Reliance Industries shares at Rs 3,500? Jefferies pegs green hydrogen business at $8 billion

Foreign brokerage Jefferies, which has a base case target of Rs 3,100 on Reliance Industries (RIL), said EU and India's 2030 green hydrogen (H2) targets translate into a $74 billion total addressable market (TAM) for RIL's electrolyzer manufacturing business. In a report, Jefferies said RIL would replace gray H2 with green at its refineries and could monetise the captive green H2 production by moving it into an InvIT and inducting investors. Jefferies has a bull case target of Rs 3,500 and bear case target of Rs 2,200 on the stock.

The foreign brokerage values RIL's electrolyzer manufacturing business at a 20 per cent discount to the European benchmark and added the cap value of its captive H2 consumption.  "We discount its FY30E fair value at 12 per cent WACC to get a June 2023E FV of $8 billion. Any meaningful capital subsidy from the govt would aid the valuation of its green hydrogen foray," the foreign brokerage said.

The brokerage has a base case target of Rs 3,100 on the stock and, in a downside scenario, it sees RIL stock at Rs 2,200. The base case estimates 24 percent Ebitda CAGR in Jio over FY22-25E, 35 per cent Ebitda CAGR in retail over FY22-25, 11 per cent Ebitda CAGR in refining over FY22-25 and 4 per cent Ebitda CAGR in petchem over FY22-25E.

Jefferies' upside scenario anticipates recovery in GRMs ahead of estimates; faster consolidation in telecom leading to tariff upside in Jio, possible public listing of Jio re-rating valuation multiples; Reliance Retail gaining market share faster than expected and Jiomart GMV coming in ahead of expectations.

Jefferies noted that the government approved the Green Hydrogen Mission to develop 5 mmt capacity and 125GW associated renewable energy (RE) capacity by 2030. The Phase I will focus on existing hydrogen users and electrolyzer capacity creation while Phase II would focus on new customer industries.

"Initial incentives of Rs 19,740 crore ($ 2.4 billion) is only a beginning and is dwarfed by subsidies announced by the US and the EU. Any meaningful capital subsidy to RIL should aid $ 8 billion valuation of its green H2 foray," it said.

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