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Reliance Retail Outperforms, Aided By Telecom, Fuel Sales

While consumer discretionary companies have been showing pressure on their top lines over the past two quarters, Reliance Retail, a subsidiary of Reliance Industries (RIL), has been an outlier. The company said its revenue by 80 percent and operating profit by 98 percent on an annualized basis during the past 13 quarters. In the June 2019 quarter, the revenue and operating profit growth was 47 percent and 66 percent, respectively. Nearly one-third of the retail revenue originates from connectivity, which includes sales of recharge coupons of Reliance Jio, the conglomerate’s telecom arm, and about 10 percent from oil retail outlets. Revenue from telecom recharge operations rose by 51 percent and that from the fuel retail increased by 19 percent year-on-year in the June quarter.

The core retail operations including grocery, fashion and consumer electronics, grew by 52 percent to Rs 21,452 crore in the first quarter. Of this nearly half was from consumer electronics.

The core retail margin is higher compared with the connectivity and fuel marketing segments. The overall operating margin before depreciation (EBITDA margin) in the June quarter was 6 percent, while that of the core retail business was at 8.9 percent. Reliance Retail runs 10,644 stores with 23 million square feet of total area. According to the company’s presentation, the rapid expansion of physical stores count in Tier-III and IV cities have been the critical drivers of revenue growth. Reliance Retail’s revenue in FY19 was Rs 1.3 lakh crore.

It may cross Rs 1.5 lakh crore in the current fiscal based on the annualized first-quarter data. The enterprise value (EV) of Indian retailers such as Future Retail, Avenue Supermarts, Shopper’s Stop, and V-Mart ranges between 1.2 and 4.4 times their sales, with an average of 2.2. Considering the average valuation, the enterprise value of RIL’s retail venture works out to be over Rs 467 per share.―Equity Bulls

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