Reliance Retail - Good performance in a challenging macro in FY14; turns PAT positive: JPMorgan

India Retail Reliance Retail - Good performance in a challenging macro in FY14; turns PAT positive

Reliance Retail (a subsidiary of RIL, which is covered by Samuel Lee and Neil Gupte) has significantly stepped up the pace of store operations across various segments over the past few years and now operates 11.7mn sq ft of retail space. It has emerged as the largest retail chain in the country and is now closing in on Future Retail in terms of revenue (for comparable value formats). Below are key highlights of the company’s performance in Q4FY14 and FY14.

· Aggressive store expansion. Reliance Retail added 225 stores over FY14 taking total store count to 1691. Total space as of FY14 end was 11.7mn sqft (+2.7mn sqft y/y) across 146 cities (+17 y/y). Electronics segment witnessed highest store additions followed by fashion & lifestyle segment. Store additions for the jewellery format were quite low at three only. Retail space concentration was broadly same as last year with South accounting for the highest share at 38% followed by West (34%), North (20%) and East (8%). The company launched a new format – ‘Digital Express Mini’ – smaller sized stores offering mobility and communication products and solutions and easier to scale up in smaller towns.

Reliance Retail – Revenue mix for FY14 Source: Company

Reliance Retail – Format wise store count and total space Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Value Format 760 769 774 708 718 Digital 139 151 180 212 284 Fashion and Lifestyle 448 455 471 508 533 Jewellery 51 54 54 54 54 Brands 68 82 90 95 102 Total store count 1,466 1,511 1,569 1,577 1,691 Total retail space (mn sq ft) 9.0 9.4 10.0 10.7 11.7 Source: Company

· Mixed SSSG trends in a challenging macro. Reliance Retail posted 9% SSSG for FY14 for the value format (vs 18% in FY13 and 11% in 9MFY14) indicating moderation. Fashion & Lifestyle segment however posted 20% SSSG for FY14 (vs 8% in FY13 and 20% in 9MFY14). Jewelley segment continues to face demand and regulatory challenges (-ve SSSG in 1HFY14).

Reliance Retail – Format wise LFL growth

	FY13	Q1FY14	1HFY14	9MFY14	FY14
Value Format	18%	17%	12%	11%	9%
Digital	17%	17%	13%	10%	NA
Fashion and Lifestyle	8%	22%	22%	20%+	20%+
Jewellery	7%	20%	Negative	NA	NA
Brands	12%	10%	1%	NA	NA

Source: Company

· Focus on profitability remains – turns PAT positive. After breaking even for the first time at EBITDA level in FY13, Reliance Retail turned PAT positive (Rs1.8bn) in FY14 led by strong sales growth (+34% y/y) and gradual improvement in EBITDA margins (2.5% in FY14 vs 0.7% in FY13) and some one-off gains.

Reliance Retail – Annual and quarterly financials (Rs mn, %)

	FY12	FY13	Q1FY14	Q2FY14	Q3FY14	Q4FY14	FY14
Revenue	75,990	108,000	34,740	34,560	39,270	36,390	144,960
% growth		42%	53%	31%	38%	19%	34%
EBITDA	-3,420	780	700	950	1,060	920	3,630
% margin	NM	0.7%	2.0%	2.7%	2.7%	2.5%	2.5%

Source: Company

· Establishing leadership in cash and carry format. Within two years of launch, Reliance Retail has opened 32 wholesale Cash & Carry outlets, 15 of these stores were added in Q4FY14 alone. This format has 1.2mn member partners. Focus remains on developing own brands for all customer segments.

· Private Label share trends. Own brands portfolio contribute ~66% of apparel sales (9MFY14). Private Labels contribute up to 23% in key categories such as staples and dairy. In digital (electronics) too, penetration of private labels is increasing steadily and there is upto 18% penetration for several CDIT product categories.

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