Retail bet: General Atlantic to invest Rs 3,675 crore in Reliance Retail

Private equity major General Atlantic will invest Rs 3,675 crore in Reliance Retail Ventures (RRVL) for a 0.84% stake. The stake sale values Reliance Retail, a subsidiary of Reliance Industries, at Rs 4.285 lakh crore.

The investment in Reliance Retail by General Atlantic comes shortly after it invested Rs 6,598.38 crore in Jio Platforms for a 1.34% stake.

According to Morgan Stanley, the implied valuations in the General Atlantic deal are slightly higher versus the last two transactions due to the completion of a cash infusion in Reliance Retail by Silver Lake.

The investment in RRVL by GA comes within a month of US private equity firm Silver Lake and KKR making a total investment of Rs 13,050 crore in the retail venture of RIL. Thus within this month, the retail firm has sold a total of 3.9% stake raising funds worth Rs 16,725 crore.

Even though Reliance Retail is ahead of its peers when it comes to digitisation of its services, it will need to make large investments to consolidate the back-end and digitise operations to take on Amazon and Flipkart. Brokerage firm UBS had earlier said the digitisation and consolidation process requires higher capex and that Reliance Retail is on course to raise capital for the same.

Commenting on the transaction with GA, Reliance Industries CMD Mukesh Ambani said, “We look forward to leveraging General Atlantic’s extensive expertise at the intersection of technology and consumer businesses, and two decades of experience investing in India, as we create a disruptive new commerce platform to redefine retail in the country.”

Reliance Retail has acquired Future Group’s retail business, which has a portfolio of strong retail assets across grocery, fashion and lifestyle. This would add around 1,300 stores to its current 800 stores in grocery and 440 stores in fashion and lifestyle, thus taking its total network to 2,400. With the acquisition of Future Group’s assets, Reliance Retail’s share in the organised retail market is expected to be in the region of 15% after this merger, and the retailer now accounts for nearly 10% sales of top FMCG firms.

Reliance Retail has already marked its entry into the e-commerce business with the launch of JioMart in a tie-up with Facebook’s popular platform WhatsApp to take on the likes of big players like Amazon and Flipkart. JioMart has already been launched in around 200 cities. Analysts maintain that like Jio Platforms, other financial and strategic investors may also invest in Reliance Retail. Jio Platforms has attracted investments from 13 global investment firms investing Rs 1,18,318.45 crore for a 25.24% stake.

“The swift pace of developments at Reliance Retail may raise investor concerns for peers like DMart, Trent etc. We, however, note that India offers significant opportunity given favourable demographics, a huge unorganised market and hence, there is growth headroom for peers as well,” Jefferies had said earlier.

General Atlantic is a leading global growth equity firm with a 40-year track record of investing in the technology, consumer, financial services and healthcare sectors. It has backed companies like Airbnb, Alibaba, Ant Financial, Box, ByteDance, Facebook, Slack, Snapchat, Uber and other global technology leaders.

General Atlantic CEO Bill Ford said, “General Atlantic shares Reliance Industries’ foundational belief in the power of technology to foster transformative growth, and we are excited by the immense potential of the full Reliance ecosystem.”

Reliance Retail clocked revenues of Rs 31,633 crore, which was lower by 17.2% on a year-on-year basis for the quarter ended June 30. The company’s Ebitda during the quarter fell by 47.4% y-o-y to Rs 1,083 crore. The Ebitda margins came in 220 basis points lower on a y-o-y basis at 3.8%.

The company operated total area of 29 million sq ft during the quarter, which was up by 26% on a y-o-y basis. On a full-year basis, for FY20, Reliance Retail had recorded revenue of Rs 1,62,936 crore, up 24% compared with FY19. The company’s Ebitda was up 55.7% to `9,654 crore for the full year ended March 31, 2020.