Reliance Retail Net Debt Mounts To Rs 37,500 Crore In FY23 On Capex Push
Jefferies says the capex hasn't resulted in a proportionate increase in revenue, probably as the new assets are under ramp-up.
The net debt of Reliance Industries Ltd.'s retail arm jumped manifold in fiscal 2023, led by aggressive capital expenditure.
Reliance Retail Ventures Ltd.'s net debt jumped to Rs 37,500 crore in FY23 from Rs 1,600 crore a year ago, according to the company filings.
The rise was driven by a 70% increase in capex to a staggering Rs 51,400 crore. This forms a third of RIL's overall capex.
"FY23 capex alone is 85% of the cumulative capex over the previous seven years," Jefferies Financial Group Inc. said in a research note. The cumulative retail segment capex over the last four fiscals was over Rs 1 lakh crore.
With unmatched scale and portfolio spread, Reliance Retail is the most aggressive retailer.
In FY23, the country's largest retailer added 2,844 stores, taking the total to 18,040. These stores are spread across 65.6 million square feet, an increase of 24 million square feet from the previous year and 1.8 times of the total area of DMart—the second largest retailer. The retail footprint expanded partly on account of the acquisition of the Future Group stores.
Reliance Retail has also expanded warehouse capacity to 35 m sq. ft., according to its annual report.
In the fiscal-ended March, the retailer crossed the milestone of 1 billion transactions with total footfalls rising 50% to 780 million.
Its registered customer base reached 249 million, according to the report. Digital and new commerce contributes 18% of the revenue.
Reliance Retail expanded into beauty formats under 'Tira' and also launched retail formats under Smart Bazaar, Azorte, Centro, Fashion Factory and Portico.
The retailer also remained active on mergers and acquisitions. It acquired Metro Cash and Carry, V Retail in footwear, Sosyo in beverages, and Lotus Chocolate in the confectionery segment as well as partnered with Gap Inc., Pret A Manger, Maliban Biscuit Manufactories Pvt., Toffeeman and Valentino.
In FY23, Reliance also forayed into the $110-billion fast-moving consumer goods space to take on the likes of Hindustan Unilever Ltd. to ITC Ltd. It launched products under 'Independence' and 'Campa' brands.
"FY23 was a busy year on e-commerce ramp-up, new formats introduction and a foray into FMCG space," Jefferies said.
This kept the headline capex levels high although it does not fully explain the continued high level of per-square-foot capex as well as intangibles, mainly for new commerce. Reliance Retail needs to improve its disclosures, according to Jefferies.
In the last fiscal, Reliance Retail has spent 66% of the capex towards property, plant, and equipment addition, which is related to store additions and warehouse expansion. However, the implied capex per square foot remains quite high—even higher than DMart, which has an ownership model. The capital work in progress more than doubled to Rs 25,300 crore, according to Jefferies' estimates. "FY23 CWIP addition of Rs 13,000 crore was even higher than that for the previous seven years combined."
Gross intangibles rose 2.4 times to Rs 27,400 crore, primarily on account of the capitalisation of the platform and related product developments worth Rs 10,887.9 crore. This is related to e-commerce businesses, including JioMart and Ajio. The company's working capital was flat, despite increasing scale of business, resulting in lower days of sales.
Jefferies said the incremental capex hasn't resulted in a proportionate increase in revenue, probably as the new assets are under ramp-up. The incremental revenue added over FY16 to FY20 was 3.7 times of the capex, while revenue added were only 0.7 times of the FY20–FY23 capex.
Free cash flow saw a sharp Rs 37,000-crore drawdown due to higher capex. Reliance Retail's investment in subsidiaries fell 50% over the previous year to Rs 4,700 crore, it said. "Investments have come off as there was no big-ticket acquisition (the Metro acquisition was completed post-March)."
Quick Glance At Reliance Retail's FY23 Financials (YoY)
Net profit surged 30% to Rs 9,181 crore.
Revenue from operations (net) rose 32% to Rs 2.3 lakh crore.
Gross revenue stood at Rs 2.6 lakh crore, a growth of 30%.
Ebitda increased 45% to Rs 17,928 crore.
Margin expanded 130 basis points to 7.6%.
The retail vertical saw increased depreciation on account of higher asset base due to addition of new stores and supply chain infrastructure. It also bore high finance costs due to increased borrowing for business expansion. Reliance Retail's borrowings stood at Rs 46,640 crore in FY23.
Last year, it sought shareholders' approval to increase its borrowing limit from Rs 50,000 crore to Rs 1 lakh crore to boost its growth and expansion.
On Wednesday, Reliance Retail Ventures said that Qatar's sovereign wealth fund—Qatar Investment Authority—is investing Rs 8,278 crore in the company for a 0.99% stake, valuing the unlisted company at $100 billion.
After the stake sale, Reliance Industries Ltd.'s ownership in Reliance Retail has decreased to 88.9% from 89.9%.
Motilal Oswal expects Reliance Retail's revenue and Ebitda to increase by about 25% and 34%, respectively, each year to reach Rs 4.1 lakh crore in revenue and Ebitda of around Rs 32,000 crore by 2025.
