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Country: India
Reliance Industries
- Sector: Manufacturing
- Sub Sector: Diversified Conglomerates
- Country: India
- Region: India
- Bond: RILIN 4.125 25
- Indicative Yield-to-Maturity (YTM): 5.531% (Indicative as of March 2)
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): Baa2 / BBB+ / -M/P
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Fundamental View
AS OF 15 Oct 2024We are comfortable with Reliance’s large diversified scale of operations and dominant presence in various key sectors (refining, petrochemicals, retail and telecom), which allows for earnings resilience.
We believe a lackluster oils-to-chemicals outlook is well mitigated by strong outlooks for telecom, retail, and upstream oil & gas.
Plans to ramp up its renewable energy business could provide the next leg of growth and improve ESG perception.
Reliance incurs significant capex that has weighed on free cash flow generation, though we acknowledge its historically prudent financial management and robust credit metrics that provide ample elbowroom for some credit profile deterioration.
Business Description
AS OF 15 Oct 2024- 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 20 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 18.8k stores (as of March 2024) 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 (482 mn as of March 2024) 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 15 Oct 2024Reliance’s O2C (oil-to chemicals) margins remain under pressure from high crude oil input costs and global growth slowdown concerns, though China’s recent stimulus measures could spur improvements.
Reliance incurs significant capex at historically high levels, particularly from continued investments into its O2C, retail, and nascent renewables businesses. This has weighed on its free cash flow generation, though we take comfort in Reliance’s historically prudent financial management and robust credit metrics.
Reliance faces key-person risk; 65-year old Chairman Mukesh Ambani has begun to hand over the reins of the company’s different business divisions to his children.
Key Metric
AS OF 15 Oct 2024| INR bn | FY22 | FY23 | FY24 | 1H24 | 1H25 |
|---|---|---|---|---|---|
| Debt to Book Cap | 26.4% | 35.3% | 33.1% | 32.8% | 32.7% |
| Net Debt to Book Cap | 23.4% | 29.9% | 26.1% | 27.5% | 26.4% |
| Debt/Total Equity | 35.9% | 54.5% | 49.6% | 48.7% | 48.6% |
| Debt/Total Assets | 21.3% | 28.1% | 26.1% | 25.4% | 25.6% |
| Gross Leverage | 2.9x | 3.2x | 2.8x | 2.8x | 2.9x |
| Net Leverage | 2.6x | 2.7x | 2.2x | 2.4x | 2.3x |
| Interest Coverage | 5.7x | 7.3x | 7.0x | 6.7x | 6.9x |
| EBITDA Margin | 15.3% | 15.9% | 17.7% | 17.7% | 16.5% |
CreditSight View Comment
AS OF 15 Oct 2024We have a Market perform recommendation on Reliance (RIL), prefer its 2032, and dislike its 2045 and 2062. RIL’s shorter-dated bonds trade fairly to closely-rated Indian peers Bharti Airtel and BPCL. We like RIL’s large diversified operations and dominant market shares in key sectors (refining, retail and telecom) that boosts earnings resilience. Its growing renewable business could aid ESG investor sentiment too. While we remain aware of RIL’s elevated capex needs could persist over the next 5+ years, we think the impact is mitigated by RIL’s prudent financial management and healthy credit metrics that provide ample elbowroom for some credit profile deterioration. While key man risk remains a concern, we take comfort in gradually progressing succession plans.
Recommendation Reviewed: October 15, 2024
Recommendation Changed: June 30, 2021
Who We Recommend
China Construction Bank
Bank of China
Bangkok Bank
How may we help you?
Search topics about wealth insights and investments.State Bank of India
- Sector: Financial Services
- Sub Sector: Banks
- Country: India
- Bond: SBIIN 4.875 28
- Indicative Yield-to-Maturity (YTM): 5.23%
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): -/BBB/-
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Fundamental View
AS OF 23 May 2024State Bank of India (SBI) is the largest state-owned bank in India and is in some respects the country’s flagship bank. Given the bank’s ~57% government ownership and systemic importance, government support for SBI is very strong.
It is rated Baa3(sta)/BBB-(sta)/BBB-(sta), the same as India’s sovereign ratings. Fitch revised its outlook to stable from negative while affirming its BBB- rating in June 2022. A sovereign downgrade to HY would be the greatest credit risk, but we assess that risk as low.
The bank’s capital buffers are relatively low, but we take comfort in the strong government support.
Business Description
AS OF 23 May 2024- State Bank of India is the largest commercial bank in India. Its predecessor banks date back to the 19th century. In the early 20th century, they merged to form the Imperial Bank of India, which became the State Bank of India after India gained independence in 1947.
- The Government of India remains the largest shareholder with a 56.92% stake. Per the SBI Act, the government's shareholding cannot fall below 55%.
- SBI's merged with its 5 associate banks and Bharatiya Mahila Bank in 2018. The merger catapulted SBI into one of the world's 50 largest banks.
- The bank has 85% of its loans in the domestic market, and has steadily increased its international business too over the past few years with offices across all international business centres. The domestic book is split 42% retail, 35% corporates, 13% SMEs and 10% to the agri segment.
- It has diversified its operations with well regarded subsidiaries in the areas of fund management, credit cards, insurance, and capital markets.
Risk & Catalysts
AS OF 23 May 2024SBI does not have a strong buffer vs. the regulatory minimum of 8%, but its size, systemic importance and majority government shareholding confer particularly strong government support. But consequentially, any deterioration in the sovereign ratings will also affect the bank’s credit.
Increasing consolidation in the country’s financial space may narrow the gap between SBI’s market leading position vs its peers, particularly HDFC Bank.
Asset quality is trending well but net slippages should normalize. Similar to the other PSBs, SBI has a large SME and mid-corporate book which could be impacted disproportionately by higher rates. However, SBI’s asset quality is better than the other PSBs and it is also better run due to the high caliber of its management team.
Deposit competition on the back of tight system liquidity has led to some pressure on margins and loan growth of the Indian banks, but SBI’s less tight liquidity position than its private sector peers has allowed it to guide for steady loan growth of 13-15% YoY in FY25 along with a stable NIM.
Key Metric
AS OF 23 May 2024| INR mn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| NIM | 2.97% | 3.04% | 3.12% | 3.37% | 3.28% |
| ROAA | 0.38% | 0.48% | 0.67% | 0.96% | 1.04% |
| ROAE | 6.4% | 8.4% | 11.9% | 16.5% | 17.3% |
| Equity to Assets | 5.9% | 5.6% | 5.6% | 5.9% | 6.1% |
| CET1 Ratio | 10.1% | 10.3% | 10.3% | 10.6% | 10.6% |
| Gross NPA Ratio | 6.15% | 4.98% | 3.97% | 2.78% | 2.24% |
| Provisions/Loans | 1.83% | 1.77% | 0.91% | 0.54% | 0.14% |
| PPP ROA | 1.79% | 1.65% | 1.58% | 1.59% | 1.60% |
CreditSight View Comment
AS OF 18 Nov 2024SBI is India’s largest bank and a well-run franchise. Government support underpins SBI’s relative positioning, while fundamentally, it has the lowest net NPA, a sufficient (though could be higher) CET1 ratio, good operating metrics and business plans, and the best management among the public sector banks. Deposit competition from tight system liquidity is putting pressure on interest margins, but SBI’s less tight liquidity position than its private sector peers has allowed it to guide for continued higher loan growth than deposit growth in in FY25. India’s continued macro resiliency and SBI’s lower risk personal unsecured loans clientele is supporting asset quality well, though gross slippages are higher than key private sector peers. We like the name and affirm our M/P recommendation.
Recommendation Reviewed: November 18, 2024
Recommendation Changed: December 07, 2020
Who We Recommend
China Construction Bank
Bank of China
Bangkok Bank