Calculations by global brokerage firm JPMorgan peg Reliance Retail’s enterprise value at $112 billion and implied equity value at $102 billion. UBS has valued it at $110 billion, Bernstein at $111 billion while domestic brokerage JM Financial estimates it at $105 billion.
“We estimate equity value for Reliance Retail Ventures Ltd (RRVL) at Rs 8,600 billion or $105 bn, given RRVL’s EBITDA is 2-4% higher than that of RRL as it also has a few other investments/assets apart from its stake in RRL,” JM Financial said.
In 2020, RIL sold a 10.52% stake in RRVL to various PE investors when the company was valued at around Rs 4.2-4.3 lakh crore.
The $100 billion-plus valuation makes Reliance Retail the fourth-largest company in terms of market capitalisaton on Dalal Street, valued much more than ICICI Bank (Rs 6.65 lakh crore), HUL (Rs 6.2 lakh crore) and ITC (Rs 5.8 lakh crore).
While Reliance Retail’s parent entity RIL is India’s largest company with a market cap going above Rs 18 lakh crore, TCS is second at Rs 1.2 lakh crore. HDFC Bank’s m-cap of Rs 9.3 lakh crore will go up once it starts trading as a merged entity after HDFC’s delisting.
Ernst & Young has valued RRL (Reliance Retail Ltd) at Rs 884 per share while BDO Valuation Advisory sees the unlisted stock’s fair value at Rs 849 per share.ICICI Securities said it was valuing Reliance Retail at around Rs 9.5 lakh crore on a two-year forward basis, lower than the valuation being pegged now.
On Friday, Reliance announced that it will cancel shares held by non-promoters in RRL and pay shareholders Rs 1,362 per share. The move will lead to the extinguishment of 0.4% equity in the company. RIL owns 85% of RRVL, which in turn owns more than 99% of Reliance Retail.
The consideration of Rs 1,362 per share is at a 54-60% premium to the valuation obtained from 2 valuers, which UBS said sets a floor price to future value unlocking and should bring confidence to the retail business’ value in the SoTP-based target price of RIL.
JPMorgan said the buyback of the small number of non-promoter shares is effectively a clean-up of the shareholding before any eventual IPO of Reliance Retail. “While we would not hazard a guess on the potential timeline for Retail IPO, this exercise (clean-up of shareholding, establishment of valuation benchmark) are positive developments for any eventual IPO. We value RRVL at an EV of $112bn and implied equity value would be ~$102bn,” said JPMorgan’s Pinakin Parekh.
RIL’s retail business is the category leader in organized retail across grocery, fashion & lifestyle, electronics. It is India’s largest physical retailer across categories and also has multiple digital offerings like Ajio and JioMart. Besides, Reliance is also expanding its own bouquet of consumer brands.
“We view the recent news flow of NCLT approval for JFS demerger and the Retail share buyback as positive. The upcoming AGM should provide more color on JFS and other key growth areas. We expect underlying earnings to be solid in 1Q driven by O2C, and the stock has been a large under-performer with relative under-ownership by FIIs. We continue to see attractive risk-reward in the stock,” Parekh said. JPMorgan’s target is at Rs 2,960.
Following the twin announcements related to the cancellation of non-promoter shares of Reliance Retail and the demerger of Jio Financial Services, RIL shares rallied 4.5% to scale a fresh 52-week high of Rs 2,755 on Monday.
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