Reliance Industries' shares fall 3% to a 15-month low. Concerns over a potential ₹125 crore fine for battery plant delays, coupled with sluggish retail and petrochemical businesses.
Reliance Industries shares: Shares of Reliance Industries Limited (RIL) dropped 3% on Monday, hitting a 15-month low of ₹1,161.40 on the BSE. This decline was part of a broader sell-off in the equity market. Since February 4th, RIL shares have fallen 10%, currently trading at their lowest level since November 13, 2023.
RIL's shares have fallen 22% in the last six months, while the BSE Sensex has declined by 11.5% during the same period, highlighting the company's underperformance relative to the market.
RIL faces potential ₹125 crore fine for failing to establish a battery cell plant
According to Bloomberg, Reliance New Energy Limited, a unit of Mukesh Ambani-led Reliance Industries, has missed the deadline for setting up a battery cell plant in India. This project was part of Prime Minister Narendra Modi's plan to reduce import dependence.
In 2022, RIL received an agreement for battery cell manufacturing under the Indian government's Production Linked Incentive (PLI) scheme. However, due to the missed deadline, the company may face a penalty of ₹125 crore (approximately $14.3 million).
RIL's strategic plan in the new energy business
Reliance Industries has made strategic investments in ten global technology innovators in the new energy sector. The expertise of these companies will help fulfill RIL's ambitious new energy goals.
The company aims to be among the world's leading new energy and new materials companies within the next 15 years. To boost solar power, RIL is setting up a 30GWh capacity battery giga-factory, slated to launch in the second half of 2025. Subsequently, the company will commence cell manufacturing and battery chemical production under backward integration.
According to the company, over 150 technologists, in collaboration with scientists and experts from partner firms LithiumWerks and Faradion, are working on advanced battery and energy storage solutions.
Weakness in retail and petrochemical businesses puts pressure on RIL shares
RIL has underperformed the broader equity market over the past few years. So far in calendar year 2024 (CY24), RIL has delivered negative returns, a first in the last 10 years.
Analysts at Motilal Oswal Financial Services (MOFSL) attribute Reliance's recent underperformance to a slowdown in its retail business and a decline in refining and petrochemical margins.
Risks despite significant investments
In its January 2025 report, MOFSL indicated that RIL's valuation might be attractive despite the recent slump. The report suggested that Reliance Jio's valuation is trading at a 10% discount compared to Bharti Airtel, while opportunities remain in the stock despite limited growth in the core retail business and no improvement in the oil-to-chemicals (O2C) segment.
MOFSL noted that Reliance's capital expenditure (Capex) in the new energy business will increase over the next few years, although its capital requirements will be met by the b cash flows of its standalone businesses.
Investment in new energy business
The company's first large-scale contribution from the new energy business will come in Q4FY25, when its solar module manufacturing begins. The second phase of cell manufacturing and module production will then commence over the next two quarters.
MOFSL estimates RIL's annual Capex to be ₹1.25-1.3 trillion over the next few years. However, this will be balanced by a decline in Jio's Capex. Analysts believe that RIL's capital expenditure has peaked, leading to an increase in free cash flow (FCF) in the coming years and debt reduction with an additional ₹90,000 crore cash flow (FY24-27).
