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Fitch reaffirms credit ratings on RIL

The affirmations follow RIL's recent announcements of investment plans for the petrochemical, upstream oil and gas, telecom and power sector

Global research firm Fitch on Monday reaffirmed its credit ratings on various debt programmes of Reliance Industries (RIL) that has chalked out major investment plans across petrochemicals, gas, telecom and power sectors, reports PTI.

"The affirmations follow RIL's recent announcements of investment plans for the petrochemical, upstream oil and gas, telecom and power sector," Fitch said, while reaffirming its ratings.

The company's long-term foreign currency issuer default rating is at 'BBB-'; long-term local currency IDR at 'BBB' and national long-term rating at 'AAA'. The outlook on these ratings is stable. AAA is the highest credit safety grade Fitch assigns in India and all the other ratings are relative that.

Fitch has also affirmed RIL's national long-term ratings for its Rs 2,000 crore and Rs 13,000 crore non-convertible debenture programs at 'AAA (ind)'.

It said, however, the timing and value of the company's oil and gas organic expansion projects have not yet been finalised. "These include various petrochemical capacity additions, setting up of a coke gasification facility at its refining complex at Jamnagar and accelerating the development of its various upstream discoveries," Fitch said.

RIL has also entered into two separate joint ventures (JVs) in the US shale gas industry and the rating agency said the company's investments in oil and gas will strengthen its business profile over the medium-to-long term.

As for telecom, Fitch said RIL's foray into the sector increases the company’s overall business risk by exposing it to the highly competitive domestic telecom industry. RIL plans to invest $4-$5 billion in the next three-four years, mainly in the Broadband Wireless Access (BWA) arena.

Fitch said broadband penetration is extremely low — less than 1% — and RIL considers broadband to be a huge growth opportunity.

RIL has also announced that it will enter the power sector by making investments in coal-based, hydro, nuclear (when it is opened for the private sector) and solar power. "Given India's strong growth prospects and current power deficit, Fitch believes that an entry into the power sector can be a strategic fit with RIL's broad energy business," it said.

In FY10, RIL's consolidated revenue was over Rs2 lakh crore with EBITDA (operating profit) margins of 15%.

RIL's liquidity position is strong, with cash equivalents of Rs21,900 crore at FY10.

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Infosys disappoints markets with below expectation Q1 net profit

During the first quarter to end-June, the IT major was expected to clock net profit of over Rs15 billion. Infosys seems to have disappointed on three fronts -- European revenues, margins (due to wage hikes), and attrition (about 25%, which is too high)

Infosys disappointed the market with a net profit of Rs14.88 billion (disappointing, expectation was above Rs15 billion). Net sales was at Rs61.98 billion (more or less in line) while earnings per share (EPS) was at Rs26.05. Client additions were at 38, employee adds at 1,026 and FY11 revenue was seen at $5.72-$5.81billion thanks to 19%-22% growth (in line). FY11 EPS was seen at Rs112-Rs117 a share (on the lower side at the lower end).

The other highlights of the June quarter results were revenues from banking, financial services and insurance (BFSI), a key segment, were 36% of revenues vs. 35%. Revenues from Europe was down 5.3% quarter-on-quarter (qoq), 0.8% in constant currency (which was disappointing). Revenues from North America was up 6.8%, 6.9% in constant currency (in line). Utilisations including trainees increased by 370 basis point (bps) qoq (expected).

Infosys seems to have disappointed on three fronts -- European revenues, margins (due to wage hikes), and attrition (about 25%, which is too high). It is feared that to bring down attrition, wage bill may only rise from here. Also, since Infosys was expected to be the best result of the big three IT companies, prospects for the other two (Wipro & TCS) have dimmed.

The higher revenue guidance in US dollar terms to $5.72-$5.81 billion from $5.57-$5.67 billion suggests it expects volume growth to be strong - which is positive. EPS guidance was revised up by 5% to Rs112-Rs117 which seems to be mostly due to rupee depreciation expectations (Infosys is now assuming its US$/INR rate at Rs46.45 vs. Rs44.50 earlier).

Infosys management is focusing on the positives of the June quarter results. These were volume growth, which was 7.6% (best in many quarters, in fact since Q2FY08), higher employee additions at 36,000 for the year (vs. 30,000 earlier), and higher FY11 revenue guidance. They acknowledged that pricing has declined (1.6% in constant currency terms) and said they remain cautious because indicators seem weak but said they were "prepared for growth in the future".

The market was focused on whether Infosys exceeds Q1 guidance and by how much. The market clearly expected it to, and also expected an upward revision in revenue and EPS guidance for the year (consensus was in the range of Rs115- Rs119). Among all its verticals, BFSI was actually expected to be the best performer so any negative surprise there was supposed change sentiments. Although Infosys had the lowest exposure among large IT companies, the market was keenly watching to see the impact of European crisis, what's happening with clients such as BP, and of course volume, new client wins, and comments about IT budgets for the year. In an interview with CNBC during mid-June, S Gopalakrishnan, chief executive and managing director of Infosys had said that Europe remained a concern and believed that the recovery is going to be prolonged. But he had also said that Infosys had not been affected by the Europe crisis until then.

On Tuesday Infosys shares clsoed 3.4% down at Rs2,795 on the Bombay Stock Exchange, while the benchmark Sensex ended 0.3% up to 17,985 points.

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