Reliance Industries on track for potential rating upgrade on these conditions, says S&P Global Ratings

Reliance share price: Leading credit ratings agency S&P Global Ratings has said that Mukesh Ambani-led Reliance Industries Ltd is on track for a potential upgrade, provided it maintains lower leverage and strengthens its non-energy revenue streams.

The stock is trading at ₹1,419.5 apiece, down 0.04%, on the National Stock Exchange (NSE) at 11:41 am.

On RIL, Neel Gopalakrishnan, credit analyst at S&P Global Ratings, on Tuesday, August 19, said, "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."

A combination of these factors could "push the rating up and it is something to watch for the next year or so," he said.

Last week, S&P had raised the issuer credit ratings of Reliance and companies like ONGC, Tata Power and NTPC to 'BBB' from 'BBB-' following an upgrade in India's sovereign rating to 'BBB/A-2' from 'BBB-/A-3' on economic resilience and sustained fiscal consolidation.

The credit rating agency had said that its stable outlook on the firm'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."

S&P could, however, lower the rating if the capital expenditure of Reliance, including acquisitions in digital or retail businesses, is higher than expected or cash flow projection reduces due to lower earnings from underperformance in any key business.

The company's debt-to-EBITDA ratio sustainably crossing 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.