Qatar Investment Authority’s decision to acquire nearly one percent of Reliance Retail Ventures Ltd affirms RRVL’s robust valuation, according to analysts.
Welcoming Qatar’s investment of Rs 8,278 crore in the retail arm of Reliance Industries Ltd for a 0.99 percent stake, analysts from Motilal Oswal said the deal has to be seen in the context of the strong growth seen in the retailer’s numbers every year. Reliance Retail, a subsidiary of Reliance Industries Ltd, is India’s largest offline retailer, and operates around 18,500 stores selling grocery, consumer electronics, fashion & lifestyle, and pharmaceuticals.
"Reliance Retail Ventures Limited (RRVL) is expected to grow quite a bit,” said Motilal Oswal. “We expect their earnings and profits to increase by about 25% and 34% each year, which would make their total revenue around INR 4.1 trillion and their profits around INR 320 billion by the year 2025."
This investment is set at a pre-money equity valuation of Rs 8.3 trillion or about $100 billion. Adding the net debt of Rs 332 billion in FY25, the RRVL’s enterprise value stands at Rs 8.6 trillion and equity per share value stands at at Rs 1,200. This is almost half of Reliance Industries’ own equity share price of Rs 2,523.
The current valuation is nearly double compared to what RIL was able to get when it sold 10.09 percent of the retail arm to a group of foreign investors three years ago.
“The valuation aligns with prior transactions, hovering around 27x EV/EBITDA based on a 2-year forward,” said the broker.
It pointed out that the retail unit’s EBITDA has doubled in the last three years to Rs 17,900 cr in FY23.
Motilal Oswal said it its own estimate for the company’s valuation is Rs 11.7 trillion rupees, based on an EV/EBITDA multiple of 37 times on a two-year forward basis. This has led it to arrive at an equity valuation of Rs 1,670 for Reliance Retail – higher than the valuation of Rs 1,485 for Reliance Industries.
Slight decrease in RIL’s ownership:
With Qatar's investment in RRVL increasing its stake by 0.99%, Reliance Industries Limited ownership in RRVL has decreased to 88.9% from 89.9%.
This resulted in a slight reduction in RRVL’s value within RIL, which is now worth around Rs 1,485 per share instead of Rs 1,500. “It will be interesting to see how both companies handle these shifts and what it means for their future plans," the report added.
In FY23, the company's revenue to EBITDA ratio was INR 2.6 trillion to Rs 179 billion.
“Looking ahead, there's an expectation that the company will achieve a compound annual growth rate (CAGR) of 25% for revenue and 34% for EBITDA from FY23 to FY25. This growth trajectory is projected to lead to figures of Rs 4.1 trillion for revenue and Rs 320 billion for EBITDA by FY25,” it noted
Besides retailing, RRVL is also present in petro retail and connectivity businesses, catering to RJio’s customer base.
In addition to Reliance Retail, RRVL has other subsidiaries and joint ventures such as Reliance Brands and Marks & Spencer, which oversee the remaining apparel and other retail operations.