Retail including e-commerce will be the next growth engine for Reliance Industries Ltd, Goldman Sachs said in a report. It has a potential of a 10 times growth in pre-tax profit from the business over the next decade.
After growing five times over FY16-FY20, RIL's core retail revenue growth has taken a pause in 2020-21 (April 2020 to March 2021) due to Covid related macro headwinds including lower footfalls.
The oil-to-telecom conglomerate run by billionaire Mukesh Ambani used the period to build strong digital capabilities of the retail business while continuing to expand its physical reach.
"We believe a retail business (including e-commerce) is set to be the next growth engine for RIL, with potential for retail EBITDA to grow 10 times over the next 10 years," the brokerage said.
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During the macro downturn, RIL has focused on building strong digital capabilities and the scale-up in the omnichannel offering is driving sizable market share wins.
"We expect RIL core retail revenue to grow at a 36 per cent CAGR over the next four years to $44 billion and e-commerce revenues to be 35 per cent of total retail revenues in 2024-25, at $15 billion," it said.
It forecast a 50 per cent market share for RIL in online grocery by FY25, with a 30 per cent market share in overall e-commerce. This translates into $35 billion e-commerce GMV (gross merchandise value) for RIL by 2024-25, with $19 billion in grocery.
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Goldman Sachs valued RIL's retail business at $88 billion in the base case and at $120 billion bull case valuation based on stronger than expected macro growth and market share wins.
It valued RIL's retail business using discounted cash flow (DCF) at $57 billion for offline business and $32 billion for e-commerce.
"We see a multi-year runway of growth driven by our expectation of growing organised retailing in India from a 2.6 per cent share today to a 13.2 per cent share in FY30 and rising market share for RIL in organised retailing due to its omnichannel strategy with a market share going from 41.5 per cent now to 54.7 per cent in FY30," it said.
With a $400 billion GMV, grocery is the largest retail category in India, accounting for 60 per cent of the total retail market.
"We expect RIL core EBITDA growth of 59 per cent year-on-year in FY22E based on cyclical growth in the oil-to-chemical (O2C) business, and structural growth in the consumer businesses," it said.
Over the next 12 months, continued sequential earnings recovery is expected along with catalysts around telecom tariff hikes, new product launches with Google, Facebook, and Microsoft, and potential value unlocking from a proposed energy business stake sale.
