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Fundamental View
AS OF 20 Jan 2023- Reliance Industries Ltd. (RIL) is positioned as India’s largest company by revenues, profits and exports. It dominates a few of the country’s key sectors, such as crude oil refining, petrochemicals, telecom and retail.
- RIL’s diversified operations across the consumer business continue to help it wade through the COVID-19 economic downturn and keep its earnings buoyant.
- It has strengthened its balance sheet considerably, with the help of a flurry of global investments into its retail and telecom (Jio) businesses, as well as a mega rights issue, bringing in a total of INR 2.5 bn/ $33.6 bn.
Business Description
AS OF 20 Jan 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 20 Jan 2023- RIL’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’s foray into the renewables space will require heavy investments to the tune of ~INR 750 bn over the next 3 years, which will raise its capex requirements, and weigh on its free cash flow generation. It may require RIL to take on more debt too.
- Possible further ‘waves’ of COVID-19 infections and consequent social restrictions could hamper demand for transportation fuels and petrochemicals sold by RIL.
- The key-person risk stands out as rather pertinent in the case of RIL, as 65-year-old Mukesh Ambani has begun to hand over the reins of RIL’s different business divisions to his children.
Key Metric
AS OF 20 Jan 2023| INR bn | LTM 1H23 | FY22 | FY21 | FY20 | FY19 |
|---|---|---|---|---|---|
| Debt to Book Cap | 25.9% | 24.1% | 24.6% | 43.0% | 42.4% |
| Net Debt to Book Cap | 22.0% | 21.0% | 22.9% | 39.2% | 40.8% |
| Debt/Total Equity | 35.0% | 31.7% | 32.5% | 75.5% | 73.6% |
| Debt/Total Assets | 19.4% | 18.8% | 19.7% | 29.9% | 29.0% |
| Gross Leverage | 2.4x | 2.6x | 3.2x | 3.9x | 3.4x |
| Net Leverage | 2.1x | 2.2x | 3.0x | 3.5x | 3.2x |
| Interest Coverage | 8.6x | 7.6x | 3.8x | 3.2x | 3.3x |
| EBITDA Margin | 15.2% | 15.3% | 16.6% | 14.7% | 14.8% |
CreditSight View Comment
AS OF 20 Jan 2023We have a Market perform recommendation on RIL. RIL is positioned as India’s largest company by revenues, profits and exports. It dominates a few of the country’s key sectors, such as crude oil refining, petrochemicals and organized retail. RIL has diversified its operations across the consumer (telecom and organized retail) business, which helped its earnings remain resilient amid the COVID pandemic. A flurry of global investments into JPL and RRVL and a rights issue generated large cash proceeds and deleveraged its balance sheet significantly. Investments in the renewable energy space will de-risk its O&G business, and could provide the next leg of growth. However, it will also increase its capex needs, which is in turn likely to pressurize its leverage. Its bonds trade fairly to peers.
Recommendation Reviewed: January 20, 2023
Recommendation Changed: June 30, 2021
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