| Reliance Industries Limited | ||||||||||||||
| 'CRISIL AAA/Stable' assigned to Non Convertible Debentures | ||||||||||||||
| Rating Action | ||||||||||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||||||||||
| 1 crore = 10 million | ||||||||||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its 'CRISIL AAA/Stable' rating on the proposed non-convertible debenture of Reliance Industries Limited (RIL) and reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the existing debt instruments and bank loan facilities.
Further, CRISIL Ratings has withdrawn its rating on NCDs aggregating Rs 22,205 crore (see annexure 'Details of Rating Withdrawn' for details) on receipt of requisite documents. The withdrawal is in line with CRISIL Ratings’ rating withdrawal policy.
RIL’s consolidated operating performance remained healthy for the first six months of fiscal 2024, with 16.8% y-o-y growth in operating profitability while revenue contracted by 1.7% as revenue from oil to chemical (O2C) segment decreased owing to reduction in crude oil prices. The operating profitability was supported by continuing growth in retail and digital service segment. The consolidated earnings before interest, tax, depreciation, and amortization (EBITDA) stood at Rs 86,849 crore for the six months ended September 2023 as compared to Rs 74,382 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 Ventures Ltd (RRVL; 'CRISIL AAA/Stable/CRISIL A1+') in the retail industry, along with its exceptional financial flexibility. |
Analytical Approach CRISIL Ratings continues to follow an analytical approach that 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 combined 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/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 obligations 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. |
Key Rating Drivers & Detailed Description Strengths:
RIL has combined its refining and petrochemicals business into an integrated O2C segment. The company is amongst the top global petrochemical manufacturers. It is the world’s largest integrated producer of polyester, world’s third largest producer of paraxylene and among the top five global producer of purified terephthalic acid (PTA) and polypropylene. In India, RIL accounts for nearly half of the total domestic cracker (ethylene) capacity and has a production share of more than 50% in the polymers (PE, PP and PVC) market. Its strong market position helps it operate its petrochemical plants at full capacity and also benefits from its large scale.
RIL operates one of the largest ethane transportation and cracker facility, which enables a sizeable procurement of ethane from North America. This provides RIL with flexibility to operate on either ethane or naphtha (produced by its own refinery) as feedstock for its petrochemical operations, based on the prevailing price dynamics. Moreover, its Refinery Off-Gas cracker (ROGC) project enables the use of off-gas, which is a by-product of its refinery.
RIL's competitive advantage in refining arises from its global-scale capacity as the largest single-site refinery in the world, broad product portfolio, and highly integrated operations. With a crude refining capacity of 1.4 million barrels per day (mbpd), RIL is a significant player in the domestic oil refining market with a refining capacity share of about 27%. Both refineries of the company have consistently maintained high utilisation levels over the years. The Jamnagar site benefits from a superior Complexity Index (CI) of 21.1, which makes it amongst the most complex in the world, enabling RIL to process crudes of varying specific gravity and sulphur content.
High utilisation of the refineries helps maintain strong operating efficiency and healthy profitability. In addition, RIL's proximity to oil fields in West Asia (its facilities are located along India's western coast) gives it a logistical advantage, as it helps control transportation cost in procuring crude and exporting refined products.
RIL's strong competitive advantage has been enhanced by improved energy efficiency contributed by its pet-coke gasification project set up. In the long term, RIL plans to maximize downstream and reduce transportation fuels foot print in a phased manner, to hedge the risk of flagging demand for automotive fuels.
RRVL continues to consolidate its position as India’s largest retailer by revenue, scale and profits. The company’s strong market position is reflected in its leadership position across several formats and has been supported by consistent revenue and profit growth. The company has been expanding its footprint by adding stores, expanding reach of its digital and new commerce platforms and enhancing product and service offerings. It is widely spread in tier-2 and tier-3 cities, with a network of 18,650 stores as on September 30, 2023.
RJIL, subsidiary of Jio Platforms Ltd (JPL; CRISIL A1+), has leadership position in terms of subscriber and revenue market share in the Indian telecom industry. As per TRAI data, RJIL had broadband customer market share of ~52% and overall wireless subscriber market share of ~38%, as of May 2023. Moreover, for quarter ended March 2023, RJIL had revenue market share of ~44.5% in terms of adjusted gross revenue.
RJIL purchased spectrum worth ~Rs 87,947 crores during the previous auction. Post the auction, RJIL’s total owned spectrum footprint has increased significantly to 26,768 MHz (uplink + downlink), which is the highest in India. Besides, the company also has access to an extensive network of telecom towers and optical fiber network in the country. This, along with the acquisition of spectrum in premium 700 MHz band in the recent auction would help the company to provide superior quality of services and enhanced coverage across circles, results in better operating efficiencies.
It also intends to complete pan India rollout of 5G services which was launched in October 2022 by December 2023 which could be the fastest rollout for a large nation.
RIL's financial flexibility is demonstrated by its ability to raise resources by tapping the capital markets and through its large cash and liquid investments. Financial flexibility is also supported by unutilised bank lines. The company has a strong financial risk profile underpinned by stable, healthy profitability, and strong debt protection metrics.
RIL is planning to raise Rs 20,000 crore through NCD issuance, which is expected to be primarily utilized for refinancing the existing debt maturing over the next 12 months.
Weaknesses:
Regulatory and policy changes have played a central role in defining the risk characteristics of the Indian telecom sector, which is structurally dynamic.
The telecom industry also remains susceptible to technological changes. New technology in the telecom industry necessitates fresh investments or overhaul of existing networks. The advent of 4G, for instance, has seen operators investing substantially in upgrading infrastructure even before they had made significant gains on investments in 3G. Similarly, with the transition to 5G, RJIL is continuously ramping up rollout of 5G services across cities in India, which could result in higher capital expenditure outgo in the near term. However, the capex intensity is expected to gradually come down once mass 5G networks have been established. Moreover, the company is not expected to incur any significant amount for purchasing spectrum in the forthcoming auction in India. Higher-than-expected investments having a bearing on financial risk profile will continue to be monitored.
RRVL faces competition from other organised retailers, some of which have stores in catchment areas that overlap with its stores. Furthermore, with organised retail penetration in India being modest at below 15%, players face intense competition from the unorganised sector, which operates in various addressable markets. However, India's unorganised retail sector is fragmented and plagued by operational inefficiency. Reliance Retail's New Commerce initiative connects millions of small kirana and merchants across India with suppliers, manufacturers, and brands. It enables businesses to become more efficient and offers them a compelling value proposition to grow their businesses and earnings and thus benefit all players in the retail value chain. |
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 177,960 crore as on September 30, 2023) 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. Ample liquidity and strong cash flow from operations shall aid in meeting the capex requirement.
Environment, social and governance (ESG) profile CRISIL Ratings believes that RIL’s ESG profile supports its already strong credit risk profile. Oil to chemical segment contributes significantly to RIL’s business mix. This segment has a significant carbon footprint and has a material impact on the environment. Recognizing climate change as a global threat, RIL is developing solutions for decarbonization and harnessing innovative technologies to combat it. RIL is investing in renewables and alternative energy to provide affordable green energy while prioritizing the collective well-being of humanity.
Key ESG highlights:
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
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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. |
Key Financial Indicators
*Debt including deferred spectrum payments and lease liabilities |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
% Yet to be placed *Fund based facilities are fungible with non-fund based facilities
Annexure - Details of Rating Withdrawn
% Yet to be placed |
Annexure – List of entities consolidated
*Considered in line with CRISIL Ratings’ analytical approach (not consolidated by RIL) |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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