Reliance’s O2C, new energy biz could also be valued more than $100 bn: Outline


Billionaire Mukesh Ambani-led Reliance Industries Ltd’s plans for making an investment Rs 75,000 crore in solar, batteries, fuel cells and hydrogen could create valuation of USD 36 billion (Rs 2.6 lakh crore) for the new energy trade, Wall Road brokerage Bernstein Research said in a outline.

Reliance currently has three verticals — oil-to-chemical (O2C) trade that houses its oil refineries, petrochemical plants and fuel retailing trade; digital products and services that comprises telecom arm Jio; and retail including e-commerce. New Energy would be the fourth vertical.

At the company’s annual general assembly of shareholders final month, Ambani announced a plan to invest Rs 75,000 crore in a new energy trade over the next 3 years in the next stage in its transformation. Under plans announced, the company will invest across solar, batteries and hydrogen to create an integrated clean energy ecosystem.

Other big announcements at the AGM were the launch of the new smartphone JioPhone Next and induction of Aramco chairman to the RIL Board, which is positive for the spin-off in O2C trade.

“Clean energy has the potential to be value accretive whether Reliance can pull it off,” it said. “Based on capex for clean energy, we see a route to Reliance building a clean energy trade, which could be worth USD 36 billion.”

It put a valuation of over USD 69 billion for the O2C trade, USD 66 billion for digital products and services and USD 81.2 billion for retail. Upstream oil and gas operations are worth another USD 4.1 billion. Other investments such as in the media and hospitality space are valued at USD 3.7 billion.

All the conglomerate is worth over USD 261 billion.

“Many oil companies have tried and failed to develop into clean energy manufacturing companies and instead focus on clean energy production. Reliance’s focus on manufacturing is distinctive and potentially offers higher margins but may be higher risk provided their limited capabilities in clean energy,” Bernstein said.

Reliance will want to find partners to work with them provided the technology requirements needed for fuel cells and batteries.

“While companies will be reluctant to share their technology with a potential competitor, the market possibility in India could also 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.”

Underwriting isn’t an issue for Reliance provided the current balance sheet. Reliance is nearly debt free and will generate cash float of Rs 65,600 crore in FY22 and grow to Rs 1.5 lakh crore by FY26, it said.

The logic of making an investment in clean energy is compelling. USD 70 trillion will be spent globally on the energy transition over the next 30 years.

While India has yet to declare a net zero target, the direction towards low carbon is lucid, it said adding with solar fitting cheaper than coal and hydrogen reaching cost parity with diesel, there are lucid economic and energy security reasons to imagine that India will transition towards clean energy.

In this context it is usually logical to imagine that India will seek to develop technologies in manufacturing capacity provided the immense investments which are needed.

Bernstein said O2C margins continue to give a boost to, raising hopes for Aramco making an investment in buying 20 per cent stake in the trade.

“For FY22, we expect Reliance will deliver O2C EBITDA of Rs 52,200 crore (+90% y-o-y),” it said. “We remain optimistic that a deal will come at the side of Aramco albeit at a relatively lower valuation.”

At the time of announcing talks to sell stake to Aramco in 2019, Ambani had put USD 75 billion as the valuation of O2C trade.

Reliance will spend Rs 60,000 crore to construct four ‘giga factories’ to make integrated solar PV modules, electrolyzers, fuel cells and batteries to store energy from the grid. The site of these plants will be located at the new 5,000 acres Green Energy Giga Complex in Jamnagar, Gujarat. An extra Rs 15,000 crore will be used for investments across the value chain, technology, and partnerships for the new energy trade.

In the long run, Reliance plans to offer a completely integrated end-to-end renewables energy ecosystem to customers through solar, batteries and hydrogen.

(Only the headline and picture of this outline may have been reworked by the Commerce Standard staff; the remainder of the satisfied is auto-generated from a syndicated feed.)

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