Titan and DMart’s performance hints towards a strong growth for Reliance Retail

• The recent data points from DMart (Avenue Supermarts) and Titan highlight sales improvement, says Morgan Stanley.
• Given the diverse presence of Reliance Retail’s business, the company has been valued at $90 billion.
• Analysts expect Reliance Retail’s EBITDA margins to rise nearly 1.4 times, but revenue to remain below January-March quarter of 2021.

Reliance Industries is expected to showcase a positive business growth in the July to September quarter, majorly relying on its oil-to-chemical and telecom businesses. The Indian conglomerate’s retail business is expected to fare well too, especially given the performance of competitors DMart and Titan between July and September.

According to a Morgan Stanley report, the recent data points from DMart (Avenue Supermarts) and Titan highlight sales improvement. This is “pointing to a strong outlook for Reliance Industries Limited (RIL) in our view,” the financial services company noted.

Though Titan is yet to announce its quarterly financials, the company has noted that its sales figures are moving “swiftly above or close” to the pre-pandemic levels.

DMart, on the other hand, reported its highest ever quarterly revenue of ₹7,788.9 crore.

Reliance Retail — which has partnerships with global brands like Burberry, Hamleys, Marks & Spencer, Paul Smith, Tiffany & Co and others — has a much more diverse presence compared to any of its peers. On this basis, JP Morgan has valued Reliance Retail at $90 billion.

The analysts believe that JioMart’s expansion would continue to support Reliance Retail’s stock. It has been valued at $23 billion, which makes it the highest valued online groceries platform and the third highest valued ecommerce platform in India after Amazon and Flipkart.

Reliance Retail has potential for better growth

Retail is expected to have a significant contribution to Reliance’s numbers, but it is going to be a lot less when compared to its oil-to-chemical and telecom businesses.

Morgan Stanley expects Reliance Retail’s EBITDA (earnings before interest, taxes, depreciation, and amortisation) margins to rise nearly 1.4 times, particularly due to fashion and electronics sales recovery. A Jefferies report has also echoed similar opinion, adding that Reliance’s focus on opening up more stores as well as customers' growing footfall will benefit the retail giant.

Vertical	EBITDA September 2020	EBITDA September 2021 estimates
Oil-to-chemical	₹128,555 crore	₹88,410 crore
Retail	₹20,060 crore	₹32,611 crore
Telecom	₹75,040 crore	₹90,283 crore

Source: Morgan Stanley

The financial services company estimates that Reliance Retail’s revenues will rise 43% in the September quarter compared to April-June. However, it will continue to be 4% lower than the pre-second Covid wave run rate of January to March 2021.

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