Mukesh Ambani readies for mega IPOs of Reliance Retail
Mukesh Ambani’s companies, Reliance Retail Ventures (RRVL) and Reliance Jio Platform, are preparing to launch two of India’s largest initial public offerings (IPOs) (RJPL). If promoters dilute at least 10% of their holdings, each company is likely to raise 50,000-75,000 crore ($6.5 billion to $10 billion) from the stake sale.
According to certain sources, a global listing for both RRVL and RJPL, as well as an Indian listing, cannot be ruled out. Reliance Jio may also be listed on the Nasdaq platform in the United States, which is the world’s largest marketplace for technology companies.
“After the dust settles from the Russia-Ukraine conflict, both RRVL and RJPL are expected to file the prospectus with market regulators.”Mukesh Ambani has spent years researching how billionaire families, from the Waltons to the Kochs, pass on what they’ve built to the next generation.
That process has recently accelerated, with Asia’s richest man eyeing a blueprint for the next stage of his $208 billion empires, with the goal of avoiding the succession warfare that has torn apart so many wealthy clans, including his own.
According to people, who are familiar with the matter, the 64-year-old Indian tycoon’s preferred plan shares elements with that of Walmart Inc.’s Walton family and could provide the framework for one of the largest transfers of wealth in recent times.
According to the people, Ambani is considering putting his family’s holdings in a trust-like structure that will control the Mumbai-listed flagship Reliance Industries Ltd. They particularly asked not to be identified because they are not authorized to discuss the matter publicly.
Ambani is not alone in his desire to manage the next stage.
Across Asia, an aging generation of tycoons is grappling with the transition from creating wealth to passing it on. These empire-builders founded industries, turbo-charged development, and made unprecedented fortunes as a result of the region’s explosive post-Second World War growth, with close to $1.3 trillion set to change hands between Asia’s first-generation founders and their heirs over the next decade, according to Credit Suisse Group AG.
According to Winnie Qian Peng, director of the Tanoto Center for Asian Family Business and Entrepreneurship Studies at Hong Kong University of Science and Technology, how Asia’s richest individual handles succession could inspire others in the region to think more carefully about how they transfer family wealth and power. “The Ambanis are Asia’s wealthiest family; people will undoubtedly look to them.”
According to sources, the RRVL IPO will be launched around December 2022, followed by RJPL. According to sources, “in 2020, RJPL sold a 33% stake to 13 investors, including Facebook and Google, a portion of which could be offered in the IPO by them.”
“RRVL can be valued at around Rs. 8 lakh crore, based on a top line of around Rs. 1.75 lakh crore for the fiscal year 2023.” Because of its high EBITDA (earnings before interest, taxes, depreciation, and amortization) margin of 40-50%, RJPL could be valued at around 7.5 lakh crore.
If we’ve ever seen an obvious IPO candidate, it’s Reliance Retail Ltd. It has everything that investment bankers and initial public offering (IPO) investors desire. It is the largest in its industry (revenues nearly double that of D-Mart), it is expanding rapidly (37 percent growth last year), and its margins have improved (from 4.2 percent in FY17 to 6 percent last year).
Here’s the clincher: retail stocks are hot. Avenue Supermarts Ltd, which operates the D-Mart retail chain, trades at more than six times FY18 revenue and nearly 70 times operating profit. Furthermore, its massive post-IPO rally has rubbed off on other retail stocks.
If Reliance Retail goes public anytime soon, it will be striking while the iron is hot. Brokerages such as CLSA and Kotak Institutional Equities have already assigned an enterprise value of more than one trillion rupees to Reliance Retail, and valuations on a listing can be much higher. If it is well marketed, which isn’t asking much from the Reliance group of companies, the company can be valued at more than $20 billion.
According to analysts, there may never be an IPO for Reliance Retail. According to what I’ve heard, the company’s parent has bigger plans. Reliance Industries is expected to launch a mega IPO of its consumer businesses when they are ready.
It has been referring to its retail business as “consumer businesses” in the same breath as its telecom venture, Reliance Jio Infocomm Ltd.
During the year, our consumer businesses reached a tipping point where they will begin to make a meaningful contribution to consolidated profits. Jio and Retail accounted for 13.1 percent of RIL’s consolidated Segment EBITDA in FY 2017-18, up from 2% in FY 2016-17. In the annual report, chairman Mukesh Ambani wrote to shareholders, “Our goal is to have the consumer businesses contribute on par with the energy and materials businesses over the next decade when we celebrate our Golden Jubilee.”
Apart from the fact that the two companies already collaborate closely—Reliance Retail is the master franchisee for Reliance Jio—the parent anticipates significant synergies in the future. For example, if a Reliance Jio customer wants to buy groceries online, revenues can be kept within the family if an app directs him to Reliance Retail’s e-commerce wing.
Furthermore, vouchers that can be used on both platforms can increase customer loyalty and cross-selling opportunities for both businesses.
Perhaps the company believes that a Reliance Retail IPO on its own would not bring much to the table, especially in light of its overall investments in non-energy businesses. Last year, capital expenditure in the telecom industry was 49,000 crore, or more than $7 billion.
This year is unlikely to be any different. When Reliance decides it is time for outside investors to share some of the burdens of funding its grand plans, it wants it to be large enough to recoup a significant portion of its own investments. Combining the telecommunications and retail businesses may provide the heft required to raise large sums and deleverage the balance sheet.
Having said that, it still makes sense for the company to investigate a separate listing of its retail and telecom divisions. For starters, the two companies will attract different types of investors.
The fundamental tenet for unlocking value in a subsidiary is to attract investors with an appetite for a specific business vertical, thereby, eliminating the embedded holding company discount. If a combined consumer business arm is listed, there will be pressure to split the two divisions.
With nearly 420 million subscribers, Reliance Jio is one of the world’s largest telecom service providers. CLSA, a brokerage firm, has valued RJPL’s mobile business at $ 99 billion, or 11.5 times the EV (enterprise value)/EBITDA, as well as the telco’s home broadband business, JioFibre, at $5 billion EV.
RIL, the biggest promoter of RRVL and RJPL, had a market capitalization of 19.07 lakh crore ($250 billion) as of Thursday’s close.