Rating Rationale
April 27, 2018 | Mumbai
Reliance Retail Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.17000 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.5000 Crore Commercial Paper (Enhanced from Rs.3000 Crore) CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank loan facilities and commercial paper of Reliance Retail Ltd (RRL).

The ratings continue to reflect the company's strategic importance to its ultimate parent Reliance Industries Ltd (RIL; 'CRISIL AAA/Stable/CRISIL A1+'), which is likely to continue extending strong management and financial support. The ratings also factor RRL's healthy business risk profile, supported by its strong market position, and its robust financial risk profile because of low gearing and healthy debt protection metrics. These strengths are partially offset by exposure to risks related to sizeable expansion plans, and susceptibility to intense competition in the retail sector.

Analytical Approach

CRISIL has combined the business and financial risk profiles of RRL and its holding company, Reliance Retail Ventures Limited (RRVL). RRVL also holds Reliance Brands Limited. RRL and RRVL have a common management, fungible cash flows, and operational synergies.

Key Rating Drivers & Detailed Description
Strengths
* Strategic importance to RIL, and strong management and financial support from the parent
RRL is RIL's vehicle for entry into the Indian organized retail sector. This is in line with RIL's emerging orientation towards more consumer-facing businesses such as retail and telecommunication. Since RRL's inception, the parent has largely funded the roll out of the retail business through equity. CRISIL believes that RRL will remain a strategically important investment for RIL, given the parent's substantial investments in the company, focus on setting up more consumer-facing businesses, and RRL's synergies with RIL's telecom venture, Reliance Jio Infocomm Ltd (RJIL, rated 'CRISIL AAA/ CRISIL AAA(SO) /Stable/ CRISIL A1+') for which it is the master distributor for telecom services.  RIL's equity stake of more than 94 per cent (directly or indirectly) in RRL, the active involvement of its management in the company's operations, and the shared brand name (Reliance) also supports the ratings. CRISIL believes RIL will continue to provide full operational, management, and strategic support to RRL, including assistance in arranging funds for servicing debt on time. Any change in RRL's strategic importance to the parent or any decrease in RIL's ownership in RRL to below majority will be a key rating sensitivity factor.
 
* Strong Market position and operating efficiency 
RRL (including its holding company RRVL) continues to be India's largest retailer by revenue. RRL's strong market position is reflected in its leadership position across several formats and has been supported by consistent growth. The company has been expanding its footprint by adding stores across formats and by enhancing the product and service offerings, to improve its overall revenue and profitability. The company has been expanding its presence across tier-2/tier-3 cities, with its presence reaching about 700 cities by December 2017, from about 200 in March 2015.
 
CRISIL takes note of RRL's strong revenue growth of about 92% in 9M'FY18 (including revenue for pre-paid recharges of Reliance Jio), driven by growth across all formats. In the grocery, fashion, consumer electronics and petro retail consumption baskets, CRISIL expects growth of about 35-40% in fiscal 2018. RRL reported a healthy increase in revenue per store, owing to strengthening of its distribution systems, and with the stores launched over the last two to three years gaining a foothold in their respective catchment areas.
 
RRL is the master distributor for Reliance Jio Infocomm Ltd, for its telecom services. RRL is responsible for collection of online and offline pre-paid recharges, and serves as a touch-point for Reliance Jio subscribers.
 
RRL has a strong network of more than 750,000 distribution partners for communication devices and connectivity, in addition to its store formats including about 2000 Reliance Digital and Jio Stores.
 
As on December 31, 2017, RRL's (including RRVL) retail space presence crossed 14.5 million square feet through 3,751 stores. CRISIL believes RRL will maintain its healthy business risk profile over the medium term, supported by its strong market position and improving operating efficiency.
 
* Healthy financial risk profile
RRL has a healthy financial risk profile, marked by low gearing and strong debt protection indicators. Its debt largely comprises borrowings for meeting working capital requirements. Going forward, the company's gearing is expected to remain low, while interest cover is expected to improve with significant increase in OPBDIT in FY 2017-18. RRL has a robust liquidity position, reflected in significant unutilized fund based bank facilities and access to capital markets as an RIL group entity.    
 
Weakness
* Exposure to risks relating to sizeable expansion plans over the medium term
RRL's capex stood at about Rs. 800 crore for fiscal 2017. In the near to medium term, the company is expected to continue its sizable capital expenditure plans, aimed at both growing the existing markets as well as venturing into newer markets. RRL is expected to continue its steady addition of new stores across all consumption baskets. The ability to replicate the success of its existing stores in newer markets will be a key credit risk factor. CRISIL believes RRL will be exposed to risks associated with implementation and execution risks of its expansion plans, over the medium term.
 
* High competitive intensity in the retail sector
RRL faces competition from other hypermarket players such as Future Retail Ltd, Shoppers Stop Ltd (rated 'CRISIL A1+'), Aditya Birla Retail Ltd ('CRISIL A-/Stable/CRISIL A2+'), and Max Hypermarket India Pvt Ltd ('CRISIL BB+/Stable') which run Big Bazaar, Hypercity, More, and Max, respectively; and from the cash and carry players such as Metro Cash and Carry India Pvt Ltd ('CRISIL A/Stable/CRISIL A1'). All these major players have set up stores with catchment areas which overlap with those of their competitors. Furthermore, with organized retail penetration being moderate at around 8 per cent, players face intense competition from the unorganized segment, which operates in various addressable markets. CRISIL believes aggressive retail space addition by other players in the respective segments will intensify competition for RRL over the medium term, thereby challenging the company's strong market position.
Outlook: Stable

CRISIL believes RRL will continue to benefit from its strategic importance to RIL, and from strong management and financial support from the parent.

Downside scenario
* Any change in credit profile of RIL
* If RIL's ownership in RRL falls below 51 per cent or if there is any change in the strategic importance of RRL for the parent  
* Significant decline business risk profile of RRL most likely due to substantial decline in profitability  

About the Issuer
RRL is an indirect subsidiary of RIL; RIL holds 94.45 percent of the subscribed equity shares of RRVL, which in turn holds 99.95 percent of the subscribed equity shares of RRL. Since its inception in 2006, RRL (including RRVL) has grown into India's largest retail conglomerate by revenues. It has also focused on backward integration and has built an advanced infrastructure supporting business systems and supply chains. RRL (including RRVL) has a total of 3,751 stores (as on December 31, 2017) across more than 700 cities in the country with an area of around 14.5 million square feet across Grocery, Consumer Electronics and Fashion & Lifestyle consumption baskets,   offering foods, groceries, apparel and footwear, lifestyle and home improvement products, jewelry, and electronic goods.

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 E&P. Oil refining is RIL's largest activity, accounting for around 64% of the revenue in fiscal 2017, followed by petrochemicals at around 23% (both before interparty transactions). In the recent past, RIL has diversified into newer businesses which includes organized retail and telecommunications.

YTD Financials: Consolidated Reliance Retail Ventures Limited
Particulars Unit 9M' 2018 9M' 2017
Revenue Rs. Cr. 45,015 23,433
EBIT Rs. Cr. 1,113 541
EBIT (%)  % 2.5% 2.3%
 
Key Financial Indicators: Consolidated Reliance Retail Limited
Particulars Unit 2017 2016
Revenue Rs. Cr. 32,829 20,547
Profit After Tax Rs. Cr. 449 265
PAT Margins % 1.4% 1.3%
Interest coverage Times 16.1 7.9
Adjusted Debt/Adjusted Networth Times 0.0 0.2

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. Cr)		 Rating Assigned
with Outlook
NA Commercial Paper NA NA 7-365 days 5000 CRISIL A1+
NA Proposed Fund-Based Bank Limits NA NA NA 250 CRISIL AAA/Stable
NA Fund-Based Facilities* NA NA NA 2750 CRISIL AAA/Stable
NA Proposed Non Fund based limits NA NA NA 4780 CRISIL A1+
NA Non-Fund Based Limit NA NA NA 9220 CRISIL A1+
* Fungible between Fund Based and Non Fund based Facilities to the extent of Rs.2500 Crore
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  5000.00  CRISIL A1+  31-03-18  CRISIL A1+  31-03-17  CRISIL A1+  30-03-16  CRISIL A1+  22-09-15  CRISIL A1+  CRISIL A1+ 
Fund-based Bank Facilities  LT/ST  3000.00  CRISIL AAA/Stable  31-03-18  CRISIL AAA/Stable  31-03-17  CRISIL AAA/Stable  30-03-16  CRISIL AAA/Stable  22-09-15  CRISIL AAA/Stable  CRISIL AAA/Stable 
Non Fund-based Bank Facilities  LT/ST  14000.00  CRISIL A1+  31-03-18  CRISIL A1+  31-03-17  CRISIL A1+  30-03-16  CRISIL A1+    --  -- 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Fund-Based Facilities* 2750 CRISIL AAA/Stable Fund-Based Facilities* 2750 CRISIL AAA/Stable
Non-Fund Based Limit 9220 CRISIL A1+ Non-Fund Based Limit 9220 CRISIL A1+
Proposed Fund-Based Bank Limits 250 CRISIL AAA/Stable Proposed Fund-Based Bank Limits 250 CRISIL AAA/Stable
Proposed Non Fund based limits 4780 CRISIL A1+ Proposed Non Fund based limits 4780 CRISIL A1+
Total 17000 -- Total 17000 --
* Fungible between Fund Based and Non Fund based Facilities to the extent of Rs.2500 Crore
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Retailing Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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