| Rating: Overvalued Ticker Symbol: IEX Price (14th March 23): 145.30 Target Price range: 70 – 94 52 Week range: 129.25 – 251.50 Mcap: 13,636 Enterprise value: 13,564 |
Basic Information: Indian Energy Exchange (IEX) is a trading company that operates in the power and energy sector. It provides a platform for trading electricity, renewable energy certificates (RECs), and energy-saving certificates (ESCerts).
Business Description: IEX facilitates the sale of unused capacity by generators and enables Discoms to optimize costs through the exchange. Open-access consumers can purchase electricity from any generator in the country through the exchange. Additionally, companies can sell their RECs and ESCerts through the exchange.
Industry Overview and Competitive Positioning : There are two exchanges namely IEX and PXIL as of now. IEX Dominates in DAM and RTM and PXIL has 40% share in TAM and GTAM
Investment Summary: Government of India is targeting to increase the short term market from 11% now to 25% in 3 to 4 Years. Short term market players include DSM, Bilateral, Exchange. As and when short term market size increases, Exchange will be able to garner larger share in the market. And as volumes increases on exchange will increase earnings and cashflow. As cashflow grows, Dividend will increase.
Valuation: Valued IEX using DCF model and assumptions and calculation are provided below
Financial Analysis: IEX’s Dividend payout ratio range from 36 – 43% and going forward projected at 40%. the last two years was great due to increase in volumes but this year might be consolidation year where revenues may be flat or grow marginally. IEX has sustainable growth range of 25%. ROE is 49% and going forward projected to decline to 34% ROCE is 46% and projected to decline 33% due to lower volume growth and increase in competition. Still ROE and ROCE ratios are good as they are above cost of capital.
Investment Risks: Volume growth risk, increase in competition, Decline in EBIT and Net Profit Margin, regulatory risk.
