Qatar sovereign fund in talks for minority stake in Reliance Retail

RRVL valued at $100 bn by JM Financial; Reliance group looking to unlock potential of its telecom unit too

Qatar's sovereign wealth fund is in talks to invest up to $1 billion for a one per cent stake in the retail business holding firm of Reliance Industries Ltd (RIL), said banking sources.

Qatar Investment Authority’s investment will likely be at a valuation of around $100 billion for Reliance Retail Ventures Ltd (RRVL). RIL is looking at ways to unlock the potential of its retail and telecom arm, including listing them separately and giving an exit option to investors who had invested in RRVL in 2020 at a valuation of $55 billion.

A RIL spokesperson said: "The company evaluates various opportunities on an ongoing basis. As a principle, we do not comment on market speculations and rumours."

 

JM Financial recently estimated RRVL’s equity value at $105 billion saying the company's EBITDA (earnings before interest, taxes, depreciation and amortisation) is 2-4 per cent higher than that of its subsidiary, Reliance Retail Ltd, as it has few other assets apart from its stake in RRL.

This implied valuation of RRVL was 5-10 per cent higher than JM Financial's previous valuation of $90-100 billion for the entire retail business. It was almost double the $55-billion valuation at which RIL had sold a 10.52 per cent stake in RRVL to various private equity investors in 2020. Those investors included KKR & Co and Saudi Arabia's Public Investment Board.

The valuation JM Financial put was based on Reliance Retail's recent announcement that equity shares of 0.04 per cent held by non-promoters would be extinguished at a potential outflow of Rs 500 crore.

At the same time, JM said based on an independent calculation of Rs 850-900 a share, the implied valuation for RRL is $100 billion. Analysts have said the retail business’s revenue grew by 21 per cent on a year-on-year (YoY) basis along with all-time-high EBITDA margins in the June quarter. Retail store space grew more than 50 per cent versus the same period last year , paving the way for continued strong sales growth.

Reliance Retail reported revenue of Rs 69,948 crore in the June quarter, rising 19.5 per cent YoY and led by growth in grocery, consumer electronic, and fashion and lifestyle products. The firm delivered an EBITDA of Rs  5,139 crore, up 33.9 per cent on YoY.

“Beyond earnings, we believe potential value unlocking via stake sales/IPO/listings could be a material stock price driver over the next 2-3 years. We go back to the Chairman’s closing comments in last year’s AGM (annual general meeting) where he talked about doubling RIL’s market cap in five years and next-gen leaders taking over businesses, and this points to value unlocking in RIL,” said analysts at JP Morgan, referring to Reliance chairman Mukesh Ambani’s speech.