Jio) businesses, as well as a mega rights issue, bringing in a total of INR 2.5 bn/ $33.6 bn.
Business Description
AS OF 20 Jan 2023- RIL is an Indian diversified conglomerate engaged in oil & gas refining, marketing, petrochemicals, organized retail, telecom and digital services, amongst others. It is the largest company in India by revenue, profits, exports and market capitalization (INR 14 tn).
- It is the second largest refiner in India and produces petroleum products such as petrol, high-speed diesel (HSD), aviation turbine fuel (ATF), LPG and lubricants.
- It is the largest petrochemicals producer in India, boasting production of ~38 mn tons in FY20. Through its integrated Jamnagar refinery complex, it produces Polymers/Plastics, Elastomers (synthetic rubber) and Polyester products.
- It is the largest retailer in India in terms of revenue. It operates 16.6k stores (as of September 2022) to sell products ranging from consumer electronics, fashion and lifestyle, grocery, petrol retail and telecom and digital services. It launched its online retail channel, 'JioMart', in December 2019.
- Reliance Jio is the largest mobile telecom operator by subscriber base (426 mn as of March 2021) in India and boasts the widest 4G wireless network in the country.
- In 2021, RIL announced investments to the tune of INR 750 bn/ $10 bn (for next 3 years) to build a renewable energy ecosystem which will include 4 giga factories. Set to be located in Gujarat, the factories will produce solar modules, hydrogen, fuel cells and battery grid to store electricity. Long-term goals also include building 100 GW of PV solar plants by 2030.
Risk & Catalysts
AS OF 20 Jan 2023- RIL’s O2C (oil-to chemicals) business margins have been under pressure owing to the squeeze in key downstream chemical product margins (i.e. an absolute decline in product prices vs. feedstock prices), which impacted polymer and aromatics margins.
- RIL’s foray into the renewables space will require heavy investments to the tune of ~INR 750 bn over the next 3 years, which will raise its capex requirements, and weigh on its free cash flow generation. It may require RIL to take on more debt too.
- Possible further ‘waves’ of COVID-19 infections and consequent social restrictions could hamper demand for transportation fuels and petrochemicals sold by RIL.
- The key-person risk stands out as rather pertinent in the case of RIL, as 65-year-old Mukesh Ambani has begun to hand over the reins of RIL’s different business divisions to his children.
CreditSights View
AS OF 20 Jan 2023We have a Market perform recommendation on RIL. RIL is positioned as India’s largest company by revenues, profits and exports. It dominates a few of the country’s key sectors, such as crude oil refining, petrochemicals and organized retail. RIL has diversified its operations across the consumer (telecom and organized retail) business, which helped its earnings remain resilient amid the COVID pandemic. A flurry of global investments into JPL and RRVL and a rights issue generated large cash proceeds and deleveraged its balance sheet significantly. Investments in the renewable energy space will de-risk its O&G business, and could provide the next leg of growth. However, it will also increase its capex needs, which is in turn likely to pressurize its leverage. Its bonds trade fairly to peers.
Recommendation Reviewed: January 20, 2023
Recommendation Changed: June 30, 2021
Who We Recommend
Siam Commercial Bank
Bangkok Bank
Kasikornbank
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Fundamental View
AS OF 10 Jan 2023The Export-Import Bank of India (EXIMBK) was founded in 1982. Its credit standing is built upon the key role it plays in the promotion of India’s cross border trade and investment development as India’s official export credit agency.
EXIMBK is 100% owned by the Government of India. Given its crucial policy role, close governmental links and quasi-sovereign status, we view it as inconceivable that the Indian government would fail to provide EXIMBK with support in a timely manner, if needed.
EXIMBK’s credit ratings are thus in line with the Indian sovereign, at Baa3(stb)/BBB-(stb)/BBB-(stb).
Business Description
AS OF 10 Jan 2023- EXIMBK presently serves as a growth engine for the internationalization efforts of Indian businesses, facilitating the import of technology and export product development, export production, export marketing, pre- and post-shipment, as well as overseas investment.
- As at 1H23, EXIMBK's loan portfolio is principally made up of export finance (80%) and term loans to exporters (13%), with remaining split among the financing of overseas investment, import finance, and export facilitation. 66% come under the policy business while the remaining are to the commercial business.
- By geography, the bank has a primary exposure of 45% to Africa, 45% to South Asia, 6% to rest of Asia, and 4% to the Americas and Europe.
Risk & Catalysts
AS OF 10 Jan 2023As a quasi-sovereign issuer with backstops from the Government of India and the Reserve Bank of India (RBI), EXIMBK is rated in line with the Indian government at Baa3(stb)/BBB-(stb)/BBB-(stb). Any downgrades in India’s sovereign rating will have a negative impact on its credit ratings.
EXIMBK’s policy role may require it to, at times, take on exposures that could lead to financial losses. This has led to poor asset quality and high impairment charges similar to the public sector commercial banks during the years leading up to the pandemic.
Capital standing, however, is robust thanks to capital infusions from the Government of India which have been stepped up in recent years – INR 50 bn was injected in FY19, followed by infusions of INR 15 bn and INR 13 bn in FY20 and FY21 respectively. The bank continued to receive INR 7.5 bn in FY22 despite capital levels remaining strong during the year, and INR 15 bn from the FY23 budget has been allocated for EXIMBK.
Key Metrics
AS OF 28 Feb 2023| INR mn | 1H23 | FY22 | FY21 | FY20 | FY19 |
|---|---|---|---|---|---|
| Net Interest Margin (Annual) | 2.08% | 2.19% | 1.84% | 1.54% | 1.56% |
| ROAA | 1.19% | 0.54% | 0.19% | 0.10% | 0.07% |
| ROAE | 8.69% | 3.97% | 1.49% | 0.80% | 0.67% |
| Equity/Assets | 13.30% | 14.12% | 13.23% | 12.46% | 12.81% |
| Tier 1 Capital Ratio | 26.3% | 28.6% | 24.0% | 18.7% | 17.7% |
| Gross NPA Ratio | 6.14% | 3.56% | 6.69% | 8.75% | 11.34% |
| Provisions/Loans | 0.72% | 0.90% | 2.46% | 1.87% | 1.90% |
| Pre-Impairment Operating Profit / Average Assets | 2.21% | 2.31% | 2.13% | 1.66% | 1.74% |
CreditSights View
AS OF 10 Jan 2023Exim Bank of India is the country’s key policy bank with full government support. It provides financial assistance to exporters and importers with a view to promote trade in India. It is 100% owned by the Government of India (GoI) and is a proxy to the India sovereign in international debt markets (quasi-sovereign status). The bank cannot be liquidated without the government’s approval and has a track record of government capital infusions. The bank’s asset quality is back on track after some wobbles in previous years. Capital levels are strong. We maintain a Market perform recommendation on the bank.
Recommendation Reviewed: January 10, 2023
Recommendation Changed: January 04, 2021
Who We Recommend
Siam Commercial Bank
Bangkok Bank
Kasikornbank