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adia: ADIA looks to put $600 million into RIL’s retail business


After Qatar, yet another oil-rich Gulf sovereign fund, Abu Dhabi Investment Authority (ADIA), is looking to buy an additional stake in Mukesh Ambani’s sprawling retail empire. ADIA is seeking to invest $600 million into the organized retailing business of Asia’s richest person, people aware of the developments told ET, at valuations that significantly exceed those during an earlier concluded round three years ago.

ADIA is already an investor in Reliance Retail Ventures (RRVL), having bought a 1.2% stake for Rs 5,512.50 crore ($751 million) in October 2020, when the company raised Rs Rs 47,265 crore by selling 10.09% stake to a clutch of bulge-bracket investors that included Saudi PIF, Mubadala, GIC of Singapore, Silverlake, TPG and GA.

From the previous bunch of investors, KKR has already made a follow-on investment of Rs 2,069.50 crore at a pre-money equity value of Rs 8.361 lakh crore ($100 billion), making RRVL among the top four companies by implied market capitalization in the country.

Thus far, Qatar’s $1-billion infusion has been the only fresh investment in the current round of fund raise.

The current valuation is almost at a 60% premium to the last financing round three years ago, but is much lower than what most equity analysts perceive the value of the privately held retail business to be. Analysts in AllianceBernstein in May had recommended a $131-billion valuation for Reliance Retail.

Premium valuations
“This further cements the strategic relations between the two companies on the back of a strong government relationship between the two sovereigns,” said an official on the condition of anonymity as the talks are in private domain. “ADIA is a major investor in Indian equities, infrastructure and financial services, but it is not often that it doubles down – especially at such premium valuations.”

Interestingly, Reliance Industries itself valued RRVL at $148 billion when it decided early July to buy out minority shareholders and employee stock option holders that collectively owned 0.09% at a 60% premium to the $93 billion and $97 billion valuations determined, respectively, by two independent valuers – Ernst & Young Merchant Banking Services and BDO Valuation Advisory.

RRVL owns a 99.91% stake in Reliance Retail Limited. It intends to get back the remaining shares at Rs 1,362 per unit, a 60% premium to the valuation given by EY and BDO. This premium would value Reliance Retail Limited at as high as $148 billion.

A formal announcement is due in the coming days.

ADIA and Reliance Retail declined to comment.


Dwarfs target, Midea
At a $100-billion valuation, Reliance Retail is the 12th largest retail giant on the planet – ahead of, Target, Midea and Lululemon. Amazon, LVMH, Walmart, Home Depot and Alibaba are the top five in terms of market value, as per Bloomberg data.

Even though Mukesh Ambani, Chairman, Reliance Industries, did not publicly give any figures, he had told shareholders during the recent annual general meeting that “several marque investors have shown interest in Reliance Retail.” Recent media reports suggest Reliance is looking to raise anywhere between $1.5 and $4 billion in a fund raise that many see as a valuation benchmark-setting exercise before an eventual listing.

Ambani had said during the company’s 2019 annual general meeting that the retail business would be listed within the next five years. ET in its August 25 edition reported the company planned to dilute another 8-10%.

Reliance Retail posted an annual revenue of Rs 2,60,364 crore in FY23, registering a year-on-year growth of 30% and an EBITDA of Rs 17,928 crore and a net profit of Rs 9,181 crore. Half the revenues come from grocery. However, the gross debt of the business has also gone up significantly as the retail arm is fast expanding into newer categories and formats, while the company is also making a foray into the FMCG business.

Gross debt for Reliance Retail standalone business as of FY23 end was reported at Rs 70,937.72 crore, up from Rs 40,756.44 crore at FY22 end. Net debt to EBITDA was 4X. The management expects Reliance Retail to be its fastest growing business in revenue and EBITDA.

Jio Mart, Reliance Digital
Reliance Retail houses Reliance Industries’ core retail businesses, including Reliance Digital, Jio Mart and more than 18,00 brick-and-mortar stores. The current 65 million square feet store footprint is expected to reach 100 million sq ft in the next 3-5 years. It also has a warehouse capacity of 50 million square foot. Two thirds of these stores are in Tier II, Tier III cities and smaller towns.

Reliance Retail is fully owned by RRVL, which also has other retail operations such as international partnerships and fast-moving consumer goods business. Reliance Industries, in turn, owns 85% of RRVL.

“We expect continued market share gains for Retail, which we expect to grow from circa 11% in 3QFY23 to 24% by FY26E,” Nikhil Bhandari of Goldman Sachs said in a recent report.

Reliance also launched its FMCG foray playing on the price factor acquiring and partnering with several legacy and regional brands — Campa Cola, Sosyo, and Lotus. Partnerships include those with General Mills and Maliban. The plan is to scale it up further in India as well as tap global markets starting with Asia and Africa.

CLSA calculations showed the capex in Reliance’s retail business rose to $6 billion in FY23 and investments from funds like QIA will help fund future capex and keep debt in retail under control. Several Reliance group watchers argue that the company is still in its “investment phase” and would likely continue to have high capex and return on equity/return on invested capital.

The company has, therefore, moved a third of the total capex (related to warehousing) into an InVIT but investments in store fronts and technology would continue.


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