RIL's new energy business piques analysts' interest

Every decade or so, Reliance Industries Ltd (RIL) sets on a new growth strategy, nudging the markets to value its stock price for newer businesses.

For the company’s latest energy initiative to expand its green energy and storage portfolio, some analysts are beginning to suggest a closer look at some of its segments.

In his address to shareholders in the company’s FY22 annual report, billionaire Mukesh Ambani, chairman and managing director of the company, said: “The green energy value holds great promise to outshine all our existing growth engines in just 5-7 years.”

The company has marked an investment of Rs 75,000 crore towards its new energy plans, which include solar energy value chain, green hydrogen, energy storage and other similar businesses.

Of this, the solar modules business appears to be shaping up sooner than the other segments.

Brokerage firm Jefferies in a December 5 note said: “Don't ignore the renewable equipment business.”

Analysts with Nuvama in an October 28 report noted, that their channel checks suggest RIL is inching closer to commissioning the first tranche of 5 gigawatt (Gw) module manufacturing capa­c­ity in the first quarter of the next financial year.

Both brokerage firms suggest the new energy business merits further consideration.

Jefferies in its note said, “We see little value being imputed to renewables in CMP (Current Market Price)”, noting they assign an underlying value of $18 billion to RIL’s solar business and $11 billion to the green hydrogen business.

Nuvama has built a $12.3 billion base value for RIL’s new energy business in its SOTP (sum of the parts) calculation.

Of this, the analysts said they value RIL’s modules business at $6 billion. In their October 28 report, they noted, “RIL’s venture in new energy shall unleash the next leg of growth and potentially re-rate its valuation, besides aiding its conventional business.”

Morgan Stanley has assigned a $20 billion enterprise value in the SOTP calculation to RIL’s overall enterprise value for the target price.

The brokerage firm, in its November 20 report, lists new energy as one of the catalysts that can surprise and drive outperformance in 2024.

“NewEnergy/Chemicals/Digital monetisation to surprise and are not priced in the stock,” it said.

Nomura, in its October 30 report, values the new energy business at $13 billion in its SOTP.

Not everyone, however, is looking beyond the announced capital expenditure though. JM Financials and Kotak have held the new energy business enterprise value at the announced capex level, lower than $10 billion, in their October 28 and October 29 dated reports, respectively.

RIL is yet to share more concrete details on the timelines of its new energy businesses.

This segment has so far been missing from its analyst presentations made at the end of financial quarter reporting periods.

According to RIL’s latest annual report of FY23, the company has made Rs 6,700 crore worth of investments or acquisitions related to the new energy business.

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