ICRA has assigned 'AAA' rating to Rs 100 billion Non Convertible Debentures of Reliance Jio Infocomm (RJIL). The outlook on the rating is stable.
The rating primarily reflects the strong managerial and financial support that RJIL derives from its parent Reliance Industries (RIL), (rated A1+ and Baa2 by Moody's) which holds 95% equity stake in the company, and the strategic importance of the telecom business for RIL.
The same is also substantiated by RIL's demonstrated support to RJIL in terms of sizeable capital contribution as well as its stated intent to support the company's operations and its debt obligations. Also, senior level executives of RIL are present in RJIL's board, and both the companies have a common chairman. The rating also factors in the expectation that the project cost for rolling out telecom services would be prudently funded using a combination of promoter contribution and debt, keeping reliance on debt limited.
RJIL has recently been awarded an Unified License which allows it to offer both voice and data services through its pan India 2300 MHz and recently acquired 1800MHz (in 14 telecom circles) spectrum. In addition, the company envisages introducing newer technologies including Long Term Evolution (LTE) to offer high speed broadband, voice/non-voice, and other communication services.
Further, the company has entered into comprehensive infrastructure sharing agreements with other leading telecom service providers (telcos) including Reliance Communications and Bharti Airtel. This helps the company limit its upfront capex commitments and expedite network rollout.
Notwithstanding the above strengths, ICRA notes that RJIL faces considerable project execution and technology risks in its telecom venture, which includes rollout of telecom services, development of requisite ecosystem and gaining the required market share. The established track record of the parent in executing complex and long gestation projects without material time and cost overruns, though, is a mitigating factor.
Also the demand for next generation services including 4G offerings is yet to be established especially viewed in light of the fact that the 3G services launched few years back are yet to pick up to the extent that the telcos would have envisaged. Apart from these, the company would face competitive pressures from other established telcos in the industry which may impact its profitability and elongate payback period.
Shares of the company gained Rs 7, or 0.8%, to settle at Rs 886.10. The total volume of shares traded was 240,017 at the BSE (Friday).
