THE RISE & RISE OF RELIANCE RETAIL

Reliance Industries reported its Q1FY19 Results on Jul 27, 2018. As the street braced itself for strong performances in Petchem and Reliance Jio, one can’t help but marvel at the giant leaps that RIL’s retail division has been taking. Reliance Industries’ retail vertical houses the grocery stores - Reliance Fresh, Reliance Smart, Reliance Market, etc. It also comprises of Fashion & Lifestyle stores like Trends, Footprint, Jewels, AJIO and stores such as Reliance Digital & Jio Digital Life that specialize in selling Consumer Electronics. That’s not all. The organized retail vertical of Reliance also has the Fuel Retail (Petrol Pump) division, Connectivity (Jio Selling Points) and many exclusive brand partners such as Superdry, Muji, Brooks Brothers, Ermenegildo Zegna, Diesel, Gas, Hamleys etc which marks the Reliance Presence across all value chains and product verticals.

The Businesses

Grocery: Reliance Fresh, Reliance Smart, Reliance Market, Smart.In

Fashion & Lifestyle: Trends, Footprint, Jewels, AJIO

Consumer Electronics: Reliance Digital, Jio Digital Life, Reliance ResQ

Brand Partners: Superdry, Muji, Brooks Brothers, Ermenegildo Zegna, Diesel, Gas, Hamleys etc

Source: Company

Reliance Industries has a reputation for achieving rapid growth, disruption & scale in all its new business ventures. After an unsuccessful foray in the retail business in the earlier part of the millennium, Reliance’s famed growth finally seems to have come. Between FY14 and FY18, Reliance Retail’s revenue has compounded at 37%

Reliance Retail

Annual Revenue Trend

FY13     10845 Cr

FY14      14556 Cr

FY15       17640 Cr

FY16       21612 Cr

FY17       33765 Cr

FY18       69108 Cr

Source: Company

Over the last 3 years, the introduction of Reliance Jio and inclusion of Jio Sim sales under organized retail have further boosted Reliance Retail’s Revenue & Operating Profit. Between FY16 and FY18, Reliance Retail’s Revenue has trebled and the operating profit has quadrupled.

Reliance Retail

Annual EBIT Trend

FY15       417 Cr

FY16       506 Cr

FY17       784 Cr

FY18       2064 Cr

Source: Company

Organized Retail Revenue Mix

47% = Fuel Retail & Connectivity (Other Retail)

53% = Grocery, Fashion & Consumer Electronics (Core Retail)

Source: Company, Brokerage Reports

Reliance Retail accelerated its retail revenue and EBIT in Q1FY19 as well. In the first quarter of the current fiscal, Reliance Retail revenue grew 124% and operating profit grew 266%. The company also expanded its retail space by 0.9 mn sq ft to an aggregate of 18.6 mn sq.ft. Total Stores as of Jun 30, 2018 Stand at 8533 which includes 4530 Jio points.

Number of Stores

FY14       1691

FY15        2621

FY16        3245

FY17        3616

FY18        7573

Q1FY19   8533

Source: Company

Quarterly Revenue Trend

Q1FY17                 6666 Cr

Q2FY17                 8079 Cr

Q3FY17                 8688 Cr

Q4FY17                 10332 Cr

Q1FY18                 11571 Cr

Q2FY18                 14646 Cr

Q3FY18                 18798 Cr

Q4FY18                 24183 Cr

Q1FY19                 25890 Cr

Source: Company

Quarterly EBIT Trend

Q1FY17                 148 Cr

Q2FY17                 162 Cr

Q3FY17                 231 Cr

Q4FY17                 243 Cr

Q1FY18                 292 Cr

Q2FY18                 334 Cr

Q3FY18                 487 Cr

Q4FY18                 951 Cr

Q1FY19                 1069 Cr

Source: Company

When compared to its peers, Reliance Retail’s turnover and retail reach stands head and shoulders above industry. For perspective, Reliance Retail reported Q1 Revenue of 25890 Cr which is roughly equivalent to the combined annual revenue of Future Retail, Future Lifestyle and Shoppers’ Stop. Even if one adjusts for half of Reliance Retail’s reported revenue as Fuel Retail & Jio Sales, Reliance Retail’s core revenue of ~13000 Cr in Q1FY19 almost as much as Aditya Birla Fashion, Trent and Shoppers’ Stop annual revenues put together. In fact, even from a number of stores standpoint, Reliance Retail’s ~4000 outlets are as much as all outlets of Future Retail, Aditya Birla Fashion, Future Retail, Shoppers’ Stop, VMART and D-Mart stores combined.

RELIANCE RETAIL v/s PEERS

		(` Cr)	Margins
Reliance Retail (Core)		36,627	6.0%
Future Retail		18,478	4.5%
D Mart		15,033	9.0%
ABFRL		7,172	6.5%
Future Lifestyle		4,498	9.1%
Shoppers' Stop		3,697	5.7%
Trent		2,157	9.3%
VMART		1,222	10.9%

Source: Company, Brokerage Reports

RELIANCE RETAIL v/s PEERS	No of Stores (000)
Reliance Retail (Core)	4
ABFRL	2.5
Future Retail	1.1
Future Lifestyle	0.35
Shoppers' Stop	0.25
VMART	0.18
D Mart	0.16

Source: Company, Brokerage Reports

The most important question however, is what value does one ascribe to Reliance Retail? A range of estimates by analysts on the basis of FY20 estimates suggest, Reliance Retail could be worth anywhere b/w $15-20Bn depending on the multiple one assigns to it.

Reliance Retail FY20 Revenue Estimates

Jefferies                               111500 Cr

Morgan Stanley                   115000 Cr

CLSA                                  116900 Cr

Source: Brokerage Reports

Valuing Reliance Retail

EV/Sales        Value

0.8                    88000 Cr

0.9                    99000 Cr

1.0                  110000 Cr

1.1                  121000 Cr

1.2                  132000 Cr

1.3                  143000 Cr

FY20 EV/Sales

Source: Brokerage Reports

Much Love.

M

Disclosure: Reliance Ind is the owner of Independent Media Trust, the owner Tv18 Broadcast, the company I work for.

PS:Don't treat any of these as investment ideas; I personally Don't Invest/Trade.

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