Will IEX retain its monopoly in sector? 😮 आपको IEX में निवेश करना चाहिए या नहीं?

   1. Company & Business Strength: 9/10

The Indian Energy Exchange [IEX] is an Indian electronic system-based power trading exchange regulated by the Central Electricity Regulatory Commission (CERC). 

IEX started its operations in 2008, pioneered the development of power trading in India, and provides an electronic platform to the various participants in the power market, comprising State Electricity Boards, Power producers, Power Traders, and Open Access Consumers.

IEX is one of the two operational Power Exchanges in India the other being PXIL.

 IEX operates a day-ahead market based on closed auctions with double-sided bidding and uniform pricing it has over 3,800 registered clients, over 300 private generators, and more than 3,300 industrial electricity consumers.

The company offers an online platform to trade in a variety of Products – Day-Ahead Market, Green Term-Ahead Market, Term-Ahead Market, Real-Time Market, Renewable Energy Certificates, and Energy Saving Certificates.

Sellers of Power on the Exchange include Independent Power Producers, Power Plants, Distribution Companies, and also Government Power Generation Companies.

Buyers of Power include Distribution Companies as well as Industrial, Commercial, and Institutional Power Consumers. The company also provides them with a Transparent & Neutral platform for trading Electricity.

Business Segment:

Day Ahead Market [DAM]: 

DAM is for trading in physical delivery of Electricity from Midnight to 24 hours ahead. The company launched this segment in 2008.

Term Ahead Market[TAM]:

TAM covers a range for buying and selling electricity for up to 11 days ahead. Thus, it enables the participants to purchase Electricity to manage their Electricity Portfolio for different durations. The company launched this segment in 2009.

Renewable Energy Certificates [REC]: 

REC is Market-based Instruments, classified into Solar RECs as well as Non-solar RECs. These contracts are traded on the last Wednesday of a Month. The company launched this segment in 2011.   

Real-Time Market:

This segment features a new Auction Session every half an hour with Power delivery after 4-time Blocks or an hour after the gate closure of the Auction. The company launched this segment in 2020. 

Green Term Ahead Market [G-TAM]:

This was also launched recently, The Matching Mechanism for Green-Intraday, Green-DAC, and Green-Daily contracts is Continuous or the Spot Trading whereas for Green Weekly Contracts  Double sided Open Auction process is followed.

Energy Saving Certificates [ESCert]: 

Consumers achieving reductions above their Targets are issued ESCert, to trade on the Exchange. Also, the Consumers, who are unable to meet their Targets through the PAT Scheme, will have to buy the ESCert to offset their shortfall. 

2. Competitive Strength: 10/10

IEX Ltd is an Indian company in Energy Exchange and power distribution, it almost enjoys a monopoly in its sector but in the power sector, it has noted competition like Tata Power, JSW energy, Adani Power, NHPC, Torrent power, and others.

The following are not competitors but belongs to other exchange and distribution like MCX, BSE, CAMS, etc. 

Note: There is another exchange in India i.e PXIL, but it's unlisted in the market. Also BSE, and PTC are planning to enter this segment.

3. Stock Analysis Return & PE Ratio: 6/10

IEX Ltd Stock is listed both in NSE, and BSE and currently trading around 250 (Jan 2022), with a 52 high of 318s and a low of 75s.

It has a market cap of 22000+ which is Midcap, Stock has been consolidating for a long time before 2020, but has given a good return recently after good profit and demand in the power sector.

The stock has given a 3-year CAGR of 69.5% which is exceptional. 

The face value is 1, so expect bonuses and buybacks.

PE Ratio: IEX has a PE of 85 currently which is expensive although it is almost a monopoly in the sector.

4. Dividend: 6/10

The stock has been giving a fair dividend of 0.51%. Generally, we expect a growing company to give atleast 1% dividend which is a good gesture and sign unless high Capex is planned.

Financial Ratios:

5. Sales Growth/Revenue: 7/10

The Sales growth indicates that the company can capture the market, which may increase profitability. 

 IEX has a 3-year median Sales growth of 11.23%  which is exceptional. Current year (2021) growth stands at 23.38%. For Mid caps, we consider the growth of atleast 15%+ as healthy sales. 

6. Profit Growth: 8/10

Sales growth indicates a good income, but unless profit is not made it's terrible. Profit growth indicates how expenses are managed or also how the company has pushed the raw material price to end customers.

IEX Profit growth stands at a 3-year median of 17.48% which is exceptional, Current year stands at 19.99%. For Mid cap atleast 20% is considered healthy growth in Profitability.

7. [ROE] & [ROCE] %: 10/10

Return on Equity:

ROE indicates the ability to generate profits from shareholders/Equity Investments. IEX ROE has a 3-year median of 48.72%.  The current year stands at 47.37%. 

We consider a healthy ROE to be atleast 20% for growth companies.

Return on Capital Employed:

ROCE indicates the ability to use its capital employed for business. IEX ROCE has a 3-year median of 64.34%.  The current year stands at 61.6%. 

We consider a healthy ROCE to be atleast 20% for growth companies.

8. Debt/Equity: 10/10

D/E is a measure of which a company is running through debts vs owned funds. Ideally, D/E should be less than 1, which indicates stability. 

IEX has a D/E of 0 which is excellent. Unless capital expansion or any other is required, a low debt is always good to maintain profitability.

We consider debt-free or D/E<0.1 to be healthy. 

9. Shareholding %: 8/10

The company has a high Promotor holding of 0%. The FII and DII of 31.01% and 17.66% indicate Institutions have very high holding, Remaining are Public but includes Big public company holding in this case like ONGC, Adani, NSE, Gail, etc which are government holdings.

Note: The Promoter Pledging % is 0% which is good, generally no pledging indicates a good sign.

Another indicator like interest coverage ratio, Return on Assets[ROA], and others also seems good.

10. Future Prospects: 9/10

Pros:

Monopoly with 95% market share with the only competitor being PXIL as of now.

Future bet on electricity demand with swift towards EV and urbanization.

New acquisition on Indian Gas exchange which is into a national gas trading platform.

Various policies and regulations taken by the government from Rural electricity to Green energy may help Power exchanges/IEX

Diversified products and launched new products from time to time.

Cons:

Regulation risk is always there for power-based companies, since IEX depends on CERC for pricing and other rules it can affect revenue if the price is regulated.

Although it currently holds a monopoly, new players are entering the market in the future like BSE, and PTC.

The power sector has always been sluggish over history and has moderate growth, but the future bets may be bright.

Investment Hacks Score Card: 

The average score of India Energy Exchange Limited based on all factors comes to be 8.3/10.

Conclusion:

Overall India Energy Exchange Limited seems to have a good Product portfolio, Monopoly business facilities, and Exceptional growth in financials. The stock has overall given good returns to shareholders and also adapted to new technology and opportunities. Since this is Mid cap stock, Investors can see volatility in the future and should carefully watch future plans and growth.

Disclaimer:

Since this is an educated opinion, Please research thoroughly or consult your financial advisor before Investment.

Hope you found this analysis useful. please share this with others if you found this useful. Please wait for other stocks/crypto analyses which will be available soon!.

Happy Investing!.

Team Investment Hacks