Reliance Industries’ retail arm, Reliance Retail, is now valued at nearly twice the amount of its decades-old and lucrative oil-to-chemical (O2C) division.
Bernstein’s latest report on the conglomerate reveals an estimated valuation of $112 billion for its retail business, dwarfing the $57 billion valuation of its O2C division. In addition, the research firm valued JioMart Platforms, the company’s e-commerce arm, at $77 billion and its nascent renewable energy business at $17 billion.
The report identifies numerous potential growth areas for the retail business, including the expansion of JioMart and new commerce, partnerships with local kirana stores, potential margin expansion from scale, and the anticipated initial public offering (IPO) of Reliance Retail.
Bernstein stated, “Reliance has been unlocking value across its diverse segments. RIL also bought out minority shareholders in Reliance Retail via a share buyback.” Furthermore, it reported expectations of a new investor buying a 1 per cent stake in the retail arm at a $100 billion valuation. In 2020, Reliance Retail Ventures (RRV) sold approximately 10 per cent of its stake to financial investors at a $55 billion valuation, signifying that the retail arm’s valuation has almost doubled since then.
Bernstein also forecasts an increase in Reliance’s Ebitda (earnings before interest, tax, depreciation, and amortisation), from Rs 1.5 trillion in FY23 to Rs 2.4 trillion in FY27. This increase is expected to be driven primarily by the growth in digital retail and new energy.
The report added, “We expect the earnings of the O2C division to remain stable, with refining and petrochemical margins regressing to the long-term average. We project that the retail segment’s Ebitda contribution will reach 17 per cent by FY27, expanding at a compound annual growth rate (CAGR) of 21 per cent, compared to the overall 13 per cent CAGR.”
Moreover, the Ebitda margin for the retail sector is expected to grow from 7 per cent in FY23 to 8.5 per cent in FY27, bolstered by the development of private labels and stronger overall growth.
The report also stated, “The telecom sector’s Ebitda contribution is expected to reach 38 per cent by FY27, with a CAGR of 16 per cent, compared to an overall 13 per cent CAGR. The Ebitda margin for telecom is projected to increase from 53.5 per cent in FY23 to 54.6 per cent in FY27, led by an increase in the mix of 4G users and higher average revenue per user (Arpu).”
In terms of capacity expansion, Bernstein projects that Reliance Retail’s expenditure will reach Rs 18,900 crore by FY27, constituting approximately 19 per cent of Reliance Industries’ overall capital expenditure (Capex). The firm expects this to moderate as store expansion slows down.
Moreover, the company’s overall annual Capex is anticipated to decrease from a peak of Rs 1.5 trillion in FY23 to around Rs 1 trillion by FY27, indicating a decline of 7 per cent CAGR.
As the largest organised retailer in India, Reliance Retail generates substantial revenues of $30 billion, approximately 2.5 times the combined scale of the next three largest Indian retailers.
Recently, Reliance Industries announced the cancellation and buyback of all minority shares of Reliance Retail for a price of Rs 1,360, effectively placing Reliance Retail’s valuation at about $148 billion. Upon the cancellation of these shares, Reliance Retail Ventures Limited (RRVL), which currently holds 99.93 per cent of Reliance Retail, will wholly own the retail business.