Country: India
Reliance Industries
- Sector: Manufacturing
- Sub Sector: Diversified Conglomerates
- Country: India
- Region: India
- Bond: RILIN 4.125 25
- Indicative Yield-to-Maturity (YTM): 5.531% (Indicative as of March 2)
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): Baa2 / BBB+ / -M/P
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Fundamental View
AS OF 09 May 2023- Reliance Industries (RIL) is positioned as India’s largest company by revenues, profits and exports. It enjoys a large, diversified scale of operations and dominates various key sectors (refining, petrochemicals, retail and telecom), which allow for earnings resilience.
- RIL also plans to ramp up its presence in the renewable energy space, which could provide the next leg of growth and improve its ESG perception.
- RIL incurs significant capex, particularly from heavy investments in 5G telecom and the renewables space (~INR 750 bn over the next 3 years). This has weighed on its free cash flow generation, though we acknowledge RIL’s historically prudent financial management and robust credit metrics that provide ample elbowroom for some credit profile deterioration.
Business Description
AS OF 09 May 2023- RIL is an Indian diversified conglomerate engaged in oil & gas refining, marketing, petrochemicals, organized retail, telecom and digital services, amongst others. It is the largest company in India by revenue, profits, exports and market capitalization (INR 14 tn).
- It is the second largest refiner in India and produces petroleum products such as petrol, high-speed diesel (HSD), aviation turbine fuel (ATF), LPG and lubricants.
- It is the largest petrochemicals producer in India, boasting production of ~38 mn tons in FY20. Through its integrated Jamnagar refinery complex, it produces Polymers/Plastics, Elastomers (synthetic rubber) and Polyester products.
- It is the largest retailer in India in terms of revenue. It operates 16.6k stores (as of September 2022) to sell products ranging from consumer electronics, fashion and lifestyle, grocery, petrol retail and telecom and digital services. It launched its online retail channel, 'JioMart', in December 2019.
- Reliance Jio is the largest mobile telecom operator by subscriber base (426 mn as of March 2021) in India and boasts the widest 4G wireless network in the country.
- In 2021, RIL announced investments to the tune of INR 750 bn/ $10 bn (for next 3 years) to build a renewable energy ecosystem which will include 4 giga factories. Set to be located in Gujarat, the factories will produce solar modules, hydrogen, fuel cells and battery grid to store electricity. Long-term goals also include building 100 GW of PV solar plants by 2030.
Risk & Catalysts
AS OF 09 May 2023- RIL’s O2C (oil-to chemicals) business margins have been under pressure owing to the squeeze in key downstream chemical product margins (i.e. an absolute decline in product prices vs. feedstock prices), which impacted polymer and aromatics margins.
- RIL incurs significant capex, particularly from heavy investments in 5G telecom and the renewables space (~INR 750 bn over the next 3 years). This has weighed on its free cash flow generation, though we acknowledge RIL’s historically prudent financial management and robust credit metrics that provide ample elbowroom for some credit profile deterioration.
- RIL faces key-person risk; 65-year old Chairman Mukesh Ambani has begun to hand over the reins of RIL’s different business divisions to his children.
Key Metrics
AS OF 02 Jun 2023
CreditSights View
AS OF 09 May 2023We have a Market perform recommendation on RIL. We think RIL’s bonds trade fairly to similarly rated Indian peers Bharti Airtel and BPCL. We like RIL’s large, diversified scale of operations and dominant market shares in key sectors (refining, petrochemicals, retail and telecom) that allow for earnings resilience. RIL also plans to ramp up its presence in the renewable energy space, which could provide the next leg of growth and improve its ESG perception. While we remain aware of RIL’s elevated capex needs could persist over the next 2-3 years, we think the impact is mitigated by RIL’s historically prudent financial management and healthy credit metrics that provide ample elbowroom for some credit profile deterioration.
Recommendation Reviewed: May 09, 2023
Recommendation Changed: June 30, 2021
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Fundamental View
AS OF 25 Aug 2022- State Bank of India (SBI) is the largest state-owned bank in India and is in some respects the country’s flagship bank. Given the bank’s close government links and systemic importance, government support for SBI is very strong.
- It is rated Baa3 (sta)/BBB- (sta)/BBB- (sta), the same as India’s sovereign ratings. Fitch revised its outlook to stable from negative while affirming its BBB- rating in June 2022. A sovereign downgrade to HY would be the greatest credit risk, although we assess that risk as low.
- The bank’s capital adequacy ratios are higher than most of its PSB peers, though it could do with a higher buffer.
Business Description
AS OF 25 Aug 2022- State Bank of India is the largest commercial bank in India. Its predecessor banks date back to the 19th century. In the early 20th century, they merged to form the Imperial Bank of India which became the State Bank of India after India gained independence in 1947.
- The Government of India remains the largest shareholder with a 56.9% stake. Per the SBI Act, the government's shareholding cannot fall below 55%.
- SBI's merged with its 5 associate banks and Bharatiya Mahila Bank in 2018. The merger catapulted SBI into one of the world's 50 largest banks.
- The bank has 84% of its loans in the domestic market, and has steadily increased its international business too over the past few years with offices across all international business centres.
- It has diversified its operations with well regarded subsidiaries in the areas of fund management, credit cards, insurance, and capital markets.
Risk & Catalysts
AS OF 25 Aug 2022- Similar to other PSBs, SBI has a large SME and mid-corporate book. These segments will likely bear the compounding effects of both higher costs of goods and financing costs disproportionately, especially since their finances have been stretched over the pandemic period. However, SBI’s asset quality is better than the other PSBs and it is also better run due to the high caliber of its management team.
- The bank’s size and systemic importance would mean increased priority when it comes to state support. But consequentially, any deterioration in the sovereign ratings will also affect the bank’s credit.
- Increasing consolidation in the country’s financial space may narrow the gap between SBI’s market leading position vs its peers.
Key Metrics
AS OF 02 Jun 2023
CreditSights View
AS OF 19 May 2023SBI is the largest bank in India and a well-run franchise. Government support underpins SBI’s relative positioning, while fundamentally, SBI has the lowest net NPA, a good CASA ratio, a sufficient (though could be higher) CET1 ratio, good operating metrics and business plans, and the best management among the Indian public sector banks. We thus like the SBI name for what it offers. Following a swift deterioration in asset quality post the delta variant outbreak, there has been a sustained improvement and restructured loans are low. FY23 performance was solid with good NIM improvement and loan growth, as well as asset quality. We maintain a M/P reco on the name.
Recommendation Reviewed: May 19, 2023
Recommendation Changed: December 07, 2020
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