BofA Securities bets on RIL's 'layer of commerce', maintains 'BUY'

RIL's approach of owning the "pipe" as well as the "services" offered on the pipe should help it keep the subscriber base captive, the brokerage says.

After building a "digital layer" (Jio Platforms) on top of the existing “physical layer” of retail shops across electronics, grocery, and apparels, Reliance Industries' (RIL) focus over the next four years would be to add a third “layer of commerce” and monetise the existing investments across different formats, wrote analysts at BofA Securities in a note dated September 7.

The note, co-authored by analysts Sachin Salgaonkar, Sukriti Bansal and Nafeesa Gupta, suggests that though there could be intermittent corrections in the stock in the near-term, the risk-reward is favorable from a 12-month perspective. Hence, it maintains a 'Buy' with the target price of Rs 2,355.

Like Amazon, Alibaba, and Tencent, RIL, too, has the potential to create “shareholder value” to retain its customers, BofA Securities believes. In fact, RIL’s approach of owning the “pipe” as well as the “services” offered on the pipe should help it keep the subscriber base captive, they said.

"Over the next 3-5 years, we expect RIL to have approximately 500 million mobile users, offer broadband services to nearly 20-25 million households and cater to 12-15 million small and medium enterprises (SMEs). The connectivity part of the Jio business focuses on offering these consumers the connections. The services part would focus on monetising these," BofA Securities said.

Some of the services that RIL could likely offer retail customers are Entertainment, new-age apps catering to Edutech, health-tech, agri-tech services, as well as gaming apps, and an omnichannel approach on commerce to sell its grocery, apparel and electronics items to a wider audience base.

"An omnichannel approach on commerce would help RIL sell its grocery, apparel, and electronics items to a wider audience base. By working with the Kiranas, RIL would likely increase its business-to-business (B2B) sales as well. The next catalyst could be the potential stake sale at retail business," analysts wrote in a September 7 report.  

Entertainment, according to BofA Securities, would help improve stickiness both for wireless and wireline users. Indian consumers prefer mainly Bollywood movies and Cricket. Jio may not fully monetise entertainment but with a differentiated offering they would be able to keep customers captive to cross sell services and earn digital revenues, the brokerage wrote.

As regards digital revenues, RIL could keep average revenue per user (ARPUs) for mobile/broadband users at a discount to competition and monetise via other ways like advertising, brand tie-ups etc. Further, the company could also create a “credit score” for consumers and SMEs based on their digital footprint, location-based data, among others and lend to them.

It must be noted that last week Reliance Retail Ventures Limited (RRVL had announced the acquisition of the entire retail, wholesale, logistics, and warehousing businesses from the Future Group as a going concern basis for a total consideration of Rs 24,713 crore. READ MORE

In another development, reports say private equity firm Silver Lake Partners is in talks to invest $1 billion in the company's retail arm.

At the bourses, shares of RIL have rallied nearly 38 per cent on a year-to-date(YTD) basis as compared to a 7 per cent fall in the benchmark S&P BSE Sensex (as of Friday's close), ACE Equity data show.