Amid IPO frenzy, Reliance plans public listing of retail, O2C businesses

Depending on the investors' appetite, at least one will be launched in the current financial year, a banker close to the development says

In order to take advantage of the initial public offer (IPO) frenzy in the market, Reliance Industries Limited (RIL) is preparing to launch IPOs of its retail and oil-to-chemicals (O2C) businesses. At least one of the IPOs will hit the market in the current financial year, said a banker close to the development.

Mukesh Ambani, Chairman of Reliance Industries, had earlier indicated potential listing of its telecom arm, Reliance Jio in the annual general meeting with shareholders in order to unlock value in RIL's various businesses.

When contacted, RIL spokesperson did not indicate any timeline for the share sale of any group companies. 

But a banker said talks are currently on to launch retail and telecom arm IPOs and depending on the investors' appetite, at least one will be launched before current fiscal ends. "After retail and Jio received record investments in the last one year, there is a huge demand from other investors to participate in the growth stories," said a banker who did not wished to be identified.

Reliance has already initiated the process to spinoff the O2C business into a wholly owned independent subsidiary. The key assets in the spinoff include all RIL's refining and petrochemical plants, fuels retail marketing JV in which RIL owns 51 per cent stake while BP owns the rest and other midstream businesses 

In order to get investors, the reorganisation plan of O2C business was filed with the NCLT on February 3 and approval is expected before September this year. Bankers said Reliance will hold meetings with shareholders and creditors to seek their approvals for the separation.

"We believe the separation is also a move towards potential IPO when market condition improves," said a banker.

In 2019, Reliance had signed a non-binding agreement to sell  20 per cent of its downstream business to Saudi Aramco for US$15 billion at a gross valuation of US$75 billion. While the deal was deferred, the  reorganization reflects Reliance position to restart discussions with Aramco and potentially seek other investors. 

"We remain optimistic that a deal will come together with Aramco albeit at a lower  valuation which we estimate at US$69 billion gross. For Aramco, the deal would give the company direct access to the fastest  growing refined oil product market over the next 20 years. For Reliance, the deal provides funding for expansion  while providing opportunity to expand downstream capacity with an experienced partner," global financial firm, Bernstein said.

On Reliance Retail, bankers expect gross revenues to grow by 22 per cent in financial year 2022 after a 3 per cent decline in FY21. Among segments, fashion and lifestyle is expected to grow 50 per cent over last year while grocery will grow by 26 per cent on a year on year basis. The consumer electronics will  grow by 10 per cent in the current fiscal. 

But due to Covid second restrictions, analysts are expecting June quarter revenues to decline by 16 per cent on a sequential basis. 

The core revenues may decline by 35 per cent quarter-on-quarter due to lower footfalls as only 44 per cent of the stores were operational, with footfalls at 35-40 per cent compared to pre-Covid levels in April this year.

The valuation for RIL's 85 per cent stake in Reliance Retail is pegged at $81 billion by Bernstein, while it pegged the enterprise value of Jio Platforms at $90 billion. RIL owns 66.5 per cent stake in Jio. Bankers said this will be the basis of the potential IPOs.