RIL’s green energy rush can lift valuation

ET Intelligence Group: Green-energy investments should ensure higher valuations for Reliance Industries (RIL), the country’s most valuable company. Its recent acquisitions in the green-energy space – integrated solar photovoltaic factory of and Sterling and Wilson – have underscored ‘s intent to dominate the energy landscape in an environment where fossil fuels are expected to play an increasingly diminished role.

Analysts estimate that these acquisitions are likely to contribute ₹150-200 per share in the coming quarters. That should take the RIL valuations beyond historical averages. Jefferies has put SOTP (sum of the parts) value of ₹207 per share for solar business.

Recently, RIL acquired Norway-based REC at an enterprise value of $771 million. The company manufactures solar-grade polysilicon and photovoltaic cells and modules. It has three manufacturing facilities. Of these, two are in Norway for solar-grade polysilicon that have a capacity of 2.5 GW. The third facility is in Singapore. It has a capacity to produce 1.8 GW for PV cells and modules.

REC has technology that consumes 75% lower power than Chinese competition. Furthermore, REC is the only company that has been able to commercialise the new technology that consumes lower power, and stabilise the new plant within six months of commercialisation. This technology can not only open the exports market for RIL’s solar business but also be leveraged in RIL’s planned integrated solar photovoltaic giga factory in Jamnagar. REC owns more than 400 patents for polysilicon, cell and module production processes and its heterojunction modules are considered to be of one of the highest efficiencies globally.

The mix of technology, patent, efficiency level and overall integration would help RIL build a giga factory in India. RIL’s giga factory is likely to have end-to-end manufacturing. RIL can use REC’s expertise in intermediate steps of solar cell and module manufacturing.

Separately, RIL’s acquisition of a 40% stake in Sterling and Wilson Solar at ₹2,800 crore is another advantageous deal. Sterling and Wilson Solar is one of the largest solar construction companies globally for plants with more than five MWp. Before the acquisition, Sterling and Wilson was owned by Shapoorji Pallonji Group. With Shapoorji Pallonji Group, the company has signed contracts worth 1,977 MW of power generating capacity, according to its annual report.

The acquisition of S&W will complement its solar making business. Also, it offers a wide range of solar energy turnkey solutions for its prospective clients.

In its last annual general meeting, RIL announced that it will invest about $10 billion on four factories in new energy verticals like solar photovoltaic module, advanced energy story battery, electrolyser for green hydrogen and fuel cell factory for converting hydrogen. In the photovoltaic giga factory, it would have an initial capacity of four gigawatt, which it would gradually scale up to 10 GW.

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