Reliance Retail hits Rs 2.5 lakh crore m-cap in unofficial market


The listing plans for its retail arm may yet just be on the Reliance IndustriesNSE 0.76 % drawing board, but investors are already valuing the business way above those of its listed peers. Valuations of Reliance Retail, India’s biggest retailer by revenue, crossed Rs 2.5 lakh crore last week in the unofficial market, or 75 per cent more than the market capitalisation of seven listed rivals put together.

Reliance Retail shares, which started trading in the past two weeks in the unlisted market, are currently trading between Rs 475 and Rs 500 apiece. These shares belong to employees of the company, said brokers.

Reliance Retail valuations dwarf those of Avenue Supermarts, owner of DMart, Future Retail, Trent and Spencer’s put together. Reliance Industries’ market capitalisation is Rs 8.04 lakh crore.

Limited supply of Reliance Retail shares has driven up prices by 30-40 per cent in the grey market, brokers said.

“There is good demand for Reliance Retail shares in the unlisted market and the latest transactions were executed between Rs 475 and Rs 500, though the asking rate was Rs 700-800,” said Sandip Ginodia, CEO, Abhishek Securities.

Brokers said the likelihood of Reliance listing the retail business to cut debt is fueling the demand.

“There are expectations that Reliance could demerge and list Reliance Retail soon because of the mounting debt at the group level,” said Dharan Shah, managing partner, Jamnadas Virji Advisory, a Mumbai-based broking firm that caters to rich individuals. Reliance Industries’ net debt was Rs 2.72 lakh crore as on March 31, 2019.

Analysts said the oil-to-telecom conglomerate has been looking at various options to reduce debt, but has not decided on the specifics.

Reliance Retail became the first domestic retail company to post more than Rs 1 lakh crore in annual revenues. The company’s income in 2018-19 stood at Rs 1,30,556 crore, 89 per cent more than the previous year’s Rs 69,198 crore. It reported Rs 6,201crore as profit before depreciation, interest and taxes (PBDIT) for the year against Rs 2,529 crore in FY18, an increase of 145 per cent. Kishore Biyani’s Future Retail — the second biggest in the sector — posted sales of Rs 20,333 crore in FY19.

But, Reliance Retail’s valuations at current grey market prices are rich compared to its listed peers.

“Reliance Retail at current valuations is super expensive,” said Shah. “The stock will look interesting for a trader at around Rs 380-390. For a value investor, the stock must be at Rs 265-270 for its valuations to fall to be near the listed companies.”

At Rs 500 apiece, Reliance Retail is at a Price to Earnings ratio (PE) — a popular valuation measure — of 200 times its FY2019 net profit. Its domestic competitors, Avenue Supermarts and Future Retail, are trading at 93 times and 33 times their FY19 earnings.

Global retail giant Walmart is currently trading at a PE of 22 while Tesco and Carrefour are traded at 17 times and 21 times, respectively.