MUMBAI: If Facebook and Google bought stakes in Jio Platforms Ltd, who would likely be a worthy suitor for Reliance Retail Ltd. A report in The Morning Context suggests that Walmart is the leading candidate. Whether this is true or not, Reliance Retail is clearly gearing up for a big sale.
Reliance Retail is already the largest retail company in India. His plan to acquire a majority stake in the Future Group companies adds enormous scale to his business.
According to CLSA analysts, the agreement would help Reliance Retail expand its retail presence and warehousing area by more than 80%. “This will also add 4.1% to Reliance’s market share in organized retail and bring it to 17.8%,” the analysts added in an Aug. 31 report.
Storage capacity is also a key driver for the new business and will help sell investors the profit dream for the new company JioMart, which is located in Reliance Retail. “Market share gains will only make him a much stronger force and he could be a key driver of Reliance’s new business momentum (JioMart) in the long term.”
Reliance Group’s dominance is reaching levels where analysts are beginning to believe that some competitors may be better collaborating than competing. “If completed, the potential transaction would also reduce the number of potential avenues that competitors (especially Amazon and Walmart) would have to bolster their physical presence in Indian retail, to strengthen their online business,” said Goldman Sachs analysts. .
Note that Amazon had the advantage of being the first to move, having acquired a minority stake in a Future Group company. But foreign ownership rules in the retail business meant there was no chance for him to increase his ownership, despite the problems of Future Group’s developers.
Reliance Retail is valued at ₹4.5 trillion, in sum of parts valuation of Reliance Industries Ltd, on the books of Kotak Institutional Equities and JP Morgan. This is a bit shy of the assessment ( ₹4.62 billion) in which the sale of Jio Platforms stake to Facebook and Google took place. If a large multinational like Walmart is tagged, Reliance Retail should be able to attract a higher valuation from private equity firms.
Remember that RIL had raised Rs 1.5 trillion through the sale of stakes in its digital services company, Jio Platforms.
The deal is certainly not without risk.
“Beyond the numbers, Future Retail’s ongoing inventory problem (high inventory days around 100) is in our opinion a clear reflection of store formats and products that just don’t work,” said Macquarie analysts. in a report on Aug. 31. They added: “For this transaction to generate value, RIL will likely need to reconfigure these stores and figure out how to meaningfully fix Future Retail’s inventory problem – given the scale involved (23 million square feet), this is a long way off. to be given.
However, for now, the focus is clearly on scale and dominance. The fact that Reliance Industries shares are trading near all-time highs shows that investors are salivating at the prospect of another large stake sale in a subsidiary.
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