By Prashant Tarwadi

India Ratings and Research (Ind-Ra) has affirmed Reliance Jio Infocomm Limited’s (RJIL) Long-Term Issuer Rating at ‘IND AAA’. The Outlook is Stable. The instrument-wise rating actions are as follows:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (billion)

Rating/Outlook

Rating Action

Non-fund-based working capital limits

-

-

-

INR94.86

IND AAA/Stable/IND A1+

Affirmed

Fund-based working capital limits

-

-

-

INR5.00

IND AAA/Stable/IND A1+

Affirmed


Analytical Approach: Ind-Ra has taken a consolidated view of RJIL with its ultimate parent Reliance Industries Ltd (RIL; 'IND AAA’/Stable) given the strong operational and strategic linkages between them.

KEY RATING DRIVERS

Strong Linkages with Parent: Ind-Ra continues to equate RJIL’s ratings with those of its ultimate parent RIL in view of strong strategic and operational linkages between the entities. Furthermore, both the entities share a common name, i.e. Reliance, and RJIL represents the group’s presence in the digital business. The contribution of RIL’s digital business to the consolidated segmental EBITDA increased to about 38% in FY21 from about 25% in FY20.

 

Given digital is a consumer-facing business, RJIL provides diversification to the parent’s overall business risk profile. The operational linkages are established by the management control (common chairman, few board members and senior management) and the operational oversight provided by the parent.

 

Healthy Operational Performance: According to the Telecom Regulatory Authority of India, RJIL continues to be the largest telecom player with a revenue market share (RMS) of about 39% in 3QFY21 as against (35% in 3QFY20). RJIL had a subscriber market share of about 36% in April 2021 (34% in April 2020) and a broadband subscriber market share of 55% (58% in February 2020). RJIL showed strong operational performance with a gross subscriber addition of 99 million in FY21, and a total subscriber base of 426 million at end-March 2021. RJIL is an industry leader on various operational and financial parameters; it had the highest data usage of 13.3GB per capita per month, 823 minutes per capita monthly voice usage, robust average revenue per user (ARPU) of INR138 and an industry-leading EBITDA margin close to 47% in 4QFY21.

Strong Network Deployment: RJIL has a large spectrum footprint of 1,732MHz (uplink and downlink; including a trading agreement with Bharti Airtel Limited (debt rated at ‘IND A1+’)) across the 800MHz, 1,800MHz and 2,300MHz categories, with an average life of around 15.5 years. In the spectrum auction conducted by the Telecom Ministry in March 2021, RJIL acquired the right to use the spectrum in the 800/1,800/2,300MHz bands for all the access service areas at a total cost of INR571 billion. RJIL opted for a deferred payment option, under which an advance payment of INR150 billion has already been made.

According to RJIL’s management, the spectrum is suitable for the roll out of 5G technology as well. RJIL has continued network expansion for the past last few years and has the widest long-term evolution (LTE) coverage in the country. Also, RJIL’s all-internet protocol data network, along with the latest 4G LTE technology, makes it future-ready, as it can support 5G and future technologies.

Strong Financial Performance: In FY21, RJIL’s revenues rose 29% yoy to INR699 billion and EBITDA rose 43% yoy to INR309 billion. Its EBITDA margins improved marginally to 44% in FY21 (FY20: 40%). The ARPU rose to INR138 in 4QFY21 as against INR131 in 4QFY20.  RJIL’s debt reduced sharply to INR300 billion (including spectrum related liability of INR 188 billion) at end-March 2021, as against INR421 billion (INR188 billion) at end-March 2020. Consequently, RJIL’s net leverage (net debt to EBITDA) and interest coverage (EBITDA to interest cost) improved to 1.0x in FY21 (FY20: 1.6x) and 8.1x in FY21 (3.3x) respectively.

Liquidity Indicator – Superior; Supported by Strong Parentage: RJIL’s liquidity is supported by its financially resourceful parent. RIL reported cash and marketable securities of INR2,540 billion at end-FY21. The near completion of the ongoing capex cycle, resultant capacity expansion in the petrochemical segment and a further ramp-up in the consumer businesses are likely to result in incremental cash flow generation over the medium term. RIL has superior financial flexibility exemplified by its large cash reserves and demonstrated ability to access capital markets and refinance high cost debts.

Competitive, Technological and Regulatory Risks: The domestic telecom landscape has remained extremely competitive and dynamic. After witnessing a significant erosion over FY17-FY19, industry-wide ARPUs showed some recovery over FY20-FY21. The incumbents are likely to protect any major subscriber loss by offering attractive tariffs and better services. The industry has seen frequent changes in technologies as well as regulatory policies, which may make some of the investment redundant. Ind-Ra will continue to monitor the regulatory and technological landscape in the Indian telecom industry.

Change in Group Structure: In FY20, RIL formed a wholly owned subsidiary – Jio Platforms Limited (JPL), which is aimed at holding all of RIL’s digital platforms, including RJIL. Pursuant to the scheme of arrangement between RJIL and certain classes of its creditors, identified liabilities (as per the scheme) amounting to around INR1.05 trillion were transferred to RIL. Conversely, JPL has subscribed to an equity of INR450 billion in RJIL and optionally convertible preference shares of INR1,251 billion, totalling an investment of INR1,701 billion. Consequent to this transaction, RJIL’s debt reduced sharply to INR421 billion (including spectrum related liability of INR188 billion) at FYE20 (FYE19: INR964 billion). This transaction improved the financial profile of RJIL as it led to a substantial reduction in debt, although it was credit neutral for RIL on a consolidated basis. Subsequently, in FY21, RIL divested about 33% stake in JPL to various investors for INR1,521 billion.
 


RATING SENSITIVITIES

Negative: Any weakening of RJIL’s linkages with its parent RIL or a weakening of the parent’s credit profile will be negative for the ratings.


COMPANY PROFILE

RJIL, a subsidiary of RIL, has built an all-IP data-strong, future-proof network with the latest 4G LTE technology. RIL owns a 66.48% stake in JPL, which, in turn, owns 100% in RJIL. According to RJIL’s management, its network can support voice-over LTE technology and can be easily upgraded to support even more data, as technologies advance on to 5G and beyond. 

FINANCIAL SUMMARY 

Particulars

FY20

FY21

Revenue (INR million)

543,160

698,880

EBITDA  (INR million)

215,670

309,130

EBITDA margins (%)

40

44

Net leverage (x)

1.6

1.0

Interest coverage (x)

3.3

8.1

Source: RJIL, Ind-Ra



RATING HISTORY

RJIL, a subsidiary of RIL, has built an all-IP data-strong, future-proof network with the latest 4G LTE technology. RIL owns a 66.48% stake in JPL, which, in turn, owns 100% in RJIL. According to RJIL’s management, its network can support voice-over LTE technology and can be easily upgraded to support even more data, as technologies advance on to 5G and beyond. 

FINANCIAL SUMMARY

 

Particulars

FY20

FY21

Revenue (INR million)

543,160

698,880

EBITDA  (INR million)

215,670

309,130

EBITDA margins (%)

40

44

Net leverage (x)

1.6

1.0

Interest coverage (x)

3.3

8.1

Source: RJIL, Ind-Ra



COMPLEXITY LEVEL OF INSTRUMENTS

Instrument Type

Complexity Indicator

Non-fund-based working capital limits

Low

Fund-based working capital limits

Low

For details on the complexity levels of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

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About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

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Analyst Names

  • Primary Analyst

    Prashant Tarwadi

    Director
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th Floor, West Wing, Bandra Kurla Complex, Bandra East,Mumbai - 400051
    +91 22 40001772

    Media Relation

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121