Reliance Industries' solar leap prompts Nuvama's highest-ever target price

RIL in focus: Domestic brokerage Nuvama Institutional Equities (Nuvama) has raised its target price on oil-to-telecom conglomerate Reliance Industries Ltd (RIL) to ₹1,801—the second highest on Dalal Street after Mirae Asset Securities (Buy, ₹1,950, 14/10/2024).

The upgrade by Nuvama reflects RIL’s foray into external sales of high-efficiency solar modules and the major growth potential of its rapidly expanding New Energy business.

The brokerage expects these developments to add majorly to profits and drive a re-rating akin to the market response during the RJio rollout in 2017.

At the core of this upgrade is RIL’s recent commencement of sales of heterojunction technology (HJT) solar modules, a move confirmed during the company’s latest analyst meet.

According to Nuvama’s drill-down, “RIL has offered to sell its HJT modules in the lucrative domestic market,” even as its power generation rollout remains some time away.

Notably, these modules have been included in MNRE’s Approved List of Models and Manufacturers (ALMM), and are fetching over 5 per cent premium over TOPCon modules, backed by a 23.1 per cent efficiency.

Nuvama forecasts that the company's 10GW module and cell capacity, to be fully operational by early CY26, could contribute an incremental ₹3,800 crore to consolidated profit after tax (PAT), equivalent to 6 per cent of FY25 earnings.

“We forecast it shall add 6 per cent to PAT (a la Tata Power) and shine out a huge valuation kicker (Waaree/Premier),” Nuvama noted in its report.

The brokerage also highlighted strong parallels with listed peers. “Drawing comparison with Waaree’s (13.3/5.4GW)/Premier’s (4/3.2GW) solar module/cell capacity, whose enterprise value (EV) is about $10/6 billion, RIL’s 20GW fully integrated solar equipment manufacturing facility could command a much higher EV. Waaree/Premier is trading at 14x/15x FY27E EV/Ebitda; ascribing 15x EV/Ebitda to RIL’s modules business (20GW capacity) yields an EV of $20 billion, which could trigger a valuation re-rating for RIL—similar to the trend seen post-RJio’s launch in 2017," the brokerage explained.

Beyond solar, RIL’s ambitions span across the green energy spectrum. The company is in the process of building a 30GWh battery storage facility and has entered a technology tie-up with Nel ASA for electrolyser manufacturing, the brokerage noted.

Green hydrogen and 55 compressed biogas (CBG) plants are also part of the roadmap. “At its AGM in August 2024, RIL had guided for a remarkable surge in the New Energy business… with expectation of its profitability equalling O2C profitability in the next five–seven years,” the report said.

Currently, the O2C (Oil-to-Chemicals) segment accounts for over half of RIL’s attributable PAT and around 40 per cent of Ebitda. The New Energy business, as per Nuvama, has the potential to add “50 per cent-plus to consolidated PAT” by FY30, dramatically reshaping the group’s profit mix.

With visibility improving on both profitability and integration in the New Energy vertical, Nuvama urges investors to “watch out for the upcoming AGM in August/September,” which may further flesh out this transformational roadmap.

The brokerage reiterated its ‘Buy’ rating on RIL, driven by “potential for higher-than-expected module profits” and the valuation re-rating opportunity.