On the announcements made by Mukesh Ambani, market expert Prakash Diwan said there are three key takeaways. The first is that after this, Reliance certainly becomes eligible as an investment destination for ESG money. Second, there is a very clear indication that the money needs to be spent, capex will start and the whole ecosystem will develop, the third thing is that the foray is global, it is not something that they are talking about only in the Indian context.
Reliance Industries (RIL) Chairman Mukesh Ambani, while addressing the International Climate Summit 2021, said that climate change is ‘a global problem’ and the company would create or enable at least 100 GW of the 450 GW renewable target that India has by 2030. He further said that RIL has already started developing the green energy complex in Jamnagar with an investment of Rs 75,000 crore, adding that the complex (Dhirubhai Ambani Green Energy Giga Complex) would have 4 giga factories.
He also mentioned, “India is planning to create a green hydrogen ecosystem in the country and Reliance Industries is fully committed to fulfilling India’s green ambition.”
Deven Choksey of KRChoksey, and market expert Prakash Diwan, in an interview with CNBC-TV18 were asked what they made of these announcements and their view on the stock performance, going forward.
Choksey said, “These announcements were more of a confirmation of the programme that was announced in the AGM of investing Rs 75,000 crores in four giga factories. Having spelled out that programme, first time, he has communicated very systematically about what is the kind of capacity Reliance will be creating in the next decade, that is solar capacity of about 100 gigawatts. And at the same time, the cost of producing hydrogen at about $1 per kilo and that too in 10 years’ time is a target that he has spelt out. These are all the reinforcing statements about the commitment that the company has made.”
“However, most importantly, this Rs 75,000 crore worth of investment
, which is being made by the company, is likely to take the company to a new level, as far as growth in the business is concerned. Maybe one could put across a simple ratio that this investment at the input level, he is possibly talking about at least three to four times the size of the investment that they have made in the form of a turnover, that means they are talking about somewhere close to Rs two lakh crore plus worth of revenue, which will eventually be produced out of this investment. That, I think is the key takeaway. It would be early to speculate on EBITDA, etc., but my take would be that the potential turnover that could come from this investment could be quite huge and significant from the perspective of looking at the investment and the return on investment (RoI),” Choksey further said.
Diwan is also of the view that these announcements are very significant and after the Reliance AGM, it is the first time there’s an articulation of the plan to be put into action.
According to him there are three key takeaways. “The first is that after this, Reliance certainly becomes eligible as an investment destination for ESG money. So that’s a big change that will happen for investors and stakeholders. The second is, they are talking about a huge investment coming in and so people who thought that Rs 75,000 crore was just an announcement, but would take time to start rolling out, that is out of the way and now you have no doubts that this will immediately happen and a decade will fly if you have to do something path-breaking as hydrogen fuel
. So, there is a very clear indication that the money needs to be spent, capex will start and the whole ecosystem that will develop,” said Diwan.
Diwan further said, “The third thing is that the foray is global, it is not something that they are talking about only in the Indian context.” So that’s a huge change in outlook. “Therefore, Mukesh Ambani
has set the bar high and he has a habit of achieving lofty targets. He mentioned audacious, and that’s exactly what this target is, and it will be a major propellant for the for the stock and for the company’s rerating.”
When asked if the re-rating of the stock will happen immediately or will the stock market wait for more of these announcements before starting to price these things? Diwan said, “That would be tied in with the time that the company actually starts its capex cycle, because if you have the capex cycle, and then the timelines are built around it, then it’s very clear to pencil in some sort of earnings. Of course, the final product might take much longer, but the rerating of the stock on the basis of future earnings and future cash flows is something that would start probably in a years’ time. This just kind of adds up to the headwinds. This will get pencilled in, maybe in the next two to three quarters.”
Meanwhile, Choksey said, “The existing investments that the company has made in retail, as well as in the Jio platform, are by and large complete. And they are now getting the fruits out of this investment. They’re implementing some of the initiatives, and that will continue to give higher revenue. For example, in Jio platform, you would have new telephone launch and that could potentially produce around Rs 40,000-50,000 crore worth of revenue and around Rs 18,000-Rs 20,000 crore worth of EBITDA. So, from that perspective, things are moving quite well, as far as Reliance is concerned. “
Choksey further added, “Now these are the new generation of business, which is new materials business, both in the petrochemical block, as well as the green energy segment. As I see it, until now, they have reinvented the company every seven, eight years. Now that cycle is shorter and between two and a half to three years’, they will be reinventing the company. What would be the situation, you would find these new businesses in -- this energy business particularly, would contribute significantly down the line in the next two to two and a half years.”
RIL Disclosure: Network18, the parent company of CNBCTV18.com, is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.
For the full discussion, watch the video.