Reliance’s retail formats are still posting losses

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Even as subsidiaries continue to make losses, Reliance Retail has aggressively expanded its presence through acquisitions and tie-ups with luxury and mass-market brands.

In FY22, it added six brands to its list of retail businesses, including American fashion brand Gap, Italian luxury lifestyle brand Tod’s, fresh produce chain and Pret a Manger organic coffee and the Catwalk shoe brand. Recently, he also signed Balenciaga in India.

In FY22, Reliance Retail invested Rs 30,000 crore globally in investments, acquisitions and strategic partnerships, according to its annual report.

That’s as much as the owner of chain D-Mart Avenue Supermarts Ltd.’s annual sales. and higher than Tata-owned Trent Ltd., Shoppers Stop and Aditya Birla Fashion and Retail Ltd. This underscores the fact that Reliance Retail’s broad scope of business is unlikely to see a direct threat from competitors.

But this has a cost.

Reliance Retail’s aggressive growth ambition has turned the balance sheet into net debt. As of March 31, 2022, Reliance Retail carries a net debt of Rs 6,559 crore. A year ago, it had net cash worth Rs 33,546 crore, according to its financial statements.

In FY21, Reliance Retail raised approximately $6 billion through the sale of a 10% stake to investors including Silver Lake, KKR, Mubadala, Abu Dhabi Investment Authority, GIC and TPG, among others. The capital increase from the previous year was deployed on capital expenditures and mergers and acquisitions in FY22.

A likely increase in related party transactions, however, may lead to investor unease as Reliance Retail lists separately, according to a report from Jefferies.

“Reliance Retail’s capital expenditure remains high at around Rs 9,000 per square foot – we do not yet fully understand the reason for this… Its CWIP (capital work in progress) has increased by 70% year-on-year for reach Rs 12,000 crore and it also has another Rs 12,000 crore of intangible assets under development, which seems high given the nature of the retail business.”

CWIP is used to record current costs for long-term projects before they are ready for use.

Reliance Retail has also made a series of smaller acquisitions to strengthen its footprint, but even these are not yet profitable.

For example, Jaisuryas Retail Ventures Pvt., a regional grocery chain in South India, which was acquired by Reliance Retail in November 2021. It recorded a net loss of Rs 62 crore and negative free cash flow of Rs 3.3 crore.

The company has an accumulated loss of Rs 62.42 crore and its net worth decreased by Rs 21.64 crore during the year, according to the financial statements.

He also took over Kalanikethan Silks Pvt. in November 2021. The leading sari and ethnic clothing retailer also records losses to the tune of Rs 42.23 crore, as of March 31, 2022, although it reduced it by Rs 146 crore during the financial year 21, according to its financial statements.

Jaisuryas operating revenue fell by 16.6% to Rs 71.89 crore in FY22, while Kalanikethan Silks revenue increased by 5% in the period.

Filings by online dairy and grocery store Milkbasket show its losses soared to Rs 65.92 crore in FY22 from Rs 33.17 crore in FY21. Excluding exceptional items and taxes, its losses stood at Rs 25.8 crore. Revenue also fell by 19% to Rs 421 crore.

However, not all Reliance picks bleed.

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