Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Strong market position

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 consumption baskets 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 15,866 stores, as on June 30, 2022.

RRVL has successfully been able to ramp up JioMart, India’s largest hyperlocal platform operating across over 268 cities. Through its New Commerce initiative, RRVL is linking producers with small merchants and consumers to create a win-win partnership model. The New Commerce merchant partner footprint has been expanded to more than 300 cities for grocery and 3,500+ cities for Fashion & Lifestyle, leveraging its investments in sourcing, product design and development, supply chain and technology.

Healthy operating efficiency

Revenues at a consolidated level have grown at a healthy CAGR of 42% between fiscals 2016 to fiscal 2022, driven by growth across all its consumption baskets – grocery, fashion, consumer electronics, pharma and connectivity. In fiscal 2021, the petro-retail business has been transferred to a separate JV owned collectively by RIL and BP Plc. Over the last few years, there has been a strong increase in revenue across consumption baskets, with the stores launched over the last few years gaining a foothold in their respective catchment areas.

The consolidated gross revenue during quarter ended June 30, 2022 stood at Rs 58,554 crore, a growth of 52% year-on-year. During the period, EBIDTA from operations grew by around 3 times year-on-year driven by strong revenue recovery, operating leverage and favorable revenue mix contributed by growth in Fashion and Lifestyle, Consumer Electronics and Grocery businesses.

With its integrated value chain, RRVL has been able to continually improve its operating profitability, that allowed efficient product procurement and delivery. Moreover, the company also use completely integrated farm to fork model in groceries, a fibre to wardrobe model in fashion and lifestyle, and a design to install/after sales service strategy in consumer electronics to ensure superior product quality and stronger customer value proposition.

Strong financial risk profile

RRVL has a strong financial risk profile, contributed by its healthy accruals and has reflected by its comfortable debt protection indicators. RRVL at a consolidated level continues to have a strong liquidity position with cash & equivalents of over Rs 18,000 crore as of March 31, 2022. Moreover, liquidity is further driven by significant unutilized fund-based bank facilities and access to capital markets as an RIL group entity.

Strategic importance to the RIL group

Retail and Jio, the two large consumer businesses of RIL are seen to be major growth pillars of RIL, contributing to nearly 43% and ~42% of RIL’s EBIDTA in fiscal 2021 and fiscal 2022, respectively. Moreover, RRL shares several synergies with Reliance Jio Infocomm Limited (RJIL; rated ‘CRISIL AAA/Stable/CRISIL A1+’), for which it is the master distributor of telecom services and fiber-to-the-home (FTTH) undertakings. RRL is responsible for serving customers for sales and service through its touch points of ‘Reliance Digital’ and ‘Jio Stores’ and tens of thousands of partner stores across the country.

Weaknesses

Exposure to risks relating to sizeable expansion plans over the medium term

In the near to medium term, the company is expected to continue its sizable capital expenditure (capex). This is aimed at both growing the existing business, as well as new businesses, including its new-commerce initiative. The ability to replicate the success of its existing model in newer markets and business formats will be a key risk factor.

High competitive intensity in the retail sector

Reliance Retail faces competition from other organized retailers, some of which have stores in catchment areas which overlap with its stores. Furthermore, with organized retail penetration in India being moderate at below 15%, players face intense competition from the unorganized segment, which operates in various addressable markets. However, India's unorganized retail sector is fragmented and plagued by operational inefficiencies. Reliance Retail's New Commerce initiative connects millions of small kiranas and merchants across India with suppliers, manufacturers, and brands. It enables businesses to become more efficient and offer them a compelling value proposition to grow their businesses and earnings & thus benefit all players in the retail value chain.