Goldman Sachs identifies next big trigger for Reliance Industries

MUMBAI: Brokerage firm Goldman Sachs is confident that after the telecom-led rerating in ’ business over the past few years, retail vertical will take the centre stage going forward after having been adversely affected by the Covid-19 pandemic.

The brokerage firm said that RIL has spent the past year building strong digital capabilities and its scale-up of the omni-channel offerings is driving substantial market share gains for Reliance Retail.

“We believe retail business (including e-commerce) is set to be the next growth engine for RIL, with potential for retail EBITDA to grow 10x over the next 10 years,” the brokerage firm said in a note today.

As Goldman Sachs foresees a six-fold rise in organized grocery retail in India over the next 10 years, it expects RIL to gain an incremental market share of 15 per cent. Currently, Reliance Retail’s market share including stores of Future Group stands at close to 41.5 per cent.

Goldman Sachs believes that as Reliance Retail goes full-throttle for dominance of the retail sector, its core retail revenues could grow at a rate of 36 per cent per annum over the next four years to $44 billion with e-commerce contribution rising to 35 per cent by 2024-25.
“We value RIL retail business at $88 billion in our base case with our offline business valuation similar to comps and online business valuation at the high end of the peer group given higher GMV growth,” the brokerage firm said. Goldman Sachs’ bull case for the retail business values it at $120 billion.

Goldman Sachs’ bullish case for RIL’s retail business rests on four major drives:

• Omni-channel retail approach leading market share wins for the company
• Fresh food segment is an untapped opportunity for the company as it is best-placed to win market share
• Rise of private label products on Reliance Retail and JioMart shelves could drive pricing power and margins
• Expansion to tier-II and tier-III cities where Reliance Retail can garner market share from unorganized players

Over the next 12 months, Goldman Sachs expects continued sequential earnings recovery along with catalysts from telecom tariff hikes, new product launches with Google, Facebook and Microsoft, and value unlocking from a potential energy business stake sale.