Reliance Industries’ new energy push could be a winner even before the period it set itself to achieve its goal. While the company set itself a 15-year vision to build Reliance as one of the world’s leading New Energy and New Materials company at its 43rd AGM in 2020, global advisory firm Bernstein says Reliance Industries Ltd (RIL) could potentially achieve $10 billion of revenue from New Energy business in 2030, which represents 40 per cent of the total available market (TAM).
RIL announced its entry into clean energy with a $2-trillion investment in India through 2050. “Our New Energy business will be an optimal mix of reliable, clean and affordable energy solutions with hydrogen, wind, solar, fuel cells, and batteries. We are committed to helping India lead in the Green New Energy future and are bridging the Green Energy divide in India and the world,” RIL had said then.
India targets solar capacity of 280 GW and 5 million tonnes of green H2 production by 2030. “We expect EV penetration will reach 5 per cent for PV and CV, and 21 per cent for two-wheelers. Clean energy could have a TAM of $30 billion in 2030 ($10bn currently). By 2050, we estimate the TAM could reach $200 billion and cumulative spending of $2 trillion,” the Bernstein report says.
Plenty of scope
The report says the clean energy business, which “represents a new growth pillar for Reliance” comes with a “plenty of scope for expansion overtime”. The report adds, “By 2030, we estimate RIL could capture 60 per cent, 30 per cent and 20 per cent of solar, battery and hydrogen TAM respectively.”
“At Reliance, we have set an ambitious target of achieving net-zero carbon by 2035 and are investing over $10 billion (₹75,000 crore in 2020) in building the most comprehensive ecosystem for New Energy and New Materials in India,” the company’s Web site says on the New Energy business. It has invested ₹15,000 crore in value-chain, partnerships, and future technologies, including upstream and downstream industries, to create a fully integrated, end-to-end renewable energy ecosystem.
RIL plans to have 100-GW installed solar capacity by 2030, “which is 35 per cent of the country’s targeted capacity of 280 GW, but represents 50 per cent incremental share. O2C (Order to Cash) continues to take benefit from low-cost Russian crude feedstock, while product prices remain strong. Urals is trading at a 20-25 per cent discount to Dubai oil price, yielding an additional $6-8/bbl spread on refining margins,” the report explains.
Bernstein estimates O2C can achieve FY24 EBITDA of ₹63,000 crore (+1 per cent year on year), which is in line with market estimates. However, key risk, according to the global advisory firm is “a recession that leads to a sharp decline in margins next year”.
The report adds that funding is not an issue for RIL given the current balance sheet and FCF outlook. “Reliance targets to fund future capex from OCF and maintain net debt to EBITDA of less than 1x (0.6x in FY23). FCF will turn positive in FY24 and reach ₹ 1-lakh crore 1tn by FY27,” the report said, adding, “We rate Reliance Industries Outperform with a price target of ₹3,040 with 22 per cent upside potential. Our FY24 EPS of ₹132 is 13 per cent above consensus estimates.”