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Indian Energy Exchange: Shares rally 45% in one month! All you need to know.

Indian Energy Exchange: Shares rally 45% in one month! All you need to know.

Last updated: 21 Sep, 2021 | 02:28 pm

Indian Energy Exchange: IEX share rally analysis, business model & more


India Energy Exchange (IEX) shares have rallied 45% in the last one month & 165% in 2021 so far.

To understand this rally, let’s first understand the business of IEX.

IEX business

  • IEX is the first and the largest energy exchange in India. It allows for trading of electricity on its platform just like NSE and BSE allow trading of stocks.
  • You can think of it as a market where buyers and sellers of electricity come and do transactions following the fundamental laws of supply and demand.
  • There are electricity generation companies (called gencos) like NTPC, Tata Power, Adani Power, etc. Then there are energy distribution companies (discoms). IEX comes in between the generation and distribution companies.
  • IEX is a monopoly in its segment and has stellar financials - ROCE >25%, 5-year FCF CAGR at 45%, zero debt, and strong profit margins.
  • IEX’s primary revenue sources include transaction fees (about 84% of revenues) and annual subscription fees (5% of revenues).
  • Since the commencement of its business in 2008, the trading volume on its exchange has been increasing at a staggering rate of over 32% CAGR.
  • At present, only two companies are engaged in the business of power exchange - IEX and Power Exchange India Ltd. (PXIL).
  • As of last year, India’s per capita consumption of electricity was 1181 units. By 2025, it is expected to reach 1616 units, an increase of about 37%. This potential increase in electricity consumption will have a direct, positive impact on the trading volumes in exchanges, primarily IEX.

Rally in the stock

Below are some reasons for an exceptional rally in the stock price in the last 30 days:

Adani and Tata Power to sell on power exchange - The power ministry has allowed Mundra power plants of Adani & Tata Power to sell electricity on the power exchanges to ease the coal and power supply situation. The combined capacity of the two plants at Mundra is 4400 MW.

It will lead to an increase in the sell bids on the power exchange and lower the spot power process. With more supply on the exchange, the buyers will buy the additional electricity available, increasing the transaction volume & thus increasing IEX revenues.

All time high trade volume in August - IEX recorded an all-time high monthly trade of 9,538 million units (MU) in August which is 74% higher YoY.

On 21 August, the Green Market segment completed one year and achieved a cumulative volume of 2867 MU since commencement on 21 August 2020

Exceptional growth numbers for June quarter - The company reported Profit After Tax (PAT) growth of 47%, mainly due to higher revenue. The renewable energy capacity reached 97 GW from an earlier 88 GW in FY20, witnessing a 10.4% YoY growth.

Outlook

Shares of IEX have seen strong traction over the last 6 months due to the green energy theme playing out in the markets, as well as their near-monopoly status (with nearly 93% market share). Addition into the F&O segment in the latest series also came as an important tailwind. According to data from Refinitiv Eikon, 5 analysts have a ‘Buy’ rating on the stock, while 3 have a ‘Hold’ rating. Only 3 analysts have a ‘Sell’ rating on the stock. The consensus target price is around Rs 410. However, the stock closed Tuesday’s session at Rs 585. Going forward, the company’s upcoming quarterly earnings could be a trigger for the shares.

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