After Reliance Industries Ltd (RIL) raised a record ₹1.5 trillion from the sale of stakes in Jio Platforms Ltd (JPL), expectations have been high regarding the sale of stakes in the group’s retail company. “In our opinion, the share price (RIL) at the current level of ₹2,100 are likely to be worth between $ 75 and $ 80 billion for Reliance Retail, “analysts at JP Morgan said in a report on Sept. 9, ahead of the deal’s announcement.
However, it turns out that technology-focused private equity investor Silver Lake has valued Reliance Retail Ventures Ltd (RRVL) at a much lower $ 57 billion.
“Using the valuation of this retail deal ($ 57 billion), recent deal at Jio Platforms (~ $ 65 billion EV), and proposed Saudi Aramco deal ($ 75 billion EV) and adjusting the minority interest in Jio (33.5%) and retail (5.6%) gives us an equity value of US $ 174,000 million. This is very close to the current market capitalization, “CLSA analysts noted in a September 9 report.
See full image
RIL, in fact, enjoys a market capitalization of approximately $ 186 billion, excluding the value of treasury shares. The stock appears to be ahead of itself, with analysts struggling to account for the deficit and somehow justify the stock’s high valuations.
The alternative is the so-called optionality of RIL’s technology businesses like JioMart and a highly anticipated super application. JP Morgan analysts now value this option as high as $ 60 billion. However, these businesses are already hosted on RRVL and Jio Platforms respectively and the valuations of the two firms already capture this optionality.
In fact, Jio Platforms was valued at much higher multiples than its peers like Bharti Airtel Ltd and the reason given for this was that investors attributed the difference to the option value of the Jio super app. However, the fact that the JioMart option didn’t add much value to Reliance Retail is a huge disappointment.
Liquidity-filled stock market investors may conclude that private market investors such as Silver Lake have not fully appreciated the enormous value that e-commerce businesses can generate. That’s a reckless assumption, given that large private equity investors have access to better investment tools and more information.
Another hope is that the Silver Lake transaction will be followed by a strategic investment announcement. “We believe the key will be whether Reliance Retail can attract strategic investors (global retailers and e-commerce companies competing with Reliance Retail in India), which could drive a new rating based on expectations of reduced competition for Reliance Retail.” . JP Morgan analysts said.
It remains to be seen whether these expectations are met or not. For now, the wave of fundraising at RIL puts it in a strong position against the competition in the telecom, retail and e-commerce segments.
100325
listElement-graph-11599640596270-100325
.
