Reliance Retail (3)

Reliance Retail Limited Investment Checklist Reliance Retail Limited Management Trustworthy Accounting Practice Clean Operational Efficiency Good Solvency Good Growth Outstanding Valuation Fairly Valued Recommendation Strong Buy INVEST NOW

Snapshot: Face Value: ₹ 10 ISIN: INE742O01010 Basic EPS: ₹ 5.9 Total Income: ₹ 1,02,058.55 Cr D/E: 1.01 Profit after Tax: ₹ 3,138.26 Cr Earnings Yield: 0.6% Solvency Ratio: 29.2% Dividend Yield: - Intrinsic Value: ₹ 90 Reg Date: 2006 Total Equity: ₹ 12587.41 Cr Sub-Industry: Retail Sector: Consumer Staples Reg Office: 3rd Floor, Court Website: House, Lokmanya Tilak Marg, www.relianceretail.com Dhobi, Mumbai-400 002 About Company  Reliance Retail Limited is the retail initiative of Reliance Industries Limited founded in 2006, it is the largest retailer in India in terms of revenue.  Company’s Headquarter is in Mumbai and Mr. Mukesh Ambani is the founder while V Subramaniam is the CEO of the company.  Reliance retail outlets offer foods, groceries, apparel, footwear, lifestyle and home improvement products, electronic goods company’s outlets also provide vegetables, fruits, and flowers.

 It also focuses on consumer goods, consumer durables, travel services, energy, entertainment and leisure, health and well-being products, as well as on educational products and services.  Reliance Retail reported a turnover of ₹ 1,30,566 crores for the financial year 2018-19.  Reliance Retail operates 10,644 stores across 6,700+ cities with a retail area of over 23 million sft. Division and Subsidiaries  Reliance Fresh: Retail outlets of fruits, vegetables and groceries.  Reliance Smart: Reliance Smart offers a one-stop shopping experience by offering fresh produce, bakery, dairy products, home and personal care products, general merchandise, fruits, vegetables and groceries.  Reliance Digital: Consumer electronics retail stores. It had 689 stores in October 2014.  Reliance Jewels: Jewelry and ornaments.  Reliance Trends: Apparel and clothing.  Reliance Footprint: footwear.  Reliance Living  AJIO: E-commerce, fashion shopping website.  Reliance Market.  Hamleys: The oldest and largest toy shop in the world and one of the world's bestknown retailers of toys.

Industry Overview  The Indian retail industry has emerged as one of the most dynamic and fast-paced industries due to the entry of several new players and India is the world’s fifth largest global destination in the retail space.  Total consumption expenditure of India is expected to reach nearly ₹ 255,600 billion by 2020 from ₹ 129,504 billion in 2017. It accounts for over 10 per cent of the country’s Gross Domestic Product (GDP) and around 8 per cent of the employment.  Retail market in India is projected to grow from an estimated ₹ 47,712 billion in 2017 to ₹ 85,200 billion in 2021 and online retail sales are forecasted to grow at the rate of 31 % YoY basis.  India’s retail sector investments doubled to reach Rs 1,300 crore in 2018 as against previous year and it is projected that by 2021 traditional retail will hold a major share of 75 per cent, organized retail share will reach 18 per cent and e-commerce retail share will reach 7 per cent of the total retail market. Strengths  Total assets increasing with a CAGR of 51.29%.  Total Income increasing with a CAGR of 76.95%.  Total Equity increasing with a CAGR of 31.82%.  EBITDA increasing with a CAGR of 82.56%.  EPS increasing with a CAGR of 114%.  Operating margin has improved from 3.2% in 2016 to 5.32% in 2019.

 ROE of the company has been increasing continuously from 5.57% 2016 to 25% in 2019. Shortcomings No Shortcomings Planify View  Recommendation - Strong Buy  Rating – 5/5

Key Ratios: Profitability: Good ROE 25% 5.25% 5.57% 6.40% 13.70% 2015 2018 2016 2017 2019 25% ROCE 13.67% 5.16% 5.57% 6.47% 2015 2016 2017 2018 2019

Operating Efficiency: Good Operating Margin 5.32% 3.39% 3.80% 3.20% 3.13% 2015 2016 2017 2018 2019 Net Profit Margin 3.07% 2.41% 1.68% 1.60% 1.67% 2015 2016 2017 2018 2019

Growth: Exceptional Total Income 102058.55 51501.73 26473.13 16169 18418.36 2015 2016 2017 2018 2019 1 year: 98.16% 3 year: 76.95% 4 year: 58.5% Operating Profit 6032.17 2409.86 931.97 1198.66 549.3 2015 2016 2017 2018 2019 1 year: 150.3% 3 year: 86.42% 4 year: 82%

Profit after Tax 3138.26 1243.14 272.48 306.54 442.6 2015 2016 2017 2018 2019 1 year: 152.45% 3 year: 117.25% 4 year: 84.29% Book Value 23.66 17.04 12.81 10.39 11.01 2015 2016 2017 2018 2019 1 year: 38.84% 3 year: 114.89% 4 year: 22.84%

Peers: P/E Ratio Valuation: Fairly Valued 153.13 Reliance Retail 180 160 110.9 Avenue Supermart 140 Trent 120 Average 100 121.18 80 P/B Ratio 60 40 Reliance Retail 20 24 Avenue 0 Supermart Trent 40 7.71 35 37.6 30 25 20 15 10 5 0

CMP/Intrinsic Value 12 10 10.85 8 Reliance Retail 7.95 7.09 Avenue Supermart 6 Trent Average 4 2 0 EV/EBITDA 70 60 65.12 65.89 50 Reliance Retail 40 Avenue Supermart 30 Trent 20 28.08 Average 10 0

Earnings and Yield: Good ROE Reliance Retail Avenue Supermart Trent 25% 17.20% 16.16% 14% 5.45% 5.90% 2018 2019 Market Cap/Sales 7 6 6.31 5 4 4.58 4.42 Reliance Retail 3 Avenue Supermart 2 Trent 1 0

Revenue per Sq Feet (in ₹) 50000 46390 45000 40000 35700 35000 30000 Reliance Retail 25000 Avenue Supermart 20000 Trent 15000 10000 10225 5000 0 Same Store Sales Growth 20% 18% 16% 18% 14% 12% Reliance Retail 12% 14% Avenue Supermart Trent 10% 8% 6% 4% 2% 0%

Solvency: Acceptable D/E Ratio Reliance Retail Avenue Supermart 1.2 0.21 Trent 1 0.13 Average 1.01 Current Ratio Reliance Retail 0.8 Avenue Supermart 0.6 2.61 Trent 0.4 1.61 Average 0.2 0 3 2.5 2 1.5 1 0.96 0.5 0

Interest Coverage Ratio Reliance Retail Avenue Supermart 30 Trent Average 25 26.74 Reliance Retail 20 Avenue Supermart Trent 15 Average 10 5 8.8 0 2.04 Operating Efficiency: Good Debtor/Sales Ratio 5% 4% 4% 4% 3% 3% 2% 2% 1% 1% 0% 1% 0%

Asset Turnover Ratio 3.50 3.00 2.50 2.96 2.85 2.00 Reliance Retail Avenue Supermart 1.50 Trent 1.00 Average 1.11 0.50 0.00

Financials: Profit & Loss Statement  Higher than Industry Revenue growth over last 3 years Reliance Retail revenue has grown by 76.95% v/s Industry average of 36.7%  Higher than Industry profit growth over last 3 years Reliance Retail revenue has grown by 117% v/s Industry average of 111% Particulars 2019 2018 2017 2016 2015 INCOME 101946.52 51456.17 26437.68 18399.22 16111.61 112.03 45.56 35.45 19.14 57.39 Revenue from 51501.73 26473.13 18418.36 16169 operations 102058.55 Other income 11.69 333.17 360.1 528.65 3.20 Total Revenue 49774.06 20916.93 15816.47 12857.17 87260.47 (5372.06) 152.43 (1357.71) (481.36) EXPENDITURE (820.13) 719.93 642.14 526.12 434.74 896.99 Cost of 100.96 77.27 117.71 150 materials 611.70 434.22 368.57 324.29 303.10 consumed 601.69 Purchase of stock in trade Changes in Inventories Employee Benefits Expenses Finance Costs Depreciation and amortization

expenses 8685.85 3958.25 3229.8 2141.41 1977.4 97239.77 49627.05 25720.31 17928.39 15769.7 Other 4818.74 1874.68 752.82 489.97 399.3 Expenses Total 1037.29 400.07 160.65 65.68 - Expenses 643.23 231.47 149.57 117.75 126.82 Profit before 1680.52 631.54 310.22 183.43 126.82 tax 3138.26 1243.12 442.6 306.54 272.48 Tax Expenses 5.9 2.34 0.83 0.61 0.55 Current Tax 4.97 2.29 0.83 0.61 0.55 Deferred Tax Profit for the year Earnings per equity share Basic Diluted

Balance Sheet  Lower than Industry D/E ratio  Higher than Industry Current ratio  Higher than Industry Interest coverage ratio Particulars 2019 2018 2017 2016 2015 EQUITY AND 4989.54 4989.54 LIABILITIES 505.36 198.82 5494.9 5188.36 Shareholder’s funds 76.03 3.37 Share Capital 4989.54 4989.54 4989.54 - 75 14.62 11.95 Reserves and Surplus 7597.87 4076.92 1830.03 90.65 90.32 12587.41 9066.46 6819.57 1086.89 1670.16 Non-current - - 0.22 7.32 4.51 Liabilities 22.85 - - 26.68 21.46 19.85 Long-term borrowings Other long term liabilities Long-term provisions 49.53 21.46 20.07 Current liabilities Short-term 12800.56 3447.8 27.48 borrowings 8231.87 3926.68 Trade payables: Micro and small 13.03 enterprises

Others 4109.07 503.45 585.08 2761.08 1194.91 673.84 1.43 5.87 484.68 416.22 Other current 1.99 2811.94 287.67 1.88 1.09 liabilities 4142.12 14996.49 4832.78 - - Short-term provisions 21740.61 24084.41 11672.42 4341.85 3286.89 34377.55 9927.4 8565.57 Other financial 3100.61 liabilities 6067.5 58.34 2245.88 2026.87 2053.83 1091.03 2007.78 10.05 2.62 0.36 Total equity and 2533.09 2138.58 434.18 483.9 423.16 liabilities 1788.99 7305.31 290.65 48.87 - ASSETS 11480.61 534.41 2980.76 2562.26 2477.36 573.24 620.38 486.28 484.81 470.1 Non-current Assets - 462.47 851.85 445.58 563.33 1122.14 209.39 53.39 491.83 448.62 Fixed assets 145.29 9131.96 146.30 - - 13321.28 4518.58 3984.48 3959.4 Tangible assets Intangible assets Capital work-in- progress Intangible assets under Development Non-current investments Deferred tax assets Long-term loans and advances Other non current assets

CURRENT ASSETS 11291.83 10465.28 5096.68 5251.22 3881.73 Inventories 3002.89 - 340 - - 4330.17 2215.72 730.09 217.93 210.81 Financial Assets 329.69 156.12 252.31 47.6 150.52 381.30 267.21 232.33 426.09 363.03 Investments 1720.39 1848.12 502.43 0.08 0.08 21056.27 14952.45 7153.84 5942.92 4606.17 Trade receivables 34377.55 24084.41 11672.42 9927.4 8565.57 Cash and cash equivalents Other financial assets Other current assets

Cash Flow Statement  Higher than Industry free cash flow growth over last 3 years Reliance Retail free cash flow has grown by -2.7% over last 3 years v/s Industry average of -40% 2019 2018 2017 2016 2015 A: CASH FLOW FROM 4818.78 1874.68 752.82 489.97 399.3 OPERATING ACTIVITIES Profit before tax (Profit)/loss on 28.97 8.24 41.12 25.13 35.01 sale/discarding of assets - (2.99) 0.26 0.7 Provisions for doubtful 601.69 434.22 368.57 324.29 303.1 debt written off 34.75 94.88 21.18 1.00 0.74 Depreciation and (23.26) (12.16) (9.08) (12.11) (46.83) amortization expense (4.79) - - - (1.62) Effects of exchange rate change (Profit)/loss on sale of investments (net) Dividend income Interest income (82.54) (25.84) (26.37) (7.03) (8.94) Finance costs 611.7 100.96 77.27 117.71 150 1166.52 600.3 469.7 449.25 432.16 Operating profit before 5985.30 2474.98 1222.52 939.22 831.46 working capital changes Adjusted for: Trade and other (2053.94) (2861.97) (593.01) (42.22) 17.09 receivables (826.55) (5368.6) 152.89 (1369.49) (479.73) Inventories Trade and other (439.99) 6713.32 1493.42 1655.51 55.01 payables (3320.48) (1517.25) 1053.3 243.8 (407.63)

Cash generated from 2664.82 957.73 2275.82 1183.02 423.83 operations (950.31) (459.61) (64.85) (128.57) (50.75) Taxes paid (net) 1714.51 498.12 2210.97 1054.45 373.08 Net cash from operating 4783.88 (4862.64) (796.07) (451.03) (388.22) activities 49.38 31.49 2.07 1.2 3.1 B: CASH FLOW FROM (16795.04) (5781.3) (6244.06) (5125.71) (4234.51) INVESTING ACTIVITIES 16781.97 6087.83 5913.12 5123.11 4343.33 Purchase of fixed assets (2.5) (2.5) (2.5) (8.8) (22.76) (659.67) (409.08) (21.82) 66.44 149.72 Sale of fixed assets (2.5) - - - - Purchase of 37.30 23.66 25.39 7.72 8.57 investments 4.79 - - - 1.62 Sale of investments (5370.15) (4912.54) (1122.82) (387.07) (139.15) Loans given to 381.2 1000 - - 852.05 subsidiaries (0.22) (1.11) (1.46) (2.17) (2589.08) Net withdrawal (2292.37) - - - 75 of/(Investments in) 9352.76 3420.32 (804.41) (583.27) 1493.75 fixed deposits (609.20) (100.98) (77.57) (118.42) (158.02) Share application money paid Interest income Dividend income Net cash flow used in investing activities C: CASH FLOW FROM FINANCING ACTIVITIES Proceeds from long term borrowings Repayment of long term borrowings Debentures application money received Short term borrowings (net) Interest paid

Net cash used in 6832.17 4318.23 (883.44) (703.86) (326.3) financing activities 329.69 156.12 252.31 43.51 79.99 Closing balance of cash and cash equivalents Annual Reports: 1. 2015-2016: https://www.ril.com/DownloadFiles/ComposingFinalFiles/Reliance%20Retai l%20Limited.pdf 2. 2017-2018: https://www.ril.com/DownloadFiles/FinancialStatementOfSubsidiaries17- 18/Reliance%20Retail%20Limited.pdf 3. 2018-2019: https://www.ril.com/DownloadFiles/FinancialStatementOfSubsidiaries18- 19/Reliance%20Retail%20Limited.pdf

Ownership: Shareholding Pattern: Shareholding Pattern 1% Reliance Retail Ventures Ltd Public 99% Prominent Investors: Mukesh Ambani

News: 1. Reliance Retail Q4 revenue grows despite COVID-19 related disruptions: https://bit.ly/2YyBqwa 2. Reliance Retail at the core of mega Jio-facebook deal: https://bit.ly/2SFrldb 3. Reliance Retail share swap plan to value firm at around ₹ 2.5 Lakh crore: https://bit.ly/3ba23tX 4. Reliance Retail shareholders may challenge RIL share swap at NCLT: https://bit.ly/2L30Xpf 5. RIL rolls back compulsory share swap of Reliance Retail: https://bit.ly/35EFZXo Videos: YouTube Video Link: https://www.youtube.com/watch?v=p0TxugP6JK8