Diet Report : Consumer Discretionary - Reliance Retail: focus moves away from expansion by Elara Capital
Consumer Discretionary
Reliance Retail: focus moves away from expansion
Reliance Retail Ventures ended FY25 on a strong note as Q4 sales surged to 16.3% YoY after a sluggish 9MFY25, up 3.4% YoY, despite weak net store addition. Growth was driven by traction in grocery and consumer electronics; FY25 sales grew by a mere 6.6% YoY vs 25% CAGR during FY21-24. Elevated store churn (81% closure rate vs 57% in FY24) reflects core portfolio rationalization and may cushion profitability. Key notables were hyperlocal deliveries, up 2.4x QoQ, across 4,000 pin codes and launch of Shein. Monitor the steady digital revenue contribution (17-18% over the last eight quarters) and execution in digital segment vs MNCs/domestic platforms. Budget-led tax reliefs may offer near-term support.
Q4 headline ends on a robust note: FY25 revenue growth was up 6.6% YoY; implied same store sales growth (SSSG) of 4.4%YoY, and was a drag on sluggish 9MFY25 show, reflecting broader consumer slowdown along with store rationalization. However, Q4FY25 saw revenue growth of 16.3% YoY to INR 786bn and implied double-digit SSSG in Q4. The comeback was primed by offline grocery (traction in general merchandise & premium products) and consumer electronics (growth in conversion and average order value, up 26% YoY). While Reliance Retail remains the elephant-in-the-house, sustainability of growth hinges on: 1) scale of competition from online grocery platforms (qCommerce), 2) expansion of modern trade firms, 3) rising dominance of eCommerce in consumer electronics, and 4) execution on JioMart’s 30-minute delivery & Shein launch.
Store churn remains elevated in Q4 and throughout FY25: The company expanded store network at a 15.3% CAGR during FY20- 23 despite higher scale. However, FY24 and FY25 seem to stem from expansion, marred by a broader consumer slowdown and store closure (likely peaked in FY25 after kicking in H2FY24). Sharp moderation in net store addition continues, fell to 504 net openings in FY25 vs 2,485 in FY22, 2,844 in FY23 and 796 in FY24; this is due to elevated closure rate of 81% in FY25 (calculated closed/gross opened), surging from a mere 3% in FY22. This is a potential portfolio rationalization measure on 1) diverse business segments, such as FMCG, grocery, beauty & personal care (BPC), fast fashion shifting to online, 2) increased competition, and 3) closure of loss-making & lower profitable stores. Going by quarterly trends, the Q4 closure rate is still material at 78% after peaking in Q2 at 94%. While early expansion may have prioritized scale over sustainability, we believe two years into rationalization could strengthen the core portfolio. Demand recovery followed by recent tax reliefs in the union budget is key to watch in the near term
Segment-wise growth with key notables: While the performance was system-wide. Some notables during the quarter were: 1) 2.4x QoQ surge in hyperlocal deliveries, 2) early Summer driven by 21% YoY growth in AC, c) relaunch Shein in India with 12,000 live options on platform, and d) live same day & next day in 26 cities for AJIO (competition to Myntra). Its consumer brands continue to scale, crossing 114bn in sales, and brands like Campa Cola gaining share in the entry-level soft beverage space.
Hyperlocal deliveries surge 2.4x QoQ; expands to 4,000 pin codes: qCommerce under JioMart grew on healthy orders growth. Hyperlocal deliveries are available in 4,000 pin codes. JioMart’s online model leverages existing reliance retail stores and are available across 2,100 stores (~25-30% of grocery stores). The model avails delivery under 30 minutes and scheduled deliveries with a wider assortment. Seller base and selection were up by 22%/10% YoY, respectively. App visits grew 37% YoY. JioMart may face competition from incumbents (Blinkit, Instamart & Zepto) and new entrants in qCommerce space.
Watch on sustainability of growth: Q4 comeback was noteworthy, given sales growth, although EBITDA margin was largely flat QoQ and YoY. Healthy store expansion, margin trajectory and moderation in competitive intensity are key watch for earnings growth; we continue to monitor digital revenues contribution, which is steady at 17-18% over the last eight quarters, execution in digital business may aid in market share vs larger MNCs and homegrown platforms.
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