The Mukesh Ambani-controlled retail company will avail term loans to the tune of Rs 2,500 crore from State Bank of India and raise another Rs 2,000 crore by issuing convertible debentures,
Reliance group owned Reliance Retail is likely to borrow Rs 4,500 crore through term loans and debentures to build its ecommerce business and accelerate store openings in select formats as rivals intensify their efforts to expand market share.
The Mukesh Ambani-controlled retail company will avail term loans to the tune of Rs 2,500 crore from State Bank of India and raise another Rs 2,000 crore by issuing convertible debentures, it said in board resolutions filed with the Registrar of Companies last week. The funds are expected to come in several tranches.
"Reliance Retail is growing rapidly and these are enabling provisions to fund a growing and profitable business," a spokesperson said. "The funds will be utilised, as appropriate, for business operations." Reliance Retail's revenue rose 21% to Rs 17,640 crore in FY15 with profit after tax of Rs 193 crore. The company became the country's largest retailer in FY14.
But it is set to lose the top spot after Future Group acquires Bharti Retail as announced recently. Both Future and the Aditya Birla Group are planning big online retail initiatives across product categories to take advantage of the increasing adoption of ecommerce, which is expected to grow fourfold to almost $70 billion, or about Rs 4.34 lakh crore, by 2019. Reliance Retail is also piloting an online site for food and grocery products.
"The potential of ecommerce combined with the network of physical store locations will offer tremendous choice and convenience at a great value to the consumer. The opportunity is to integrate an 'offline-online' model, which can truly differentiate the customer experience," parent Reliance industries said in its latest annual report.
The move is part of chairman Mukesh Ambani's wider strategy of placing its communications venture Reliance Jio Infocomm at the intersection of "telecom, web and digital commerce" as he said at the company's annual general meeting last year. Reliance Jio is set to launch its 4G mobile and data services this year.
The ecommerce business is growing rapidly in India, with companies such as Flipkart, Amazon and Snapdeal winning Indian consumers by offering heavy discounts across products. Experts said Reliance Retail's deep pockets and existing logistics infrastructure will help it in the ecommerce space. "Almost everything is sold on the internet now. The entire retail industry, including Reliance, faces the challenge of either being a part of ecommerce or taking it head on," said consultant Manisha Rao.
"This mix of ecommerce and brick-and-mortal retail would save them the cost of real estate and they would reach out to more customers, especially in tier 2 cities." According to a joint report by BCG and Retailers Association of India, the ecommerce market in the country is expected to quadruple to $60-70 billion in the next five years.
Increase in internet access through affordable smartphones and efforts by online retailers to develop payment channels such as cash on delivery, mobile wallets and streamlined logistics infrastructure are expected to boost ecommerce growth in the country.
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