S&P Upgrades Reliance Industries Rating to A-: What This Means for Your Investments!

S&P Global Ratings has upgraded Reliance Industries Ltd.'s credit rating to 'A-' with a stable outlook, a significant endorsement of the conglomerate's strategic shift towards more stable, consumer-facing businesses. This move signals increased confidence in the company's financial health and future prospects.

Background Details

• S&P Global Ratings is a leading provider of independent credit ratings, benchmarks, and analytics. Their ratings help investors assess the creditworthiness of entities.
• This upgrade reflects a detailed analysis of Reliance Industries' financial performance and strategic direction over the past few years.

Key Numbers or Data

• S&P forecasts Reliance's consolidated EBITDA to grow by 12–14% to approximately ₹1.85 trillion–₹1.95 trillion in fiscal 2026.
• Digital services and retail are expected to contribute significantly to operating cash flow, reaching about 60% by fiscal 2026.
• The adjusted debt-to-EBITDA ratio is projected to be between 1.5x and 1.6x through fiscal 2027, down from 1.7x in the previous two years.

S&P's Rationale

• The agency highlighted that the expansion of stable consumer businesses will improve Reliance Industries' earnings and cash flow stability.
• Rising earnings from digital services are crucially reducing the group’s exposure to the historically volatile hydrocarbon industry.
• Reliance Jio's strong position in India's telecom sector is expected to support earnings, with wireless subscribers predicted to grow 3–6% over the next 12–24 months.
• Average revenue per user (ARPU) for Jio may also increase as subscribers opt for higher-priced plans and data consumption grows.

Future Expectations

• S&P anticipates earnings growth to outpace high capital expenditure over the next 12–24 months.
• Capital expenditure (Capex) is projected at around ₹1.4 trillion through fiscal 2027, a slight decrease from the peak outflow in fiscal 2024.
• The company is expected to maintain positive free operating cash flow across its key businesses as it expands O2C operations, deploys its 5G network, and accelerates retail rollout.
• Reliance's financial policy, which includes a net debt-to-EBITDA target below 1x (excluding spectrum liabilities), supports the new rating.

Stock Price Movement

• Reliance Industries Ltd shares closed slightly down by ₹0.60, or 0.039%, at ₹1,538.40 on the BSE on Thursday.

Impact

• This rating upgrade by a major agency like S&P can significantly boost investor confidence in Reliance Industries.
• It may lead to easier and potentially cheaper access to capital for the company, supporting its ambitious expansion plans.
• For the Indian stock market, an upgrade for a heavyweight like Reliance can have a positive ripple effect, potentially influencing market sentiment.
• Impact Rating: 7/10

Difficult Terms Explained

• EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of a company's operating performance.
• Credit Rating: An assessment of the creditworthiness of a borrower in general, or a specific debt, security or obligation.
• Stable Outlook: Indicates that S&P expects the rating to remain unchanged over the next 12-24 months.
• Consumer Businesses: Segments of a company that produce goods or services directly for end consumers (e.g., retail, telecommunications).
• Hydrocarbon Industry: Refers to the oil and gas sector.
• Leverage: The extent to which a company uses debt to finance its assets.
• Debt-to-EBITDA Ratio: A financial metric used to assess a company's ability to pay back its debt. A lower ratio generally indicates better financial health.
• Capex (Capital Expenditure): Funds used by a company to acquire, upgrade, and maintain physical assets like property, plants, buildings, technology, or equipment.
• Free Operating Cash Flow: The cash a company generates from its normal business operations after accounting for capital expenditures.