Retail growth, e-commerce plans to drive a re-rating in RIL shares: CLSA

Mumbai: The continuation of the growth trend in Reliance Retail and clear e-commerce plans would drive a re-rating in shares of Reliance Industries, said Hong Kongheadquartered firm CLSA.

Reliance Retail revenues’ more than doubled in FY18 with core retail revenues growing 37 per cent year-onyear in FY18. It reported a 134 per cent growth in revenue in the fourth quarter of the financial year 2017-18.

“While we see the US $0.7 bn (billion) in annualised Ebitda in 4Q as a one-off, Reliance’s commentary suggests this could be a new trend and that it will improve further as gains from FY18 Capex of Rs 48 bn flow through. If true, the FY21 Ebitda for core retail may rise to nearly US $1bn and its peer EV/Ebitda-based value to over US$25bn,” said CLSA in a note on Tuesday.


CLSA, which has a ‘buy’ rating on shares of Reliance Industries with a target price of Rs 1,230, said a clear ecommerce strategy, perhaps in the upcoming annual general meeting, which may include leveraging Jio’s customer base, could drive a strong re-rating even beyond offline peer valuations. RIL shares ended up 1.1 per cent at Rs 971.6 on Tuesday.

CLSA said Reliance’s core retail business leads on growth and compares favourably to peers on unit revenue/Ebitda but it has a lower margin. “Despite a higher share of electronics its pure retail Ebitda margin of 6 per cent is reasonable but below some peers, but this may rise as gains from recent capex (capital expenditure) flow through. It also scores highly on some key unit metrics like per sq-ft revenue and Ebitda,” said CLSA.

The firm said the continuation of sector leading growth and a rise in its margin may warrant a premium valuation versus peers.