Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Strong market position

RRL continues to consolidate its position as India’s largest retailer by revenue, scale and profit. 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, augmenting the reach of its digital and new commerce platforms and enhancing product and service offerings. It is widely spread in tier-2 and tier-3 cities, with a network of 17,225 stores as on December 31, 2022.

RRL has successfully been able to ramp up JioMart, India’s largest hyperlocal platform operating over 268 cities. Through its new commerce initiative, RRL is linking producers with small merchants and consumers to create a win-win partnership model. The new commerce merchant partner footprint has been expanded to more than 300 cities for grocery and 3,500+ cities for fashion and lifestyle, leveraging its investments in sourcing, product design and development, supply chain and technology.

Healthy operating efficiency

Revenues at a consolidated level have grown at a healthy compound annual growth rate (CAGR) of over 42% between fiscals 2016 to 2022, driven by growth across all its consumption baskets – grocery, fashion, consumer electronics, pharma and connectivity. In fiscal 2021, the petro-retail business was transferred to a separate joint venture (JV) owned by RIL and BP Plc. 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.

The consolidated revenue from operations of RRVL during the quarter ended December 31, 2022 stood at Rs 60,096 crore, a growth of ~18.6% year-on-year. For the same comparative period, earnings before interest, tax, depreciation and amortization (Ebitda) from operations increased to Rs 4,657 crore from Rs 3,522 crore driven by favorable channel mix and operating efficiency.

RRVL has successfully been able to progressively improve its operating profitability, benefited by its integrated value chain that ensures seamless sourcing and distribution across demand markets through supply chain efficiency. RRL’s farm to fork model in grocery, fiber to wardrobe model for fashion and lifestyle and design to install/after sales service model in consumer electronics are fully integrated value chains, which ensure direct control over product quality with sourcing benefits and stronger consumer value proposition.

Strong financial risk profile

RRL has a strong financial risk profile, contributed by its healthy accruals and reflected in its comfortable debt protection indicators. RRVL at a consolidated level continues to have a strong liquidity position with cash and equivalents of over Rs 12,000 crore as on December 31, 2022. Moreover, liquidity is further supported by significant unutilized fund-based bank facilities and access to capital markets as an RIL group entity.

Strategic importance to the RIL group

Retail and Jio, the two large consumer businesses of RIL, are seen to be the major growth pillars of RIL, together contributing to nearly 43% and 42% of Ebitda in fiscals 2021 and 2022, respectively. Moreover, RRL shares several synergies with Reliance Jio Infocomm Ltd (RJIL; rated ‘CRISIL AAA/Stable/CRISIL A1+’), for which it is the master distributor of telecom services and fiber-to-the-home (FTTH) undertakings. RRL is responsible for serving customers for sales and service through its touch points of ‘Reliance Digital’ and ‘Jio Stores’ and tens of thousands of partner stores across the country.

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 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

RRL faces competition from other organized retailers, some of which have stores in catchment areas that overlap with its stores. Furthermore, with organized retail penetration in India being moderate at below 15%, players face intense competition from the unorganized segment, which operates in various addressable markets. However, India's unorganized retail sector is fragmented and plagued by operational inefficiency. Reliance Retail's New Commerce initiative connects millions of small kirana stores and merchants across India with suppliers, manufacturers, and brands. It enables businesses to become more efficient and offers them a compelling value proposition to grow their businesses and earnings and thus benefit all players in the retail value chain.