The retail unit of RIL could be the next engine of growth: Goldman Sachs

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According to a leading global financial institution Goldman Sachs, Reliance Industries Limited’s (RIL) retail unit could be the next growth driver for the Indian multinational conglomerate. The retail business has grown 5x over FY16-20.

Due to the COVID-19 pandemic, the retail business took a hit but RIL continued to focus on building strong digital capability.

In a report this week, brokerage and research firm’s analysts have said that retail earnings before interest, taxes, depreciation and amortization (EBITDA) could grow 10x in the next ten years.

The report stated, “During the macro downturn , RIL has focused on building strong digital capabilities and we believe the scale-up in omnichannel offering is driving sizeable market share wins. We see a six-fold increase in grocery organized retail penetration in India by FY30, coupled with 15% market share gain of RIL.” Presently, RIL holds a market share of 41.5 per cent in organized retail space.

Goldman Sachs’s note also highlighted that it expects the core retail of RIL is to increase at a 36 per cent compound annual growth rate (CAGR) over the next four years to $44 billion while expecting e-commerce revenues to occupy 35 per cent of total revenues in FY25 at  $15 billion.

Since the month of September, 2020, RIL’s share price has underperformed the Nifty50 Index by 39 per cent. The brokerage firm added, “Risk reward looks favourable, with 40% upside in our bull case and 14% downside in bear case.” It has a ‘buy’ rating on the stock with a ₹2,425 target price translating to 7.7 percent upside from current levels in the next one year.