Over 550% return 19 months! Is Indian Energy Exchange’s long term still intact?

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The Indian Energy Exchange (IEX) is riding a crest on Dalal Street. Shares of the company have surged over 550% in less than 19 months since the lows Covid pandemic. The scrip has rallied to Rs 780.40 on October 11, 2021 from Rs 119.45 on March 25 last year. Before going ahead, one should understand that the company is the premier electricity exchange in India, which facilitates electricity trade. Indian Energy Exchange commands a market share of around 95% in the power exchange market. It has a debt-free balance sheet with cash and investments to the tune of around Rs 700 crore.

Brokerage firm ICICI Securities has a ‘Buy’ rating on the Indian Energy Exchange with a target price of Rs 910, indicating an upside of nearly 17%. “For the past year, IEX has remained richly valued given its clean balance sheet, near monopoly, regulatory tailwinds and introduction of newer products, which will drive strong double-digit volume growth in the medium term,” ICICI Securities said.

There are expectations that increasing power demand and government policies will further support the Indian Energy Exchange. With the Supreme Court disposing of a spat between Central Electricity Regulatory Commission (CERC) and Sebi, electricity can now be traded as other commodities with forward contracts and derivatives on exchanges. This settlement will open the gates for the introduction of longer duration delivery bases contracts in power exchanges and IEX will be a beneficiary.

“This will not only add to volumes but also provide new products to the market. The shift of power buying pattern from power purchase agreements (PPAs) to short term market catalysed by MBED is expected to lead to a strong surge in volumes from FY24E. This can provide strong volume growth traction to power exchanges like IEX,” ICICI Securities said. Foreign institutional investors also look gung-ho on Indian Energy Exchange. They held a 36.70% stake in the company as of June 30 against 29.60% on December 31.

ICICI Securities projected that the revenue of IEX may increase by 30.80% CAGR to Rs 712 crore by FY24. The figure stood at Rs 317.90 in FY21. On the other hand, it also anticipated that the net profit of the company can grow at CAGR of 31.90% to Rs 471 crore by FY24 against Rs 205.40 crore in FY21.

“India is third-largest power producer and consumer. With the kind of power scenario amid a scarcity of coal. We believe that volumes of the exchange will increase further. We are bullish on Indian Energy Exchange with a target price of Rs 900,” said Rajesh Agarwal, head of research at AUM Capital.