Reliance Retail shares valued at 20% discount to analyst estimates

Reliance Retail's valuation at Rs 2.79 trillion pegs it at a discount to brokerage estimates. The head of a domestic brokerage house said that the valuation pegged for Reliance Retail is at a 20 per cent discount to its estimates. Reliance Retail is the retail arm of Reliance Industries

The valuations of Reliance Retail have been arrived at using both discounted cash flow method, as well as market capitalisation of comparable companies in the listed space. Employees who hold shares in Reliance Retail will get 1 share in RIL for every four shares they hold in the retail venture. A total of 0.05% is held by employees in Reliance Retail while the rest is owned by Reliance Retail Ventures.

 
While there are other retail companies, there is no direct peer of Reliance Retail in the listed space. Avenue Supermarkets which runs the Dmart branded stores competes with Reliance Retail in the grocery space. Avenue’s current market capitalisation is at Rs 1.2 trillion, half that of Reliance Retail which has a much wider presence and caters to multiple segments.

 
Analysts, however, ascribe a slight premium to Dmart as compared to Reliance Retail’s grocery segment. While the grocery segment of Reliance Retail is pegged at 22 times enterprise value (EV) to operating profit for FY21, the same for Avenue is at 25 per cent. For the the fashion and lifestyle segment, valuations are similar to that of Aditya Birla Fashion and Retail at 22 times FY21 EV/operating profit. The street value for the other three segments of consumer electronics, connectivity and petro retail segments (no listed peers) is between 5-15 times of EV/Operating profit.

 
Reliance Retail’s growth on the revenue and operating profit front has so far been driven by the consumer electronics segment which accounted for 53 per cent of core retail sales. In fact, this segment accounted for over 60 per cent of the core retail revenues over FY14-19 and half its operating profits. However, analysts believe that revenue growth from the segment will cool off as the pace of Jio device sales falls. HDFC Securities expects the groceries segment to be the growth driver of Reliance Retail which will account for half its consolidated sales by FY22. Currently, groceries account for 20 per cent of sales. 



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