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Announcement:

Moody's: RIL's nine-month results in line with expectations

21 Jan 2014

Singapore, January 21, 2014 -- Moody's Investors Service says that Reliance Industries Limited's (RIL, Baa2 positive) results for the nine months ended 31 December 2013 (9M FY13) were in line with Moody's expectations and support its ratings.

RIL's revenue for 9M FY13 grew 6.7% year-on year to INR3.03 trillion ($49.1 billion), while its reported EBITDA grew 2.5% to INR294 billion ($4.8 billion).

"While the contributions from RIL's refining business were stable between April and December last year, the company recorded an improvement in its petrochemical business, which along with an increase in interest income, offset the deterioration in its Indian upstream business," said Vikas Halan, a Moody's Vice President and Senior Analyst.

The EBIT contribution from the company's upstream business declined by about INR12 billion in 9M FY13 compared to the same period a year ago. Nonetheless, the contraction was more than offset by an increase in EBIT contribution from its petrochemical segment, totaling about INR11 billion, and an increase in interest income of INR8 billion.

"The production levels at RIL's KG-D6 field continued to decline. The field only averaged 14 million standard cubic meters of gas per day for the nine months, a 51% decline over the same period last year," adds Halan, who is also Moody's Lead Analyst for RIL.

"We expect contributions from RIL's upstream segment to improve, once the gas price hike is implemented from 1 April this year, and if its shale gas business continues to ramp-up," adds Halan

The refining segment, which remains the major contributor to earnings, recorded a nine-month EBIT of INR93 billion, an amount which was unchanged from a year ago. The segment also reported crude throughput of 379 million barrels (51.7 million metric tons) for 9M FY13.

RIL reported gross refining margins (GRM) of $7.8/barrel (bbl) for the nine-month period, a decrease from $9.0/bbl in the previous year. On a quarterly basis, the GRM of $7.6/bbl for Q3 (October-December 2013) was largely unchanged from $7.7/bbl in Q2.

"Despite the lower GRM, which is in line with the decline in regional refining benchmarks, RIL continued to maintain a high utilization rate of 111%. The company also kept its GRM premium over the Singapore complex margin," says Halan.

"We expect RIL's GRM to remain largely flat in the remaining quarter of FY2013," says Halan.

On the petrochemical front, higher selling prices boosted segment revenue by 9.4% to INR721 billion and EBIT by 20% to INR65 billion.

Moody's estimates that RIL's debt/EBITDA of 2.0x for the 12 months to 31 December 2013 was in line with the adjusted leverage for FY2012 and FY2011 and supports its current rating level.

In addition, the company exhibited strong liquidity at 31 December 2013, with cash and cash equivalents of INR887 ($14.4 billion) surpassing unconsolidated debt of INR813 ($13.2 billion).

Overall, Moody's expects RIL's ratings will continue to derive support from its: 1) integrated refining and petrochemical businesses; 2) strong liquidity; and 3) prudent and measured investment strategy.

RIL's local currency rating could be upgraded if the company: 1) successfully executes its capex plans and manages to improve its margins further in its refining and petrochemicals segment; or 2) substantially improves contribution from its Indian exploration and production business.

Credit metrics that support an upgrade include retained cash flow/adjusted debt exceeding 30%-35% and EBIT/interest exceeding 8.0x, both on a sustained basis.

On the other hand, the outlook on the local currency rating could revert to stable if: 1) RIL fails to resolve its disputes with regulators such that it does not increase its gas production over the next 12 to 18 months or does not receive a higher price for gas; 2) RIL undertakes transformational debt-funded acquisitions; or 3) RIL pursues growth that entails higher business risks and expands into areas that are not part of its core petroleum business.

In addition, the company's rating outlook would revert to stable if its credit metrics do not improve after the completion of its expansion projects, thereby demonstrating a retained cash flow/adjusted debt below 30%.

RIL's foreign currency rating may also be downgraded if India's (Baa3 stable) foreign currency bond ceiling is downgraded.

The principal methodology used in this rating was the Global Refining and Marketing Rating Methodology published in December 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Reliance Industries Limited is a leading Indian energy company, with established downstream refining and marketing and petrochemical operations. It also has a growing upstream exploration and production business.

The company operates one of the world's largest single-site refineries, the Jamnagar complex, which has a refining capacity of 1.2 million bbl/day.

Vikas Halan
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Philipp L. Lotter
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Moody's: RIL's nine-month results in line with expectations
No Related Data.
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