Ambanis Tighten Retail Unit Operations, Cut Jobs To Boost Valuations Before Market Debut: Report

Reliance Retail is cutting jobs and taking other cost cutting measures like limiting expansion in a bid to boost valuations before its initial public offering kicks off, according to a Bloomberg report.

Mukesh Ambani recently acknowledged Reliance Retail Ventures Ltd.'s quick growth via expansion into various geographies. This expansion, along with concerns about slowing sales, has led to its valuation cut to $50 billion, half the amount at which it raised funds two years back.

The valuation cut, just as the conglomerate plans to list the retail unit does not bode well for early investors, especially when talks of buyback by marquee investors yielded little results, according to the report.

Whilst overseeing job cuts and slashing costs, Ambanis are limiting the presence of their physical stores, slashing marketing budgets and merging Reliance Brands Ltd, with its umbrella retail entity, sources aware of the development told Bloomberg News. Further, the hiring of employees above a certain pay scale now requires approval from Mukesh Ambani, Bloomberg News has learnt.

According to the report, Ambit Capital Pvt. has slashed the valuation of the retail unit to $50 billion, a discount to $125 billion that the group aims ahead of going public, to realise the maximum value of about $8 billion worth of investments from global investors. The news agency also learnt that there will only be a 5% dilution when going public.

Meanwhile, Jefferies maintained its 'buy' call on the flagship Reliance Industries Ltd. with a target price of Rs 1,660 per share. The stock assumes significance as it has fallen over 25% since its peak last year.

Pessimism seems extreme, with current market capitalisation implying $48 billion enterprise value for the retail unit versus $106 billion in the last funding round, analysts at the brokerage said. The underperformance of the stock to the benchmark Nifty is due to a slowdown in Retail and subdued earnings in oil-to-chemicals.

In the third quarter of this fiscal, the retail unit's total store count reached 19,102 and it recorded footfalls of nearly 30 crore, a 5% year-on-year growth. "The focus on scaling up digital commerce and new commerce continued with these channels contributing to 18% of total revenue," the company said earlier.

Reliance Retail Ventures' consolidated net profit rose 10% and revenue increased 7% year-on-year in the third quarter of the current financial year. The operating profit rose 9% to Rs 6,828 crore, whereas its margin against the top line expanded by 20 basis points in the same period to 8.6%.