Reliance Retail Ventures likely to divest only 10-15% stake: Sources

Reliance Retail Ventures (RRVL), a subsidiary of Reliance Industries (RIL), is expected to divest only a small stake of 10-15 per cent in its retail holding company, the proceeds of which will be used to fund acquisitions such as the retail and wholesale business of Future Group and others.  As part of its initial and ongoing fund-raising exercise, RRVL has already divested 8.48 per cent stake to a bevy of private equity funds for Rs 37,710  crore.

The 10-15-per cent divestment, say sources, will not include strategic investors but only private equity (PE) and sovereign funds. The strategy, according to these sources, is clearly different from the massive fund-raising exercise it undertook in Jio Platforms, where it sold 32.97 per cent stake to a clutch of 13 investors for Rs 152,055 crore.

The large divestment was aimed at making RIL debt-free much earlier than its target of next March. RIL had a net debt of over Rs 160,000 crore.  

Sources say the group does not have any immediate requirement of huge cash and that the divestment in RRVL will help create a benchmark valuation. Based on current deals, this is a pre-money valuation of Rs 4.29 trillion.

The sale of the stake will also help raise funds for acquisitions such as the recent deal to buy out various companies in Future Group, for which Reliance has to spend around Rs 24,713 crore.

The same sources also point out that it’s unlikely that any strategic investor is bought in during this phase; the majority will be PE investors.  An RIL spokesperson, however, told Business Standard: “In light of the high incidence of speculative media queries and incorrect and ex parte articles relating to purported capital transactions in RIL or our group companies, we would like to reiterate that as a policy we do not comment on media speculation and rumours and we cannot confirm or deny any transaction, which may or may not be in the works.”

RIL’s acquisition of Future Group’s retail and wholesale business will help in increasing the valuation of its retail business. This is in the context of the firm making a big push to haul 30 million small retail shops (which includes about 6 million kiranas) into the organised sector by bringing them on to its JioMart e-commerce platform and transforming them into partners. The platform is starting its battle to take on Amazon and Flipkart.

Experts say the acquisition of Future Group’s retail business has saved Reliance the two to three years that building such a large chain itself would have demanded.  It is one of the reasons why the company is ready to pay a premium for the investment. If JioMart takes off in the e-commerce space, it will become even more valuable.  

The Future acquisition will give Reliance scale. At a macro level, with 12-per cent revenue share of the country’s modern retail market of over $102-billion in 2019, Future Group’s business will help Reliance increase its share to 16 per cent, according to Technopak.

The acquisition will also widen the gap in revenue with its competitors. The next three big retail chains are DMart, Tata Retail, and Kalyan Jewellers. These three have a combined revenue that will be nearly half that of the retail king. With the acquisition, Reliance is expected to be able to double its revenue from Rs 57,000 crore in 2016-17. It has substantial presence in the over $26-billion retail food and grocery business.