RIL's net zero drive fuelling next leg of growth

Race to net zero

• Billionaire Mukesh Ambani in 2020, set a target for Reliance to turn net carbon zero by 2035

• RIL is adopting a manufacturing approach to net zero emissions with a hyper integrated model spanning solar, battery and hydrogen

• RIL's investment in new energy can be fully funded by internal cash generation from their old energy business and in turn, could drive one of the fastest net-zero target (2035) amongst large energy value chain companies

• Goldman Sachs forecast EBITDA and free-cash-flow generation of $35 bn and $14 bn respectively over FY22 to FY24 from RIL's old energy business as compared to $10 bn capex announced for New Energy

New Delhi: Reliance Industries Ltd's (RIL) strong cash flow generation in the 'best in class' old energy business can fund the capex of the new energy business and in turn drive one of the fastest and most profitable net-zero transitions by 2035 amongst large energy companies, Goldman Sachs has said.

Billionaire Mukesh Ambani in 2020 set a 2035 target for Reliance, which operates the world's largest single-location oil refining complex and also has an array of petrochemical units, to turn net carbon zero by 2035. The company has already spent $1.5 billion in acquisitions to lay grounds for its new energy forays that include solar, battery and hydrogen. The carbon savings on these are to offset emissions from oil and chemical businesses. In an April 10 note, Goldman Sachs said Reliance is adopting a manufacturing approach to net zero emissions with a hyper integrated model spanning solar, battery and hydrogen and a focus on a net-zero supply chain. "RIL's energy business is best in class, in our view, with the highest complexity globally and the lowest cost structure driving stable and higher margin capture versus peers," it said.

This helps the firm to earn higher refining margins over the industry benchmark. "Alongside refining, we also expect (oil and gas) exploration and production (E&P) to drive the next leg of growth for the energy segment, as we estimate E&P EBITDA of $2-2.6 billion in FY23/24 versus $35 million in FY21 driven by rising domestic gas production and more than doubling of domestic gas prices," it said. While for petchem, margins are expected to trough in the current quarter and a recovery ahead led by economic run cuts from higher-cost North Asia crackers and likely underperformance of ethane prices to oil prices.

"We believe RIL's investment in new energy can be fully funded by internal cash generation from their old energy business (oil-to-chemical) and in turn, could drive one of the fastest net-zero target (2035) amongst large energy value chain companies," Goldman said.