Wednesday, July 20, 2011

Would Reliance acquire Walmart?

Subtitle should be: Would Reliance and Bharti trade their Telecom and Retail ventures with each other? Consider some recent news and their possible implications :

Bharti AXA deal with Reliance:
  • Bharti is open to selling non Telecom business
  • Bharti is open to deal with Mukesh Ambani controlled Reliance Industries

Bharti Zain Africa Deal:
  • Bharti's focus is on global portfolio of Telecom business

Reliance BP Deal:
  • Reliance is open to foreign MNC tie up for obtaining leadership in business in India

Reliance in its recent AGM has setup ambitious FY14 revenue target of Rs 10,000 Cr. for Reliance Retail. The Cash and Carry format is one of the focus areas for the Reliance ( FY11 Reliance Retail's revenue have fallen to Rs 3132 Cr. from FY 10 Revenues of Rs 4500 Cr. whereas FY11 losses have mounted to Rs 350 Cr. from FY10 Loss of Rs 260 Cr.)

  • Reliance has high ambitions on Retail
  • Bharti Walmart JV currently has operations in Cash and Carry format

Multi brand FDI in Retail will come soon and the leadership of Indian Retail firms will be underpressure

  • Competition will get tougher with entry of retail MNC's.

Reliance is going slow on Telecom
  • After acquiring wireless broadband licenses last year, no visible start has been made in the Telecom industry

Bharti needs wireless broadband licenses in few circles
  • Reliance is the only private sector company which has wireless broadband licenses in all circles

Telecom and Retail are both capex intensive industries.
  • In short term, it is difficult to focus on both Telecom and Retail and attain leadership position in both

Would it be possible that Reliance acquire Bharti's stake in Bharti Walmart JV and focus on attaining leadership position in Indian retail industry? Bharti will in turn get the broadband licenses which it needs to maintain its leadership position in Telecom industry.

Are Retail and Telecom industries the case of one person's food and another person's poison or are they the case of string of pearls in a conglomerate!