Reliance Industries Ltd’s strong cash flow generation in the “best in class” old energy business could fund the capex of the new energy business and in turn fuel one of the fastest and most profitable net-zero transitions by 2035 among major energy companies, Goldman Sachs has announced. said.
Billionaire Mukesh Ambani set a 2020 target for 2035 for Reliance, which operates the world’s largest oil refining complex in one location and also has a range of petrochemical units, to be net carbon neutral by 2035.
The company has already spent $1.5 billion on acquisitions to lay the groundwork for its new energy forays, including solar, battery and hydrogen. The CO2 savings from this are intended to offset the emissions of oil and chemical companies.
In an April 10 note, Goldman Sachs said Reliance takes a production approach for net zero emissions with a hyper-integrated solar, battery and hydrogen model and a focus on a net zero supply chain.
RIL’s energy business is, in our view, the best-in-class, with the highest complexity globally and the lowest cost structure ensuring a stable and higher margin compared to peers.
This helps the company achieve higher refining margins than the industry benchmark.
“In addition to refining, we also expect (oil and gas) exploration and production (E&P) to drive the next phase of growth for the energy segment as we estimate E&P EBITDA of $2-2.6 billion in 2023-24 versus $35 million in 2020-21 driven by rising domestic gas production and more than doubling domestic gas prices,” it said.
While for petchem, margins are expected to decline in the current quarter and a recovery on the horizon, led by economic cuts from higher-end squatters in North Asia and a likely underperformance of ethane prices relative to oil prices.
“We believe that RIL’s investment in new energy could be fully funded by internal cash generation from their legacy energy business (oil-to-chemicals) and in turn could lead to one of the fastest net-zero target (2035) in the world. major energy value chain companies,” Goldman said.
It forecast EBITDA and free cash flow generation of $35 billion and $14 billion, respectively, over 2021-22 to 2023-24 from RIL’s legacy energy business, compared to $10 billion capex announced for New Energy.
Speaking about its new energy strategy, the brokerage said RIL plans to produce polysilicon, wafers, cells, modules, EV and grid storage batteries, electrolyzers and fuel cells.
“We see RIL as India’s largest greener, with a total projected investment of $10 billion over the next three years. RIL has already spent $1.5 billion acquiring technologies in the solar battery and hydrogen ecosystems,” it said.
It saw significant expansion in the solar, battery and hydrogen production market, both globally and in India, and expected RIL to achieve EBITDA of $3.6-12.2 billion by 2029-30 and 2039-40. would generate.
“We value RIL’s new energy segment at $30/48 billion in our base and bull cases, respectively,” it said. “The hyper-integrated model could position RIL as one of the cheapest green hydrogen producers with RIL targeting costs of about $1 per kg by the end of this decade.” For Reliance’s consumer-facing businesses, Goldman Sachs forecasts a 29 percent compound annual growth rate in telecom EBITDA between 2021-2022 and 2024-25 and a 43 percent increase in retail EBITDA.