Goldman Sachs reiterated a 'buy' rating on Reliance Industries on Tuesday and raised its target price. The brokerage incorporated the billionaire Mukesh Ambani-led conglomerate's new energy capital expenditure, earnings and valuation. The sum-of-the-parts valuation (SOTP)-based target price of Goldman Sachs for Reliance Industries shares now stands at Rs Rs 3,185 or $85.82.

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Goldman Sachs said Reliance Industries' new energy business is its third structural growth driver, alongside its retail, and technology, media and telecom (TMT) units.

"We see RIL as a 'greenabler' and introduce bottom-up supply-demand analysis of India’s green value chain and ascribe a US$30/48 bn valuation (12 percent/18 percent of SOTP value) in our base/bull case valuation," Goldman Sachs said in a report.

The brokerage said the risk-reward is favourable with three catalysts for share price outperformance ahead:

Sustainable earnings recovery momentum driven by retail, telecom

and energy units

New digital product launches, including Android phone and electronics category in e-commerce

More details from management on the new energy business roadmap

The three catalysts, according to Goldman Sachs, should drive strong

earnings growth of 41 percent CAGR for the company over FY21E-23E.

"We see significant expansion in TAM for solar, battery and hydrogen manufacturing globally as well as in India and expect RIL to generate EBITDA of $3.6/12.2 billion in our base case by FY30/FY40. We note returns for New Energy investments to be materially higher than old energy albeit lower than Chinese players given lack of local supply chain," it said.

Goldman said Reliance Industries is adopting a manufacturing approach to net zero emissions with a hyper integrated model spanning solar, battery and hydrogen, and a focus on the net-zero supply chain. It expects solar to drive the bulk of the capex related to its new energy business in the near term, followed by batteries, "as India downstream economics is competitive and RIL has already acquired leading-edge technologies", according to the brokerage.

"Our new bottom-up India power SD model implies a quadrupling of renewable capacity to 400 GW with an incremental scale larger than the US and at par with Europe. We see a combination of Make in India initiatives such as tariff and non-tariff barriers along with capital subsidies and regulatory changes enabling such investment," it said.

Goldman Sachs expects the company's hydrogen-related capex to become meaningfully closer to the end of this decade "right about the time when we expect RIL’s solar and battery investments to come to fruition".

Reliance Industries shares were up 0.9 percent at Rs 2,385 apiece on BSE in the morning.

The Reliance Industries stock has returned investors 22 percent in the past one year, as against the Sensex's 25 percent.

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(Edited by : Ajay Vaishnav)