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Reliance’s O2C, new energy business could be worth over $100 billion: Report

Wall Street brokerage Bernstein Research said billionaire Mukesh Ambani-led Reliance Industries Ltd’s plan to invest Rs 75,000 crore in solar, batteries, fuel cells and hydrogen will generate $36 billion (Rs 2.6 lakh crore) for new energy business. evaluation may take place. report good.

Reliance currently has three verticals – oil-to-chemical (O2C) business with its oil refinery, petrochemical plant and fuel retailing business; digital services including telecom arm Jio; and retail including e-commerce. New Energy will be the fourth vertical.

At the company’s annual general meeting of shareholders last month, Ambani announced plans to invest Rs 75,000 crore in a new energy business over the next 3 years in the next phase of its transformation. Under the announced plans, the company will invest in 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 the induction of Aramco’s chairman on the RIL board, which is positive for the spin-off in the O2C business.

“Clean energy has the potential to be value addition if Reliance can pull it off,” it said. “Based on the capital expenditure for clean energy, we see a path to make Reliance a clean energy business, which could be worth US$36 billion.”

It valued over USD 69 billion for O2C business, USD 66 billion for digital services and USD 81.2 billion for retail. Upstream oil and gas operations are worth USD 4.1 billion. Other investments in the media and hospitality sector are valued at US$3.7 billion.

The entire group is worth over US$ 261 billion.

Bernstein said, “Many oil companies have tried and failed to become a clean energy manufacturing company and instead focused on clean energy generation. Reliance’s focus on manufacturing is distinctive and potentially offers high margins, but clean energy production.” There is also a high risk given their limited capabilities in energy.”

Given the technology requirements for fuel cells and batteries, Reliance will need to find partners to work with them.

“Companies will be reluctant to share their technology with potential competitors, but the market opportunities in India will be enough to convince some,” the report said. “Korean battery manufacturers could be potential partners in energy storage, while companies such as Plug and Ballard could be partners in fuel cell manufacturing.”

Funding is not an issue for Reliance, given the current balance sheet. Reliance is almost debt free and will generate cash flow of Rs 65,600 crore in FY22 and will grow to Rs 1.5 lakh crore by FY26.

The rationale for investing in clean energy is compelling. USD 70 trillion will be spent globally on energy transformation over the next 30 years.

While India has not yet declared a net zero target, the direction towards low carbon is clear, it said, adding that there is a clear economic need to assume that solar is becoming cheaper than coal and hydrogen is reaching cost parity with diesel. and energy security are the reasons why India transitions to clean energy.

In this context it is also logical to assume that India wants to develop technologies in manufacturing capacity considering the need for massive investment.

Bernstein said O2C margins continued to improve, raising hopes of buying a 20 percent stake in Aramco’s business.

“For FY22, we expect Reliance to deliver O2C EBITDA of Rs 52,200 crore (+90% yoy),” it said. “We remain optimistic that there will be a deal with Aramco at a slightly lower valuation.”

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

Reliance will spend Rs 60,000 crore to build four ‘Giga factories’ to manufacture integrated solar PV modules, electrolysers, fuel cells and batteries to store energy from the grid. The sites of these plants will be located in the 5,000-acre new Green Energy Giga Complex in Jamnagar, Gujarat. An additional Rs 15,000 crore will be used for investments in the value chain, technology and partnerships for the new energy business.

Ultimately, Reliance plans to offer a fully integrated end-to-end renewable energy ecosystem to its customers through solar, battery and hydrogen.

(Only the title and image in this report may have been reworked by Business Standard staff; the rest of the content is generated automatically from a syndicated feed.)


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