Tag: solar

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Can Clean Energy Take Reliance to New Heights?

Reliance’s Annual General Meeting last week looked positive, the announcements were put forward with great vision, the markets they are competing in have huge scope. But even with this, the stock price is seeing selling pressure. One of the main takeaways from the AGM was the venture of Reliance into the much-talked Green energy business. However, an oil-to-telecom conglomerate moving into this new energy domain might feel awkward to a few, but it is not. Mukesh Ambani has already stated last year that he wants his company to lead India’s fight for sustainable energy.

Let’s see what are the prospects of the green energy business sector and how Reliance is planning to become a major player here.

Indian Renewable sector

The age of fossil fuels cannot run endlessly. It will have a conclusion and this might not be very far now. To boost a new sector, it is important to allow investors to pump money. With this in mind, India’s foreign investment policy allows 100% FDI through the automatic route. According to the reports, the Indian renewable energy sector has received a total investment of about Rs 5.2 lakh crore in the last seven years. Not only this, by 2028, India can reportedly see investments worth $500 billion in this sector. 

As of 2019, India was ranked fifth in wind and solar power and fourth in renewable power installed capacity. What makes this sector even more interesting is the subsidies and benefits offered by both central and state governments. The governments of different states want the factories to be set up in their area so that their unemployment numbers can reduce and benefit from the taxes in the long run. 

By 2040, it is expected that around 49% of the total electricity will be generated by renewable energy. The Central Electricity Authority (CEA) also says that the share of renewable energy generation would increase from 18% to 44%, while that of thermal power is expected to reduce from 78% to 52% by 2030. If you notice, all these aims are for the next 10-15 years. And, any massive change in the short-term is not expected. 

Reliance AGM revealing the Green energy push

Reliance is entering into this segment with the aim to bridge the energy divide between India and other countries. They have announced plans to invest Rs 60,000 crore in building four factories. These will be a solar photovoltaic module factory, electrolyser factory, fuel cell factory, and energy storage battery factory. Apart from this, they will also invest Rs 15,000 crore in strengthening the value-chain partnerships and future technologies. 

Both of these investments will be made over the next three years. Mukesh Ambani also revealed that the company has already started developing the Dhirubhai Ambani Green Energy Giga Complex on 5,000 acres in Jamnagar. The chairman claims that this complex will be one of the largest integrated renewable energy manufacturing facilities in the world. Overall, this will help the company to meet its ambitious goal of becoming net-carbon zero by 2035. 

Reliance has the aim of enabling 100 gigawatts of solar energy by 2030. They will also invest in carbon fibre plants for sustaining their hydrogen and solar ecosystems. This whole ecosystem is planned to be bolstered by a dedicated Renewable Energy Project Management and Construction Division.

Unlimited scope to grow

Reliance is sure to be a great part of India’s future but if they can meet their targets in the defined period, their growth won’t be restricted to India but will spread to the global market. Now we have the countries of super-rich businessmen competing against each other in one of the most lucrative sectors. Yes, we are talking about Reliance’s Mukesh Ambani and Adani Green’s Gautam Adani. One international top competitor you can expect will be Tesla’s Elon Musk.

Just like many other sectors, China has a huge hold in the development of clean energy as well. Four of the Chinese companies are responsible for producing nearly half of the world’s solar polysilicon supply. Recently, US president Joe Biden added three of these companies to its export blacklist. The sentiments against China are very high due to the Covid-19 spread. 

Allegedly, it was from China where this virus actually started surfacing. This has not been received well by many countries who demand action against China. Indian companies like Reliance can take benefit of this lost love and spear ahead to dominate in the clean energy business. It’s a new road for Reliance. And, a road of unlimited growth potential. Can they become a giant in this clean renewable energy sector? What are your views? Let us know in the comments section of the marketfeed app.

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Editorial

Renewable Energy Sector In India To Fly After Budget 2021?

India has installed a renewable energy capacity of close to 136 GW as of February 2021. It has an installed solar energy capacity of 36.91 GW and a wind energy capacity of 38.43 GW. Additionally, India has installed a strong hydro-power capacity of 45 GW. The government plans to install 500 GW of renewable energy capacity by 2030. The Budget 2021 is a game-changer for the renewable energy sector. 

The Electricity Amendment Bill that has received praise in the public domain can also prove to be a much-needed change for the power generation, transmission and distribution companies. Let’s explore what the renewable energy sector has in its books for investors. 

Current Scenario/Budget 2021 Impact

The solar and wind energy sectors aren’t having the best time. Poor tariffs, bad government regulation, and high payment default rates are what the sector is facing. According to a 2019 report, power distribution companies owed renewable energy companies Rs 6,800 crores in payment dues. Delays in payment by State Electricity Regulatory Commissions(SERCs) make it difficult for renewable energy companies to set up new projects. 

The pricing of renewable energy by government bodies isn’t a transparent process and has its own set of challenges. Financial institutions do not have much understanding or expertise in renewable energy projects. Moreover, the taxation of renewable energy still falls under the grey area.  

In the Budget Session of 2021, the Finance Minister announced reforms in the power and the renewable energy sector. These reforms will ensure improvement in infrastructure financing, clearing payment dues, and improving energy efficiency. The government will be infusing Rs 2,600 crores into the solar power sector through loans, incentives, and subsidies. It will also jack up import duty on solar panels to promote domestic production. 

The government has also announced reforms that will improve the financial position of transmission and distribution companies. This will ensure that the amount of money owed to renewable power generation companies is paid.  

Stocks To Watch Out For

Adani Green

Adani Green is a renewable energy company owned and operated by the Adani Group, headquartered in Ahmedabad, Gujarat. It has a project portfolio of 14,000 GW/Gigawatts. It means that if all of his projects become operational they will generate 14 GW of electricity, which can realistically power up to 42 lakh homes. Adani Green’s projects include solar energy, wind energy, and hybrid solar-wind energy projects. Adani Green has a market capitalization of Rs 1.75 lakh crore. The company’s share price has risen by 1,207% in one year’s time.

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NHPC 

National Hydroelectric Power Corporation was set up in 1975 with the objective of setting up hydropower projects. It has a market cap of Rs 25514 crore It has a total installed capacity of 7071.2 MW. It has executed 22 hydro projects with an installed capacity of 6717 MW on an ownership basis plus some on a joint venture basis. The company holds projects majorly in the states of Himachal Pradesh, Uttarakhand, and Jammu, and Kashmir to name a few.

Sterling & Wilson Solar

Sterling & Wilson Solar is a Shapoorji-Pallonji Group company that works in end-to-end solar solutions, procurement, construction, operation, and maintenance of solar units. The company has a market cap of Rs 1975 crore. The Engineering, Procurement, and Construction (EPC) business contributed to 96.7% of company revenue in FY 19-20. Operation And Maintenance (O&M) contributed to 3.3% of the revenue in the same year.

The Company’s unexecuted orders stood at Rs 11,396 crore as of March 31, 2020, up 47.3%, from Rs 7,739 crore as of March 31, 2019. This is a minor cause of worry, even though they are getting new orders every other week.

JSW Energy

JSW Energy currently generates 4,559 MW, out of which 3158 MW is thermal power,1391 MW is hydropower, and 10 MW solar power. Close to ~34% of JSW’s portfolio is in renewable energy. JSW Solar bagged an order from Solar Energy Corporation of India for setting up of 2500 MW ISTS or Interstate Transmission System. 

Tata Power

Apart from thermal power production, Tata Power’s renewable business capacity is 2,637 MW (932 MW Wind & 1705 MW Solar). Close to 36% of its total energy is produces from renewables. The company also has an installed hydropower capacity of 693 MW, of which 65% is generated for the domestic market. The company plans to expand its renewable energy capacity base from 4.1 GW to 15 GW by 2025

Other Listed Companies

  • Waa Solar
  • Suzlon
  • Gita Renewables
  • Ujaas Energy and much more..

FM Nirmala Sitharaman announced in the budget 2021 that provisions were being laid for power consumers to choose between multiple power distribution companies. This will promote healthy competition and at the same time, help for better price discovery.

The renewable energy sector shares were struggling for much of its time in the stock exchanges. This is the reason behind poor valuations and price growth of renewable energy companies since IPO, often getting classified as ‘penny stocks’ or ‘operator-driven stocks’.

Factors like the Electricity Amendment Bill, power sector reforms, increased power trading on the Indian Energy Exchange, Renewable Purchase Obligation (RPO), and so on, will spark a movement in the renewable energy sector. 

These changes in the power sector will ensure an increase in cash flows for these companies.  Struggling distribution companies may be able to pay their dues on time, this way reducing the financial burden on the entire sector. A defined tax-structure for electricity too can help power companies transfer tax-burden to their clients. 

There are plenty of small-cap or “penny-stock” renewable companies listed on NSE and BSE, some of these infant companies might turn out to be power giants in the future if they manage to clear off their very high debts. Do you know any? Let us know in the comment section down below!

However, in our opinion, try to go for good companies like the ones we have mentioned above even if their valuations are higher. High debt levels and poor technology may limit these penny stocks from making a comeback, while good companies will flourish.

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Editorial

Is Adani Green Overpriced? The $6 Billion Trap for Retail Investors

Adani Green is a renewable energy company owned and operated by the Adani Group, headquartered in Ahmedabad, Gujarat. If you are a stock market participant, you may know it as the company whose shares just keep going up and up!

While Adani Group is generally infamous for its coal-related businesses, Adani Green’s projects include solar energy, wind energy, and hybrid solar-wind energy projects. Adani Green has a market capitalization of Rs 1.75 lakh crore. The company’s share price has risen by 1207% in one year’s time. This means that if you had invested Rs 1 lakh and a year back, you would have had Rs 13 lakhs in hand right now. That is a lot of money, considering that the company was listed only in the year 2018 and only 20% of its total projects are operational. This means only 20% of its commissioned solar and wind projects are generating electricity. Why did the share price rise so much? Is the share overpriced? Let’s jump right into it.

Why is Adani Green Share Going Up Endlessly?

Adani Green has managed to have a project portfolio of 14,000 GW/Gigawatts. It means that if all of his projects become operational they will generate 14 GigaWatts of electricity, which can realistically power up to 42 Lakh homes. 

In June 2020, SECI or Solar Energy Corporation of India had awarded Adani Green a bid to build an 8 GW solar project worth Rs 46,000 crore. This is by far the world’s largest solar power project. This is the main reason for the optimism towards Adani Green in the markets. This project will lead to the creation of 4 lakh direct and indirect jobs and a reduction of 900 million tonnes of CO2(which is a lot).

In October 2020, Adani in a joint venture with French-Multi National ‘Total SE’ acquired solar assets of Essel Group of 250 MW for Rs 1,632 crore. These projects are located in Punjab, Karnataka, and Uttar Pradesh. French power company ‘Total SE’ has invested Rs 3,370 crores to form a joint venture with Adani.

According to the latest report of global solar companies, Mercom Capital has ranked Adani Green as #1 globally in terms of power generation, operational, and contracted projects. Adani Green has set a target of 25GW of renewable projects by 2025.


Currently, Adani Green’s shares are driven by the prospects of future growth and the speculation of more power purchase agreements with state electricity companies, transmission, and distribution companies. Also, hope you understood that the massive 8GW project is almost half the market cap of the company.

Is Adani Green Overpriced?

It was recently discovered that Adani’s Rs 46,000 crores 8 GW project didn’t have a guaranteed power purchase agreement by SECI. This means that SECI wasn’t obliged to buy power from Adani Green’s 8GW solar project as was speculated earlier. Instead, SECI would ‘facilitate’ in getting bidders for the solar project. This leaves the 8 GW solar project in a bit of a dilemma. 

Generally, Adani’s companies are highly leveraged or fuelled by debt/loan. Adani Green has a net debt of Rs 13,362 crores. Such high debt isn’t reflecting in its earnings for now. The company has been posting losses consistently. Its debt to equity ratio of 9.85 is considered pretty high as compared to its peers This high debt has added a risk factor to Adani Green. A debt to equity ratio of 1.0 would mean that both the lenders and shareholders of the company are on an equal footing.

Let us consider two more ratios to assess the valuation of the company. The Price to Earnings ratio or P/E ratio and the Price to Book Value ratio or the P/B Ratio. These values compare the price of the share to respective parameters to check if the valuation is fair. According to tickertape, the PE ratio of Adani Green is -7715.1 as compared to an industry average of 16.19. The difference is huge and indicates that the company has an obscenely expensive valuation. 

The company’s PB Ratio is 77.51 as compared to the industry average of 1.81. The book value of a company is the company’s assets minus its liabilities. Price to book value ratio is used to compare a company with its peers. Once again, the PB ratio is unnaturally higher than its competitors.

An expensive evaluation doesn’t always mean that the shares of the company are going to fall or that the company is performing badly. It just increases the risk and volatility involved. It also represents a positive sentiment in the market in favor of the company and that the investors have certain expectations from the company which might be met or not be met. Adani Green has definitely been in the good books of many investors, hitting the upper circuit constantly. 


Let’s take the example of Jio. Reliance Jio had taken MASSIVE amounts of debt and offered obscenely cheap tariffs to its users while it focused on capturing the market. There were speculations on whether Jio would be able to pay back the amount. Fast forward to June 2020, Jio has become net debt-free alongside parent company Reliance. Given the high amount of debt that Adani Green possesses, the company might just be a risky investment, but not a bad one. Adani Green has recorded a profit in the last 4 out of 5 quarters.

At present, the share price of Adani Green is overvalued, and therefore a huge fall in prices can trap retail investors. It is advised that retail investors do their research and keep an eye on how Adani Green manages to complete its commissioned projects, find a suitable buyer for the big projects and, at the same time reduce its debt burden. Also, remember that even completed projects are not being utilised to its full capacity. Is the management neglecting the company and its future?