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As the world retools the way it produces and uses energy, and as energy security takes center-stage, green hydrogen is gaining attention. Hydrogen adoption plans are quickly progressing, with RIL best positioned to capitalize, as per global brokerage Morgan Stanley. The energy upcycle should help fund its growth and lift multiples.

Heightened awareness of energy security is creating new and bigger markets for solar panels and electrolyzers, which not only inflects Reliance Industries' (RIL) new energy ROCE but will also help fund this growth, the note stated. 

“We estimate tightness in the gas and fuel refining markets will fund nearly half of RIL's new energy capex over the next three years as refining margins and gas prices stay above mid-cycle levels," Morgan Stanley added. It has a Buy rating on RIL shares and has raised target price to 3,253 (from 2,926).

As the green hydrogen ecosystem is rolled out, it will also raise demand for RIL's solar panels. To put things in perspective, India's 2030 hydrogen production target would absorb the entire 100GW cumulative panel capacity that RIL plans to achieve. 

"RIL's petcoke gasifiers can also be monetized at higher multiples as hydrogen demand outstrips supply, and green/blue hydrogen export potential also supports multiples, especially as RIL repurposes its energy/ chemicals operations. Finally, RIL's hydrogen push will the lower operating costs medium term, while also advancing its net carbon-zero target," it added.

Morgan Stanley believes RIL share price implies near-zero value for the new energy business and no upside from NAV accretion in the traditional energy business, especially as it funds the next investment cycle. “RIL remains well funded for new energy investments, and unlike in past cycles will see net debt remaining rangebound."

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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