Indian Energy Exchange (IEX) IPO – Should you Subscribe?
There are flood of IPOs in Sep/Oct-17 now. Indian Energy Exchange (IEX) IPO would open for subscription on 9th October, 2017. Established in 2008, IEX is India’s first power exchange providing automated trading platform for electricity(for physical delivery) and renewable energy certificates. Its revenues grew at 14.5% CAGR in last 5 years. It is generating high margins. It posted profits of 47.8% for FY2017. Indian Energy (IEX) IPO Price is Rs 1,650 (Higher price band) per share which is very high. What are the hidden factors in Indian Energy Exchange (IEX) IPO? In this article, I would provide some interesting insights and do Indian Energy Exchange (IEX) Limited IPO Review.
About Indian Energy Exchange (IEX) Ltd
Company is the largest exchange for the trading of a range of electricity products in India, in terms of traded contract volumes in the financial year 2017 according to the Central Electricity Regulatory Commission. Electricity products traded over company electronic trading platform comprise (i) electricity contracts in blocks of 15 minutes in the day-ahead-market, (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 and (iii) renewable energy certificates. Company have commenced the trading of energy saving certificates on company Exchange on September 26, 2017.
Company are one of two exchanges in India that offer an electronic platform for the trading of electricity products and have a substantial majority market share among the power exchanges in India. The DAM constitutes the substantial majority of the energy contracts that are traded on company Exchange. In the financial years 2016 and 2017, company commanded a 99.6% and 99.4% market share, respectively, of electricity contracts in the DAM, in terms of volume, according to the CERC. According to the CERC, in the financial years 2016 and 2017, 93.7% and 94.8% of the traded contract volumes of electricity contracts in the DAM, TAM and RECs combined, were conducted over company Exchange.
Indian Energy Exchange (IEX) IPO Issue details
- IPO open date: 9-Oct-2017
- IPO close date: 11-Oct-2017
- Face Value: Rs 10 per share
- Issue price band: Rs 1,645 to Rs 1,650 per share
- Issue size: Approx Rs 1,000 Crores on higher price band
- Indian Energy Exchange (IEX) IPO Lot size: 9 shares and 9 shares there-off
- Minimum investment: Rs 14,850
- Blocking of Funds: 13-Oct-2017
- Unblocking of Funds: 17-Oct-2017
- Listing Date: 23-Oct-2017
- Leading Managers: Axis Capital, Kotak Mahindra Capital, IIFL Holdings
- Listing: BSE / NSE
- Download Indian Energy Exchange (IEX) IPO RHP Prospectus at this link.
Objects of the Indian Energy Exchange (IEX) Ltd IPO issue
The objects of the Offer are 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. The listing of the Equity Shares will enhance Company’s brand and provide liquidity to the existing Shareholders. Company expects that the proposed listing will also provide a public market for the Equity Shares in India. Company will not receive any proceeds of the Offer.
Company Financials (reinstated)
1) The company generated revenue of Rs 138.3 Crores for the year ended Mar-13 and Rs 237.4 Crores for the year ended Mar-17.
2) The company posted a profit of Rs 66.2 Crores for the year ended Mar-13 and profit of Rs 113.5 Crores for the year ended Mar-17.
3) Its FY17 EPS is Rs 37.7 and 3 years average EPS is Rs 35.14.
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What are the key strengths of Indian Energy Exchange (IEX) Limited?
Here are the key strengths of the company.
1) Efficient price discovery and flexibility on company 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 company Exchange.
5) Highly scalable and proven technology infrastructure.
6) Professionally managed company with a highly qualified and experienced management team.
What are the Strategies of Indian Energy Exchange (IEX) Ltd?
Here are the key strategies of Indian Energy Exchange (IEX) which it want to focus.
1) Market development to enccompanyage trading of pocompanyr over exchanges.
2) Attract new participants and increase trading activity on company Exchange.
3) Expand into new geographic markets.
4) Develop new products and services.
5) Focus on technology including increasing connectivity to company trading platform.
Reasons to invest in Indian Energy Exchange (IEX) IPO
1) It posted strong revenue growth of 14.5% CAGR in the last 5 years.
2) It posted consistent margins between 47.8% to 52.8% in the 5 years.
Risk Factors / Reasons not to invest in a Indian Energy Exchange (IEX) Ltd IPO
1) Company will not receive any proceeds from the Offer.
2) Company and certain of company Directors are involved in certain legal proceedings; any adverse outcome in any of these proceedings may adversely affect company profitability, reputation, business, financial condition and results of operations.
3) Company business and results of operations may be adversely affected if company are unable to maintain or grow the volume of the electricity contracts traded on company Exchange and retain company current participants or attract new participants to company Exchange.
4) Information Technology system limitations or failures, including company IT maintenance may harm company business, financial condition, results of operations and prospects.
5) Any adverse finding by the NCLT in relation to the Perpetual License Agreement could result in an adverse effect on company reputation, business, financial condition and results of operations.
6) Company operate in a highly regulated industry and may be subject to censures, fines and enforcement proceedings if company fail to comply with regulatory obligations.
7) Company face the risk that potential conflicts of interest may arise in the course of performing self-regulatory functions and bearing regulatory responsibilities related to company Exchange. Any failure by us to fulfill company regulatory obligations may have an adverse effect on company business, financial condition, results of operations and prospects.
8) Regulatory restrictions, and changes in regulations, applicable to us, may restrict company ability to conduct company business and may have an adverse effect on company business.
9) Company Exchange may face unanticipated regulatory changes and the implementation of these changes may have an adverse effect on company business, financial condition and results of operations.
10) Company have filed a compounding application with the RBI pursuant to the directions given by FIPB and any adverse adjudication in relation to the same may have an adverse effect on company reputation and financial condition.
11) Company are subject to certain risks relating to the operation of an electronic trading platform. Any failure to meet or respond to technological changes or changes in participant preferences may cause the volume of trades on company Exchange to decline, which may have an adverse effect on company business, financial condition, results of operations and prospects
12) Other risk factors (Internal and external) can be viewed in the prospectus.
Recommendation / Investment strategy – Indian Energy Exchange (IEX) IPO
1) On the upper price band of Rs 1,650 and on restated FY17 EPS of Rs 37.78, P/E ratio works out to 43.6x. Even based on last 3 years restated EPS of Rs 35.14, P/E ratio works out to 46.9x. Means, company is asking higher price band of Rs 1,650 in the P/E ratio of 37.7x to 46.9x. There is no listed peers to check hence we cannot ascertain wheher the issue price is highly priced or under priced. However in Dec-2016, Reliance Power has exited this company networth of Rs 103 Crores at @ 2,500 odd amount. Hence comparing to this, the P/E is high.
2) Company revenues grew at 15% CAGR in the last 5 years. It has posted high margins between 47% to 52% in the last 5 years. The issue price cannot be ascertained whether it is over priced or under priced. However, compared to Reliance exit at lower price, the issue price is on higher side. Considering some of these positive factors, investors can invest in this IPO for 2-3 years time frame. If one gets listing gains, we can do party.
Disclaimer: I would like to invest in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
Readers, What is your view on this IPO? Do you fee one would get listing gains?
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Indian Energy Exchange (IEX) IPO – Should you Subscribe