Region: India
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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 20 Aug 2024The 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-(pos)/BBB-(stb).
Business Description
AS OF 20 Aug 2024- 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 FY24, EXIMBK's loan portfolio was principally made up of export finance (70%) and term loans to exporters (16%), with the remaining 14% split among the financing of overseas investment, import finance, and export facilitation. 44% come under the policy business/face GOI risk while the remaining 56% are to the commercial business.
- By geography, the bank has a primary exposure of 39% to Africa, 52% to Asia (mainly South Asia), 6% to the CIS region, 3% to Latin Amercia and Caribbean, and 0.5% to Oceania.
Risk & Catalysts
AS OF 20 Aug 2024As 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-(pos)/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 received INR 7.5 bn in FY22 despite capital levels remaining strong during the year. No infusions were made in FY23 and FY24 due to the comfortable capital position.
Key Metric
AS OF 20 Aug 2024INR mn | FY20 | FY21 | FY22 | FY23 | FY24 |
---|---|---|---|---|---|
Net Interest Margin (Annual) | 1.54% | 1.84% | 2.19% | 2.29% | 2.06% |
ROAA | 0.10% | 0.19% | 0.54% | 1.04% | 1.43% |
ROAE | 0.80% | 1.49% | 3.97% | 7.76% | 11.47% |
Equity/Assets | 12.46% | 13.23% | 14.12% | 12.87% | 12.06% |
Tier 1 Capital Ratio | 18.7% | 24.0% | 28.6% | 23.7% | 19.6% |
Gross NPA Ratio | 8.75% | 6.69% | 3.56% | 4.09% | 1.94% |
Provisions/Loans | 1.87% | 2.46% | 0.90% | 1.24% | 0.29% |
Pre-Impairment Operating Profit / Average Assets | 1.66% | 2.13% | 2.31% | 2.41% | 2.12% |
CreditSight View Comment
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
ING Groep
Reliance Industries
BNP Paribas
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Fundamental View
AS OF 12 Aug 2024ICICI Bank is one of the leading private banks in India and has a good diversified business model, with well regarded life and general insurance subsidiaries.
Under its previous CEO, the bank suffered setbacks from sizeable bad debt problems in FY17/18, but the situation has since stabilised following a leadership change and the bank has done well ever since.
The bank’s Baa3(sta)/BBB-(sta)/ BB+(sta) ratings make it a cross-over credit but we assess fallen angel risk to be low. ICICI Bank performed very well in FY22 and Moody’s upgraded its standalone rating to baa3 in June 2022. It has since continued the good performance.
Business Description
AS OF 12 Aug 2024- The original Industrial Credit and Investment Corporation of India (ICICI) was established in 1955 by the World Bank, the Government of India and representatives of Indian industry as a financial institution to provide Indian businesses with medium and long-term project financing.
- In 1994, ICICI established a commercial banking subsidiary, ICICI Bank as India's financial sector opened up, and in 2002 ICICI merged with ICICI Bank, keeping the latter's name.
- Retail now accounts for 55% of its loan book, corporates are at 21%, while rural, business banking and SMEs are at 8%, 8% and 5% respectively, and overseas (which is being de-emphasised) consists of just 3% at 1QFY25.
- The bank has well regarded life insurance (ICICI Prudential) and general insurance (ICICI Lombard) businesses.
Risk & Catalysts
AS OF 12 Aug 2024We are cautious about ICICI’s strong growth in riskier segments including business banking, personal unsecured loans and credit cards. The RBI’s increased risk weights on retail unsecured loans however has applied some brakes on that growth which is a credit positive, and India’s resilient growth momentum should keep credit costs relatively contained.
ICICI Bank has a strong franchise and its profitability has surpassed that of HDFC Bank to lead the peers we cover. Margins are under pressure from tight system liquidity, but the bank’s LDR is less tight than peers. We see ICICI’s credit costs normalizing upwards slightly in FY25 as the recoveries tailwind tapers off.
Leadership and governance issues under the previous CEO Ms. Chanda Kochhar have been dealt with well, since her replacement in Oct-18.
Key Metric
AS OF 12 Aug 2024INR bn | FY21 | FY22 | FY23 | FY24 | 1Q25 |
---|---|---|---|---|---|
NIM | 3.69% | 3.96% | 4.48% | 4.53% | 4.36% |
ROAA | 1.39% | 1.77% | 2.13% | 2.37% | 2.35% |
ROAE | 12.3% | 14.7% | 17.2% | 18.7% | 18.1% |
Equity/Assets | 12.0% | 12.1% | 12.6% | 12.7% | 13.3% |
CET1 Ratio | 16.7% | 17.3% | 16.9% | 15.4% | 15.1% |
Gross NPA Ratio | 4.96% | 3.60% | 2.81% | 2.16% | 2.15% |
Provisions/Loans | 2.05% | 0.97% | 0.65% | 0.30% | 0.41% |
PPP ROA | 3.13% | 2.97% | 3.28% | 3.36% | 3.41% |
CreditSight View Comment
AS OF 12 Aug 2024ICICI Bank is a preferred name among the Indian FIs we cover. We like the bank’s robust capital and loan loss buffers, high margins, strong profitability and more comfortable liquidity position than peers. Under its previous CEO, the bank suffered setbacks from sizable bad debt problems in FY17/18 but the situation has since stabilised following a leadership change. The bank has emerged stronger from a capital, asset quality and earnings perspective, as it de-risked its book, and took pro-active actions to protect its capital by raising equity and selling small stakes in its well-regarded insurance subsidiaries to raise funds and set aside more general provisions. We are slightly cautious about its brisk expansion in riskier segments of late. ICICI last issued a $ bond in 2017.
Recommendation Reviewed: August 12, 2024
Recommendation Changed: December 07, 2020