Moody`s Investors Service affirmed today the `Baa2` issuer and senior unsecured rating of Reliance Industries (RIL), the nation`s biggest private sector company, with stable outlook.
Terry Fanous, senior vice president of Moody`s said, ``The Baa2 rating reflects RIL`s well-established and integrated production facilities and its globally competitive refining operations, which command higher margins relative to many of its competitors.`` Fanous further added, ``The rating also recognizes RIL`s moderate financial leverage and its substantial operating cash flow generation.``
At the same time, the Baa2 ratings reflect RIL`s sizable expansionary plans, which require high capital investments, and entail execution risk, and its exposure to single-site complex, where most of its operations are located.
RIL`s operating cash flow generating capacity will be materially enhanced over the next 12-24 months, after the planned commissioning of the new Jamnagar green-field refinery and the domestic gas project. At the same time, RIL has plans to undertake substantial investments in refining, petrochemicals, and E&P, as well as the retail sector.
RIL is well positioned in the Baa2 rating, which assumes that the company`s investments will be made in a manner that would not materially weaken its financial profile.
The rating could be upgraded if RIL demonstrates a continued track record in maintaining its current strong financial profile as it executes its expansion plan so that its scale and diversity strengthens. Credit measures that Moody`s would look for include maintaining RCF / Debt ratio above 25%-30% and EBIT / Interest above 8.0x on a consistent basis.
On the other hand, the rating would experience downward pressure if Reliance undertakes aggressive debt-funded capital investments or acquisition plans, returns cash to shareholders beyond its dividend payout policy of 20-25%, and its profitability deteriorates due weakening operating environment, such that RCF / debt drops below 20% and EBIT / Interest coverage falls below 4x on a consistent basis.
Shares of the company gained Rs 81.45, or 2.86%, to settle at Rs 2,932.2. The total volume of shares traded was 466,454 at the BSE. (Monday)
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