Reliance Retail is the largest organized retailer in India with revenues of $30 billion, which is almost 2.5x of the combined scale of the next 3 Indian retailers, a report by global brokerage Bernstein highlighted. It stated that Reliance Retail's market leadership has been driven by expanding its store network (1.5x over the last 2 years), acquiring new brands ($1.2 billion investments), and eCommerce/new commerce (18 percent mix).
Also, it pointed out that growth for the firm has been robust (20 percent YoY), in line with peers with healthy margins of 7.7 percent. On the back of the strong growth outlook and fundamentals of Reliance Retail, the brokerage has retained its ‘outperform’ call on Reliance Industries (RIL) with a target price of ₹3,210, indicating an upside of 29 percent.
Last month (April 2023), the brokerage re-introduced RIL in its model portfolio as the stock has become attractive after a sharp fall in its price over the past few months.
“We removed RIL from our strategy portfolio in early January, and we are reintroducing it now, given the underperformance YTD (year-to-date)," it had said.
The stock has lost over 2 percent in 2023 YTD, 9 percent in the past 6 months, and 11 percent in the last 1 year. However, it has gained around 3 percent in May so far after a 4 percent rise in April.
The brokerage believes that Reliance Retail will contribute at least 30 percent to RIL's target price.
Why Bernstein likes Reliance Retail?
Market leadership: As per the brokerage, Reliance Retail has expanded its market share from 1.8 percent in FY18 to 3 percent in FY23 (as a % of India Retail). To put it in context, Alibaba's share is 16-17 percent of the China retail market, highlighting room for growth. Store footprint is 18,040 stores, adding 2.8K stores for FY22-23 (avg. 2K-3K) per year across store formats, it said.
ECommerce/digital: The brokerage also noted that with a strong positioning in new/eCommerce, 18 percent mix($5.4 billion FY23) is led by AJIO & JioMart. JioMart (Grocery) had 4.8 million downloads last quarter. Reliance also launched new brands/private labels - the 'Independence' brand in FMCG & Tira in BPC.
New commerce: The brokerage also highlighted that India's retail market has over 15 million small merchants and the digitization of these merchants can provide a network for consumer brands and advertisers. Reliance Retail has expanded its merchant base (New commerce) significantly and currently has over 3 million merchant partners with 20 new smart hubs to service them, it mentioned.
Strong financial performance: Finally, the brokerage pointed out that Retail's revenue has grown at 20 percent YoY, in line with peers (Titan, Dmart). Retail EBITDA margin is steady at 7.7 percent while digital commerce mix is stable at 18 percent. Store footprint (18,040, 65.6 Mn sq ft) expanded by 1.5x over last 2 years and warehouse capacity at 1.7 Mn sq ft driving new commerce growth, it added.
