RIL shares in focus: S&P Global says consolidated EBITDA could expand by up to 14% in FY26; agency upgrades rating to 'A-'

Here is what S&P Global Ratings said

• Reliance Industries Ltd. will continue to increase cash flow from less cyclical consumer-facing businesses, which will improve its earnings quality.

• The company's good competitive position across its businesses will further drive earnings and cash flow, which should cover heavy investments in key businesses.

• We raised our long-term issuer credit rating on Reliance Industries to 'A-' from 'BBB+'. At the same time, we raised our long-term issue ratings on the senior unsecured debt the company issued to 'A-' from 'BBB+'.

• The stable rating outlook reflects our view that the India-based conglomerate will maintain its leading market position in its key businesses, and its earnings will be sufficient to cover capital spending over the next 12-24 months.

Rating Action Rationale

The global ratings agency said that an expansion of more stable consumer businesses will improve the earnings and cash flow stability of Reliance Industries.

Rising earnings from the digital service segment will reduce the group's exposure to the volatile hydrocarbon industry.

"We forecast digital services and the retail business will contribute to about 60% of operating cash flow in fiscal 2026 (year ending March 31, 2026). The oil-to-chemicals (O2C) and oil and gas segments will account for the remaining 40%," it added.

Reliance Industries' strong position in India’s telco industry will continue to power earnings and profitability.

The company's wireless subscribers could increase by 3%-6% over the next 12-24 months, supported by customer churn from other players that are experiencing subscriber losses due to limited network investment.

Meanwhile, average revenue per user (ARPU) for telco subsidiary Reliance Jio could increase on subscribers' upgrades to higher-priced plans and higher data consumption in India. The company led industry-wide tariff hikes in India twice in the past.

Consolidated EBITDA for Reliance Industries could expand by 12%-14% to ₹1.85 trillion-₹1.95 trillion in fiscal 2026.

"We project digital services and JioStar will contribute about ₹800 billion, or 43%. The retail segment could contribute another ₹270 billion, or 14%," it added.

We forecast energy-related earnings will be stable at ₹750 billion-₹800 billion. Reliance Industries has been able to keep such earnings fairly stable across volatile industry cycles, demonstrating its resilience.

Earnings growth could outpace high capital expenditure (capex)

"Our base case assumes the group will have a ratio of adjusted debt to EBITDA of 1.5x-1.6x through fiscal 2027, slightly down from 1.7x in the past two years. Higher earnings contributions from more stable consumer businesses will reduce earnings volatility, which will support leverage predictability," the ratings agency said.

Capex could remain at about ₹1.4 trillion through fiscal 2027, versus a peak cash capex outflow of ₹1.5 trillion in fiscal 2024. S&P Global Ratings expects continued positive free operating cash flow across the group's key businesses amid O2C expansion, further deployment and expansion of its 5G network, and further retail store rollout.