Silver Lake Partners is likely to invest $1 billion in Reliance Retail, valuing the retail venture at $57 billion (Rs 4.2 lakh crore).
Reliance has recently acquired the retail and wholesale business and the logistics and warehousing division of Future Group for Rs 24,713 crore.
Reliance’s latest fund raising — this time in organised retail — would indicate that promoter Mukesh Ambani is preparing for a major onslaught on this industry.
This comes after its digital services arm, Jio Platforms, raised over Rs 1.50 lakh crore from 13 investors. Silver Lake was an investor, pumping Rs 10,202.55 crore (along with co-investors) into Jio Platforms for their 2.08 per cent stake in the company.
A report in the Financial Times said that Reliance is in discussions with Silver Lake for a $1-billion stake sale in Reliance Retail at a valuation of $57 billion and that it is looking to raise $5.7 billion by selling a total of 10 per cent in the retail business.
Shares of Reliance Industries on Friday closed lower 1.65 per cent, or Rs 34.75, at Rs 2,077.40 on the Bombay Stock Exchange.
However, certain brokerages were not impressed by the valuation.
“Using the current rupee dollar exchange rate, the deal value of Rs 4.2 lakh crore is 15 per cent lower than the Rs 4.8 lakh crore enterprise value we assign to Reliance Retail in our September 21 target price,’’ analysts at CLSA said in a note.
“As this possible stake sale would also include the recently acquired retail business of Future Group for Rs 24,000 crore, this valuation is 18 per cent lower than our expectations.
“Interestingly, this is also a massive 30 per cent lower than the rumoured private market valuation of retail,’’ the note added.
The brokerage added that unlike the Jio Platform deals, this deal valuation “may be a bit underwhelming” as it does not bring in a new marquee strategic player. Debt is no more seen as a concern, they observed.
“Moreover, RIL may now have exhausted its large near-term inorganic triggers even as organic earnings may struggle to deliver big surprises in the current environment. Notwithstanding the long-term opportunity offered by Reliance, large stock upsides may be limited in the near term,’’ the note said.
The brokerage has a outperform rating on Reliance Industries with a 12-month target price of Rs 2,250.
At its annual general meeting in July, Ambani had disclosed that Reliance will induct global partners into Reliance Retail over the next few quarters. The impact of Covid-19 on the organised retail topline in the June quarter was less severe compared with other segments even though it fell 17 per cent to Rs 31,633 crore from Rs 38,216 crore in the year-ago period. The segment EBITDA showed a drop of 47 per cent to Rs 1,083 crore.