In its latest AGM, Reliance Industries Ltd (RIL)  announced setting up of 4 Giga Factories for Solar Cell manufacturing, Batteries manufacturing, Fuel Cells and Green Hydrogen generation, with a total capital outlay of Rs. 75,000 cr.

Let’s understand what each of these mean –

1. Solar Cells – Modules used to convert solar energy to electricity. Used in calculator to solar power plants, to roof top generators for homes.
2. Batteries – Advanced version of the humble pencil cell. Generating electricity is easy - you can build power plant of giga watts to supply electricity, round the year, but currently impossible to build a battery to store that much energy. So battery technology is critical.
3. Fuel Cells – A possible alternative to the Electricity & Battery power source in future, in which hydrogen is combined with Air (or Oxygen in it) to generate clean electricity.
4. Green Hydrogen Generation – To support the Fuel Cell future, from Point 3, need to generate Hydrogen cleanly. Currently bulk of the hydrogen is generated by natural gas, so using Electrolysis which uses Electricity to generate Hydrogen and Oxygen will be the ‘green’ approach.

Our take on each of them –

1. Solar Cells – Bulk of the world’s solar cell output is coming from China, which is presently a lowest cost game. Subsidies or tariffs can support the business, but still it will eventually be close to commodity business than enjoying innovation premium.
2. Batteries – Highly technology driven and getting lowest cost per kW-hr is crucial, as now battery packs are extremely expensive and form bulk of the cost, say in an electric vehicle. Tesla has been the lowest cost producer, for almost a decade now (though others have closed the gap significantly in last 10 years). So, will not a one-time-set up-and-earn-business.  Very different from the other ventures taken by the group, which required incremental R&D after initial setup (think O2C, Jio, Retail). So highly rewarding for the winner and leader, but a big hole in the wallet for others.
3. Fuel Cells – This technology has been around for decades, but lack of R&D and response by large companies and countries, meant it never went in mainstream. Pilots have been done in many industries using fuel cells, but subsidies have flown more into Electrification using batteries and this got pushed it on back burner. Also, fundamentally less efficient than batteries, hard to justify investment, when Batteries have got a strong foothold. A risky bet and not the tried and tested ventures, having not tried by RIL even in Jio, as RIL never ventured to Satellite internet, since was untested, but done by Bharti and Elon Musk owned SpaceX.
4. Green Hydrogen generation – Make sense, if hydrogen fuel cell economy exists and since costs for generation is coming down continuously. Products from Electrolysis are Oxygen and Hydrogen, both of which are useful. Hydrogen can be used as fuel in turbines and hence has other applications apart from fuel cells. A hydrogen economy will increase demand, but has application outside as well to go green. An ever falling electricity cost helps this business as well, so can be self-sustaining. So, this only seems steady state business, of the 4 ventures discussed above.

Some of these businesses are good on paper, but difficult to crack, to make astronomical rewards out of it. For example, in the last AGM, the company announced an all-digital products future, with home grown 5G technology, blockchain, AI, etc. Each has a hundred billion dollar business potential, but none seem to be on the path and seen having gone in cold storage. So, every AGM seen narrating fancy projects, maybe to please media and shareholders. 

A small example of JioMeet, touted as Zoom replacement, never grew beyond the initial adoption with an estimated traffic of <1% of Zoom currently. Zoom present m cap is more than the valuation of Jio, thus was a failure and remained a paper project.

RIL has never invested in internal R&D, which is a basic in the fast pace digital age. Partnerships with Facebook, Microsoft and now Google, may not be able to go RIL that far, as also, will never let RIL earn the cream.

So, bulk of these announcements will only end up with a small side division and will NOT materially contribute to the future growth of RIL. Infact, will be a drag due to the capex heavy nature of all these divisions, with low success rate. Hence, they look more paper and vanity projects, rather than the growth engines of RIL.

So we can only think of 2 reasons for this sudden change of path –

1. Saudi has been trying to develop  a non-oil based future to be relevant, with timing of Chairman of Saudi Aramco joining the RIL board, while its  investment in O2C, could be conditional based on diversifying into the ‘new age’.
2. No one globally has taken the spotlight more, in the last 12-18 months, than Elon Musk. A pioneer in multiple industries, saw his wealth multiplying 10X in the last 18 months, to catapult him to the richest man on the planet briefly. Some of the projects like Solar Cells and Batteries are core of the Tesla eco system and this may be an attempt to directly ‘copy’ it in India (Incidentally, Giga Factory term used by RIL was also coined by Musk).

It may be a risky bet to hunt for RIL growth from these projects, while time horizon now given of 3 years may see these projects vanishing in this period, with new fancy projects seen getting narrated in the next AGM. Hence, it is choice of an individual investor.

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