The retail arm of Reliance Industries Limited (RIL), Reliance Retail is growing at a high speed. This year, it has already crossed revenues of Rs 10,800 crore and achieved a break-even with an EBITA of Rs 78 crore. It is an achievement for the company while other retail players are struggling in this segment.
Furthermore in the last Annual General Meeting, Chairman Mukesh Ambani said that their retail business would grow rapidly in coming years. He expected that its revenue would grow by 50 percent each year, so that the company achieves its goal of annual revenue of Rs40, 000-50,000 crore. To achieve this goal, the key drivers would be from volume generated by cash-and-carry stores, value formats and high margin specialty formats such as Reliance Trends and Reliance Jewels.
“The bottom line of Reliance Retail will come from its specialty formats, while top line growth will be driven by food and grocery segment,” said Bijou Kurien, President and Chief Executive, Lifestyle Reliance Retail.
Going by the figures, this leading retail chain brand grew at an overall CAGR (Compound Annual Growth Rate) of 33 percent in the last year. Its highly profitable areas turned out to be value format brands like Reliance Fresh, Reliance Super, Reliance Mart that grew at a CAGR of 19 percent and contributing Rs6,100 crore in the total revenue.
Apart from this growth factor, another piece of news that is making industry observers happy is that EBITA has turned positive for the company. EBITA is an acronym that refers to a company’s earnings before the deduction of interest, tax and amortization expenses. “It is happy news that Reliance has turned EBITA positive is definitely an achievement but it is just the starting point. Going up to a sales turnover of Rs 10,000 crore has generated enough volumes for it to break even,” says B.S.Nagesh, Vice-Chairman, Shopper’s Stop.
Any retail investment becomes less viable with the cost of rents that come for its stores. For Reliance, its growing retail business won’t turn out to be an asset-heavy model as it owns some properties of Trends and Footprints. Its cash-and-carry stores are prospering also because other multinational companies in this segment are charged with heavy taxes. This comes out to be an advantage for Reliance that will stimulate its profitability. Today, almost 40 percent of Reliance Retail’s sales come from the food and grocery segment. It is a market norm that food and grocery have never enjoyed good margins, but the company has managed a good balance between its food and non-food formats such as apparel, footwear and jewellery.
Mukesh Ambani had announced an investment of Rs 25,000 crore when its retail chain was launched in 2006. Backed by a rich cash-reserve of RIL, the retail chain will face no major down-turns.