RIL - Qatar Investment Authority Invests In Reliance Retail; 0.5% Dilution For RIL Shareholders: Motilal Oswal

Motilal Oswal Report

Reliance Industries Ltd. has announced that Qatar Investment Authority would invest Rs 82.8 billion in Reliance Retail Ventures Ltd. through a wholly owned subsidiary. This investment is set at a pre-money equity valuation of Rs 8.3 trillion. At an estimated net debt of Rs 332 billion in FY25, the Reliance Retail’s enterprise stands at Rs 8.6 trillion and equity per share stands at at Rs 1,200.

Compared to previous deals in FY20 where the company raised ~Rs 473 billion at enterprise /Ebitda of ~25 times in FY25 and average equity of Rs 710 per share. EV has almost doubled to Rs 8.6 trillion from Rs 4.4 trillion.

The valuation aligns with prior transactions, hovering around ~27 times EV/Ebitda based on a two-year forward. Notably, Ebitda has doubled in the last three years, reaching Rs 179 billion in FY23.

We have assigned 37 times EV/Ebitda on FY25E, arriving at an EV of Rs 11.7 trillion, with a per share of Rs 1670 (Rs 1485 for RIL).

Valuation and view

We estimate Reliance RetailL’s revenue/Ebitda compound annual growth rate at 25%/34% to Rs 4.1 trillion/Rs 320 billion in FY25. Of this, core revenue/Ebitda should contribute 72%/90%, i.e,. Rs 2.6 trillion/Rs 290 billion.

With the QIA’s stake in Reliance Retail increasing by 0.99%, RIL’s ownership in Reliance Retail has decreased to 88.9% (earlier 89.9%). This resulted in a slight reduction in Reliance Retail’s within RIL’s SOTP to Rs 1,485 (versus Rs 1,500 before). This This dilution impacted RIL’s SOTP valuation by ~Rs 15 (0.5% of RIL SOTP).

This led to a slight decrease in target price to Rs 1,485/share. However, the multiples for core/petrol and connectivity Ebitda for FY25E were retained at 40 times/five times EV/Ebitda.

Using SOTP, we the refining and petrochemical segments at 7.5 times EV/Ebitda, arriving at a valuation of Rs 904/share for Standalone business. We ascribe an equity valuation of Rs 750/share to RJio and Rs 1,485/share to Reliance Retail, factoring in the recent stake sale and an equity valuation of Rs 16/share pertaining to New energy on book .

We reiterate our 'Buy' rating with a target price of Rs 2,920.

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