RIL is metamorphosing again to tap ‘new oil’; and that’s not data
MUMBAI: When Reliance Industries ventured into the telecom business several years ago, the common notion was that the company’s Chairman and Managing Director Mukesh Ambani was making a play at capturing data, the new oil of the 21st century.
The essence of Ambani’s venture into telecom and digital services was also captured in the logo of Jio, which to a keen observer symbolises oil. The billions of dollars invested by the company to create Reliance Jio from scratch has paid handsome dividend, with value creation of more than $100 billion.
Now, with a close to $12 billion investment in green and renewable energy technology, Mukesh Ambani has laid the foundation for the 'new oil' of the next decade for his company, according to brokerage firm Morgan Stanley.
“RIL has re-defined "oil" in its strategy during the past decade with "data" and is looking to repeat the same this decade with a vision to transform India from a net energy importer to a global exporter of clean energy solutions,” Morgan Stanley said in a note.
What is the 'new oil'?
Ambani said earlier this year that RIL NSE 0.00 % will be creating four gigafactories in India catering to battery storage, solar power among other green technologies. Of these, the most lucrative are the company’s investment in silicon and hydrogen.
As the global economy becomes increasingly less reliant on fossil fuels for its sustenance, less environmentally taxing sources such as hydrogen are likely to become the default source of energy especially in heavy transportation and air travel.
RIL is already looking to capitalise on the hydrogen electrolyser opportunity, which could become a 3-4 GW market in India alone. “This abundant molecule will increasingly replace carbon as the dominant energy carrier on the planet,” Morgan Stanley said.
Silicon, the other part of the 'new oil', is expected to be a gamechanger in energy storage as the world adopts electric vehicles as well as renewable energy. Renewable energy sources have faced issues with storage and as rooftop solar panels pick up, energy storage in the form of batteries will be critical.
How will it aid RIL’s valuation?
Morgan Stanley says RIL could generate potential value of close to $60 billion from its initial investment in green technology. According to the brokerage, the operating profit of RIL’s new energy business could match that of the petrochemical operations today albeit with higher valuation multiples.
Brokerage firm Kotak Institutional Equities says RIL’s $3 billion investment in setting up 10GW of integrated solar capacity could generate operating profit of Rs. 4,600 crore in a steady-state environment.
Keeping that in mind, both Morgan Stanley and Kotak Equities have raised their price targets on the stock by 30 per cent and 24 per cent, respectively.
The Economic Times 11-10-2021