Credit Rating: Baa2 / BBB+ / -
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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 2024INR 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
ING Groep
BNP Paribas
China CITIC Financial Asset Management (Huarong)
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Fundamental View
AS OF 18 Jun 2024- Kasikornbank (KBANK; Baa1(stb)/BBB(stb)/BBB(stb)) is a historically sound and profitable bank.
- Capitalisation is strong and the bank has among the highest CASA ratios in the banking sector. However, asset quality took a surprise turn for the worse in 4Q22 due to its larger SME exposure, and credit costs remain elevated.
- Margins are leading among the Thai banks we cover as a result of its strong SME franchise, but the NIM has been falling steadily over the past 5 years as a result of strong competition. Rising base rates in 2023 have provided a boost, but the bank is now focusing growth on the safer but lower yielding segments to diversify its exposure.
Business Description
AS OF 18 Jun 2024- KBank is currently the second largest bank in Thailand. It briefly was the largest from 2018 until mid-2020, upon which Bangkok Bank completed its acquisition of Indonesia's Bank Permata and took its place.
- KBank's history can be traced back to 1945 when it was first established as Thai Farmers Bank. It was listed on the Stock Exchange of Thailand in 1976 and changed its name to Kasikornbank in 2003.
- As of end-March 2024, the bank's loan mix by segment consists of 38% corporate, 28% SME, 27% retail and 7% others.
- KBank is known for its strong SME franchise. Its focus industries in SME are construction, construction materials, food & beverage, and hardware.
- It partially owns a life insurance company, Muang Thai Life.
Risk & Catalysts
AS OF 18 Jun 2024- High household debt and challenged SMEs remain longstanding issues in Thailand, but KBANK’s higher NIM and low-40%s cost-income ratio provide comfortable room to absorb its higher credit costs and maintain a similar level of returns as peers.
- Loan growth has been middling across the Thai banks due to a focus on quality given elevated household debt and challenged SMEs, and a larger and prolonged balance sheet cleanup at KBANK which is slated to be completed by YE24.
- KBANK expects to be able to maintain a flat FY24 NIM even as peak NIMs have been hit in 4Q23, supported by its higher CASA funding mix, as well as larger retail and SME loan book should rate cuts come through this year. However, its continued pivot away from the higher yielding unsecured retail and SME segments and recent guidance from authorities to reduce borrowing rates for vulnerable pockets of SME and retail customers and improve their lending access present some headwind.
Key Metric
AS OF 18 Jun 2024THB mn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
PPP ROA | 2.44% | 2.38% | 2.36% | 2.52% | 2.74% |
ROA | 0.85% | 0.98% | 0.86% | 0.99% | 1.25% |
ROAE | 7.0% | 8.3% | 7.3% | 8.2% | 10.0% |
Equity / Assets | 13.4% | 13.1% | 13.4% | 13.9% | 14.3% |
CET1 Ratio | 15.5% | 15.5% | 15.9% | 16.5% | 16.5% |
Gross NPL ratio | 3.93% | 3.76% | 3.19% | 3.19% | 3.19% |
Provisions / Loans | 2.05% | 1.73% | 2.11% | 2.08% | 1.89% |
Gross LDR | 96% | 93% | 91% | 92% | 91% |
Liquidity Coverage Ratio | 161% | 174% | 164% | n/m | n/m |
CreditSight View Comment
AS OF 22 Oct 2024Kasikornbank is the 2nd largest bank in Thailand. We are cautious about its one third loan book exposure to SMEs given their challenges, but have liked the bank’s high NIM and strong capital. Credit costs spiked in 4Q22 mainly from the SME book and high yield small ticket lending, and remain elevated in FY24 given the larger SME and Blue scheme book. The bank however has switched to focus on safer segments, which has weighed on the NIM but helped to stabilize credit costs. It has been cleaning up its balance sheet, which should complete by YE24, post which credit costs are expected to fall to 140-160 bp in FY25. Credit costs have been comfortably absorbed thus far. We keep KBANK on M/P and see ~5 bp outside BBL as fair.
Recommendation Reviewed: October 22, 2024
Recommendation Changed: June 09, 2023