Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the debt instruments and bank facilities of Reliance Industries Limited (RIL). Further, CRISIL Ratings has withdrawn its rating on NCDs aggregating Rs 18,000 crore (see annexure 'Details of Rating Withdrawn' for details) on receipt of independent confirmation of their redemption. The withdrawal is in line with CRISIL Ratings’ rating withdrawal policy.

 

RIL’s operating performance remained healthy for the nine months ended December 2022, with a 32% and 24% y-o-y growth in revenues and operating profitability respectively. The performance was supported by continuing growth in oil to chemical (O2C), retail business and digital service segment. The consolidated earnings before interest, tax, depreciation, and amortization (EBITDA) stood at Rs 113302 crore for the nine months ended December 2022 as compared to Rs 91719 crore in the corresponding period of the previous fiscal.

 

The ratings continue to reflect RIL's leadership position and strong competitiveness in the O2C business, leadership position attained by Reliance Jio Infocomm Limited (RJIL; 'CRISIL AAA/Stable/CRISIL A1+') in the telecommunications (telecom) industry and by Reliance Retail Ltd (RRL; 'CRISIL AAA/Stable/CRISIL A1+') in the retail industry, along with its exceptional financial flexibility.

Analytical Approach

CRISIL Ratings continues to follow a consolidated approach and has combined the business and financial risk profiles of RIL and its subsidiaries, as these entities are part of RIL’s core operations.

 

CRISIL Ratings has also fully consolidated the group companies that are strategically important to RIL, and have significant operational linkages with it. These companies are part of the Reliance Industries Holding Pvt Ltd group, viz. Jamnagar Utilities and Power Pvt Ltd (JUPPL; 'CRISIL AAA/CCR AAA/Stable/CRISIL A1+') and Sikka Ports & Terminals Ltd (SPTL; 'CRISIL AAA/Stable/CRISIL A1+'). CRISIL Ratings considers these entities as strategic given their strong integration with RIL's oils-to-chemicals operations.

 

RIL had transferred the fibre and tower assets of RJIL, along with a portion of its liabilities, to two special purpose vehicles (SPVs): Jio Digital Fibre Pvt Ltd (JDFPL; 'CRISIL AAA/Stable/CRISIL A1+') and Summit Digitel Infrastructure Pvt Ltd (SDIPL; 'CRISIL AAA/Stable') that are held by separate trusts outside RIL. While the SPVs operate independently, RJIL has entered into off-take arrangements with these SPVs given the criticality of these assets for its operations. CRISIL Ratings has thus capitalised the present value of a part of payments as per the long-term contracts, as per the applicable accounting standards. CRISIL Ratings has followed a similar approach for contractual payments made to Pipeline Infrastructure Ltd (PIL; 'CRISIL AAA/Stable').

 

Pass-through certificates (PTCs) issued by First Business Receivables Trust ('CRISIL AAA(SO)/Stable'), under a securitisation transaction originated by RIL, have been added to debt.

 

Deferred payment liabilities of RJIL towards the Department of Telecommunication (DoT) for acquisition of spectrum too, has been considered as debt.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Liquidity: Superior 

Liquidity should remain robust owing to the exceptional financial flexibility, given the company’s resource-raising ability from capital markets, and sizeable cash and liquid investments (Rs 193,282 crore as on December 31, 2022) at a consolidated level. Moreover, financial flexibility remains supported by sizable bank lines, which usually remain moderately utilised. Sufficient cash accrual, and cash & cash equivalents should be adequate to meet maturing debt as well a portion of the capex requirement.

 

Environment, social and governance (ESG) profile 

CRISIL Ratings believes that RIL’s ESG profile supports its already strong credit risk profile.

The oil and natural gas segment which forms major portion of RIL’s business is exposed to material impact on the environment owing to gas emissions from refineries and petrochemical plants and depletion of fossil fuel reserves. In line with this, RIL is focused on mitigating its environmental and social risks to ensure minimal impact.

 

Key ESG highlights:

• Company has set the target to achieve net carbon status by year 2035 with focus on energy transition towards renewable and green energy from fossil based fuels.
• RIL continues to work on energy efficiency of equipment and processes by undertaking a variety of initiatives in the field of waste heat recovery, cogeneration, process optimisation and technology upgradation.
• RIL is committed to invest Rs. 75,000 crore towards building new energy capabilities over 3 years.
• RIL has taken various initiative for switching to clean technology such as changing technology from vapour phase reaction to liquid phase isomerisation (LPI) process in Parex train-2 resulting in fuel gas and high pressure (HP) steam saving.
• In order to reduce carbon emissions, RIL focuses on renewable energy. Company has generated 5101.8 MWh power from 3.56 MW solar power generation project at Silvassa Manufacturing Division.

• In fiscal 2023, Jio-bp has introduced E20 (20% blend of ethanol) blended petrol supporting GOI’s directive.
• To ensure that the CSR programs company partners with local communities, governments, and other stakeholders to design and implement its social development programmes that bring to life its pervasive philosophy of Care and Empathy for all.

• It’s governance structure is characterized by 50% of its board comprising independent directors, split in chairman and CEO position, healthy investor grievance redressal and extensive disclosures.

 

There is growing importance of ESG among investors and lenders. The commitment of RIL to ESG principles will play a key role in enhancing stakeholder confidence, given its moderate share of market borrowing in its overall debt and access to both domestic and foreign capital markets.

Outlook: Stable

CRISIL Ratings believes RIL's credit risk profile will continue to be supported by the highly integrated operations in the core business of O2C, healthy profitability in its digital and retail businesses, and exceptional liquidity.

Rating Sensitivity factors

Downward factors

• Considerably large, debt-funded capex or acquisition weakening the capital structure
• High leverage reflected in sustained net debt to EBITDA ratio of over 2.5 times

About the Company

RIL is one of India's largest private sector companies, with diverse interests, including petrochemicals, oil refining, and upstream oil and gas exploration and production. RIL has strong competitiveness in the global oil refining and petrochemicals business, arising from its integrated business model with superior Complexity Index of 21.1 for its Jamnagar site, which makes it amongst the most complex sites in the world. RIL has also established its presence in the consumer facing business space by providing retail and digital services, which currently is RIL's principal growth drivers. RRL is India's largest retail entity by revenue, while RJIL has also become India's largest telecom service provider by revenue market share. The group is also in the process of establishing itself in the green energy space.

Any other information: Not applicable