Good news for Mukesh Ambani, this global agency finds potential in Reliance Industries, to upgrade rating of…, provided it operates at…

S&P Global Ratings on Tuesday said Reliance Industries Ltd could see further upside if it maintains lower leverage and expands its non-energy revenue streams.

The ratings agency had last week upgraded the issuer credit ratings of Reliance, along with Oil and Natural Gas Corp (ONGC), NTPC and Tata Power, to ‘BBB’ from ‘BBB-’. The move followed the upgrade of India’s sovereign rating to ‘BBB/A-2’ from ‘BBB-/A-3’, driven by strong economic resilience and ongoing fiscal consolidation.

S&P Global Ratings On Reliance Industries

“There is a potential for upside in RIL’s rating. It is at ‘BBB+’… This (rating going up by a notch) would require stand alone credit profile to improve. For this, what we have said we need a continuation of the company to operate at a lower leverage, and will likely need a strengthening on the business side particularly contribution from non-energy revenues because these are less volatile,” said Neel Gopalakrishnan, credit analyst, S&P Global Ratings, on Tuesday.

Last week, S&P had stated that its stable outlook on the company’s rating “reflects our expectation that Reliance Industries’ strengthening cash flows and disciplined spending will help the company to preserve its financial profile over the next 12-24 months”.

Can Rating Agency Lower Reliance Industries Rating?

The rating agency could however lower the rating if Reliance’s capital expenditure, including acquisitions in digital or retail businesses, is higher than expected or cash flow projection for the company reduces due to lower earnings stemming from underperformance in any key business.

Reliance’s debt-to-EBITDA ratio sustainably exceeding 2.5x would indicate such deterioration.

“We could upgrade the rating if the company demonstrates a record of conservative financial policy, such that its debt-to-EBITDA stays well below 2x. A higher rating could also require a greater share of revenue from non-energy segments,” it had said. 

(With Inputs From PTI)

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