Reliance Industries (RIL) has set a goal to turn net carbon zero by 2035. The Mukesh Ambani-led conglomerate has already spent $1.5 billion in acquisitions to lay grounds for its new energy forays that include solar, battery and hydrogen. According to Edelweiss Securities, RIL’s aggressive new energy rollout will leverage India’s edge as the world’s lowest solar PV and green hydrogen (H2) hub. It will also align with the world’s renewed energy security shift—with a technology thrust; and provide RIL a growth lever, as its incumbent businesses mature. “We believe this is underappreciated, and scope out the opportunity, economics and likely market value of this business,” it said.
Reliance Industries (RIL) share price has jumped over 6 per cent so far this year, and Edelweiss Securities expects the stock to rally 22% per cent more, going forward on the back of the company’s initiatives in the new energy space. “The investment lever – as it rolls out in spend and detail – fortifies RIL’s position in the Indian energy space, builds on its booming O2C business and shifts it up the zero-emission scale. We see this decisively raising value: ascribing $13 billion to New Energy and hiking its O2C multiple,” the brokerage said. It has upgraded RIL stock to buy with a target price of Rs 3,205 per share.
RIL may lead reconfiguration of global energy landscape
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Futuristic vision and strong execution in the New Energy space could truly make RIL a global leader, and the company has chosen to take the lead which is evident from the seven global acquisitions and alliances it executed in a short span of less than a year. RIL’s unique positioning greatly reduces such risk associated with its foray into New Energy as its O2C business is one of the largest consumers of hydrogen globally, which provides it a ready market for base load green H2 consumption.
RIL is targeting green H2 generation cost of $1/kg, about one–fourth of global levels. This shall cut RIL’s refining costs and boost competitiveness. The oil-to-telecom major is transforming its legacy O2C business—into sustainable, circular and net-zero carbon. This shall generate growing returns over decades as RIL repurposes existing assets to extend economic life and earnings capacity. Unfolding granularity on net zero-carbon emission target by 2035) shall rerate valuations ahead of earnings accrual, according to Edelweiss. RIL has the opportunity to lead the reconfiguration of the global energy landscape, according to the brokerage report.
RIL ahead of several global players
At present, the world is in the midst of an acute energy crisis similar to the mid-2000s. Given the fact that India imports 85% of oil needs, it is vulnerable. Accordingly, there is a huge opportunity for India as it sits in a favourable position to capitalise on this. “RIL is ahead of several global majors in executing this opportunity. In fact, RIL has an even greater edge—it benefits immensely from current global energy crises and, as a result, strong O2C cash flows would power its New Energy investments,” the brokerage noted.
Management positioning the business for globally unparalleled integration
Edelweiss believes that New Energy will power RIL’s next leg of growth and in the long run. “For the near term, we believe the valuation of RIL’s O2C business stands to gain – revised upwards – as legacy assets transform into sustainable and net-zero carbon, which shall significantly extend their useful life,” it said. While RIL has still not shared the details about its New Energy plans, the brokerage believes that RIL management is positioning the business for globally unparalleled integration as well as among the world’s largest capacities.
RIL stock rating: Buy; Target price: Rs 3,205
RIL has undershot Nifty 50 by 33% since Edelweiss’ July 2020 downgrade. Meanwhile, “the risk of Jio Digital and Retail de-rating remains. A sub-optimal RoE shall persist too, since New Energy capex could top the $10 billion target. Even so, a re-rating of its much larger O2C business (three–fourths of consolidated PAT, half of SoTP) and introduction of the $13 billion new energy valuation shines out,” the brokerage said. It hiked the target price of RIL stock by 47% to Rs 3,205, and upgraded the stock to Buy/SO rating.
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