RIL seeks partnerships for new energy business growth: Report

15 Jun 2023 CW Team

The US-based securities firm stated that by 2030, they estimate RIL could capture 60 per cent, 30 per cent, and 20 per cent of the solar, battery, and hydrogen target markets, respectively. RIL plans to achieve 100GW of installed solar capacity by 2030, which constitutes 35 per cent of India's targeted capacity of 280 GW but represents a 50 per cent incremental share.

RIL intends to finance its capital expenditures through its own cash flows while maintaining a net debt to EBITDA ratio (earnings before interest, tax, depreciation, and amortisation) of less than 1 times (0.6x in FY23). The conglomerate expects its free cash flow to turn positive in FY24 and reach Rs 1 trillion by FY27.

Bernstein projected, "Based on our assumptions, we estimate RIL can achieve around $10-15 billion in revenue from the New Energy business in 2030, representing roughly 40 per cent of the market. Our assumptions for the New Energy business target market align with current domestic energy policies and our expectations of India's EV adoption."

While Reliance possesses a strong balance sheet and established relationships, it lacks expertise in technology and manufacturing within the green energy sector. The report acknowledged, "While it is easy to dismiss their ability to pull it off, Reliance has shown they can successfully venture into new verticals. We believe the same holds true here. However, Reliance cannot afford to spend a year in R&D and must instead strategically invest in key companies to facilitate capacity building in India."

The primary risk for investors lies in Reliance's limited technological know-how in batteries, fuel cells, solar PV, or electrolysers. The report emphasised the need for acquiring such expertise through investments or partnerships with technology leaders. Additionally, Reliance lacks experience in mass manufacturing of new energy equipment. Nevertheless, the company has previously entered industries like telecommunications and retail without prior expertise. The report highlighted other companies, such as LG Chem and SK Innovation, which successfully transitioned from the chemical or refining industry to become major battery manufacturers in terms of capacity.

Becoming successful in the new energy sector would require significant investment in research and development, an approach Reliance is unlikely to pursue. Instead, the company is partnering with industry players. The report noted that it is somewhat surprising that these deals have not been made with leaders in batteries and hydrogen.

Since announcing its New Energy investment plans in June of the previous year, Reliance has already invested over $1.5 billion in new energy partnerships and acquisitions. The company has committed to achieving net-zero emissions by 2035, setting an earlier timeline than other energy companies in the region.

According to a report by Sanford C Bernstein, Reliance Industries (RIL) may generate $10-15 billion from its new energy business by 2030. However, due to limited expertise in technology, the company will need to pursue acquisitions or partnerships to compensate for this shortfall.The US-based securities firm stated that by 2030, they estimate RIL could capture 60 per cent, 30 per cent, and 20 per cent of the solar, battery, and hydrogen target markets, respectively. RIL plans to achieve 100GW of installed solar capacity by 2030, which constitutes 35 per cent of India's targeted capacity of 280 GW but represents a 50 per cent incremental share.RIL intends to finance its capital expenditures through its own cash flows while maintaining a net debt to EBITDA ratio (earnings before interest, tax, depreciation, and amortisation) of less than 1 times (0.6x in FY23). The conglomerate expects its free cash flow to turn positive in FY24 and reach Rs 1 trillion by FY27.Bernstein projected, Based on our assumptions, we estimate RIL can achieve around $10-15 billion in revenue from the New Energy business in 2030, representing roughly 40 per cent of the market. Our assumptions for the New Energy business target market align with current domestic energy policies and our expectations of India's EV adoption.While Reliance possesses a strong balance sheet and established relationships, it lacks expertise in technology and manufacturing within the green energy sector. The report acknowledged, While it is easy to dismiss their ability to pull it off, Reliance has shown they can successfully venture into new verticals. We believe the same holds true here. However, Reliance cannot afford to spend a year in R&D and must instead strategically invest in key companies to facilitate capacity building in India.The primary risk for investors lies in Reliance's limited technological know-how in batteries, fuel cells, solar PV, or electrolysers. The report emphasised the need for acquiring such expertise through investments or partnerships with technology leaders. Additionally, Reliance lacks experience in mass manufacturing of new energy equipment. Nevertheless, the company has previously entered industries like telecommunications and retail without prior expertise. The report highlighted other companies, such as LG Chem and SK Innovation, which successfully transitioned from the chemical or refining industry to become major battery manufacturers in terms of capacity.Becoming successful in the new energy sector would require significant investment in research and development, an approach Reliance is unlikely to pursue. Instead, the company is partnering with industry players. The report noted that it is somewhat surprising that these deals have not been made with leaders in batteries and hydrogen.Since announcing its New Energy investment plans in June of the previous year, Reliance has already invested over $1.5 billion in new energy partnerships and acquisitions. The company has committed to achieving net-zero emissions by 2035, setting an earlier timeline than other energy companies in the region.