Indian Energy Exchange Ltd (IEX) was incorporated in 2007 as a power exchange offering, trading in a range of electricity products in India. It is an online trading platform which is accessible to registered participants.
IEX brings together sellers of power such as independent power producers, captive power plants, distribution companies and government owned power generation companies and buyers such as discoms, industrial, commercial and institutional power consumers and provides them with a transparent automated platform for trading of electricity. In addition to trade execution, IEX also offers settlement services, including electronic trade confirmation, access to clearing services and risk management functionality.
It has over 5,900 registerd participants, of which more than 3,200 were active as of August 2017. The products offered by IEX for trading include: (1) DAM (Day ahead market) – Electricity contracts in blocks of 15 minutes. The DAM constitutes a majority of energy contracts traded on IEX. IEX has market share of 99.4% (FY17) in DAM trading. (2) TAM (term ahead market) – electricity contracts for fixed terms in the future, such as intra-day contracts, day ahead contingency contracts and contracts up to 11 days ahead and (3) RECs (Renewable energy certificates). IEX also expects to commence the trading of energy saving certificates (“ESCerts”) upon availability of infrastructure in H1 FY18. It commanded 99.6% (FY16) and 99.4% (FY17) market share in electricity contracts in the DAM in terms of volume, as per CERC. It conducted 93.7% (FY16) and 94.8% (FY17) of traded contract volumes of electricity contracts in the DAM, TAM and RECs combined.
At the upper price band, the issue is priced at PE of 44x FY17 post issue. While the issue is available at premium valuation, we believe the premium valuation is justified in context of strong business model, higher EBIDTA margins (which are upwards of 70%), healthy earnings growth, debt free status and significantly higher ROEs (35%+) and ROCEs (40%+). Hence we recommend ‘Subscribe’ for long term investment.