Moody’s Investor Service, world-renowned credit rating agency, finds itself with a lot of recouped positivity for Mukesh Ambani-led conglomerate Reliance Industries Limited (RIL), exclaiming that the positivity has been largely fuelled by company’s promising long-term fundamentals even in the economy’s current spate of rapidly swinging volatility.
Feeling bullish towards the company, Moody’s is confident in the company’s Baa2 local currency rating and the stability of its foreign currency rating, which it noted, is riding on the back of improvement in RIL’s credit fundamentals, whichincludes, but not limited to, increased scale, growing diversification amidst its upstream, refining and petrochemical businesses, and retention of a strong financial profile all through its growth phase.
The credit rating agency has also noted that it is positive about Reliance’s capabilities in sorting out the technical issues that it currently faces regarding sinking gas production output at the KG-D6 basin, off the cost of Andhra Pradesh. “We are confident Reliance will sort out technical problems with the support of its joint venture partner BP plc. and that proved reserves will rise. We also expect gas prices to rise, and that this will more than compensate for lower production,” noted a Moody’s executive.
On the liquidity front, Moody’s exclaimed that RIL, on the whole, is inclining towards an improvement, especially since it joined forces with London-based energy company BP Plc. Following a 30 per cent stake sale in 23 oil and gas producing acreage, including KG-D6 fields, in February last year, RIL earned USD 7.2 billion in sale funds. Also, Reliance was able to generate nearly the same amount of earnings before interest, tax, depreciation and amortization (EBITDA) and was able to retainsubstantial cash flow for FY 2012, just like it did last year. Although RIL suffers from weak margins on it refining business and decreased earnings from its upstream segment, RIL’s robust internal antidote to its symptomatic maladies bears far more potential than what meets the eye.
Even in the spate of depreciating rupee, RIL remains strong since 60 per cent of its revenues come from exports and most of its domestic sales are either linked to import parity pricing or denominated in US dollars. Maintaining a ‘stable’ outlook about the country too, Moody’s noted that India’s issues were not of permanent nature and that there is a still a way out from the economy’s fiscal disparities and slow investment growth. However if the sovereign ratings are trimmed, RIL may feel the pinch of it too. For now, RIL presents a promising outlook and a strong credit profile.