Reliance Retail’s contribution to RIL as Mukesh Ambani preps for fundraising will be key— aside from the oil shock
Screenshot of RIL AGM
- Reliance Retail is also poised to raise money from investors in a Jio-like format, and its earnings will set the ball rolling for many conversations.
- Retail made for a quarter of RIL’s revenue last year and it may get bigger— partly, due to the oil shock and partly, due to the efforts to increase focus on consumer businesses.
- While competing with the likes of Amazon and Walmart, Reliance Retail has to show that it could thrive during the pandemic and the resulting lockdown.
AdvertisementMukesh Ambani’s Reliance Industries (RIL) — with its businesses ranging from refining and petrochemicals to retail, media and telecom— has seen a bustling quarter. There is a lot of intrigue around the company and many of its plans including the proposed acquisition of rival retail Big Bazaar, the planned fundraising, as well as the progress of the e-commerce venture aside from oil slipping into negative for a short while during the last quarter.
The digital business under Reliance Jio has already raised over $20 billion, while RIL has crossed a market cap of $150 billion, giving chairman Mukesh Ambani a seat with the top 5 richest people in the world.
Aside from the impact of the crash in crude oil prices, one of the important things to watch out for will be the resilience of Reliance Retail — which makes for nearly a quarter of RIL’s revenue — to the lockdown. This stress test will decide the valuation it gets when Ambani goes to raise money from investors soon.
Jio‘s telecom business continued unaffected by the lockdown, refining and petrochemicals are mostly exported, exploration and fuel retail are relatively small segments for RIL. Retail — with over 11,784 stores covering 28.7 million square feet — contributed 24% to Reliance Industries’ total FY20 revenue, and is set to get bigger. Partly, due to the oil shock and partly, due to the efforts to increase focus on consumer businesses.
Ambani expects his consumer businesses, Reliance Retail and Reliance Jio, to make up for a large chunk of Reliance’s revenue over the next few years. And he expects most of the surge from e-commerce via JioMart.
The street is gung ho about Reliance Retail’s long-term potential but the competition is tight
Capital markets firm CLSA has valued Reliance Retail at $70 billion and said that it could go up to $110 billion in the next five years. According to a Goldman Sachs report, JioMart is poised to sell half of all online grocery in India, which is expected to see 5 million orders every day by 2024.
However, the space that Reliance Retail is going to compete in is rife with competition from some of the biggest players in the world. That includes Amazon, Walmart via its subsidiary Flipkart, and even Softbank-backed Paytm which is, although, a relatively small player so far.
Ambani may be the biggest and the strongest player in India’s physical retail already. For the last quarter of FY20, Reliance Retail, which has over 125 million registered customers, posted an operating profit of ₹2,062 crore ($xx million).
However, to be able to take on the might of Jeff Bezos and the experience of Walmart, he has to show that the company was able to thrive under the stress imposed by the pandemic and the subsequent lockdown.
Ambani had pivoted to online commerce long before the lockdown
Ambani had turned aggressive with the e-commerce venture, JioMart, the pilot for which began in December 2019. An important part of Facebook’s $5.7 billion investment in Jio is the partnership with the popular messaging platform WhatsApp, which could potentially bring a big chunk of its 400 million users to Ambani’s retail venture.
In return, WhatsApp Pay’s possible integration with JioMart will give Facebook the much needed kickoff for its payments feature.
Reliance had said that in the first few days of lockdown, until the end of March, daily orders of JioMart grew by four times. The earnings report on July 30 will show if this scaled up further and by how much.
The physical stores like Reliance Fresh, Reliance Trends, and Reliance Digital would be the worst hit by the lockdown
The physical outlets were doing well until the lockdown. The company said that during March, grocery stores recorded their highest ever sales surpassing the Diwali month performance despite logistical challenges. Food and grocery contribute to 21% of Reliance Retail’s total revenue.
Eliminating competition would be one way to thrive. For over a month now, talks have been going on for Reliance’s acquisition of Kishore Biyani’s Future Retail. According to reports, Reliance could shell out as much as ₹27,000 crores to buy out Future Retail, which owns the chain of Big Bazaar stores.
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Meanwhile, reports also speculate that Amazon, which already has a stake in Future Retail, could end up with an investment in Reliance Retail for a 9.9% stake.
But that’s not it. Its subsidiary company Reliance Brands is also set to acquire lingerie retail startup Zivame. According to an ET report, Reliance Brands has already bought out Ronnie Screwvala’s 15% stake in Zivame.
Reliance Retail is aligned for the next investment raise
After Jio’s big-ticket fundraising that has caught the market’s fancy, the next round of unlocking potential value is likely to come from the retail vertical, which is also headed for an initial public offering (IPO) soon.
Ambani in his speech during Reliance’s Annual General Meet had mentioned that talks are on with potential investors for retail. All of this, the performance, the plan and the execution, will decide how much the investors are willing to pay for the stake.
Reliance is building up it’s retail empire – ahead of Future deal, Reliance Brands adds Zivame in its cart
Mukesh Ambani’s next goal seems to be the ‘retail king of India’
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