KKR invests Rs 5,550 crore in Reliance Retail for 1.28% stake

Reliance Industries on Wednesday said that private equity firm, KKR will invest Rs 5,550 crore in its subsidiary Reliance Retail Ventures (RRVL) for a 1.28% stake. The investment values RRVL at Rs 4.21 lakh crore.

The investment in Reliance Retail by KKR comes shortly after it invested Rs 11,367 crore in Jio Platforms for 2.32% stake.

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 backend and digitise operations to take on Amazon and Flipkart. According to UBS, the digitisation and consolidation requires higher capex and that RR is on course to raise capital for the same.

The investment in RRVL by KKR comes weeks after US private equity firm Silver Lake made an investment of Rs 7,500 crore in RRVL for a 1.75% stake. Thus within this month the retail firm has raised a total fund of Rs 13,050 crore.

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% and the retailer now accounts for nearly 10% sales of top FMCG firms.

Prior to it Reliance Retail had signalled its entry into the e-commerce business to take on the likes of big players like Amazon and Flipkart by launching its venture JioMart in tie-up with Facebook’s popular platform, WhatsApp. JioMart has already been launched in around 200 cities. Analysts maintain that quite 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 25.24% stake.

“The considerable scale that Reliance Retail will enjoy due to the Future Group acquisition along with fresh capital would raise its might with the suppliers like FMCG firms, vendors for general merchandise, logistic partners etc,” analysts at Jefferies had earlier noted. “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 added.

With $222 billion in assets under management as of June 30, 2020, KKR has history of building leading global enterprises, including in areas of consumer retail and eCommerce, such as investments in Epic Games, OutSystems, Internet Brands, Go-jek and Voyager Innovations.

Commenting on the transaction with KKR, Mukesh Ambani, chairman and managing director, Reliance Industries, said, “KKR has a proven track record of being a valuable partner to industry-leading franchises and has been committed to India for many years. We look forward to working with KKR’s global platform, industry knowledge and operational expertise across our digital services and retail businesses”.

Henry Kravis, co-founder and co-CEO of KKR, said, “We are pleased to deepen our relationship with Reliance Industries through this investment in Reliance Retail Ventures, which is empowering merchants of all sizes and fundamentally changing the retail experience for Indian consumers”.

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, 2020. The company’s Ebitda during the quarter fell by 47.4% y-o-y to Rs 1,083 crore. The Ebitda margins during the quarter came in 220 basis points lower on a y-o-y basis at 3.8%. The company operated total area of 29 million square feet 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 to FY19. The company’s Ebitda was up 55.7% to Rs 9,654 crore for the full year ended March 31, 2020.