Reliance Industries' Oil Cash Can Drive Fast, Profitable Net-Zero Transition: Goldman
In its base case, Goldman pegged Reliance's new energy segment to be worth $30 billion.
Goldman Sachs sees Reliance Industries Ltd. as a “unique energy transition story”, as it reiterated its ‘buy’ call on India’s most valuable company.
The oil-to-telecom conglomerate’s strong cash flow generation from its “old energy” business can fund the capex of its new energy forays spanning solar, batteries and hydrogen, the financial services provider said in an April 10 note. This, it said, could drive “one of the fastest and most profitable net zero transitions by 2035 among large energy companies”.
The Mukesh Ambani-led company has spent around $1.5 billion (about 11,380 crore) to acquire technologies across the solar, battery and hydrogen ecosystems. It has invested in companies such as Sterling & Wilson Solar Ltd., Ambri, Faradion and Lithium Werks catering to new energy.
Goldman Sachs expects free cash flow generation of more than Rs 1 lakh crore over FY22-24, compared with about Rs 75,000 crore announced for new energy investments, enough to fully fund the foray through internal accruals.
“Reliance is planning to manufacture polysilicon, wafers, cells, modules, EV and grid storage batteries, electrolyzer, and fuel cells. We see significant expansion in total addressable market for solar, battery and hydrogen manufacturing globally as well as in India,” the report said. Goldman Sachs set a 12-month target price for Reliance at Rs 3,200, implying an upside of 22%.
In its base case, it pegged RIL’s new energy segment to be worth $30 billion (about Rs 2.27 lakh crore). “The hyper-integrated model can position Reliance as one of the lowest-cost green hydrogen producer, targeting costs at around $1 a kilogram by end of this decade.”
Goldman Sachs had earlier termed Reliance as India’s largest “greenabler”.
Internet Domination On The Cards
Reliance’s existing dominance in telecom and offline retail, combined with its partnership and the online traffic dominance of Facebook, can create the fastest growing internet platform in India, Goldman Sachs said.
“While Reliance is already the market leader in telecom business, we expect market share wins to compound rising penetration for organised retail and e-commerce business.”
Within e-commerce, too, it sees RIL gaining 31% market share by FY25, with an online gross merchandise value of $35 billion (Rs 2.65 lakh crore).
It listed three drivers for Reliance Retail’s grocery business:
Omni-channel push with online share gains driven by Jiomart while leveraging its large offline store network.
Expanding presence in fresh consumable products, where Reliance is the largest player but remains under-indexed as a proportion of customer spending through organised retail.
Private label push beyond just packaged staples.
It also listed a few key risks that could weigh on RIL’s growth.
Lower-than-expected refining/chemical margins.
Lower-than-expected average revenue per user.
Lower-than-expected market share and margins in retail business, project delays and higher future capex
Shares of RIL ended 0.2% lower compared with a 0.6% decline in the Nifty 50 on Monday. Of the 40 analysts tracking the company, 25 recommend a ‘buy’, 11 suggest a ‘hold’ and four have a ‘sell’ call, according to Bloomberg data. The average of 12-month price targets implies a 6.2% upside.