Rating Rationale
February 04, 2019 | Mumbai
Reliance Jio Infocomm Limited
Ratings reaffirmed 
 
Rating Action
Rs.4500 Crore Non-Convertible Debentures CRISIL AAA/Stable (Withdrawn)
Rs.15000 Crore Non-Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.3000 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)
8.95% Non-Convertible Debentures Aggregating Rs.2000 Crore* CRISIL AAA(SO)/Stable (Reaffirmed)
Rs.30000 Crore Commercial Paper 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 Limited's (RJIL's) existing non-guaranteed and guaranteed non-convertible debentures (NCDs) at 'CRISIL AAA/Stable' and 'CRISIL AAA(SO)/Stable' respectively, and its commercial paper at 'CRISIL A1+'. The rating on Rs 4,500 crore NCDs has been withdrawn (See Annexure 'Details of Rating Withdrawn' for details) on receiving confirmation of their redemption, in line with CRISIL's policy.

The rating on RJIL's guaranteed NCDs continues to be based on the strength of the irrevocable and unconditional guarantee from parent, Reliance Industries Ltd (RIL, rated 'CRISIL AAA/Stable/CRISIL A1+') securing the principal, redemption at par, and interest obligations.

The rating on the non-guaranteed NCDs of RJIL continues to reflect its high strategic importance to RIL, and the strong management and financial support expected from it. The rating also factors in strong traction in customer acquisitions and leadership position in the 4G mobile broadband subscriber base. These rating strengths are partially offset by RJIL's high leverage, and its exposure to intense competition in the Indian telecom space.

RJIL is a key strategic investment of RIL group and its vehicle for entry into India's digital services industry-the group's principal growth area. This is also reflected in the sizeable capital investment, exceeding Rs. 260,000 crore by RJIL, of which RIL has funded around Rs 110,000 crore as equity and preference shares as on September 30, 2018. RIL has also guaranteed NCD and Term loans of Rs. 36,575 crore of RJIL. RIL holds more than 99.4% in the company, shares the identity of brand 'Reliance', and is actively involved in RJIL's operations. RIL's chairman is also the chairman of RJIL. CRISIL, therefore, believes that RIL will continue to provide full operational, management and strategic support to RJIL. Any change in RJIL's strategic importance to the parent will constitute a key rating sensitivity factor.

With its aggressive customer acquisition strategy, RJIL has built a healthy market position in a short time. Since its launch in September 2016, RJIL has increased its subscriber market share to 23% as on November 30, 2018.

Moreover, RJIL has built a strong backhaul and national backbone network through its tower and fiber assets. Given the growing data consumption and increasing smartphone penetration, this provides RJIL significant competitive advantage.

The group has recently acquired stakes in content creating companies, and ventured into Fiber-to-the-home (FTTH), for which it has also acquired Den Networks Ltd & Hathway Cables & Datacom Ltd. These are likely to provide additional cash flow streams to the group over the medium term.

However, the ratings are constrained by high leverage on account of the significant upfront investment in its telecom network and roll out of FTTH. Moreover, RJIL is yet to realize the full potential of its investments, which constrains its return metrics.

RJIL has recently announced the transfer of its fibre and tower assets, along with a portion of liabilities, into two separate Special Purpose Vehicles (SPVs). The transfer of assets will enable RJIL to transition a part of its existing liabilities, and also reduce its future capex requirements in fibre and tower, which will now be incurred by the two SPVs. This may enhance financial flexibility of the Company. Moreover, it will provide the group an opportunity to monetize these assets through leasing to third party entities. The group may also divest its stake in these SPVs in the near to medium term. While the two SPVs will operate independently, RJIL will enter into offtake arrangements given the criticality of these assets for its existing operations.

The scheme of transfer of assets to the SPVs is subject to approval of the National Company Law Tribunal (NCLT) and other authorities as required. The appointed date for the scheme is April 1, 2019.

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 30th September, 2018 to the Department of Telecommunication (DoT) towards acquisition of spectrum, have been considered as debt. 

Post conclusion of the demerger process, RJIL will enter into long term lease agreements with the SPVs holding tower & fiber assets. CRISIL will take the final analytical view on the same following the restructuring becoming effective and finalization of financial statements.

Key Rating Drivers & Detailed Description
Strengths:
* Strategic importance to RIL, and strong management and financial support
CRISIL believes RJIL remains a strategically important investment for RIL, given the parent's substantial investments in RJIL, and its focus on setting up a large digital services business. RIL's majority stakes, the active involvement of its management, and the shared identity of name 'Reliance' also support the rating.

* Large fibre and spectrum footprint
RJIL has a large, liberalised spectrum holding of 1,108 megahertz (MHz), which can be used for rolling out any technology without any 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, and license to offer new-age LTE services. The company has also deployed an extensive network of telecom towers and optical fibre network in the country. This, along with absence of any legacy technology results in better operating efficiencies.

* Strong traction in customer acquisition and leadership in mobile broadband subscriber base: The mobile broadband subscriber base in India aggregated 493.4 million in November 2018, of which RJIL has a leading market share of 55%. Overall, RJIL has increased its subscriber market share from 13% in November 2017 to 23% in November 2018, adding 119.4 million subscribers (around 10 million per month). RJIL has achieved leadership position in revenue market share across 11 circles till September 2018. The strong pace in customer acquisitions is expected to continue.

Weakness
* 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. There has been significant improvement in the overall clarity of regulations over the past few years, translating into an improved operating environment for the Indian telecom operators. However, 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 Indian telecom space has well-entrenched players such as Bharti Airtel Ltd ('CRISIL AA+/Negative/CRISIL A1+'), and Vodafone Idea Ltd ('CRISIL A+/Negative/CRISIL A1+'), from whom the company continues to face significant competitive pressures. These command a sizeable revenue share in the market, and have been in operation for more than a decade.
However, notwithstanding these constraints, RJIL has reported healthy operating profitability till now.  RJIL offers various plans focused on data consumption while voice calls are offered for free. In the second half of fiscal 2018, Reliance introduced its own brand feature-phone (JioPhone) bundled with monthly plans for a refundable deposit of Rs 1500 per unit. This has given the company entry into India's large feature phone segment and is expected to continue driving growth in customer base in the near to medium term.

Liquidity: Ample, supported by parent, RIL
RJIL draws support from its parent, RIL, which has an exceptional financial flexibility given its demonstrated ability in accessing capital markets, its large cash and liquid investments of Rs 76,740 crore as on September 30, 2018 and significant bank lines which remain minimally utilized.

RJIL has substantial debt obligations, with external debt of about Rs.84,455 crore as on September 30, 2018 which entails repayment of Rs 7,560 crore in the next twelve months. The future capex requirement is likely to reduce significantly owing to proposed demerger of the fiber and tower undertakings. While RJIL has reported healthy operating profitability in its first six quarters of commercial operations, CRISIL believes that RJIL will continue to benefit from its strong parentage in arranging funds for servicing debt on time, if required.

Outlook: Stable (on NCDs with guarantee from RIL)
The outlook is based on the 'Stable' outlook on the rating of the guarantor, RIL.

Outlook: Stable (on other NCDs)
CRISIL believes that RJIL will remain strategically important to RIL, which will continue to provide strong management and financial support to the subsidiary.

Downside scenario:
* Any change in CRISIL's outlook on RIL, or if its ownership falls below 51 per cent
* Weaker than expected operating profitability

About the Issuer:
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 easily upgraded to support even more data, as technologies advance on to 5G, 6G and beyond. The company has created an eco-system comprising network, devices, applications and content to provide seamless services.

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 56% of the revenue in fiscal 2018, followed by petrochemicals at around 23% (both before interparty transactions). In the recent past, RIL has diversified into newer businesses which includes digital services and organized retail.
Key Financial Indicators: Reliance Jio Infocomm Limited 
Particulars Unit 2018 2017
Revenue Rs. Cr. 20,154 0
Profit After Tax Rs. Cr. 723 -31
PAT Margins % 3.6% NM
Interest coverage Times 3.3 NM
Adjusted Debt/EBITDA Times 11.6 NM
NM: Not meaningful

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(SO)/Stable
INE110L08029 Debentures* 04-Oct-10 8.95% 04-Oct-20 1000 CRISIL AAA(SO)/Stable
INE110L08037 Debentures 16-Jun-14 9.25% 16-Jun-24 2500 CRISIL AAA/Stable
INE110L08045 Debentures 18-Nov-14 8.95% 18-Nov-19 500 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
INE110L07054 Debentures 29-Apr-16 8.10% 29-Apr-19 2250 CRISIL AAA/Stable
INE110L07062 Debentures 31-May-16 8.10% 31-May-19 750 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 30,000 CRISIL A1+
^Yet to be issued
*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)
INE110L07013 Debentures 31-Jul-15 8.55% 31-Jul-18 3500
INE110L07021 Debentures 03-Aug-15 8.40% 03-Aug-18 675
INE110L07039 Debentures 03-Aug-15 8.40% 03-Aug-18 325
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  30000.00  CRISIL A1+      30-10-18  CRISIL A1+  29-09-17  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  24500.00
31-01-19  		CRISIL AAA(SO)/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 
            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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