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Indicative Year-to-Maturity: 5.531% (Indicative as of March 2)
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 09 May 2023Reliance Industries (RIL) is positioned as India’s largest company by revenues, profits and exports. It enjoys a large, diversified scale of operations and dominates various key sectors (refining, petrochemicals, retail and telecom), which allow for earnings resilience.
RIL also plans to ramp up its presence in the renewable energy space, which could provide the next leg of growth and improve its ESG perception.
RIL incurs significant capex, particularly from heavy investments in 5G telecom and the renewables space (~INR 750 bn over the next 3 years). This has weighed on its free cash flow generation, though we acknowledge RIL’s historically prudent financial management and robust credit metrics that provide ample elbowroom for some credit profile deterioration.
Business Description
AS OF 09 May 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 09 May 2023RIL’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 incurs significant capex, particularly from heavy investments in 5G telecom and the renewables space (~INR 750 bn over the next 3 years). This has weighed on its free cash flow generation, though we acknowledge RIL’s historically prudent financial management and robust credit metrics that provide ample elbowroom for some credit profile deterioration.
RIL faces key-person risk; 65-year old Chairman Mukesh Ambani has begun to hand over the reins of RIL’s different business divisions to his children.
Key Metrics
AS OF 09 May 2023| INR bn | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Debt to Book Cap | 42.4% | 43.0% | 24.6% | 24.1% | 26.4% |
| Net Debt to Book Cap | 40.8% | 39.2% | 22.9% | 21.0% | 20.5% |
| Debt/Total Equity | 73.6% | 75.5% | 32.5% | 31.7% | 35.9% |
| Debt/Total Assets | 29.0% | 29.9% | 19.7% | 18.8% | 19.6% |
| Gross Leverage | 3.4x | 3.9x | 3.2x | 2.6x | 2.3x |
| Net Leverage | 3.2x | 3.5x | 3.0x | 2.2x | 1.8x |
| Interest Coverage | 3.3x | 3.2x | 3.1x | 5.7x | 7.3x |
| EBITDA Margin | 14.8% | 14.7% | 16.6% | 15.3% | 16.0% |
CreditSights View
AS OF 21 Jun 2023We have a Market perform recommendation on RIL. We think RIL’s bonds trade fairly to similarly rated Indian peers Bharti Airtel and BPCL. We like RIL’s large, diversified scale of operations and dominant market shares in key sectors (refining, petrochemicals, retail and telecom) that allow for earnings resilience. RIL also plans to ramp up its presence in the renewable energy space, which could provide the next leg of growth and improve its ESG perception. While we remain aware of RIL’s elevated capex needs could persist over the next 2-3 years, we think the impact is mitigated by RIL’s historically prudent financial management and healthy credit metrics that provide ample elbowroom for some credit profile deterioration.   Â
Recommendation Reviewed: June 21, 2023
Recommendation Changed: June 30, 2021
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
