Reliance may use stake sales to help fund expansion plan
Reliance Industries Ltd (RIL), which has raised more than ₹2.2 lakh crore through stake sales, is likely to go on a shopping spree as the Covid-19 pandemic has clouded the prospects of cash-strapped businesses, making them takeover targets, said three people aware of the company’s plans.
Reliance Industries is actively looking to acquire startups, as well as mature companies, to strengthen its digital commerce, 5G and fibre-to-the-home businesses to create India’s largest digital ecosystem spanning telecom, retail and payments, the people said on condition of anonymity.
In June, RIL had said that it has become zero net debt, after offloading stakes in the Jio Platforms unit in back-to-back transactions with strategic and financial investors.
“Reliance Industries will pay creditors when the payment is due. Currently, the company is planning to use the money it raised over the past few months to invest across businesses, rather than retire debt,” said one of the three people.
Reliance Industries’ gross debt stood at ₹3.36 lakh crore at the end of the past fiscal year.
Kotak Institutional Equities, in a September 9 report, said that Reliance Industries is likely to make large investments to acquire synergistic opportunities across businesses to deploy its large cash balance and incremental free cash flow.
On September 9, Reliance Industries’ retail arm, Reliance Retail Ventures Ltd, sold a 1.75% stake for ₹7,500 crore to private equity firm Silver Lake Partners.
The conglomerate is in talks with more investors for similar stake sales in its retail business.
Reliance Industries shares surged more than 7% on Friday to a record high of ₹2,313.90, making it the first Indian company to hit a market capitalisation of $200 billion.
“Reliance Retail is likely to use a part of the fundraise for Future group acquisition pay-out/debt repayment,” said Axis Capital in a September 9 note.
Last month, Reliance Retail Ventures acquired the retail and wholesale business and the logistics and warehousing business from Future Group for ₹24,713 crore.
Reliance Retail is India’s largest physical retailer with operations across grocery, apparel, electronics and fuel retailing.
Over the past four years, Reliance Industries has been able to build a ‘digital layer’ on top of the existing ‘physical layer’ of retail shops across electronics, grocery and apparels, according to a research note by BofA Securities.
“We expect Reliance Industries to increase its investments in supply chain and tech-enabled logistics so as to improve last-mile customer experience,” the report said, adding that RIL would likely have the JioMart app inside WhatsApp.
“This should help Reliance Industries improve its reach and business momentum. The new commerce model (in which Reliance is looking to tie up with kiranas) also would likely garner scale as tech adoption improves,” it said. In the last three years, RIL has made 30 acquisitions in the startup space. A majority of the acquisitions were done to add value or to fill gaps in RIL’s consumer offerings. All these investments fall under five categories: telco, retail, education, healthcare, and agriculture.