Rating Rationale
November 21, 2019 | Mumbai
Reliance Jio Infocomm Limited
Rated amount enhanced
 
Rating Action
Rs.15000 Crore Non-Convertible Debentures  CRISIL AAA/Stable (Reaffirmed)
Rs.5000 Crore Non-Convertible Debentures  CRISIL AAA/Stable (Reaffirmed)
Rs.500 Crore Non-Convertible Debentures  CRISIL AAA/Stable (Reaffirmed)
Rs.10000 Crore Non-Convertible Debentures  CRISIL AAA/Stable (Reaffirmed)
Rs.3000 Crore Non-Convertible Debentures  CRISIL AAA/Stable (Withdrawn)
8.95% Non-Convertible Debentures Aggregating Rs.2000 Crore*  CRISIL AAA/Stable (Reassigned from 'CRISIL AAA(CE)/Stable')
Rs.35000 Crore Commercial Paper (Enhanced from Rs.30000 Crore)  CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
*guaranteed by Reliance Industries Limited
Detailed Rationale

CRISIL has reaffirmed its ratings on Reliance Jio Infocomm Lilmited (RJIL's) existing non-guaranteed non-convertible debentures (NCDs) at 'CRISIL AAA/Stable', and its commercial paper at 'CRISIL A1+'. The rating on the Rs 3,500 crore NCDs has been withdrawn on receiving confirmation of their redemption, in-line with CRISIL's policy (See Annexure 'Details of Rating Withdrawn' for details). CRISIL has also reassigned its rating on the Rs 2000 crore NCDs guaranteed by RIL (CRISIL AAA/Stable/CRISIL A1+) to 'CRISIL AAA/Stable' from 'CRISIL AAA(CE)/Stable'.

The ratings factor in RJIL's leadership position in terms of revenue market share in the Indian telecom industry, along with strong traction in customer acquisitions. The ratings also reflect its strategic importance to RIL, and the strong management and financial support expected from it. These strengths are partially offset by RJIL's exposure to a competitive telecom industry and regulatory risks in this space.

RJIL is a strategic investment of the RIL group and its vehicle for entry into the digital services industry - which is the group's principal growth area along with retail. RJIL is held 99.44% by RIL, and shares the identity of brand Reliance. RIL is actively involved in RJIL's operations, and its chairman is also the chairman of RJIL.

On October 25, 2019, RIL announced its plan to set up a wholly-owned subsidiary, in which it shall house all digital services companies in the RIL group. Apart from RJIL, which will be a subsidiary of this new entity, this entity will comprise the group's ventures into digital content (music, media, etc.) and technology. As a part of this reorganization, RIL will infuse Rs. 1.08 lakh crore in the subsidiary, which will thereafter be infused by the subsidiary in RJIL to enable it to reduce external liabilities. Going ahead, the group may divest a stake in this subsidiary. This scheme will be neutral from the perspective of overall debt level at RIL at the consolidated level.

RJIL has concluded the transfer of its fibre and tower assets, along with a portion of liabilities, into two separate special purpose vehicles (SPVs), viz Jio Digital Fibre Pvt Ltd (JDFPL; CRISIL AAA/Stable) and Reliance Jio Infratel Pvt Ltd (RJIPL; CRISIL AAA/Stable) that are held by separate Trusts. The transfer of assets has enabled RJIL to monetize these assets and reduce a part of its existing liabilities, while also moderating its future capital expenditure (capex) requirements, as investments in fibre and tower infrastructure will now be incurred by the two SPVs. While the two SPVs operate independently, RJIL has entered into off-take arrangements given the criticality of these assets for its existing operations. Access to a strong backhaul and national backbone network through these offtake arrangements at preferential terms provides RJIL significant competitive advantage, given the growing data consumption and increasing smartphone penetration in India.
 
Nevertheless, RJIL's leverage remains relatively high for its rating category, though it is expected to reduce significantly going ahead given the aforementioned reorganization, and its improving profitability.
 
RIL, through its group entities, has acquired majority stake in Den Networks Ltd and Hathway Cables & Datacom Ltd. These acquisitions are likely to complement the group's foray into FTTH business. In August 2019, RJIL announced roll-out of its fiber-to-the-home (FTTH) undertaking which will eventually be provided in 1600 cities.

Analytical Approach

CRISIL has applied its parent notch-up framework to factor in the intensity of support available to RJIL from RIL. The support is expected to continue, given RJIL's strategic importance to the parent, and strong linkages with it.
 
Deferred payment liabilities of Rs 19,745 crore as on September 30, 2019 to the Department of Telecommunication (DoT) towards acquisition of spectrum, have been considered as debt. 
 
CRISIL has capitalized the present value of a part of payments as per long-term tower contracts with RJIPL, as per the applicable accounting standards.

Key Rating Drivers & Detailed Description
Strengths
* Large fiber and spectrum footprint
RJIL has a large, liberalized spectrum holding of 1,108 megahertz (MHz), which can be used for rolling out any technology without regulatory restriction. CRISIL believes that RJIL is uniquely placed with respect to offering LTE telecom services as it has pan-India liberalized spectrum across different spectrum bands (800 MHz, 1800 MHz and 2300 MHz), including sub-GHz LTE band. The company also has access to an extensive network of telecom towers and optical fiber network in the country. This, along with absence of any legacy technology results in better operating efficiencies.

* Revenue market share leadership and strong traction in customer acquisition
With its aggressive customer acquisition strategy, RJIL has built a strong market position in a short time. With net addition of 109 million subscribers in the 12 months ended August 2019, RJIL has increased its subscriber market share to 30% as on August 31, 2019. In Q1 fiscal 2020, the company achieved leadership in terms of telecom services revenue market share, reflecting its strong position in the mobile broadband space in which it had a market share of 56.6%.
 
In the near-to-medium term, given the management's focus, rapid customer acquisition is expected to continue. RJIL's market position is also supported by its digital ecosystem comprising various applications and digital content besides voice and data services.
 
* Strategic importance to RIL, and strong management and financial support
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 a 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.
 
Weaknesses
* Regulatory risks in the telecom space
Regulatory and policy changes have played a central role in defining the risk characteristics of the Indian telecom industry. The sector is extremely dynamic structurally and technologically; thus the risks pertaining to continued regulatory intervention are likely to persist. CRISIL continues to monitor the regulatory developments in this field.
 
* Exposure to a competitive industry 
The telecom industry in India is intensely competitive, marked by low tariffs and average revenue per user (ARPU). The industry has well-entrenched players such as Bharti Airtel Ltd ('CRISIL AA/Watch Negative/CRISIL A1+'), from whom RJIL continues to face competitive pressure. Moreover, RJIL is yet to realize the full potential of its investments, which partially constrains its return metrics currently.
 
* Liquidity: Superior, supported by parent, RIL
RJIL draws support from its parent, RIL, which has exceptional financial flexibility given its demonstrated ability in accessing the capital markets, its large cash and liquid investments of Rs 134,746 crore as on September 30, 2019 and significant unutilised bank lines.

RJIL has substantial debt obligations, with external debt (including spectrum liabilities) of Rs. 103,724 crore as on September 30, 2019 which are likely to reduce substantially with the conclusion of the scheme of transfer of liabilities to RIL, subject to regulatory approvals. Future capex requirements are also likely to reduce significantly owing to the demerger of the fibre and tower undertakings and completion of its capex cycle.
Liquidity Superior

RJIL draws support from its parent, RIL, which has exceptional financial flexibility given its demonstrated ability in accessing the capital markets, its large cash and liquid investments of Rs 134,746 crore as on September 30, 2019 and significant unutilised bank lines.

RJIL has substantial debt obligations, with external debt (including spectrum liabilities) of Rs. 103,724 crore as on September 30, 2019 which are likely to reduce substantially with the conclusion of the scheme of transfer of liabilities to RIL, subject to regulatory approvals. Future capex requirements are also likely to reduce significantly owing to the demerger of the fibre and tower undertakings and completion of its capex cycle.

Outlook: Stable

CRISIL believes that RJIL's strong market position and operating efficiencies will continue to support its credit risk profile. Moreover, the company remains strategically important to RIL.
 
Rating Sensitivity factors
Downward factors:
* Any change in CRISIL's outlook on RIL, or reduction in its ownership in RJIL to below 51%
* Significantly lower-than-expected returns from investments  

About the Company

RJIL, a subsidiary of RIL, has built an all-IP data network with the latest 4G LTE technology, which supports voice over LTE. RIL holds 99.44% equity stake in RJIL. The network can be upgraded to support even more data, as technologies advance on to 5G and beyond. The company has created an eco-system comprising network, devices, applications and content to provide seamless services. In August 2019, RJIL has rolled out its FTTH services which will eventually be provided in 1600 cities.

About the parent, 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. Oil refining is RIL's largest activity, accounting for around 51% of the revenue in fiscal 2019, followed by petrochemicals at around 22% (both before interparty transactions). 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 has also become India's largest telecom service provider by revenue market share in Q1 FY 2020.

Key Financial Indicators -
Particulars Unit 2019 2018
Revenue Rs crore 38,838 20,154
Profit after tax Rs crore 2964 723
PAT margin % 7.6% 3.6%
Interest coverage Times 3.6 3.3
Adjusted debt/EBITDA Times 5.8 11.8

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs Crore) Rating assigned with outlook
INE110L08011 Debentures* 15-Sep-10 8.95% 15-Sep-20 1000 CRISIL AAA/Stable
INE110L08029 Debentures* 04-Oct-10 8.95% 04-Oct-20 1000 CRISIL AAA/Stable
INE110L08037 Debentures 16-Jun-14 9.25% 16-Jun-24 2500 CRISIL AAA/Stable
INE110L08052 Debentures 21-Jan-15 8.90% 21-Jan-20 1000 CRISIL AAA/Stable
INE110L08060 Debentures 21-Jan-15 9.00% 21-Jan-25 1000 CRISIL AAA/Stable
INE110L07047 Debentures 30-Oct-15 8.25% 30-Oct-25 3000 CRISIL AAA/Stable
INE110L07070 Debentures 08-Jul-16 8.32% 08-Jul-21 2000 CRISIL AAA/Stable
INE110L07088 Debentures 10-Apr-18 8.00% 10-Apr-23 2500 CRISIL AAA/Stable
INE110L07096 Debentures 17-Apr-18 8.00% 17-Apr-23 2500 CRISIL AAA/Stable
INE110L07104 Debentures 25-Apr-18 7.97% 25-Apr-22 1000 CRISIL AAA/Stable
INE110L07112 Debentures 15-Jun-18 8.70% 15-Jun-21 2000 CRISIL AAA/Stable
INE110L07120 Debentures 18-Jul-18 8.70% 16-Jul-21 1500 CRISIL AAA/Stable
NA Debentures^ NA NA NA 11,000 CRISIL AAA/Stable
NA Commercial Paper NA NA 7-365 days 35,000 CRISIL A1+
^There are no issuances against this rated limit
*guaranteed by Reliance Industries Limited
 
Annexure - Details of Rating withdrawn
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore)
INE110L07054 Debentures 29-Apr-16 8.10% 29-Apr-19 2250
INE110L07062 Debentures 31-May-16 8.10% 31-May-19 750
INE110L08045 Debentures 18-Nov-14 8.95% 18-Nov-19 500
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  35000.00  CRISIL A1+  07-09-19  CRISIL A1+  30-10-18  CRISIL A1+  29-09-17  CRISIL A1+    --  -- 
        04-02-19  CRISIL A1+  17-08-18  CRISIL A1+           
            29-03-18  CRISIL A1+           
            29-01-18  CRISIL A1+           
            09-01-18  CRISIL A1+           
Non Convertible Debentures  LT  35500.00
21-11-19  		CRISIL AAA/Stable  07-09-19  CRISIL AAA(CE)/Stable| CRISIL AAA/Stable  30-10-18  CRISIL AAA(SO)/Stable| CRISIL AAA/Stable  29-09-17  CRISIL AAA(SO)/Stable| CRISIL AAA/Stable  05-12-16  CRISIL AAA(SO)/Stable| CRISIL AAA/Stable  CRISIL AAA(SO)/Stable| CRISIL AAA/Stable 
        04-02-19  CRISIL AAA(SO)/Stable| CRISIL AAA/Stable  17-08-18  CRISIL AAA(SO)/Stable| CRISIL AAA/Stable      15-03-16  CRISIL AAA(SO)/Stable| CRISIL AAA/Stable   
            29-03-18  CRISIL AAA(SO)/Stable| CRISIL AAA/Stable           
            29-01-18  CRISIL AAA(SO)/Stable| CRISIL AAA/Stable           
            09-01-18  CRISIL AAA(SO)/Stable| CRISIL AAA/Stable           
All amounts are in Rs.Cr.
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
Rating Criteria for Mobile Telephony Services
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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