Silver Lake to invest Rs 7,500 crore in Reliance Retail

Chairman Mukesh Ambani had announced at the annual general meeting that the company was in talks for a stake sale in Reliance Retail

Samar Srivastava
Published: Sep 9, 2020 01:08:16 PM IST

After studying law I vectored towards journalism by accident and it's the only job I've done since. It's a job that has taken me on a private jet to Jaisalmer - where I wrote India's first feature on fractional ownership of business jets - to the badlands of west UP where India's sugar economy is inextricably now tied to politics. I'm a big fan of new business models and crafty entrepreneurs. Fortunately for me, there are plenty of those in Asia at the moment.

bg_reliance retail_shutterstock_1484606063

Reliance Retail operates 12,000 stores across the country in various formats. Image: Shutterstock

Reliance Retail, India’s largest retailer, raised Rs7,500 crore from Silver Lake Partners at a Rs4.21 lakh crore valuation. The fund raising comes after the company completed a nearly-three-month mammoth Rs152,056 crore fund-raise for its mobile services platform, Jio Platforms, at an equity valuation of Rs4.36 lakh crore.

The investment comes after Reliance Industries (RIL) chairman Mukesh Ambani had announced, at the July 15 annual general meeting, that the company “will induct global partners and investors in Reliance Retail in the next few quarters”.

The investors would allow Reliance Retail, which recently completed the Rs24,713-crore acquisition of Kishore Biyani’s Future Group, to take on competitors Amazon, Walmart-owned Flipkart and Avenue Supermarts, which operates the DMart brand of stores. Others such as Spencers Retail and Trent lack the scale to pose a sustained challenge.

“We believe technology will be key to bringing the much-needed transformation in this sector so that various constituents of the retail ecosystem can collaborate to build inclusive growth platforms. Silver Lake will be an invaluable partner in implementing our vision for Indian Retail,” said Mukesh Ambani, chairman, Reliance Industries in a statement.  

Importantly, the investment would allow Reliance Industries to invest aggressively in the business. “The proposed divestment is credit positive as it will enable RIL to pursue further growth opportunities while maintaining its zero-net debt status. The deal also establishes a valuation for its retail arm and sets the stage for further stakes sales within the segment,” wrote Sweta Patodia, analyst, corporate finance, Moody’s Investors Service.

This, coupled with the separation of the oil to chemicals business as a subsidiary, should give the Reliance Industries balance sheet the space it needs for future borrowings for new business areas.

Reliance Retail operates 12,000 stores across the country is present across several formats—hypermarkets, cash and carry, electronics and apparel. It reported revenues of Rs162,936 crore and a net profit of Rs5448 crore in the year ended March 31, 2020. Reliance Retail has, in the last few quarters, worked on digitising kiranas as well as scaling up JioMart, its home delivery service. The company has now scaled up to 250,000 orders a day.

The company is effectively using its stores as last-mile distribution centres and as a result, is able to service orders within the same day, as opposed to its ecommerce counterparts that take longer. As the assortment mix improves in favour of higher margin items, it is possible that Reliance Retail’s profitability might rise faster than revenues.   

Silver Lake had previously invested in Jio Platforms, putting in $1.35 billion (Rs10,200 crore) for an 2.08 percent stake.  

Disclaimer: Reliance Industries is the owner of Network 18, the publisher of Forbes India

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