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June 9, 2022

India’s retail king is on a decadent foreign shopping trip. Mukesh Ambani’s Reliance Industries (RELI.NS) is nearing a deal to buy Walgreens Boots Alliance’s (WBA.O) UK-based retail pharmacy business with buyout firm Apollo (APO.N), per the Economic Times. A purchase mooted earlier at $8 billion would mark a pivot overseas for the Indian oil-to-telecoms conglomerate and will enlarge the black box around his retail operations.
Reliance Retail is already a shopping giant. In the five years to 2020, its top line grew at an annual average of 49%, making it the second fastest-growing retail company in the world after South Korea’s Coupang (788.F), according to Deloitte. The company, which employs some 360,000 people, is profitable and clocked revenue of nearly 2 trillion rupees ($26 billion) in the 12 months ending in March.
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Partnerships and small-scale acquisitions such as British toy brands Hamleys have expanded Ambani’s domestic footprint. Reliance’s spanking new Jio World mall in Mumbai’s enclave district showcases luxury fashion labels franchised or sold to him. In the last financial year, the group opened an average of seven stores a day across fashion, grocery, and other verticals, taking the total store count at home to over 15,000.

Spending is picking up after the retail unit raised funds in early 2020 from private equity firms including KKR (KKR.N), TPG (TPG.O) and sovereign wealth funds.

One growing concern is the opacity of the expansion. Creditors of Future Retail (FRTL.NS), for example, this year blocked Reliance’s $3.4 billion acquisition of the group but Ambani still appears to have ended up with some 900 of his competitor’s stores – a move rival Amazon (AMZN.O) described as “clandestine”.

Overall, Reliance Retail’s cash capital expenditure nearly tripled to $3.5 billion last year. Analysts at Ambit guess that, alongside acquisitions, capitalised customer acquisition costs are beginning to bite. In regards to its rapidly expanding asset base, Jefferies researchers note “more company disclosure will help”.

Assuming Reliance Retail's bottom line grows at its current annual pace of 35% for the next two years, the business would be worth some $75 billion on Amazon's forward earnings multiple, Breakingviews calculates.

That’s below most analyst sum-of-the-parts valuations. Lenders may be willing to finance a Boots deal if it helps shore up a lucrative relationship with India’s biggest company, but privately most question the strategic logic of a large overseas purchase. They may start to wonder if Ambani’s winning-at-all-costs mentality will turn into a painful liability.

Mukesh Ambani’s Reliance Industries is teaming up with U.S. buyout firm Apollo to make an offer for Walgreens Boots Alliance’s UK-based retail pharmacy business, the Economic Times reported on June 3, citing sources.

The report also noted other bidders including the billionaire Issa brothers that own supermarket chain Asda and others are no longer in the process. Reliance and Apollo have not yet sealed financing for the deal.

Bidders in earlier rounds had valued the Boots business as low as 5 billion pounds ($6.2 billion), below the mooted $8 billion valuation Walgreens is seeking, the report added.