Mukesh Ambani’s Reliance Industries Ltd (RIL) forayed into the new-energy business over a year ago now. Since then the company has been working to set up Giga factories, acquire technology, and partner with industry players. RIL has so far put in (or committed) a total of Rs 109 billion into the new energy vertical for various investments. The new-age business of Reliance Industries is seen as a positive by brokerage firms. Motilal Oswal and Goldman Sachs have recently discussed the new-age energy transition, separately, with the former adding the initiative may replicate the success of Jio and Reliance Retail. Analysts have reiterated their bullish views on Reliance Industries’ stock price.
Target prices
Goldman Sachs has pinned a target price of Rs 3,200 per share on Reliance Industries. The target price implies an upside of 27% from Monday’s lows. “We maintain our Buy (on CL) rating. Key risks include lower-than-expected refining/chemical margins, lower-than-expected ARPU, lower-than-expected market share and margins in the retail business, project delays and higher future Capex,” they said.
Motilal Oswal has a target price of Rs 2,880 per share on the stock. This suggests an upside potential of 14%. Key downside risks involve slower-than-expected traction in the Jio and Retail segments.
Unique Energy transition story
Analysts at Goldman Sachs see Reliance Industries as a unique energy transition story. They added that RIL’s strong cash flow generation from the best in class old energy business can fund the Capex of the New Energy business and in turn drive one of the fastest and most profitable net-zero transitions by 2035 amongst large energy companies. “We see refining tailwinds to sustain given improved supply-demand from closures, jet fuel demand recovery ahead, lower Chinese exports, low inventory and supply disruption. With rising penetration and market share wins ahead in consumer businesses (telecom tech and retail), we see the medium-term growth story remaining intact as well,” they added.
The brokerage firm said RIL has already spent around $1.5 billion to acquire technologies across the solar battery and hydrogen eco-systems. “We see significant expansion in TAM for solar, battery and hydrogen manufacturing globally as well as in India and expect RIL to generate EBITDA of US$3.6/12.2 bn in our base case by FY30/FY40,” they added. Analysts value RIL’s New Energy segment at US$30/48 billion in Goldman Sachs’s base and bull case respectively.
Replicating Jio and Retail success
Analysts at Motilal Oswal recalled that a decade back, investors had concerns on investments of RIL in both Jio and Retail. “However, RIL turned both the businesses around such that they stand as tall as the behemoth standalone segment in terms of EBITDA contribution. In fact, due to better prospects, Jio and Retail command a staggering two-thirds of the total valuation currently,” they added. Could a similar turnaround be seen in the new-energy business is a thing that investors will have to wait and watch.
“These new-age initiatives involve cutting edge fast-evolving technologies that are in nascent stages now. Hence, it is difficult to say — at this stage — if RIL would be able to score a hat-trick after its successful turnarounds of Jio & Retail,” Motilal Oswal analysts wrote in a note. The brokerage firm does not ascribe any valuation to these investments, however, they value the standalone segment at Rs 795/share, valuing it at 7.5x FY24E EV/EBITDA.
