RIL has capex plans across its varied business areas such as refining, petrochemical, upstream and telecom over the next three to four years, which would be mostly funded through CFO. However, Fitch lacks clarity on RIL's strategy of ramping-up domestic gas production and the company's utilisation of significant cash balances (9MFY12: INR745bn). In Q4FY12, RIL announced a share buyback plan of up to INR104bn.
As the largest private sector corporate in India, RIL has easy access to external financing sources. It also has a strong liquidity position, access to significant un-utilised working capital banking lines and treasury stock holdings.
Fitch notes that RIL is exposed to oil commodity price cycles; however, it has exhibited consistently high profitability (EBIDTAR margins: about 15% over FY09-FY11) and robust CFOs. Although gross refining margins - which reduced to USD9 per barrel in 9MFY12 from USD12.2 per barrel in FY09 - tend to be volatile, RIL has mostly maintained these above global benchmark due to the high complexity of its refineries. Expected lower gas production from the KGD6 and refining and petrochemical margins in FY13 compared with FY12 will lead to weaker CFOs in the short-term. However, Fitch expects RIL to maintain a financial risk profile comfortable for its current ratings, driven by its low financial leverage and strong liquidity.
An upgrade of RIL's LC IDR is predicated on the articulation of a clear future investment strategy and its impact on the company's credit metrics and liquidity. The LC IDR would be upgraded if RIL maintains its financial leverage (adjusted net debt/EBIDTAR) below 1.25x while maintaining strong liquidity on a sustained basis. The Outlook on the LC IDR might be revised to Stable while maintaining the current LC IDR of 'BBB', if RIL's performance declines unexpectedly and/or if significant new investments are announced such that adjusted net debt/operating EBITDAR exceeds 1.25x on a sustained basis. As RIL's FC IDR is constrained by India's country ceiling, any changes to the latter will result in a corresponding change in the FC IDR.
RIL is an oil refining, petrochemicals and upstream (mainly natural gas at present) company. It has two highly complex refineries with a combined capacity of 1.24 million barrels per day. In 9MFY12, RIL's standalone revenue was INR2447bn and EBITDAR was INR270.6bn.
Rating actions on RIL's instruments are as follows:
INR130bn non-convertible debenture (NCD): affirmed at 'Fitch AAA(ind)'
INR20bn NCD: affirmed at 'Fitch AAA(ind)'