The long term fundamentals of Reliance Industries Ltd remain intact, despite the weak macroeconomic environment and challenges in its upstream business, said Moody’s Investors Service on Monday.
The rating firm’s latest report on the oil major has pointed out that the key drivers of the company’s positive outlook (Baa2, positive) are its increased scale, growing diversification between the upstream, refining and petrochemical businesses.
Strong financial profile throughout its growth phase and significant improvement in liquidity following the sale of a 30 per cent stake in its largest gas field KG-D6 to BP for $7.2 billion, have contributed to the improvement in RIL’s credit fundamentals, the report said.
It has generated nearly the same amount of Earning Before Interest, Tax, Depreciation and Amortisation (EBITDA) and retained cash flow (RCF) in the third quarter of FY2012 as it did the year earlier, even though margins in its refining business were weak and the contribution from its upstream segment had decreased, the report said.
RIL’s net-debt-based credit metrics are strong for its current rating, as its cash and cash equivalents are at an all-time high.
However, some challenges remain. All of RIL’s production and nearly half of its EBIDTA come from India. Therefore, a slowing domestic economy will harm its credit profile, the report said.
Moody’s Vice-President and Senior Analyst, Mr Vikas Halan, said that although RIL’s natural gas production is declining and its proven reserves estimate have decreased, “we are confident that the company will be able to sort out technical issues with the support of its joint venture partner BP and that proven reserves will subsequently increase”.
“Moreover, the likely increase in gas prices will more than compensate for lower production,” he added.