New Delhi: The investment plans of billionaire Mukesh Ambani led by Reliance Industries Ltd ₹75,000 crore in solar, batteries, fuel cells and hydrogen could create a valuation of $ 36 billion ( ₹2.6 lakh crore) for the new energy sector, Wall Street brokerage Bernstein Research said in a report.
Reliance currently has three verticals: the petroleum-to-chemical (O2C) business which houses its petroleum refineries, petrochemical plants and retail fuel business; digital services which include the Jio telecom branch; and retail, including electronic commerce. The new energy will be the fourth vertical.
At the company’s annual general meeting of shareholders last month, Ambani announced an investment plan ₹75,000 crore in a new energy business over the next 3 years in the next stage of its transformation. As part of the announced plans, the company will invest in solar power, batteries and hydrogen to create an integrated clean energy ecosystem.
Other important announcements at the AGM were the launch of the new JioPhone Next smartphone and the induction of Aramco chairman to RIL’s board of directors, which is positive for the spin-off in the O2C business. .
“Clean energy has the potential to create value if Reliance can achieve it,” he said. “Based on the clean energy capital spending, we see a way for Reliance to build a clean energy business, which could be worth $ 36 billion.”
It values over $ 69 billion in O2C activity, $ 66 billion for digital services and $ 81.2 billion for retail. Upstream oil and gas operations are still worth $ 4.1 billion. Other investments such as in media and hotel space are valued at $ 3.7 billion.
The whole conglomerate is worth more than $ 261 billion.
“Many oil companies have tried unsuccessfully to become clean energy manufacturing businesses and instead focus on clean energy production. Reliance’s focus on manufacturing is distinctive and potentially offers higher margins, but also present a higher risk given their limited clean energy capabilities, ”Bernstein said.
Reliance will need to find partners to work with them given the technological requirements for fuel cells and batteries.
“While companies will be reluctant to share their technology with a potential competitor, the market opportunity in India may be enough to persuade some,” he said. “Korean battery makers could be potential energy storage partners, while companies like Plug and Ballard could be fuel cell manufacturing partners.”
Funding is not an issue for Reliance given the current track record. Reliance is almost debt free and will generate cash flow of ₹65,600 crore in FY22 and go to ₹1.5 lakh crore by FY26, he says.
The logic of investing in clean energy is compelling. 70,000 billion dollars will be spent worldwide on energy transition over the next 30 years.
While India has yet to declare a net zero goal, the direction towards low carbon is clear, he said, adding that solar becomes cheaper than coal and hydrogen reaching cost parity with diesel, there are clear economic and energy security reasons to believe India will transition to clean energy.
Against this background, it is also logical to assume that India will seek to develop technologies in manufacturing capacity given the huge investments that are required.
Bernstein said O2C margins continue to improve, giving hope that Aramco invests in buying a 20% stake in the company.
“For fiscal 22, we expect Reliance to deliver O2C EBITDA of ₹52,200 crore (+ 90% year-on-year), “he said.” We remain optimistic about reaching a deal with Aramco, albeit at a slightly lower valuation. “
At the time of the announcement of talks to sell a stake to Aramco in 2019, Ambani had put $ 75 billion as the valuation of the O2C business.
Confidence will pass ₹60,000 crore to build four “gigantic factories” to manufacture integrated photovoltaic modules, electrolysers, fuel cells and batteries to store grid energy. The site for these plants will be located in the new 5,000-acre Green Energy Giga complex in Jamnagar, Gujarat. An additional amount of ₹15,000 crore will be used for value chain investments, technology and partnerships for the new energy business.
Ultimately, Reliance plans to offer its customers a fully integrated end-to-end renewable energy ecosystem using solar power, batteries and hydrogen.
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