Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the debt instruments of Reliance Jio Infocomm Limited (RJIL).

 

The ratings reflect the leading market position of RJIL in the telecom sector in India and strong operating performance as well as a healthy financial risk profile aided by strong debt protection metrics. The ratings also take into account the strategic importance of the company to Reliance Industries Ltd (RIL; CRISIL AAA/Stable/CRISIL A1+) group. These strengths are partially offset by exposure to regulatory as well as technological risks.

 

RJIL is a wholly owned subsidiary of Jio Platforms Ltd (JPL; CRISIL A1+), which holds the digital services businesses of the RIL group. The digital services segment is the group’s principal growth driver, alongside retail.

 

Company’s operating performance remained healthy and continued to improve sequentially. Net subscriber addition in Q1FY24 witnessed a strong rebound to 9.2 million driven by better customer retention and net port-ins, while average revenue per user (ARPU) improved to Rs 180.5 per subscriber per month from Rs 178.8 in the preceding quarter. Thus, RJIL’s operating revenue in Q1FY24 was Rs 24,042 crore, higher by ~10% on-year, driven by consistent subscriber additions and ARPU increase. RJIL’s EBITDA margin was 52.7% in Q1FY24 compared to 50.5% in Q1FY23.  Rising data usage with adoption of 5G services should continue to drive ARPU over near term leading to further growth in revenues as well as operating profits.

 

RJIL had acquired spectrum worth Rs 87,947 crore in the last auction resulting in an increase in the consolidated net leverage, including deferred payment liabilities, of JPL from 2.1 times as on March 31, 2022 to ~3.4 times as on March 31, 2023. However, the same is expected to moderate in the medium term because of lower network capex and healthy cash accruals. 

RJIL also has off-take arrangements with special purpose vehicles (SPVs), including Jio Digital Fibre Pvt Ltd (JDFPL; CRISIL AAA/Stable/CRISIL A1+) and Summit Digitel Infrastructure Pvt Ltd (SDIPL; CRISIL AAA/Stable) for use of optical fibre and telecom tower infrastructure, respectively. Access to strong backhaul and national backbone network through these offtake arrangements provides RJIL significant competitive advantage, given the growing data consumption in India.

Analytical Approach

CRISIL Ratings has consolidated the business and financial risk profiles of RJIL with its parent entity, JPL, owing to the latter’s 100% ownership in the company, along with common management and operations. CRISIL Ratings has also applied its parent notch-up framework to factor in the intensity of support available to JPL and RJIL from RIL. The support is expected to continue given their strategic importance to, and strong linkages with, RIL. Deferred payment liabilities to the department of telecommunications towards the acquisition of spectrum have 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:

Sustained market share leadership: RJIL, subsidiary of JPL, 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.

 

Strong operating performance: RJIL’s operating performance remained strong and continues to improve. The total wireless subscriber base rose to ~44.8 crore as of June 30, 2023, from 41.9 crore as of June 30, 2022. Besides, data usage per subscriber per month grew to 24.9 GBs during the quarter ended June 30, 2023, as compared to 20.8 GBs in the quarter ended June 30, 2022. The average revenue per user (ARPU) improved to Rs 180.5 per subscriber per month from Rs 175.7 in the corresponding quarter of last year. FTTH services also continued to witness improving uptake on the back of affordable and bundled offerings.

 

Thus, RJIL’s EBITDA improved ~14% year-on-year to Rs 12,663 crore in the quarter ended June 30, 2023. EBITDA margin improved by ~220 bps year-on-year to ~52.7% during the quarter. On a consolidated basis, JPL’s EBITDA and EBITDA margin improved ~14% year-on-year to Rs 13,116 crore and ~150 bps to 50.2% respectively, in the quarter ended June 30, 2023.

 

Healthy financial risk profile aided by strong debt protection metrics: RJIL has acquired spectrum for a total consideration of Rs 87,947 crore in the last spectrum auction which concluded on August 1, 2022. Despite additional spectrum liabilities, its financial risk profile remained healthy being aided by healthy operating performance. While, JPL’s consolidated net leverage, including deferred payment liabilities, increased to ~3.4 times as on March 31, 2023, as against ~2.1 times as on March 31, 2022, same is expected to improve over the medium term because of healthy cash accruals. However, investments on network are expected to remain high over the medium term for rolling out 5G services across the country Higher than expected investments on network and spectrum will remain key monitorable. 

 

Strategic importance to RIL and strong management and financial support: JPL, including RJIL, is a strategically important part of the RIL group, given the parent's substantial investments in the company and its focus on setting up large digital services business. RIL's majority stake, active involvement of its management and the shared identity of the name, Reliance, also support the rating. RIL and JPL have a common chairperson.

 

Weakness:

Exposure to regulatory and technological risks: 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.

Liquidity: Superior

RJIL, along with JPL, had liquidity of over Rs 19,400 crore as on June 30, 2023. Given the nature of its business, working capital requirements are low.  RJIL and JPL also draws comfort from its parent, RIL, which has exceptional financial flexibility, owing to its demonstrated ability in accessing the capital markets, large cash and liquid investments, and significant unutilised bank lines.

Outlook: Stable

The strong market position of RJIL and its healthy operating efficiency will continue to support credit risk profile. Moreover, the company remains strategically important to RIL.

Rating Sensitivity factors

Downward factors:

* Any change in credit profile of RIL or reduction in its ownership in JPL to less than 51%

* Significantly lower-than-expected returns from investments 

About the Issuer

RJIL is a wholly owned subsidiary of JPL. RIL holds 66.43% stake in JPL. RJIL has built an all-IP data network with the latest 4G LTE technology, which supports voice over LTE. The network can be upgraded to support even more data, as technologies advance to 5G and beyond. JPL has created an ecosystem comprising network, devices, applications and content to provide seamless services. The company also provides FTTH services (or JioFiber).

 

About JPL

JPL, incorporated in November 2019, is the parent entity of RJIL. RIL currently holds 66.43% stake in JPL. JPL has created an eco-system comprising network, devices, applications and content to provide seamless services. Apart from RJIL, JPL has investments in digital technology, including artificial intelligence, online education, and digital media and content, among others. 

 

About RIL

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. Oils-to-chemicals are RIL's largest business by revenue, which include oil refining and petrochemicals. In the recent past, consumer facing businesses, including retail and digital services, have become RIL’s principal growth drivers. Reliance Retail Ltd (CRISIL AAA/Stable/CRISIL A1+) is India’s largest retail entity by revenue, while RJIL is also India’s largest telecom service provider by subscriber as well as revenue market share.

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs crore)	Complexity  levels	Rating assigned with outlook
NA	Commercial Paper	NA	NA	7-365 days	35,000	Simple	CRISIL A1+
INE110L08078	Non-Convertible Debentures	5-Jan-22	6.20%	5-Jan-27	5,000	Simple	CRISIL AAA/Stable
NA	Non-Convertible Debentures*	NA	NA	NA	5,000	Simple	CRISIL AAA/Stable

*Yet to be issued