Can Reliance Retail grow 12 times to Rs 10 lakh crore in 10 years?

On the eve of the third quarter financial result announcement of Reliance Industries (RIL), India's largest company by market valuation, the growth projections of its retail business fanned the hopes of the investors. Buoyed by the positive report of global brokerage CLSA, which predicted next leap of growth for Reliance Retail and Jio, the share price of RIL jumped 3.8 per cent in two days (around Rs 20,000 crore in value) before the result on Thursday.

Mukesh Ambani said in 2017 shareholder meeting that Reliance Retail was a business with significant growth possibilities. "I have set our leadership a target of 30 per cent growth each year over the next decade," he added. He planned a massive expansion in rural and semi-urban markets for achieving the 30 per cent growth annually over the next 10 years. The retail business, which completed 11 years of full-fledged operation, had recorded revenues of Rs 69,198 crore in the last financial year, a 105 per cent growth compared to the previous year. The year before that the company grew 60 per cent. The company posted an earnings before interest and tax (EBIT) of Rs 2,064 crore, up 163 per cent. In the first half of this financial year, Reliance Retail again shocked the market, growing its revenues to Rs 58,326 crore (up by 122 per cent) and EBIT to Rs 2313 crore (up by 270 per cent).

In this context, the annual growth target of 30 per cent is achievable for Reliance Retail. CLSA assumes the Indian retail market to rise three times to $2.2 trillion in 10 years while organised retail to witness a spike of nine times to $550 billion with online making up 48 per cent. "While organised retail may become a highly consolidated market, RIL's omni-channel strategy has all the ingredients to make it a leader," CLSA said. Even assuming a moderate 25 per cent market share, Reliance Retail's revenue is set to rise over 12 times to $137 billion by 2028 and could take its value to over $100 billion, the brokerage added.

The major advantage for the organised retailer like RIL is that it no longer has the set issues that it faced during its launch time in 2006. When the company launched its first store in Uttar Pradesh in 2006, it had faced agitations from the political parties - which supported the large spectrum of neighborhood Kirana stores and confronted the spread of organised players - and had to soft peddle the launches in other cities. It regained momentum and started opening stores in the next financial year, completing 13 years of operation. In addition, the threat of global retailers coming to India is no more a fear for big players like Reliance. Walmart came in for a bigger play in India through the acquisition of e-commerce business Flipkart, but they are not a formidable force before Reliance's might. RIL is in the multi-channel play to counter the e-commerce biggies like Amazon and Flipkart.

When Ambani projected 30 per cent annual growth two years back, Rs 4.65 lakh crore was the assumed revenue projection for 2027. But CLSA's $137 billion (Rs 9.7 lakh crore) projection is double compared to Ambani's estimate. Reliance Retail continues to be the largest and fastest growing retailer in India with a reach across over 5,800 towns and cities. It added 138 stores and 535 Jio Points during the second quarter translating into over 55 store openings in a week. It operated 9,146 stores with an area of over 19.50 million sq ft and 512 petro outlets as of September. "Given its sector-leading 10,000 plus stores, an engaging e-commerce offering could give Reliance a huge lead in creating a formidable omni-channel model, which is seen by many experts as a key success factor for the Indian market," CLSA report said.

Also read: Reliance Industries stock trading higher ahead of Q3 earnings today