Credit ratings agency Fitch has upgraded Reliance Industries' ratings on expectations of an improvement in the company's financial profile. In a statement on Thursday, Fitch said its long-term local-currency issuer default rating (IDR) on Reliance Industries was revised to "BBB+" from "BBB", and affirmed the conglomerate's long-term foreign-currency rating at "BBB-". The agency has a "stable" outlook on both ratings. Giving the rationale behind the ratings action, Fitch said Reliance Industries' net debt reductions are underpinned by proceeds from a stake sale in its digital services arm, Jio Platforms, a rights issue, and the agency's forecast of positive free cash flow in the current financial year.
Billionaire Mukesh Ambani-led Reliance Industries' local-currency rating "reflects its strong business profile with a market leading position and diversified cash flows from a mix of oil to chemical and consumer businesses", according to Fitch.
Fitch maintained its "stable" outlook on the company's foreign-currency rating despite the revision in its outlook on India's sovereign rating to "negative" from "stable" on June 18. The credit ratings major expects Reliance Industries' hard currency external debt-service ratio to improve over next 12 months, driven by its ability to reduce its foreign-currency borrowings outside the country from the proceeds of the stake sale in Jio Platforms and its rights issue.
Fitch said it expects the company's oil-to-chemical segments to face volume and margin headwinds on account of low demand for refined products and petrochemicals in 2020, with a gradual recovery through 2021 to pre-COVID-19 levels. Reliance Industries' capacity utilisation for its refining and petrochemical businesses is expected to decline around 10 per cent in 2020-21.
However, Reliance Industries is expected to be "less affected by the lockdown than other Indian refiners due to its integrated operations and ability to export part of its production though with somewhat lower margins", Fitch added.
Fitch also said it expects Reliance Industries' telecom business, Reliance Jio Infocomm, to be less affected by the coronavirus lockdown.
Reliance Industries' ratings are "supported by its strong business profile and robust refining asset quality, which enables it to consistently deliver a GRM (gross refining margin) above regional benchmarks", Fitch said. GRM or gross refining margin is a key measure of profitability for a refining company.
Last week, Reliance Industries chairman and managing director said his group is now "in its golden decade", as the company became net debt-free much ahead of its original target of March 2021. "I have fulfilled my promise to the shareholders by making Reliance net debt-free much before our original schedule of 31st March 2021," he said.
Over the past few weeks, Reliance Industries raised Rs 1,68,818 crore in 58 days, taking into account investments of Rs 1,15,693.95 crore in its digital services arm and Rs 53,124.20 crore through the issue of rights.