Reliance's 2 buyouts in clean energy strategically unique; will it disrupt the sector?

It is with quite a bang that Reliance Industries Limited (RIL) has made some key strategic moves on its clean energy business. Its unit, Reliance New Energy Solar, on Sunday announced the acquisition of two companies in the space. One was the buyout of REC Group from China National Bluestar in ticket size of $771 million (at an enterprise level) and the other being a 40 per cent stake picked up in Sterling & Wilson, a Shapoorji Pallonji Group company for Rs 2,850 crore.

Commenting on the buyouts, Jigar Shah, CEO, Kim Eng Securities India, says it is very much in line with Reliance Industries' plans announced at its annual general meeting (AGM) held this June. "It wants to invest $10 billion in the Indian renewable energy sector, create 15-20 per cent of India's renewable energy capacity in a decade and wants to be net zero emissions by 2035. These acquisitions would help expedite its execution towards these objectives and reduce the risk in its fossil fuel-driven businesses," he adds.

Meanwhile, RIL in a statement, said REC "was the first to introduce half-cut passivated emitter and rear cell technology, which is adopted by all major manufacturers of today. REC has moved on to its next-generation heterojunction tech."

RIL plans to set up four giga-factories, where everything from solar panels, electric batteries to hydrogen fuel cells will be made. With clean energy being the buzzword and also the potential it throws up, it is understandable that Reliance will make the strategic moves.

According to Mahesh Singhi, Founder & MD, Singhi Advisors, an M&A advisory firm, the access to low-cost funds, global liquidity and patience capital being available for the ESG (Environmental, Social and Governance) sector was the perfect backdrop.

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"It was quite natural for the Reliance group to enter the fray and try and gain some momentum," is his view. Both the buyouts present uniquely different opportunities. "REC Solar gives them a good base, a large number of global customers and a deep sectoral knowledge. In the case of Sterling & Wilson (S&W), Reliance gets front-end capabilities to handle large solar projects in India and MENA (Middle East & North Africa) region in an industry that is not just price-sensitive but offers wafer-thin margins," adds Singhi.

Also read: Reliance Industries' arm to acquire 40% stake in Sterling & Wilson Solar

In the case of Sterling & Wilson, the rationale is its range of solar energy solutions. The deal struck at Rs 375 per share (the stock closed at Rs 461.50 on the bourses) gives Reliance a high-quality asset at a substantial discount. The two announcements, says Vinay Rustagi, Managing Director, Bridge to India Energy, a renewable energy consulting firm, shows the full breadth of Reliance's ambition and commitment to the renewable sector.

"These investments are excellent foundations for becoming a fully integrated player with international scale. Access to proven expertise also helps the company, a late entrant in the sector, speed up progress," he explains. Given the group's ability to disrupt the status quo in any industry it enters, there is no reason to believe clean energy will be an exception.

Also read: RIL's renewable energy arm acquires REC Solar Holdings for $771 million