Indian Energy Exchange

Indian Energy Exchange (INDEN)

CMP: | 764

Target: | 910 (19%)

Target Period: 12 months

October 22, 2021

Sturdy revenues backed by high EBITDA margins...

BUY

Result Update

Oct-18 Feb-19 Jun-19 Oct-19 Feb-20 Jun-20 Oct-20 Feb-21 Jun-21 Oct-21

ICICI Securities ? Retail Equity Research

About the stock: Indian Energy Exchange (IEX) is the premier electricity exchange

in India, which facilitates trading of electricity. IEX commands a market share of ~95% in the power exchange market The company has a debt free balance sheet with cash & investments to the tune of ~ | 700 crore

Q2FY22 Results: IEX reported robust Q2FY22 results.

Revenue was up 55.6% YoY and 21.3% QoQ at | 110.4 crore EBITDA in Q2FY22 was at | 95 crore, up 71.4% YoY with margins at 86.1% Consequent PAT in Q2FY22 was at | 77.4 crore, up 74.6% YoY & 24.6% QoQ

What should investors do? For the past year, IEX has remained richly valued given

its clean balance sheet, near monopoly and bright future prospects. We continue to remain positive and retain our BUY rating on the stock

Target Price and Valuation: We value IEX at | 910 i.e. 57x P/E on FY24E EPS

Key triggers for future price performance:

With resolution of a spat between CERC and Sebi, electricity can now be traded as other commodities with forward contracts, derivatives on exchanges

This settlement will open the gates for introduction of longer duration delivery bases contracts in power exchanges and IEX will be a beneficiary

Shift of power buying pattern from power purchase agreements (PPAs) to short term market catalysed by MBED

In first year GTAM traded was 2744 MU, which is expected to grow in future

Alternate Stock Idea: Apart from IEX, in our capital goods & power coverage we

also like Siemens. It offers a play on industrial automation, digital industries and smart infra coupled with focus on green energy BUY with target price of | 2,550

Particulars

Particular Market Capitalization Total Debt (FY21) (| crore) Cash and Inv (FY21) (| crore) EV (FY21) (| crore) 52 week H/L (|) (BSE) Equity capital (| crore) Face value (|)

Amount 22,916 0 224 22,692

956 /181 29.8 1

Shareholding pattern

Dec-20 Mar-21 Jun-21 Sep-21

Promoters -

-

-

-

FII

29.6% 36.8% 36.7% 37.7%

DII

36.6% 27.9% 25.5% 23.1%

Others 33.8% 35.3% 37.8% 38.8%

Price Chart

1000 800 600 400 200

0

30000 25000 20000 15000 10000 5000 0

IEX

BSE 500

Recent event & key risks

Resolution of spat between Sebi and CERC

Key Risk: (i) Market coupling, (ii) Inability to garner volumes in new launches

Research Analyst

Chirag Shah shah.chirag@

Key Financial Summary

FY20

Revenue (| crore)

257.1

EBITDA (| crore)

202.2

EBITDA margin

78.6

Net Profit (| crore)

175.7

EPS (|)

5.9

P/E (x)

130.4

EV/EBITDA (x)

113.2

RoCE (%)

55.8

RoE (%)

45.3

Source: Company, ICICI Direct Research

FY21

317.9 250.6

78.9 205.4

6.9 111.6

90.5 50.6 39.0

4 Year CAGR (FY 17-21) 11.9 15.1

34.0

FY22E

402.0 325.6

81.0 273.7

9.1 83.7 69.7 56.0 42.1

FY23E

535.0 433.9

81.1 362.8

12.1 63.2 52.0 67.6 50.8

FY24E

712.0 578.1

81.2 480.1

16.0 47.7 38.6 79.4 59.5

3 Year CAGR (FY21-24E) 30.8 32.1

32.7

Result Update | Indian Energy Exchange

Key takeaways of recent quarter & conference call highlights

Q1FY22 Results: Robust performance

Revenue for the quarter came in at | 110.4 crore (I-direct estimate of | 106.4 crore), up 55.6% YoY, 21.1% QoQ. On a QoQ basis, total volumes leaped 21.1%

IEX registered an EBIDTA margin of 86.1% vs. 82.2% QoQ, which is highest ever in the company's history. Absolute EBIDTA came in at | 95 crore vs. | 74.9 crore in the last quarter (I-direct estimate of | 88.5 crore)

The company saw strong volumes in August and September whereas July witnessed a slight dip led by the second wave. Total volume traded were 25976 MUs

Ensuing PAT came in at | 77.4 crore (I-direct estimate of | 56.9 crore), up

74.6% YoY & 24.6% QoQ. Tax rate for the quarter was at 24.2%

Q1FY22 Earnings Conference Call highlights

With the dispute between CREC and Sebi getting settled, IEX is all set to launch long term contracts and MCX is set to launch derivatives of electricity whose physical settlement will only be carried out on IEX. Launch of derivatives will add stability to electricity prices. The company is all set with technological support and is waiting for authorities to approve so that they can launch the products

Large part of bilateral contracts will move to long term contracts, which will add volumes to IEX

Electricity demand is expected to increase at 9% CAGR in next three years RTAM is fastest growing segment with 125% increase YoY and traded 5.3

billion units (BUs) in FY22, DTAM traded 17.3 BUs in Q2FY22, which is 20% higher QoQ. TAM traded 1.5 BUs in this quarter up 14% QoQ. Since the launch of GTAM, it has traded a volume of 3.5 BUs, with 1.7 BUs coming in Q2FY22 In MBED phase 1, platform will play the same role as it is now (price discovery and settlement) and after that regulatory will analyse if any modification is required or not With total capacity of 41 GW set to be phase out by 2027, it will provide the exchange with an opportunity of 100 BUs. Draft of NEP indicates the commitment of the government to deepen power markets by increasing share of spot markets to 25% by the year 2024. Deviation settlement mechanisms and related matter regulations, 2021, linking the DSM charges to the time block-wise price discovered on the exchange Indian Gas Exchange (IGX) has until now transacted 10 lakh MMBT of gas through its exchange. This volume is increasing every month. IGX is charging | 4 per MMBTU but due to high prices of LNG, the company which is scheduled to reach breakeven in Q4FY22 has rescheduled to Q2FY23. The company is very bullish on gas market growth Other expenses were low due to cost optimisation during Covid times as CSR expenses were low, cash balance will be used for diversification opportunity

ICICI Direct Research

ICICI Securities | Retail Research

2

Result Update | Indian Energy Exchange

ICICI Direct Research

Exhibit 1: Variance Analysis

Year

Q2FY22

Income from Operation

110.4

Other Income

11.9

Employee cost

10.7

Other expenditure

4.6

EBITDA

95.0

EBITDA Margin (%)

86.1

Depreciation

4.4

Interest

0.5

PBT

102.1

Taxes

24.7

PAT

77.4

Source: Company, ICICI Direct Research

Q2FY22E

106.4

12.8 10.9

7.0 88.5

83.2

4.4 0.1 96.9 25.2 71.7

Q2FY21 YoY (%)

70.9 55.6

7.8 53.0

11.7

(8.5)

3.8 23.1

55.5 71.4

78.2 790 bps

4.3

2.9

0.5

58.5 74.6

14.1 74.8

44.3 74.6

Q1FY22

91.0

11.8 9.5 6.7

74.9

82.2

4.3 0.5 81.9 19.8 62.1

QoQ(%)

Comments

21.3

Strong power demand & decent traction in volumes in August & September

0.6

12.4

(30.3)

27.0

387

bps

Lower Employee margins

costs

and

other

expenses

improved

2.7

24.7 25.0 24.6

Exhibit 2: Change in estimates

FY21

(| Crore)

Actual

Old

Revenue

317.9

371.0

EBITDA

250.6

289.4

EBITDA Margin (%)

78.9

78.0

PAT

205.4

243.4

EPS (|)

6.9

8.1

Source: ICICI Direct Research

FY22E

New 402.0 325.6 81.0 273.7

9.1

% Change 7.7 11.1

300 bps 11.1 11.3

FY23E

Old

New

535.0

535.0

417.3

433.9

78.0

81.1

359.2

362.8

12.0

12.1

% Change 0.0 3.8

310 bps 1.0 1.0

FY24E

Old

New

712.0

712.0

555.4

578.1

78.0

81.2

471.1

480.1

15.7

16.0

% Change 0.0 3.9

320 bps 1.9 1.9

ICICI Securities | Retail Research

3

Result Update | Indian Energy Exchange

ICICI Direct Research

Financial Summary

Exhibit 3: Profit and loss statement

(| Crore)

FY21 FY22E

Revenue

318

Growth YoY (%)

Other Income

38

Total Revenue

356

Employee cost

44

Other Expenses

23

Total expenditure

67

EBITDA

251

Growth YoY (%)

Interest

-

PBDT

289

Depreciation

17

Profit Before Tax

270

Tax

65

PAT

205

Growth YoY (%)

EPS

6.9

Source: Company, ICICI Direct Research

402 26.5%

66 468

48 28 76 326 29.9%

2 390

21 370

96 274 33.2% 9.2

FY23E

535 33.1%

86 621

57 44 101 434 33.2%

2 518

28 490 127 363 32.6% 12.2

| crore

FY24E

712 33.1%

108 820

72 62 578 33.2%

2 684

36 649 169 480 32.3% 16.1

Exhibit 4: Cash flow statement

(| Crore)

FY21

Profit after Tax Depreciation Interest Other income Prov for Taxation Cash Flow before WC changes Change in Working Capital Taxes Paid Cashflow from Operations (Purchase)/Sale of Fixed Assets (Purchase)/Sale of Investments Other Income Cashflow from Investing Issue/(Repayment of Debt) Changes in Minority Interest Changes in Networth Interest Dividend paid Cashflow from Financing

205.4 16.5 2.1 (38.4) 65.0

250.6 (161.7)

(62.5) 26.5 (21.8) 79.7 38.4 96.2

29.7

7.4 (2.1) (74.6) (39.6)

Changes in Cash Opening Cash/Cash Equivalent Closing Cash/ Cash Equivalent

Source: Company, ICICI Direct Research

83.1 27.6 102.4

FY22E

273.7 20.6 1.5 (66.3) 96.2

325.6 (10.1) (96.2) 219.4 (30.6)

66.3 35.7

(1.5) (149.3) (150.8)

104.3 103.9 208.2

| crore

FY23E FY24E

362.8 28.1 1.5 (85.9)

127.5 433.9

99.7 (127.5) 406.1

(30.0) -

85.9 55.9

(1.5) (298.5) (300.0) 162.0 208.2 370.2

480.1 35.6 1.5

(107.8) 168.7 578.1 139.0 (168.7) 548.5 (30.0)

107.8

77.8 -

(1.5) (388.1) (389.6)

236.7 370.2 606.9

Exhibit 5: Balance Sheet

(| Crore)

FY21

Share Capital Reserves & Surplus Networth Minority Interest Deferred Tax Liability Other non-current liabilites Total Liabilities

29.9 496 526 29.7 27.0 12.6 595.4

Gross Block

57

Acc: Depreciation

27

Net Block

25

Capital WIP

0

Investments

120

Inventory

-

Sundry debtors

3

Cash and bank balances

104

Other financial assets

601

Other current assets

29

Total Current Assets

737

CL& Prov.

390

Net Current Assets

347

Total Assets

595.4

Source: Company, ICICI Direct Research

FY22E

29.9 621 651 29.7 27.0 12.6 719.8

82 48 35

0 120

0 208 621 8 838 376 462 719.8

FY23E

29.9 685 715 29.7 27.0 12.6 784.1

112

76 37

0 120

0 370 641 11 1,023 499 524 784.1

| crore

FY24E

30 777 807 29.7

27 13 876 142 112 31

0 120

1 607 661 15 1,283 662 622 876

Exhibit 6: Key ratios

(Year-end March)

FY21

Per share data (|)

EPS

6.9

Cash EPS

7.4

BV

17.6

DPS

2.5

Cash Per Share

0.9

Operating Ratios (%)

EBITDA Margin

78.9

PBT / Net Sales

73.7

PAT Margin

64.6

Inventory days

-

Debtor days

3.7

Creditor days

438.8

Return Ratios (%)

RoE

39.0

RoCE

50.6

RoIC

53.8

Valuation Ratios (x)

P/E

111.6

EV / EBITDA

90.5

EV / Net Sales

71.4

Market Cap / Sales

72.1

Price to Book Value

43.6

Solvency Ratios

Debt/EBITDA

-

Net Debt / Equity

-

Current Ratio

0.3

Quick Ratio

0.3

Source: Company, ICICI Direct Research

FY22E

9.1 9.8 21.7 5.0 1.6

81.0 75.9 68.1

0.3 334.0

42.1 56.0 67.0

83.7 69.7 56.5 57.0 35.2

0.6 0.6

FY23E

12.1 13.0 23.9 10.0

2.5

81.1 75.8 67.8

0.3 334.0

50.8 67.6 113.6

63.2 52.0 42.1 42.8 32.1

0.8 0.8

FY24E

16.0 17.2 26.9 13.0

3.7 81.2 76.2 67.4 0.3 334.0 59.5 79.4 255.2 47.7 38.6 31.3 32.2 28.4

0.9 0.9

ICICI Securities | Retail Research

4

Result Update | Indian Energy Exchange

ICICI Direct Research

RATING RATIONALE

ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according -to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock

Buy: >15% Hold: -5% to 15%; Reduce: -15% to -5%; Sell: ................
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