Jefferies Values Reliance Retail At $100 Billion
A sale sign at a Reliance Trends’ store. (Photo: BloombergQuint)

Jefferies Values Reliance Retail At $100 Billion

Billionaire Mukesh Ambani’s retail unit is already worth at least $100 billion, according to Jefferies, as the Asia’s richest man continues to build a tech behemoth.

Of the overall valuation of Reliance Retail Ltd., $71 billion is contributed by core retail business, $4 billion by the connectivity or Jio stores, and $19 billion comes from the new e-commerce business, Jefferies said in its report. The rest comes from cash in hand.

The valuations are based on estimated revenue and operating income in the next few years. Under a blue-sky scenario, Jefferies values the e-commerce business at $50 billion, taking Reliance Retail's overall valuation to $132 billion.

Jefferies has valued the retail unit at much higher than $70 billion at which Ambani raised nearly $7 billion by selling 10.1% stake in the business. That fundraise replicated the success of $20-billion mopped by by digital and telecom venture Jio Platforms Ltd. Ambani is combining content, carriage and commerce to create a technology giant as it seeks to dominate India’s growing digital economy estimated to be worth $1 trillion by 2025.

Jefferies has valued:

  • The core retail business at 32 times the estimated operating income for fiscal 2023.

  • Connectivity at 12 times its Ebitda. (There's no comparable peer for the master franchise for Jio outlets).

  • The new e-commerce business is split into: 10.5 times the FY25 estimated gross merchandise value for consumer-focused online retail; and 1.2 times the GMV of business-to-business segment. These were discounted to calculate the one-year forward value of $19 billion.

The company has 12,200 outlets, including Jio connectivity stores, spread across 7,000 centres with a total 31 million square feet space. Reliance Retail has more than 3,500 outlets with an area of 30 million sqft, selling grocery, fashion, and electronics products

The company has grown its retail space at more than 25% compounded rate annually in three years through March 2020, according to Jefferies. “We expect ~15% CAGR to continue in the medium term, despite a large store base.”

E-commerce New Growth Driver

Reliance Retail now sells grocery online in 200 cities, supported by a physical store network, as it looks to tap a market worth $40 billion as of FY21.

Reliance Retail plans to connect neighbourhood kirana stores with consumers and is looking to expand beyond grocery. Jefferies expects Reliance Retail’s share in online market to touch double digits by FY25.

The company, according to the research firm, has a share of 13% in the organised retail market. Jefferies estimates:

  • India’s organised retail market to grow at a 16% CAGR in dollar terms in the next five years, faster than the 5% for overall retail.

  • That pace will help it doubling to more $215 billion during the period.

  • Of the $115 billion added, e-commerce will contribute more than 70%.

  • E-commerce to grow about 30% CAGR over the next five years.

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