A customer wearing a protective mask pushes a cart with groceries past the Reliance Jewels and Reliance Digital stores of Reliance Industries Ltd, in Mumbai, India October 7, 2020. REUTERS/Niharika Kulkarni//File Photo

MUMBAI, June 9 (Reuters Breakingviews) – India’s retail king is on an overseas shopping spree. Mukesh Ambani’s Reliance Industries (RELI.NS) has submitted a binding bid for the UK retail pharmacy business of Walgreens Boots Alliance (WBA.O) in a consortium with Apollo Global Management (APO.N), a person familiar with the situation told Breakingviews. The offer is worth more than 5 billion pounds ($6.3 billion), according to Bloomberg. A purchase would mark an overseas pivot for the Indian oil-to-telecoms conglomerate and expand the black box around its retail operations.

Reliance Retail is already a shopping giant. In the five years to 2020, its revenue grew by 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 had sales of nearly 2 trillion rupees ($26 billion) in the 12 months to March.

Small-scale partnerships and acquisitions such as British toy brands Hamleys have expanded Ambani’s national footprint. Reliance’s new Jio World mall in the landlocked district of Mumbai features luxury fashion brands that are franchised or sold to it. Over the past financial year, the group opened an average of seven stores a day across fashion, grocery and other verticals, bringing the total number of home stores to more than 15,000. Spending is rising after the The retail unit raised funds in early 2020 from private equity firms such as KKR (KKR.N), TPG (TPG.O) and sovereign wealth funds.

A growing concern is the opacity of the expansion. Creditors of Future Retail (FRTL.NS), for example, blocked Reliance’s $3.4 billion acquisition of the group this year, but Ambani still appears to have been left with some 900 stores from its rival – ​a rival movement of Amazon (AMZN.O) described as “clandestine”. Overall, Reliance Retail’s cash capital expenditures nearly tripled to $3.5 billion last year. Ambit analysts assume that along with acquisitions, capitalized customer acquisition costs are starting to bite. Regarding its rapidly expanding asset base, Jefferies researchers note that “greater company disclosure will be helpful.”

Assuming Reliance Retail’s bottom line grows at its current 35% annual rate for the next two years, the company would be worth some $75 billion on Amazon’s forward earnings multiple, Breakingviews calculates. That’s below most analyst sum-of-the-parts estimates. The Boots offer is fully funded; it’s an obvious way for lenders to cement a lucrative relationship with India’s biggest business. But privately, most financiers question the strategic logic of a major overseas purchase. They may begin to wonder if Ambani’s win-at-all-costs mentality will turn into a painful handicap.

(This article has been updated with offer details.)

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(The author is a Reuters Breakingviews columnist. The views expressed are her own.)

BACKGROUND NEWS

A consortium made up of Mukesh Ambani’s Reliance Industries and buyout firm Apollo Global Management has made a binding bid for Walgreens Boots Alliance’s international business, a person familiar with the situation told Breakingviews on June 9.

The investor group this week submitted an offer for pharmacy chain Boots that is fully backed by committed financing and values ​​the business at more than 5 billion pounds ($6.3 billion), Bloomberg reported.

Editing by Robyn Mak and Thomas Shum

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