Fitch Ratings has affirmed Reliance Industries’ long-term local currency issuer default rating (IDR) at ‘BBB+’ saying that it reflected its strong business profile, market-leading positions, and diversified cash flows from oil-to-chemicals and consumer businesses.

The rating agency has also affirmed the conglomerate’s long-term foreign currency IDR at ‘BBB’, which is one notch above India’s country ceiling of ‘BBB-’, based on the expectation that RIL’s hard-currency external debt service ratio will remain above 1x over the next 12 months.

The rating outlook is stable.

The rating agency noted that RIL has a high-growth capex in the near to medium term, but it has a high rating headroom as it expected the company’s EBITDA to net leverage to remain well below the downgrade sensitivity of 1.5x for its local currency “as a large part of the capex will be funded by operating cash flows.” Most of RIL’s capex will be for its retail, digital and new energy businesses. “We expect investments in new energy, digital services and retail to form more than 80% of annual capex,” Fitch said.

The external debt service ratio is supported by sustained EBITDA generation from its dominant O2C segment and a higher level of offshore committed undrawn facilities despite high scheduled hard currency scheduled debt maturities in FY24. According to the ratings agency, RIL has said that it has refinanced a large part of its near term debt maturities.

Growth Drivers

Fitch said that it expected RIL’s EBITDA to rise 11-13 per cent in FY24 and FY25, after having grown 29 per cent in FY23. Th growth will be supported by higher production of upstream gas, continued rise in digital services and retail EBITDA, though there may be some moderations in the EBITDAs of the O2C business.

The consumer-facing businessesaccount for over half of RIL’s consolidated EBITDA, and Fitch said that it expected the new energy business to start contributing to the key metric by FY26, “through cost savings from cheaper renewable power.”

Fitch has forecast revenue and EBITDA from digital services, largely telecom, to increase by 12-14 per cent a year in FY24 and FY25 driven by wireless subscriber additions, improvement in average revenue per user (ARPU) and benefits from favourable operating leverage. ARPU is seen to rise 10 per cent in FY24 on lower competition and higher 5G ARPU.

Retail segment EBITDA should rise by about 20 per cent y-o-y to ₹21,600 crore as RIL continues expanding across physical and digital channels, while maintaining double-digit margins, the rating agency said.