In the last few years, Reliance has been on a virtual growth and expansion spree. Not surprisingly, it has emerged India’s largest retail play by a margin and is now a multiple of other players in the retail space. Across groceries, FMCG products, textiles, fashion, and upmarket brands, Reliance Retail carried out a massive expansion through organic as well as via inorganic means. Obviously, all that has entailed a huge cost in terms of realty and in terms of manpower and capital locked up. Now that is coming home to roost, forcing some tough decisions. 

The hunger for growth is still there, but has given room for some caution. For instance, now any personnel recruitment with salary of over ₹20 lakhs requires direct approval from the owner’s office. The company is cutting drastically on limitless perks, market expenses, and also planning a massive cost cut plan. In addition, there are plans to lay off a huge number of employees to keep costs in control. Even advertising budget is likely to be slashed. Above all, the company is also likely to tread cautiously on new recruitment, expansion, and new outlets. 

Back in 2020 and 2021, Reliance group had raised funds via the sale of stake in Reliance Retail at valuations of closer to $100 billion. Today, the market estimates are that the valuation would not be more than $50 billion. There are several triggers for this shift. Firstly, expansion happened at a very rapid pace and the company still in the process of getting all these diverse business integrated into a single viable story. Secondly, the demand explosion that the group was expecting to happen in India has been rather disappointing. In the last year and half, a combination of macro uncertainty, high inflation, stressed consumer budgets, high levels of household borrowing, and a trend towards miniaturization has not been too helpful for Reliance Retail. 

It is essential to understand the bigger picture here. If the Reliance stock has corrected more than 35% from its peak levels, the main reason is Reliance Retail. With its valuation shrinking by $50 billion, it is only obvious that the stock of RIL is also bearing the brunt. The future growth of Reliance was to be driven by retail, digital, and new energy. While digital has been steady, the ARPUs are still much lower than Bharti. New Energy is yet to show genuine business traction. But, the real hit has come from the weak demand hitting Reliance Retail. For the group, it has surely come at a very wrong time!