In addition to strengthening its B2B portfolio, the Metro Cash & Carry acquisition will give Reliance an ideal platform for its FMCG products
New Delhi: The acquisition of Metro Cash & Carry business in India by Reliance Retail will give Reliance several benefits. The chief among them being an established platform to push its recently launched FMCG products, according to an analysis of the acquisition by financial services firm Motilal Oswal.
Recently, the Reliance group, through its company Reliance Consumer Products Ltd., launched a made-for-India consumer packaged goods brand Independence in Gujarat. Read more about it here.
“This acquisition will further RRVL’s (Reliance Retail Ventures Ltd.’s) new commerce with an increased footprint as its recent foray into the FMCG business would get an additional impetus with an estimated revenue scale of over Rs600 billion in Financial Year (FY) 23,” said Motilal Oswal in an advisory.
Metro too has numerous brands that will add value to the conglomerate’s FMCG business.
On December 22, Reliance Industries Ltd. announced acquiring a 100% stake in Metro Cash & Carry India Private Limited (Metro India) for Rs 2,850 crore.
The agreement was signed between Reliance Retail Ventures Limited (RRVL), a subsidiary of Reliance Industries Ltd., and Metro AG.
Benefits for Reliance Industries Ltd.
Reliance already has 52 Reliance Market B2B stores. The deal with the German wholesale chain will give Reliance access to an additional 31 large form stores of Metro India located in some of the key cities across the nation. This would drive up Reliance’s B2B store count to 83 in addition to getting a large base of registered kiranas and other institutional customers of over 3 million, out of which, 1 million are frequent customers.
Benefits to Metro
Metro Cash & Carry India Pvt. Ltd. has been present in India since 2003 but in the last five to seven years, the growth has been stagnant. Over FY 2019-22, there has been merely a growth of 2% in revenue, garnering about 11% gross margin and 2% EBITDA margin (FY20-22) with a net loss of INR200-500m.
Along with this, it has only opened six new stores in the last four years. In this state, the acquisition of the company by Reliance Industries Ltd. can turn the segment profitable with improved scale and synergies/efficiencies across supply chain networks, technology platforms, and sourcing capabilities, Motilal Oswal observed in the company update statement.
“Assuming that Metro Cash and Carry can achieve about ~7% (Pre IND-AS 116) EBITDA margin, under Reliance Retail’s fold, it could add enterprise value of INR167.5b at 40x EV/EBITDA (Reliance Retail SOTP) after adjusting for INR28.5b cash consideration. This adds about 2% to the overall Reliance market cap. This could also add significantly to its improved reach and ability to serve customers,” said Motilal Oswal.
