Analysts see long-term value creation for shareholders of RIL after purchase of Metro’s India unit

Securities firms say RIL’s consumer business will be the growth driver in the years to come.

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Securities firms were upbeat on Friday, December 23, about the prospects of Reliance Industries Ltd (RIL), judging its acquisition of Metro AG’s India wholesale business to be accretive to the company’s stakeholders.

RIL’s subsidiary Reliance Retail Ventures Ltd (RRVL) on December 22 announced the acquisition of Metro Cash and Carry India Pvt. Ltd after signing definitive agreements to acquire 100 percent of the unit for a cash consideration of Rs 2,850 crore.

ICICI Direct has upgraded RIL’s stock to buy from hold with target of Rs 3,050 per share, an upside of over 18 percent from current market price.

“Long term prospects and dominant standing of RIL in each of its product and service portfolio provide comfort for long term value creation. RIL’s consumer business will be the growth driver, going ahead. We revise our rating on the stock from hold to buy with target of Rs 3,050 on an SoTP basis,” the securities firm said.

SoTP is short for Sum of The Parts.

Metro India, a wholly owned subsidiary of German wholesale retailer Metro AG, started operations in India in 2003 as the first company to introduce the cash-and-carry business format in the country and now runs 31 large format stores across 21 cities with about 3,500 employees.

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Through the acquisition, Reliance Retail gets access to a wide network of outlets and retail and institutional buyers, and a strong supply channel. It will also widen Reliance Retail’s physical store footprint and the ability to better serve consumers and small merchants by leveraging synergies and efficiencies across supply chain networks, technology platforms and sourcing capabilities.

In another development, Reliance Jio’s arm, Reliance Projects and Property Management Services (RPPMSL), has completed the acquisition of 100 percent of Reliance Infratel for about Rs 3,720 crore, Reliance Industries said on December 22.

The Mukesh Ambani-led company had placed a bid of Rs 3,720 crore in November 2019 to acquire the tower and fiber assets of the debt-ridden subsidiary of his younger brother Anil Ambani’s Reliance Communications.

“The 5G launch has begun for Jio in the last couple of months and is likely to reach pan-India by December, 2023. Superior spectrum portfolio along with superior digital ecosystem offering lends Jio a competitive advantage even in 5G (as seen in 4G foray). We expect ARPU, EBITDA of Jio to grow at ~12 percent, ~22 percent, respectively, over FY22-25E,” the securities firm said.

ARPU stands for Average Revenue Per User and EBITDA for Earnings Before Interest, Tax, Depreciation and Amortisation.

Despite the positive reactions from analysts, shares of RIL were trading in the red in the morning session on December 23 as the market stayed weak for a lack of positive cues.

At 12:34 hrs Reliance Industries was quoting at Rs 2,530.05, down Rs 47.85, or 1.86 percent on BSE. It has touched an intraday high of Rs 2,589.75 and an intraday low of Rs 2,520.00.

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