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It is said that good projects and good business ideas always find investors. The state of the market hardly matters. That was proven most eloquently by Reliance when it monetized its digital stake in the midst of testing market conditions. RIL now looks all set to monetize its retail franchise and the process has already begun. What could the Reliance group be driving at?
In the last few days, Reliance Retail has raised close to Rs.26,000 crore via sale of stake in Reliance Retail Ventures. Five of the PE funds that invested in Jio Platforms have also invested in Reliance Retail. These include KKR, TPG, Silver Lakes, General Atlantic and Mubadala Investments. Other investors that had taken a stake in Jio Platforms, like ADIA and Vista Equity are also expected to be in talks with Reliance for a stake in Reliance Retail. While Jio got valuations closer to $70 billion, Reliance Retail is getting valuations of $60 billion. RIL has raised Rs.1.53 trillion from stake sale in Jio Platforms, Rs.26,000 crore from RRVL, Rs.25,200 crore from Brookfield, Rs.7,500 crore from BP and Rs.52,300 crore from the rights issue. In addition, it is also planning to monetize its infrastructure assets via an INVIT and raise another Rs.40,000 crore. In short, by the end of 2021, RIL could be sitting on Rs.2 trillion of cash even after becoming net zero debt company.
The intent of Reliance group appears to be quite clear. Over the last decade, the refining and chemicals business has bank-rolled the retail/digital businesses of the Reliance group. Both these are now in maturity mode. Jio Platforms is already the largest telecom player in India with a 42% market share and Reliance Retail is the largest organized retail player that is nearly 7-times the size of its nearest competitor. While profits may still take time to build up for Jio Platforms and for retail, they have the advantage of premium valuations in the business. Clearly it is payback time for digital and retail and that is already happening through stake monetization. But, where will this money go into.
In the last AGM, Mukesh Ambani has already outlined plans to convert the oil-to-chemicals (O2C) business into more of a sustainable energy franchise. That will call for massive investments and it’s really payback time for digital and retail. If they cannot bankroll as cash cows, they need to bankroll the O2C business with valuations. That is what we are now getting to see. Remember, Reliance has a strong life sciences franchise that has been quietly working on the COVID-19 vaccine. As opportunities in APIs and CRAMS open up, RIL may fall back up its digital and retail valuations to fund these projects. After all; why not?