RIL's rating could be upgraded over next 12 months, says S&P

Rating agency S&P said Reliance Industries Ltd (RIL) could be in line for a rating upgrade over the next 12 months, citing the company’s growing presence in digital services as a driver of stronger earnings and a shield against volatile global macroeconomic conditions.

"We expect the share of earnings from Reliance Industries' domestically-centred businesses such as digital services and retail to rise to about 60% by the end of fiscal 2026 (ending March 31, 2026), from about 45% in fiscal 2022. These businesses tend to have more predictable performances than the company’s cyclical oil and gas-related businesses," S&P said in its report.

RIL reported an EBITDA of ₹58,000 crore for the first quarter ended June 30, beating S&P’s expectations. The performance was driven by strong growth in digital services through Reliance Jio Infocomm, resilient earnings in the oil-to-chemicals (O2C) segment, and a one-time gain of ₹8,900 crore from the sale of a minority stake in Asian Paints Ltd during the quarter.

S&P said earnings from the O2C segment are expected to remain resilient owing to RIL’s complex processing facilities and strong domestic energy market presence. For fiscal 2025, the O2C EBITDA declined by only 12% compared with a 20-45% fall for other Asian refining and petrochemical companies. The segment is projected to see a modest 3-5% decline this fiscal year despite global volatility.

Reliance Jio is expected to benefit from higher tariffs and a growing subscriber base. S&P estimated the unit’s EBITDA will rise 15-17% in fiscal 2026, aided by the full-year impact of a 12.5-27% increase in mobile tariffs effective July 3, 2024.

Overall, RIL’s earnings are projected to grow 6-8% to ₹1.8 lakh crore in fiscal 2026, with its debt-to-EBITDA ratio seen stable at 1.5x-1.7x.

The report noted that RIL continues to pursue growth plans, including investments in its JioStar media business acquired in November 2024 and expansion in renewable energy. Annual operating cash flows of ₹1.3-1.4 lakh crore are expected to largely fund capital expenditure of about ₹1.4 lakh crore over the next two years.

S&P said the company has adequate headroom to fund growth aspirations and withstand earnings volatility from its energy segments. RIL’s leverage was about 0.64x over the past two fiscal years, compared with S&P Global Ratings’ adjusted debt-to-EBITDA ratio of 1.6x-1.8x.

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