Why Reliance’s retail arm can attract more investments

The retail arm of Reliance Industries, Reliance Retail, raked in $1 billion from Silver Lake earlier this month. This comes at a time when the overall private equity and venture capital (PE-VC) investments into the retail space in the country haven’t been painting a pretty picture.

In fact, Silver Lake’s investment in Reliance Retail accounts for nearly 96 per cent of the total investments that went into the retail segment this year, in the January to September period, shows data from Venture Intelligence, a firm that tracks private companies’ investments, financials and valuations.

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“Reliance is an attractive proposition from both offline and online perspective, as it sells all the product categories that address consumer needs — from groceries, fashion to electronics,” said Pankaj Raina, Managing Director, Research and Investments, Zephyr Peacock India, adding, “Technology is the key to India’s retail proposition and Reliance is well-positioned to cater to upstream and downstream with its technology infrastructure and retail presence.”

In the first quarter of the financial year 2020-21, Reliance Retail generated a gross revenue of ₹31,633 crore, which accounted for 31 per cent of the Reliance Industries revenue. This is despite 50 per cent of their stores remaining fully shut through the quarter and 29 per cent stores partially operational. Their grocery arm recorded a growth of 5 per cent year-on-year in the April-to-June quarter and their connectivity segment went up by 30 per cent year-on-year during the same period.

“In India, online and offline retail share a balance and complement in terms of catering to the country’s demands. While global investors have shown great interest in Jio Platforms for its future, the interest in Reliance Retail is for the past work that the group has been able to establish in the country. Now, it will be interesting to see how the other big Indian retail players are able to attract investment based on this development,” said Anuj Golecha, Co-Founder, Venture Catalysts.

Outlook for Indian retail

The overall outlook for the retail segment in India is also projected to be positive. In a report released by the Indian Brand Equity Foundation in August this year, the retail market size in the country — which contributes 10 per cent to the GDP and 8 per cent to employment — is forecast to grow to $1,200 billion by 2021, from $950 billion in 2018. While the e-commerce segment accounted for only 3 per cent of the overall retail market in FY19, the space has nevertheless been growing. In 2019, online retail companies raked in $1,902 million, up nearly 70 per cent from $1,119 million in 2018.

“In the retail sector, Covid tilted the balance in favour of neighbourhood shops vs upscale malls. E-commerce proved to be a saviour in this pandemic. Overall, Indian retail will digitise, and millions of unorganised stores will digitise from offline only to offline and online. India is home to many innovations (low-cost accounting tools, access to listing sources) and access to low-cost data. This will help this transition from offline to online,” Zephyr Peacock’s Raina said.

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