S&P, Fitch forecast earnings growth at RIL

New Delhi: Reliance Industries Ltd (RIL) has won a vote of confidence from global rating agencies S&P and Fitch after its robust earnings in the fiscal year ended March 31, 2024, supported its growth aspirations and kept leverage under check.

S&P Global Ratings and Fitch Ratings in separate notes spoke of its EBITDA (loosely known as pre-tax profit) rising in the current fiscal year and next on rising revenue and past investments.

“Reliance Industries Ltd’s (RIL) strong earnings will keep leverage in check as the company continues to pursue growth ambitions. We expect the company’s debt-to-EBITDA ratio to remain commensurate with the rating (BBB+/Stable/--),” S&P said in a note.

The oil-to-telecom-and-retail conglomerate’s growth aspirations remain intact, it said, adding the company has ramped up investments in the media business in recent months. In 2024, it entered into binding definitive agreements with The Walt Disney Co for a media joint venture, in which RIL will invest Rs11,500 crore. The company subsequently agreed to buy Paramount Global’s 13.01 per cent stake in local entertainment network Viacom18 Media Pte Ltd for about Rs4,300 crore.

“These investments are in line with RIL’s strategy to diversify and have a strong presence in a few key industries,” the rating agency said.

Also, the company received government approval in 2024 to develop gas reserves in the KG-D6 block in the Bay Of Bengal. This could increase the company’s gas production capacity by 13-17 per cent. RIL’s earlier announced investments include a Rs75,000 crore expansion plan over five years (starting 2022) for the oil-to-chemicals business.

“RIL’s earnings will benefit from past investments,” S&P said. “We project the company’s adjusted EBITDA will rise 2-4 per cent in fiscal 2025 (year ending March 31, 2025),” it added. Just as in the past two years, the digital services segment (Reliance Jio Infocomm Ltd) will be the key growth driver, with segment’s EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) increasing 10-12 per cent in fiscal 2025. Reliance Jio’s wireless subscriber base and average revenue per user will gain from the company’s investments in its 5G network since late 2022.

Meanwhile, earnings in the oil and gas as well as retail segments will reap the rewards of increased production volume and a wider retail store network.

“The EBITDA improvement that we expect in fiscal 2025 comes after a 14 per cent increase to Rs1.6 lakh crore in fiscal 2024,” it said.

S&P saw RIL’s rising earnings providing it greater balance-sheet flexibility for growth. “We expect the combination of robust operating performances and continued spending to keep the company’s debt-to-EBITDA ratio at 1.8x-2.0x over the next two years. This compares with our estimate of 1.7x for fiscal 2024 and our downgrade trigger of 2.5x,” S&P said.

RIL’s leverage has some distance from the upper end of the company’s internal leverage target. RIL has reiterated its intention to keep its net debt-to-EBITDA ratio (by its own calculations) below 1x. The ratio was 0.65x as of March 31, 2024.