Reliance Retail vs DMart: Why UBS thinks RIL may emerge as the winner

ADIA joins the league of Silver Lake, KKR, General Atlantic, Mubadala Investment Company, GIC, and TPG who have cumulatively invested Rs 37,710 crore in Reliance Retail for 8.48 per cent stake

Oil-to-telecom conglomerate Reliance Industries is steadily working on expanding its footprint in the retail sector. On Tuesday, Abu Dhabi Investment Authority (ADIA) became the eighth investor in Reliance Retail Ventures, agreeing to pick 1.2 per cent equity stake in the company for Rs 5,512.5 crore.

ADIA joins the league of Silver Lake, KKR, General Atlantic, Mubadala Investment Company, GIC, and TPG who have cumulatively invested Rs 37,710 crore for 8.48 per cent stake.

Mukesh Ambani-owned Reliance Industries shifted gears in August this year, when it agreed to buy Kishore Biyani-promoted Future Group as going concerns on a slump sale basis for Rs 24,713 crore. The sale would include key brands like Big Bazaar, fbb, Foodhall, Easyday, Nilgiris, Central and Brand Factory.

As Reliance Retail aggressively establishes itself, leveraging on online sales via JioMart, analysts believe incumbent players need to re-orient or scale-up their businesses, go for mergers, and cash-in on niche segment to exploit customer loyalty.

A comparative study by UBS, however, indicates that Reliance Retail is likely to emerge as the sector leader, while its closest competitor Avenue Supermarts (DMart) might fail to capitalise on the digital opportunities arising from social distancing because of Covid-19.

“We are lowering our PAT estimates for Avenue Supermarts by 36.8 per cent/13 per cent for FY21/FY22. Our PAT estimates for Avenue are now 16.6 per cent/7.7 per cent below consensus estimates for FY21/FY22. For Reliance Retail, we raise our revenue estimates given the higher visibility of its e-commerce business ramp-up. However, we have reduced our forecast EBITDA margin given its increasing proportion of sales from the online channel,” it said in a recent report.

Here’s why the brokerage thinks RIL may pip Avenue Supermarts: