Should Adani Green Shareholders Worry About RIL’s New Plan?

Reliance recently conducted its 44th Annual General Meeting and astounded the shareholders with several big announcements. From introducing a new, international director on the board to the development of a covid-fighting drug, strategic partnerships with tech giants like Google and Facebook, and introducing the world’s most affordable smartphone.

However, the announcement that attracted the most traction was Ambani’s new Green Energy Plan. India’s biggest company plans to go carbon neutral in the next decade by developing sustainable ways of business. The announcement caused some worry among shareholders of Adani green, the existing player in the green market.

Recently, Gautam Adani preceded Mukesh Ambani to become the 2nd richest man in India. Until now both the Gujrat-origin billionaires were running separate empires. However, their interests collide in the energy generation plans.

So the smaller company’s shareholders are bound to question whether Reliance would take over the green energy sector leaving the Adani group behind? Moreover, how will the share prices of the Adani green energy ltd react to the change?

Let’s dive deep and find out.

What is RIL’s plan?

The Reliance Group plans to allocate funds worth 60,000 crores over the next three years towards developing every essential component of green energy businesses. The oil-to-telecom company plans to open four ‘Giga factories’, one each for solar panels, green hydrogen, battery, and fuel cells.

“The world is entering a new energy era, which is going to be highly disruptive. The age of fossil fuels, which powered economic growth globally for nearly three centuries, cannot continue much longer,” Mukesh Ambani said in his speech.

As a part of the conglomerate’s green energy plan, the company plans to build an integrated solar photovoltaic module factory to fulfill 100 MW of the prime minister’s 450 MW of green energy goal by 2030.

Is a Green Pivot a Good Idea for the Company?

Reliance Industries have been in a good place despite the global pandemic shaking the world economy. This time, last year Mukesh Ambani made the $180 billion balance sheet of Reliance industries net debt-free followed by a series of 18 deals from global giants. Five months into 2021,  the conglomerate raised additional capital of $44 billion. So a $10 billion CAPEX does not look like a big deal for Reliance.

Proban Sen, VP at Central Broking explained in an interview with The Economic Times that the Reliance group has been diversifying into various new branches for the past 15 years now. Their E-commerce business is less than 10 years old and already competing with Global giants like Amazon and Walmart Inc. Jio, their telecom subsidiary is less than a 5-year-old story and became a market leader. So, exploring a new branch should not be a problem for the company.

Moreover, Mr. Sen highlighted that the reliance group is expecting a cash flow of about 65-70,00 crore this year. Thus, the 60k capital expense plan will not burden the balance sheet of the company, which currently shows $13 billion of consolidated EBIDTA.

Adani’s Side of the Story

Adani group is one of the pioneers of green energy in the Indian market. Its latest balance sheet showed  $3.5 billion of annual EBIDTA and collected net debt of $19 billion. Gautam Adani, in a letter to the company shareholders, expressed that Adani Green is on a mission to become the biggest solar power producer in the world. The company is aligning its efforts with India’s target of becoming the biggest player in renewable energy.

Recently, the stock charts of Adani Green are showing remarkable results. Its share price has climbed almost 160% in the last year. In Q4FY20, the company posted a 86% rise in net profit to Rs.104 crore owing to high revenue. The consolidated profit for 2020-21 stands at Rs.182 crores. Thus, the shareholders are deemed to expect exponential growth of the company in the near future.

Amidst this, India’s largest company stepping into the same sector poses a dilemma for Adani Green shareholders. We will talk about this in the next section. Right now, it is important to understand that Gautam Adani is keen to win the race in the green energy sector of India. He wants to expand the company beyond the port business and leverage the inevitable resource boom in India.

Moving on,

What should Adani Shareholders Expect?

Continuing on the Adani Green shareholder’s dilemma, the skepticism that the share price might go down due to the recent RIL announcements is no shocker. In such a situation, it is pliable for this to happen.

If the two biggest entrepreneurs of India had collided in any other sector, share prices would suffer a blow. However, green energy is more a necessity in the Indian ecosystem than a competitive race right now. More the companies adopt these measures, the better it is for our country and planet.

Especially after the UN released a set of 14 Sustainable Development Goals for all corporate companies, it is more a duty than a choice for any business globally. The VP of centrum broking also said it is more complementary rather than competing at this point. There is a lot of green energy requirement in the Indian ecosystem.

Thus, the entry of a new player will likely not disrupt the existing players in the game.

Wrapping Up

The Green energy sector has been attracting a lot of attention from global markets. Sustainability in business is not a choice anymore. RIL’s green energy plan will perfectly complement the existing goals of Adani green. Together, the two rival companies share the same vision- a greener future for India.

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