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‘Reliance Retail already worth $100 bn’: Jefferies sees 24% upside in RIL shares

Mukesh Ambani’s retail venture Reliance Retail is now worth $100 billion in equity value (about Rs 7.2 lakh crore), according to global investment bank Jefferies. In a recent report, analysts at Jefferies ascribed a $100 billion equity value to Reliance Retail while pinning its enterprise value at $93 billion. “We find Reliance Retail (RR) well-positioned to ride the strong organized retail opportunity with its widespread presence across grocery, apparel and electronics,” the report said. The retail unit of RIL is the largest organised retailer in India with a retail area of 30mn+ sq ft.

Of the value ascribed to Reliance Retail, the core retail business is valued at $71 billion, connectivity business at $4 billion, while the e-commerce segment is valued at $19 billion by Jefferies. RR is being looked at as a retail behemoth and a budding challenger in the e-commerce space.

Reliance Retail growing fast

“Reliance’s retail segment is growing at a much faster pace than the energy business, which has increased its salience in RIL’s consolidated revenues over the past few years,” the report said. Reliance Retail had a 6% contribution to in revenue in FY2016, now the same has zoomed to 20%. The retail segment has a diversified presence across consumer electronics, fashion and grocery, unlike peers who are mostly focused on specific formats. The oil-to-conglomerate RIL owns 85% share in the retail unit, leading to 37% to overall RIL SoTP, according to Jefferies.

Helped by Reliance Retail and other segments, Jefferies sees significant upside for Reliance Industries. Seeing positives ahead, the brokerage firm highlighted several reasons for investors to buy RIL shares. Here, the key triggers for RIL include O2C stake sale, GRM recovery, tariff hike in Jio, the possible listing of Jio, and a banking license for RIL. Jefferies also sees RIL’s partnership with Facebook and Google as a reason to buy the stock.

Stock price expectations

The brokerage firm sees a massive 24% upside for RIL shares from current levels. In the base case scenario, the stock is expected to jump to Rs 2,600 apiece. Here, SOTP valuation implies 12x one yr fwd EV/Ebitda. 22% Ebitda Cagr in Retail, 9% Ebitda Cagr in refining, and 2% Ebitda Cagr in petrochemical. Jefferies expects RIL shares to gallop to Rs 2,900 per share if the strategic sale of O2C business re-rates multiples, telecom consolidation speeds up and Jio goes for listing. On the downside, in case of a lower ARPU, weak refining margins, and elevated cash-burn is expected to take the stock down to Rs 2,000 apiece.

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Sona Comstar to raise Rs 6,000 cr via IPO

Auto component maker Sona BLW Precision Forgings (Sona Comstar) on Wednesday said it has filed papers to raise Rs 6,000 crore via an initial public offering (IPO). The public issue of shares of face value of Rs 10 each, comprises a fund raise via fresh issue amounting to Rs 300 crore and an offer for sale aggregating up to Rs 5,700 crore by selling shareholder Singapore VII Topco III Pte Ltd, an affiliate of the Blackstone Group Inc, Sona BLW Precision Forgings said in a statement.

The portion reserved for Qualified Institutional Buyers will be up to 75 per cent of the offer, non-institutional investors to have up to 15 per cent of the portion reserved while up to 10 per cent will be reserved for the retail investors, it added. As stated in the DRHP, the Blackstone promoted company intends to utilise the proceeds from the fresh issue to repay/prepay Rs 225 crore of its borrowings besides general corporate purposes, the Gurugram headquartered company said.

The company is into designing, manufacturing and supplying highly engineered critical automotive systems and components such as differential assemblies, differential gears, conventional and micro-hybrid starter motors, BSG systems, EV traction motors and motor control units.It supplies components to automotive OEMs across the US, Europe, India and China, for both electrified and non-electrified powertrain segments and is not dependent on a single product, vehicle segment, customer or geography.

The company is also one of the two largest exporters of starter motors from the country besides being the largest manufacturer of differential gears for passenger vehicles, commercial vehicles and tractors in India. Some of its key OEM customers include a global OEM of EVs, a North American passenger vehicle and commercial vehicles maker, Ashok Leyland, Daimler, Escorts, Mahindra & Mahindra, Mahindra Electric, Maruti Suzuki, Renault Nissan, Volvo and Volvo Eicher.

Kotak Mahindra Capital Company, Credit Suisse Securities, JP Morgan India, JM Financial and Nomura Financial Advisory and Securities are the book running lead managers (BRLM) of the issue.

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Petrol at Rs 89 in Delhi, inches towards Rs 100-mark in Rajasthan

Petrol and diesel prices on Monday were hiked for the seventh day in a row as a rally in international oil prices took retail rates in India to new highs.

Petrol price was increased by 26 paise per litre and diesel by 29 paise, according to a price notification of state-owned fuel retailers.

This pushed retail rates, which differ from state to state depending on the incidence of local sales tax or VAT and freight charges, to their highest level.

The hike took petrol price in Delhi to a record Rs 88.99 per litre and to a highest-ever rate of Rs 95.46 a litre in Mumbai.

Diesel rate climbed to Rs 79.35 a litre in Delhi and to Rs 86.34 in Mumbai.

Rajasthan, which levies the highest VAT on fuel in the country, had the highest petrol and diesel prices.

In Sriganganagar town of the state, petrol soared to Rs 99.56 and diesel to Rs 91.48 per litre.

The Rajasthan government had late last month cut VAT on petrol and diesel by 2 per cent. Despite this, the state has the highest VAT at 36 per cent plus Rs 1,500 per kilolitre road cess on petrol. On diesel, the state levies 26 per cent and Rs 1,750 per kilolitre road cess.

Branded or additive mixed petrol on Sunday crossed Rs 100-mark at some places in states like Maharashtra and Madhya Pradesh.

Branded petrol at Sriganganagar was priced at Rs 102.34 a litre and similar grade diesel at Rs 95.15.

The main difference between regular and premium fuel grades is the octane number. Regular fuel has a lower octane number — 87, while premium fuel generally gets a 91 octane rating or higher.

Octane number is a measure of the ignition quality of fuel — higher the number, the less susceptible is the fuel to ‘knocking’ when burnt in a standard engine.

In seven straight days, prices have gone up by Rs 2.04 per litre for petrol and Rs 2.22 for diesel.

The relentless hike in prices has been criticised by the opposition parties including Congress that has demanded an immediate cut in taxes to ease the burden on the common man.

A six-hour bandh called by the party in Odisha affected normal life on Monday.

Oil Minister Dharmendra Pradhan last week had told Parliament that the government is not considering a reduction in excise duty to cool rates from their record highs.

Central and state taxes make up for over 61 per cent of the retail selling price of petrol and about 56 per cent of diesel.

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