Rating Rationale
September 08, 2020 | Mumbai
Reliance Retail Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.17000 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.20000 Crore Commercial Paper 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 facilities and commercial paper programme of Reliance Retail Limited (RRL).

CRISIL combines the business and financial risk profiles of RRL with its parent entity, Reliance Retail Ventures Limited (RRVL; 'CRISIL A1+') as per its analytical approach.

On August 29, 2020, RRVL announced its plan to acquire the retail and wholesale distribution; along with the logistics and warehousing business of the Future Group. This business shall be acquired as a going concern, on a slump sale basis for a consideration of INR 24,713 crore, subject to adjustments as set-out in the composite scheme of arrangement. The transaction is subject to receipt of shareholders, creditors and regulatory approvals. Subsequently, Reliance Retail will also acquire a minority stake in the residual business of the Future group. 

CRISIL believes that the acquisition is positive for Reliance Retail. It shall result in increased presence in metros and large cities, complementing Reliance Retail's presence focused on tier 2/3 cities. Moreover, Reliance Retail's footprint in terms of store space in grocery and fashion & lifestyle segments should more than double, with the upshot of efficiencies of scale in procurement and distribution. The acquisition will also add strong brands such as Big Bazaar and Easy day in groceries, and Central, Brand Factory and FBB in fashion & lifestyle segment to RRVL's portfolio. Moreover, the logistics and warehousing business shall also serve as a shot in the arm for RRVL's e-commerce initiatives, viz. JioMart in groceries and AJIO in fashion & lifestyle.

The ratings continue to reflect Reliance Retail's healthy business risk profile, supported by strong market position, and robust financial risk profile owing to strong accruals with a healthy and stable capital structure. The ratings also reflect its strategic importance to its parent, Reliance Industries Ltd (RIL; 'CRISIL AAA/Stable/CRISIL A1+'). These strengths are partially offset by exposure to risks related to sizeable expansion plans, and susceptibility to competition in the retail sector.

The outbreak of the Covid-19 pandemic has impacted the fashion & lifestyle, and consumer electronics retail formats, where store functioning and digital commerce fulfilment was severely impacted by lockdowns and restrictions. These businesses comprise about half of RRVL's consolidated revenue. Operational businesses of grocery and connectivity, on the other hand have seen positive impact during this period. Grocery continues to witness growth despite operational constraints as it serves essential needs, while connectivity is led by increasing revenue of Reliance Jio Infocomm Ltd (RJIL, rated 'CRISIL A1+').

Over the last 3 years, Reliance Retail has expanded considerably into smaller cities and towns with presence of nearly two thirds of its stores in tier 2 or smaller cities and towns. The impact of the pandemic in these areas is lesser when compared to metros and larger cities. Moreover, the impact on operating profitability for fiscal 2021 should be offset to an extent by the company's initiatives to control fixed costs. Nevertheless, the situation related to the pandemic is evolving and remains monitorable.

Analytical Approach

CRISIL has combined the business and financial risk profiles of RRVL and its subsidiary, RRL. RRL and RRVL have a common management, fungible cash flows, and operational synergies.

CRISIL has applied its parent notch-up framework to factor in the intensity of support available to RRVL from RIL. The support is expected to continue, given RRVL's strategic importance to the parent, and strong linkages with it.

In fiscal year 2019, RRL entered into a transaction to monetize its inventory of Jio Phones, through its sale followed by taking the phones back on lease from asset leasing companies for a period of about 3 years. CRISIL has capitalised the present value of these lease payments.

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:
* Strong market position and operating efficiency 
Reliance Retail 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 and enhancing product and service offerings. The company has focused on increasing its presence in tier-2 and tier-3 cities, reaching about 7000 cities and towns by June 30, 2020.

Reliance Retail reported strong revenue growth of about 25% in fiscal year 2020, driven by growth across all its consumption baskets - grocery, fashion, consumer electronics, connectivity, and petro retail. Over the last few years, there has been a strong increase in revenue per store across formats, with the stores launched over the last few years gaining a foothold in their respective catchment areas.

Reliance Retail has recently launched the beta version of its JioMart grocery consumer platform (jiomart.com) across 200 cities (referred to as 'new-commerce' by the company), leveraging its well-established supply chain infrastructure and network of grocery stores. 

* Strong financial risk profile
Reliance Retail has a strong financial risk profile, as reflected in healthy accrual and adequate debt protection indicators. Going forward, the company's capital structure and debt protection metrics are expected to remain healthy. RRVL at a consolidated level continues to have a strong liquidity position, driven by significant unutilized fund-based bank facilities and access to capital markets as an RIL group entity.   
 
* Strategic importance to the RIL group
Starting as the RIL group's vehicle for entry into the Indian retail sector, Reliance Retail has now become the principal growth driver alongside the digital business because of sizable increase in scale and improvement in profitability. Moreover, Reliance Retail shares several synergies with RJIL, for which it is the master distributor of telecom services and fiber-to-the-home (FTTH) undertakings. Reliance Retail is responsible for billing and collection and serves as a touch-point for subscribers at its various stores, including 'Reliance Digital' and 'Jio Stores'.

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 about 10%, players face intense competition from the unorganized segment, which operates in various addressable markets.
Liquidity Superior

RRL, including RRVL, generates strong cash accrual, and has access to fund-based facilities of about Rs 8,500 crore, for which utilization remains low. CRISIL believes that these sources will be sufficient for meeting incremental working capital requirements and funding capex and investments in fiscal 2021. The company does not have any long-term borrowings.

RRVL's liquidity is further enhanced by the ample liquidity of its parent, and its ability to access capital markets as an RIL group entity. RIL has an exceptional financial flexibility given its demonstrated ability in accessing the capital markets, its large reported cash and liquid investments of Rs 175,259 crore as on March 31, 2020, and significant bank lines which remain moderately utilized.

Outlook: Stable

CRISIL believes Reliance Retail will continue to benefit from its healthy business risk profile, strong capital structure, and strategic importance to RIL.

Rating Sensitivity factors
Downward factors:
* Any change in credit profile of RIL, or reduction in ownership below 51%
* Significant decline in the business risk profile, possibly due to a substantial decline in profitability 

About the Issuer:
RRL is an indirect subsidiary of RIL; RIL holds 94.60 percent of the subscribed equity shares of RRVL, which in turn holds 99.93 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. RRVL operates 11,806 stores (as on June 30, 2020) across more than 7,000 cities/towns in the country with an area of around 28.7 million square feet across Grocery, Consumer Electronics and Fashion & Lifestyle consumption baskets, offering groceries, apparel, footwear, jewelry, and consumer electronics. RRVL is also the master distributor for the telecom and FTTH services of Reliance Jio Infocomm Ltd.

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. 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 among the most complex sites in the world. Moreover, it is among the top 10 global petrochemical manufacturers and the leading player in the India. In the recent past, consumer facing businesses including retail and digital services have become RIL's principal growth drivers. RRL is India's largest retail entity by revenue, while RJIL is India's largest telecom service provider by revenue market share.
Key Financial Indicators - RRVL (Consolidated) 
Particulars Unit 2020 2019
Gross Revenue Rs. Cr. 162,936 130,566
Net Revenue Rs. Cr. 146,272 116,357
Profit After Tax Rs. Cr. 5,448 3,228
PAT/Gross Revenue % 3.3% 2.5%
Interest coverage Times 10.0 9.9
Reported Debt/Net Worth Times 0.2 0.9

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size
(Rs. Cr)		 Complexity Level Rating Assigned
with Outlook
NA Commercial Paper NA NA 7-365 days 20,000 Simple CRISIL A1+
NA Proposed Fund-Based
Bank Limits		 NA NA NA 5,650 NA CRISIL AAA/Stable
NA Fund-Based Facilities* NA NA NA 5,700 NA CRISIL AAA/Stable
NA Fund-Based Facilities NA NA NA 2,760 NA CRISIL AAA/Stable
NA Non-Fund Based Limit NA NA NA 2,890 NA CRISIL A1+
*Fungible with Non-Fund based facilities 
 
Annexure - List of entities consolidated
S. No Name of Entity  Extent of consolidation Reason for consolidation
1 Reliance Retail Ventures Limited Fully Consolidated  Common management, fungible cash flows, and operational synergies
2 Reliance Clothing India Private Limited Fully Consolidated Subsidiary of RRVL
3 Reliance-GrandOptical Private Limited Fully Consolidated Subsidiary of RRVL
4 Reliance Petro Marketing Limited Fully Consolidated Subsidiary of RRVL
5 Reliance Brands Limited Fully Consolidated Subsidiary of RRVL
6 Reliance Lifestyle Holdings Limited Fully Consolidated Subsidiary of RRVL
7 Reliance GAS Lifestyle India Private Limited Fully Consolidated Subsidiary of RRVL
8 Rhea Retail Private Limited Fully Consolidated Subsidiary of RRVL
9 Genesis Colors Limited Fully Consolidated Subsidiary of RRVL
10 Genesis Luxury Fashion Private Limited Fully Consolidated Subsidiary of RRVL
11 Genesis La Mode Private Limited Fully Consolidated Subsidiary of RRVL
12 GML India Fashion Private Limited Fully Consolidated Subsidiary of RRVL
13 GLF Body Care Private Limited Fully Consolidated Subsidiary of RRVL
14 GLF Lifestyle Brands Private Limited Fully Consolidated Subsidiary of RRVL
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  20000.00  CRISIL A1+  04-05-20  CRISIL A1+  13-06-19  CRISIL A1+  13-11-18  CRISIL A1+  31-03-17  CRISIL A1+  CRISIL A1+ 
                07-08-18  CRISIL A1+       
                27-04-18  CRISIL A1+       
                31-03-18  CRISIL A1+       
Fund-based Bank Facilities  LT/ST  14110.00  CRISIL AAA/Stable  04-05-20  CRISIL AAA/Stable  13-06-19  CRISIL AAA/Stable  13-11-18  CRISIL AAA/Stable  31-03-17  CRISIL AAA/Stable  CRISIL AAA/Stable 
                07-08-18  CRISIL AAA/Stable       
                27-04-18  CRISIL AAA/Stable       
                31-03-18  CRISIL AAA/Stable       
Non Fund-based Bank Facilities  LT/ST  2890.00  CRISIL A1+  04-05-20  CRISIL A1+  13-06-19  CRISIL A1+  13-11-18  CRISIL A1+  31-03-17  CRISIL A1+  CRISIL A1+ 
                07-08-18  CRISIL A1+       
                27-04-18  CRISIL A1+       
                31-03-18  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* 5700 CRISIL AAA/Stable Fund-Based Facilities* 5700 CRISIL AAA/Stable
Fund-Based Facilities 2760 CRISIL AAA/Stable Fund-Based Facilities 2760 CRISIL AAA/Stable
Non-Fund Based Limit 2890 CRISIL A1+ Non-Fund Based Limit 2890 CRISIL A1+
Proposed Fund-Based Bank Limits 5650 CRISIL AAA/Stable Proposed Fund-Based Bank Limits 5650 CRISIL AAA/Stable
Total 17000 -- Total 17000 --
*Fungible with Non-Fund based facilities 
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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