At present, most clean energy companies trade at 2-3 times price-to-sales. Based on Reliance’s capex plans for clean energy, the business may add Rs 395 per share to Reliance’s stock, Bernstein said while upping its price target for the stock to Rs 2,830 from Rs 2,470.
Bernstein said it expects the new energy business to contribute almost 10 per cent of the company’s total Ebitda by FY26, assuming all the factories are constructed and ramped up on the company’s timeline.
“This will make RIL a highly diversified conglomerate spanning E&P, refining, petrochemicals, clean energy, telecoms, retail and Internet, although we suspect the company will be split up given the inefficiency of such a corporate structure,” it said.
Since it would require decades of investment in R&D to be successful organically, RIL would prefer partnerships with industry leaders in key technologies, it said, adding that this is “something which Reliance has been adept at doing.”
Bernstein said while key players will be reluctant to share technology with a potential competitor, the market opportunity in India may be enough to persuade some. Korean battery makers, it said, could be potential partners in energy storage while companies like Plug and Ballard could be partners in fuel cell manufacturing.
It gave the example of China, which spent billions on fuel cell technology and ultimately ended up making investments in key companies such as Ballard Power to get better access to the best technology.
“Even companies with expertise in fuel cell manufacturing have acquired to enter the electrolyzer market. For energy storage, it is similarly impossible to imagine that Reliance could go it alone without assistance from a third party. For energy storage, the most obvious partners would be the Korean battery makers such as LG Chem, Samsung SDI or SKI. Reliance would certainly enable access to India, a potentially enormous market for these companies,” it said.
The foreign brokerage suggested a few ‘obvious’ partners for hydrogen fuel cells.
“Ballard Power is an option and Ballard have partnered with WeiChai in China where they have built a Gigafactory in Shandong to develop fuel cells. Plug Power could be an alternative option, a company which has partnered with SK Innovation in the Korean market, where it is likely to set up a fuel cell and electrolyzer Gigafactory. On solid-state, Bloom Energy (who have also partnered with SKI in Korea) or Ceres Power, which licenses its technology to third parties, are both possible options,” it said.
Bernstein said while it is unclear as to whether Reliance will be successful, it is too early to discount the company given its track record of successfully disrupting other industries, such as telecom and retail.
Reliance has announced plans to spend $10 billion in capex on manufacturing plants to build solar PV panels, batteries, fuel cells and electrolyzers. Out of this, roughly $8 billion will be spent on manufacturing capacity and a further $2 billion will be spent investing across the value chain and technology.
Bernstein said the split of the capex between each of the sub-sectors in unclear, but it suspects solar and PV would account for the bulk of the capex given the greater maturity of these industries.