RIL’s credit metrics to improve over two years: Moody’s

Reliance Industries’ credit metrics will improve over the next two years on completion of petrochemical and refinery projects, Moody’s said today.

According to a Moody’s Investors Service report, high refining margins boosted RIL’s January-March earnings and “credit metrics to improve on completion of projects over next two years”.

The projects are petcoke gasification plant at its refinery, refinery off-gas cracker in petrochemicals, polyester/aromatics capacity expansion and import of ethane (cracker feedstock) from the US.

RIL’s profit before interest and depreciation increased by 8 per cent during the quarter ended March 31, 2015 because of the improved performance of its refining segment and despite revenues falling by 26 per cent.

Revenues fell due to a slide in crude oil prices, which declined by more than 50 per cent since June 2014.

“As for RIL’s debt leverage, its debt levels rose in the quarter ended March 31, 2015, as the company executed projects and invested in its telecommunications businesses,” said Vikas Halan, Moody’s Vice President and Senior Credit Officer.

Despite a 15 per cent increase in net debt in 2014-15 as compared to previous year, RIL’s net debt to EBITDA only increased marginally, in line with the improvement in the company’s EBITDA.

“Looking ahead, low crude prices should continue to support demand growth, which will in turn keep product crack spreads firm. In addition, once RIL completes its petcoke gasification project in the next two years, its refining margins should improve by about USD 2-2.5 per barrel; a result which will support earnings growth,” Halan said.

Moody’s report said revenues from RIL’s refining segment fell 31 per cent as crude oil prices plunged. Nevertheless, it recorded an EBIT growth of 50.1 per cent quarter-on-quarter, as refining margins improved.

“The high refining margins were supported by lower energy costs, lower feedstock costs, continued strength in light-heavy differentials and improved crack spreads.

“The margins were also supported by low inventory valuation losses — a factor which had negatively affected the company’s gross refining margins in third quarter — against the backdrop of falling crude prices,” it said.

Moody’s report said that RIL reported gross refining margins of USD 10.1 per barrel for Q4 versus USD 7.3 for the previous three—month period.

As for the company’s petrochemical business, the segment recorded stable performance while the earnings from its upstream segment fell, in line with falling crude oil prices.

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