INDIAN ENERGY EXCHANGE LIMITED IPO

COMPANY OVERVIEW

The company is the largest exchange for the trading of a range of electricity products in India (company’s “Exchange”), in terms of traded contract volumes in the financial year 2016 and for the eleven months ended February 28, 2017 according to the Central Electricity Regulatory Commission (the “CERC”). Electricity products traded over company’s electronic trading platform comprise:

(i) electricity contracts in blocks of 15 minutes in the day-ahead-market (the “DAM”),

(ii) electricity contracts for fixed terms in the future, such as intra-day contracts, day ahead contingency contracts and contracts up to 11 days ahead, known as the term-ahead-market (the “TAM”) and

(iii) renewable energy certificates (“RECs”). We expect to commence the trading of energy saving certificates (“ESCerts”) on our Exchange upon availability of infrastructure, in the first half of the financial year 2018.

Indian Energy Exchange Ltd (IEX) is a ‘power exchange’ offering trading in a range of electricity products in India. IEX is India’s largest exchange in electricity products trading category. IEX Exchange is an online trading platform which is accessible to registered participants. It promotes efficient price discovery and the opportunity to trade in a variety of electricity products. In addition to trade execution, IEX also offers settlement services, including electronic trade confirmation, access to clearing services and risk management functionality.

ISSUE DETAILS 

• Issue Open    :   09th October, 2017
• Issue Closes  :   11th October, 2017
• Issue Type     :   Book Built Issue IPO
• Face Value     :   Rs 10/ Equity Shares
• Issue Price     :   Rs.1640– Rs.1650/ Equity Share
• Issue Size       :   Offer for Sale of 6,065,009 Equity Shares
• Valuation       :   Rs 1,000 Cr.(Approx.)
• Market Lot    :    9 Shares 
• Minimum Order Quantity: 9 Shares and in multiples
• Listing At       :    BSE, NSE

ISSUE OBJECTS

• To achieve the benefits of listing the Equity Shares on the Stock Exchanges and

• To carry out the sale of up to 6,065,009 Equity Shares by the Selling Shareholders

COMPANY PROMOTERS 

The company is a professionally managed and does not have an identifiable promoter in terms of SEBI ICDR Regulations and the Companies Act, 2013.

It was initially promoted by Financial Technologies (India) Limited and PTC India Financial Services Limited (PFS). They currently hold no Equity Shares in the company.

COMPANY STRENGTHS 

1. Efficient price discovery and flexibility on our Exchange

2. First and largest energy exchange in India with strong brand recognition

3. Fast growing domestic market with conducive Government policies and regulations

4. Diverse participant base ensuring liquidity on our Exchange

5. Highly scalable and proven technology infrastructure

6. Professionally managed company with a highly qualified and experienced management team

INDUSTRY OVERVIEW

Even as India is the third-largest electricity producer in the world, the country’s need for energy is increasing as a result of economic growth and modernization over the past several years. India’s per capita electricity consumption has grown from 631.4 kilowatt-hour (“kWh”) in the financial year 2006 to 1075 kWh in the financial year 2016, an increase of 70.2% in 10 years. Between 2006 and 2017, India’s peak demand increased at a CAGR of 5.0% to reach 159.5 gigawatts (“GW”); the installed power generation increased from 124 GW to 327 GW at a CAGR of 9.2% during the period. Further, the latest draft National Electricity Plan 2016 projects peak demand of 235 GW at the end of the financial year 2022.

The following chart sets forth market share of IEX (product category wise)*:

VALUATIONS

As far as Valuations are concerned the IPO seemed marginally high in valuations  with a P/E of 44.07x  at the upper price band and 43.80x on lower price band on consolidated basis, and valuations remain the same on standalone basis as company has no subsidiaries. (As per Diluted EPS).

#Alternatively if we see P/E on taking average EPS both on Consolidated as well as Standalone then we find it @47.66x & 47.38x respectively (Both @ Upper & Lower Price Band)

EARNINGS PER SHARE

RoNW

NET ASSET VALUE PER EQUITY SHARE

As per the Restated Financial Statements, the net asset value per Equity Share as on March 31, 2017 is ₹ 94.92. As the Offer consists only of an Offer for Sale by the Selling Shareholders, there will be no change in the NAV post-Offer.

COMPARISON WITH LISTED PEERS

The Company does not have any listed industry peers in India.

                            CONSOLIDATED/STANDALONE RESTATED                                SUMMARY STATEMENT OF ASSETS & LIABILITIES

                          CONSOLIDATED/ STANDALONE RESTATED                              SUMMARY STATEMENT OF PROFIT  AND LOSS

ANALYSIS & SUBSCRIPTION SUGGESTIONS BY AUTHOR

Fellas as in our earlier articles we have mentioned that what makes a company best for log term investment is its unique Business Model. Now, here again we have got the opportunity to invest in a company which practically doesn’t have any listed peers, in other words its one of a kind.

Also what makes it interesting is that the company is the largest exchange for the trading of a range of electricity products in India (company’s “Exchange”), in terms of traded contract volumes in the financial year 2016 and for the eleven months ended February 28, 2017.

We have few major things to consider before rushing to put money in the company:

• Valuations: Although the company doesn’t have any listed peers but then too the price band @ P/E of 44.07x & 43.80x seems marginally high,

• RoNW/EPS: Although in the above point Valuations were high the company has posted consistent incline in EPS as well as RoNW over the years and cannot be denied that these factors are crucial for any business enterprise to sustain in long run.

• CAGR: The company’s revenue grew @ a CAGR of 15%(Approx.) in the last  years. It has posted promissable margin between 47-52% in the last 5 years 

• Earnings: Companies earnings have seemed to be promising as it have consistent growth in “Revenue From Operations” over the years which is necessary for any business to run exponentially over the years.

• Finance Cost: Last but not the least companies finance cost is almost equivalent to NIL, we would say grab the company which have almost or nil finance cost.

As above we have considered many points which concludes us to the fact that though the company has taken issue to higher valuations but that too nullifies when it has unique business models with no listed peers seemingly. The company has also shown promising growth in EPS/RoNW/Revenue from Operations along with promising growth in CAGR over the last consecutive 5 years and last but not the least finance cost equivalent to nil. After considering all points we give subscribe rating to the issue for not only listing benefits but also for medium to long term investment.*

 

 

*Disclaimer: Author may or may not have interest in the issue, before getting to conclusion consult your Financial Adviser. The Author shall not be responsible for any kind of loss of gain arising out of any investments. All data was taken from RHP filled to SEBI by the company.