Indian-Energy-Exchange-CMP-and-Target-Price

Company:

Indian Energy Exchange is engaged in a Power Exchange, licenses by the Central Electricity Regulatory Commission (CERC) for spot trading in power / electricity and trading of Renewal Energy Certificate (REC) and Ecerts. It’s a market-leading Niche Company having 95% market share in the power trading segment. The company enjoys a monopolistic business environment since its inception in 2008. The company has a vast customer base of more than 6,600 participants comprising of 4000+ industries, all the DISCOMs (55+), 100+ ESCerts Entities, 500+ Generators and 1500+ Renewable Energy Generators and Obligated Entities.

Stock Description
Market Cap. (Cr.) 5759
Book Value (Rs) 13.02
Face Value (Rs) 1
Equity 29.96
ROE (%) 45.05%
ROCE (%) 57.04%
P/E 31.78
EPS 6.08
Dividend Payout (%) 41.92
Debt to Equity 0.04
Sector Diversified

Shareholding pattern

(In %) 20-Jun 20-Mar 19-Dec
FII 31.25 31.99 30.53
DII 7.3 7.27 7.16
Mutual fund 14.8 12.34 7.56
Others 46.65 48.4 54.75

Market Share and Revenue Breakup:

Market Share  
Electricity & Energy Trading 95%
Revenue Breakup
Transaction fees 92.7%
Annual subscription fees 7.3%
Location Wise
India 100%
US
Rest of the World

Source: AR, Capital line,EWAL Research

IEX offers various products, the company’s product portfolio includes:

Day-Ahead-Market (DAM): It is physical electricity trading market for deliveries for any/some/all 15- minute time blocks in 24 hours of the next day starting from midnight. The majority of the spot trading happens in the DAM with a contribution of around 82% of the transaction fees. Out of the two exchanges, IEX has a monopoly in this segment with a market share of almost 100%.

Term-Ahead-Market (TAM): TAM covers transaction of electricity for duration up to 11 days. Products in the Term Ahead Market include Intra-day, Day-ahead Contingency, Daily and Weekly contracts to help participants manage their electricity portfolio for different durations.

Real Time Market (RTM): Company recently launched the RTM on 1st June 2020 with the delivery after 1 hour of the auction. Trading is done in a 15 minutes contract with auction features similar to DAM. The company aims to further reduce the gate closure time from the current 1 hour.

Renewable Energy Certificates (RECs) RECs are tradable, intangible energy commodities that represent the attributes of electricity generated from renewable resources.

Energy Saving Certificates (ESCert) ESCerts is a market-based instrument designed for consumers in energy-intensive industries and sectors (Aluminum, Cement, Thermal Power Plant, Fertilizer, Iron & Steel, etc.)

In August 2016, the Exchange received ISO Certifications for quality management, Information security management and environment management. The Exchange is now a publicly listed company with NSE and BSE. IEX is approved and regulated by Central Electricity Regulatory Commission (CERC).

Impact of CoVID-19 on Indian Power sector

  • Being essential service, impact on power generation is likely to be less than other industries.

  • Limited impact on coal prices and coal logistics, solar module prices would increase.

  • 62GW thermal, 11GW RE under construction projects likely to be delayed – debt servicing, project viability.

  • Sustained lockdown to adversely impact industrial and commercial demand (50% share).

  • Collection delays and defaults by consumers will impact payment to gencos and debt servicing to FI’s.

  • Govt budgets to power sector could be diverted to COVID funding.

IEX has recently floated a wholly owned subsidiary Indian Gas Exchange (IGX) to facilitate trading in gas in India. IGX offers products with delivery ranging from Daily Weekly, Fortnightly and Monthly.

Revenue Model of IGX is as follows:

  • Admission fees of ₹25 lakhs for members (Have earlier given discounts to IEX members till 30th June).

  • Annual fees of ₹5 lakhs for members.

  • Client fees of ₹1 lakh

  • Transaction fees – Ex hub (lower fees – ₹5) & Delivered (higher fees – ₹7)

Financial Statement

Profit & Loss ( In cr.) 2017 2018 2019 2020
Total Revenue From Operations 198.7 230.4 254.1 257.1
Expenses
Employee Benefit Expenses (15.5) (24.1) (24.8) (33.2)
Other Expenses (39.7) (21.5) (26.4) (21.7)
EBITDA 143.5 184.8 202.9 202.2
Other Income 34.2 25.6 40.1 40.3
Depreciation and Amortization Expenses (3.4) (10.3) (10.4) (15.2)
EBIT 174.3 200.1 232.6 227.3
Finance Cost (0.4) (0.2) (0.7) (1.6)
Profit  before tax 173.9 199.9 231.9 225.7
Tax (60.3) (68.3) (66.7) (49.9)
Net Profit 113.6 131.6 165.2 175.8

 

Growth  ( %) 2017 2018 2019 2020
Sales Growth 13.4% 16.0% 10.2% 1.2%
EBIDTA Growth 14.6% 28.8% 9.7% -33.0%
EBIT Growth 18.6% 14.8% 16.1% -2.3%
PBT Growth 18.5% 15.0% 15.8% -2.6%
PAT Growth 13.4% 15.9% 25.3% 6.4%

IEX Eco-system

India is ranked as the third-largest power consumer in the world and has the world’s largest transmission system. The per capita electricity consumption is expected to go up from 1,181 units currently to 1,616 units over the next 5 years. (IEX Annual report 2020)

Across India, the total generation was 1383.3 billion units of electricity in the fiscal year 2020, out of which 75% was generated from thermal, 11% from hydro, 10% from renewables, and 3% from nuclear.

Key Market highlights during fiscal 2019-20

  • ITotal Revenue of the Company was almost flat Rs. 297.1 cr as compared to Rs. 294. cr during the financial year 2018-19.

  • IPAT increased by 7.8% from Rs. 165.2 cr to Rs. 175.8 cr.s

  • ICompany paid an interim dividend of 250% in March 2020

  • IElectricity volume increased by 3.2%, a total of 53,862 million units were traded in the electricity segment, compared to 52,189 million units traded in the fiscal year 2018-19.

  • ITotal volume traded across all market segments was down by 2% at 59,889 million units as compared 61,144 million units traded in fiscal year 2018-19.

  • IOne Nation, One Gird, One price was realized on 309 days i.e. 84.66% of the days this fiscal.

  • IIn volume terms, a total of 196 MU could not be traded in the fiscal year 2020 due to congestion while in the last fiscal 538 million units were lost.

  • IAverage Market Clearing Price in the fiscal year 2020 at Rs 3 per unit was 22% lower than the prices discovered in the previous year.

  • IOwing to attractive prices, the procurement of power by commercial and industrial consumers increased by 31% during the fiscal year 2020

Risks and mitigation techniques

  • IStrategic Risk Mitigation – The Enterprise Risk Management Committee (ERMC) meetings are held on a half-yearly basis, where strategic and operational risks are presented along with mitigation measures.

  • IAlso, from the regulatory perspective, Market Surveillance Committee & Risk Management Committees are formed as mandated by CERC and the committee meetings are held as per timelines fixed by CERC with reports submitted to the regulator at regular intervals.

  • IThe state-level regulations are governed by State Electricity Regulatory Commissions (SERC). The Company also proactively engages in regular policy advocacy with CERC, SERCs, Ministry of Power (MoP), and other industry bodies for any change in regulation that may adversely affect its business.

Some Major Facts

  • ICommenced operations in 2008

  • I8 billion units of electricity traded in fiscal year 20.

  • I3% YoY growth in IEX’s electricity traded volume

  • IAverage daily trade 6,000+ MW

  • IRecord day volume: 193 Mus

Investment Arguments:

  • IIndian power market is currently dependent upon long term contracts to meet their overall power requirements. However, to meet a sudden increase or decrease in demand and supply, the short term market plays a vital role.

  • IThe short term market volume has grown at a CAGR of 7.6% during FY10- 20 over and above the total power generation growth of only 4.5% for the same period.

  • IDuring the Covid-19 lockdown, IEX has seen a shift in the volumes towards power exchanges. Many discoms have resorted to power exchanges to optimize their costs owing to lower prices of power on the exchanges as compared to other modes.

  • IPower exchanges at the world work on the principle of market efficiency, competitive price discovery mechanism, transparency and risk mitigation.

  • IAs compared to its global peers, penetration of power exchanges in India is very less at present

  • IThe global power market penetration is in the range of around 30-70% of the total power market.

  • IIEX has seen an increase in volumes for Q1FY21 by 14% to 14.85 BUs from 12.99 BUs the same period last year.

Outlook:

IIndian Energy Exchange enjoys the monopolistic business environment with the majority of the market share. Indian Energy Exchange has launched various products like DAM, TAM, RECs and ESCerts. IEX has new product launches in the pipeline awaiting approvals which include Long duration contracts (LDC), Green TAM and Cross border trading. Its operations multifold to become a market leader in the Indian power exchange market. The company has been growing at a CAGR of 10% for the last five years owing to robust technology and new product offering leading to a shift of volumes from the short term and long term contracts. There is an increasing shift in the volumes from the long term PPAs to short term market and more specifically to the power exchanges owing to better liquidity, price discovery mechanism and low congestion. These attributes play a vital role in decision making process of the discoms to transact through spot market rather than other platforms. We initiate accumulate rating in the stock with upside potential around 32% and target price Rs. 250.

DISCLOSURE IN PURSUANCE OF SECTION 19 OF SEBI (RA) REGULATION 2014

Elite Wealth Advisors Limited does/does not do business with companies covered in its research reports. Investors should be aware that the Elite Wealth Advisors Limited may/may not have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as read more


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