Reliance industries’ blue hydrogen plan will draw investors

Reliance Industries Ltd.’s plan to repurpose its $4-billion (about Rs 30,000 crore) gasification assets for clean energy will offer the Mukesh Ambani-controlled conglomerate an opportunity to rope in more investors, according to analysts. India’s biggest company by market value will use syngas—a product of coal gasification—to make blue hydrogen at a competitive cost of $1.2-1.5 a kg, according to analysts.

India’s biggest company by market value will use syngas—a product of coal gasification—to make blue hydrogen at a competitive cost of $1.2-1.5 a kg, according to its investor presentation released on the bourses. That, until the cost of green hydrogen comes down. “Subsequently, as hydrogen from syngas is replaced by green hydrogen, the entire syngas will be converted to chemicals.”

Blue hydrogen is produced from natural gas but captures the carbon dioxide formed during production. Green hydrogen is extracted from water using electrolysis powered by renewable energy.

The Mukesh Ambani-owned conglomerate has set an ambitious target to achieve net zero carbon by 2035. It plans to develop next-generation carbon capture utilisation and storage technologies to convert carbon dioxide into useful products and chemicals. It’s progressing in converting the greenhouse gas generated at its Jamnagar refinery into high-value proteins, nutraceuticals, advanced materials and fuels.

Separately, Jio Platforms Ltd., the holding company for digital and telecom assets of RIL, announced setting up of a joint venture—Jio Space Technology—with Luxembourg’s SES SA to provide satellite-based broadband services in India.

Shares of RIL, however, fell more than 2.5%, the steepest intraday decline in nearly three weeks, tracking the drop in the stock market. The stock closed with 1.59 losses compared with 3% for the benchmarks.

Of the 39 analysts covering the company, 24 maintain a ‘buy’, 11 suggest a ‘hold’ and four recommend a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies an upside of 16.1%.

Here’s what analysts have to say about RIL’s fresh plans:

Jefferies

Maintains ‘buy’ with a target price at Rs 2,950, an implied return of 24.14%.

The company plans to monetise gasification assets as their use of current form will be replaced by renewable energy starting CY25.

RIL intends to replace fossil fuel-based energy progressively with renewables from CY25.

The syngas that is produced by gasifier will be used to produce blue hydrogen along with carbon capture and sequestration.

Reliance plans to commission enough green electrolyser capacity once the economics of green hydrogen electrolysers become competitive.

The company is likely to get investors in the gasifier and downstream chemical chains onboard.

The company’s valuation of the gasification asset at Rs 30,000 crore ($4 billion) is in line with our valuation.

Complete transition of gasifier output to chemicals could take a decade.

Morgan Stanley

Maintains ‘overweight/in line’ with a target price at Rs 2,926, an implied upside of 25.13%.

RIL’s detailed plan to monetise its petcoke gasifiers was surprising, with the level of integration that the company targets.

The company’s plan highlights upside potential in energy vertical NAV, where multiples and RoCE can see an inflection.

The “life of asset” debate should also reverse and boost multiples by accounting the potential sustained margin increase due to asset repurposing.

Citi

Maintains ‘neutral’ with a target price at Rs 2,750, an implied return of 15.9%.

The $4-billion valuation ascribed to the subsidiary (Reliance Syngas) after carving out the petcoke gasification unit from O2C segment is well below the $10 billion carrying value of assets.

The exercise should be broadly value-neutral in the near term.

Restructuring towards renewables marks an important step towards decarbonisation.

Move to improve value contribution of the gasification unit as it adds to downstream optionality for syngas, first as fuel and then as feedback in the synthesis of value-added chemicals.

Much lower implied value of the business (Rs 30,000 crore) relative to the capital invested in it could be viewed as a bit of a dampener.

Value addition from downstream chemicals integration and creation of the hydrogen ecosystem are long-term positives.

Premature to attribute value to the business, due to the lack of financial and operational details.

Risk-reward for the stock remains balanced at current levels.

Source: BloombergQuint

Tags: Blue Hydrogen, Green investment, Mukesh Ambani, Reliance Industires