At $112 bn, Reliance Retail value may be almost double RIL's O2C business

Reliance Industries’ (RIL’s) 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 projects a valuation of $112 billion for its retail business, dwarfing the $57 billion valuation of its O2C division.

In addition, the research firm valued Jio Platforms, the company’s telecom arm, at $77 billion and the renewable energy business at $17 billion.

The report identified multiple opportunities for the retail business, including 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.

The brokerage said: “Reliance has been unlocking value across segments. RIL bought out minority shareholders in Reliance Retail (RR) with a share buyback.”

It also pointed to reports that a new investor is expected to buy 1 per cent stake in RIL’s retail arm at a $100-billion valuation.

Reliance Retail Ventures (RRV) had sold a 10 per cent stake to financial investors in 2020 at a valuation of $55 billion.

Since then, the retail arm's valuation has almost doubled. Bernstein also expects 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 is likely to be driven primarily by growth in digital retail and new energy.

The report said: “We expect O2C earnings to remain stable, with refining and petchem margins regressing to the longer term average. We expect retail Ebitda mix to reach 17 per cent by FY27, growing at an Ebitda CAGR (compound annual growth rate) of 21 per cent (vs overall 13 per cent CAGR).”

It also said that the Ebitda margin expansion for retail from 7 per cent in FY23 to 8.5 per cent in FY27 shall be driven by private labels and stronger growth.

“The mix of telecom Ebitda reaches 38 per cent by FY27, growing at an Ebitda CAGR of 16 per cent (vs overall +13 per cent CAGR).

"The Ebitda margin expands for telecom from 53.5 per cent in FY23 to 54.6 per cent in FY27, led by an increase in mix of 4G users & higher ARPU/monetisation,” the brokerage said.

In terms of capacity expansion, Bernstein projects that RIL’s retail expenditure will reach Rs 18,900 crore by FY27, constituting approximately 19 per cent of the conglomerate’s overall capital expenditure (capex).

It expects this to moderate as store expansion slows down.

Bernstein also said that the overall annual capex is expected to start falling from a peak of Rs 1.5 trillion in FY23 to around Rs 1 trillion by FY27 (a capex decline of 7 per cent CAGR).

Reliance Retail is the largest organised retailer in the country and its revenues of $30 billion are around 2.5x the combined scale of the next three Indian retailers.

“(Reliance Retail) market leadership is driven by expanding store network (1.5x over the past two years), acquiring new brands ($1.2 billion investments), & e-commerce/new commerce (18 per cent mix). Growth has been robust (20 per cent YoY) in line with peers with healthy margins of 7.7 per cent,” the report added.