According to a study by Wall Street firm Bernstein Research, Mukesh Ambani’s Reliance Industries Ltd’s intentions to invest 75,000 crores in solar, batteries, fuel cells, and hydrogen may result in a valuation of $36 billion (₹2.6 lakh crore) for the new energy industry.
Reliance presently operates in three verticals: oil-to-chemical (O2C), which includes its refineries, petrochemical plants, and fuel retailing; digital services, which includes Reliance Jio; and retail, which includes e-commerce. The fourth vertical will be New Energy.
Ambani revealed a plan to invest 75,000 crores in a new energy sector over the next three years at the company’s annual general meeting of shareholders last month, marking the next step in the company’s transformation. According to the company’s ambitions, it will invest in solar, batteries, and hydrogen to establish a clean energy ecosystem.
“Clean energy has the potential to be value accretive if Reliance can pull it off,” it said. “Based on CAPEX for clean energy, we see a route to Reliance building a clean energy business, which could be worth $36 billion.”
It valued the O2C company at over $69 billion, digital services at $66 billion, and retail at $81.2 billion. An additional $4.1 billion is invested in upstream oil and gas operations. The value of other investments, such as those in the media and hospitality sectors, is $3.7 billion. The total value of the conglomerate is $261 billion.
“Many oil companies have tried and failed to become clean energy manufacturing companies and instead focus on clean energy production. Reliance’s focus on manufacturing is distinctive and potentially offers higher margins but is also higher risk given their limited capabilities in clean energy,” Bernstein said.
“While companies will be reluctant to share their technology with a potential competitor, the market opportunity in India may be enough to persuade some,” it said. “Korean battery makers could be potential partners in energy storage, while companies like Plug and Ballard could be partners in fuel cell manufacturing.”
Given Reliance’s existing balance sheet, funding is not a concern. Reliance is essentially debt-free, with a cash flow of 65,600 crores in FY22 and 1.5 lakh crore by FY26, according to the company.
The logic of investing in clean energy is compelling. $70 trillion will be spent globally on the energy transition over the next 30 years.
Bernstein said O2C margins continue to improve, raising hopes for Aramco investing in buying 20 per cent stake in the business.
“For FY22, we expect Reliance will deliver O2C EBITDA of ₹52,200 crores (+90% y-o-y),” it said. “We remain optimistic that a deal will come together with Aramco albeit at a slightly lower valuation.”
Ambani valued the O2C business at $75 billion when he announced talks to sell a stake to Saudi Aramco in 2019. Reliance Industries will invest 60,000 crores to build four “Giga factories” that will produce integrated solar PV modules, electrolyzers, fuel cells, and batteries to store energy from the grid.
These facilities will be located in Jamnagar, Gujarat, at the planned 5,000-acre Green Energy Giga Complex. An additional 15,000 crores would be spent on new energy company initiatives across the value chain, technology, and partnerships.
Through solar, batteries, and hydrogen, Reliance hopes to provide clients with a completely integrated end-to-end renewable energy environment.
