Here's Why the Stock of IEX is Gaining Steam on the Bourses

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  • Sep 1, 2021 - Here's Why the Stock of IEX is Gaining Steam on the Bourses

Here's Why the Stock of IEX is Gaining Steam on the Bourses

Sep 1, 2021

Indian Energy Exchange (IEX) share price has been on a roll recently. The company's shares surged over 9.5% and scaled a new 52-week high on the BSE today.

Its shares have rallied 28% in three trading sessions from its previous closing low of Rs 434 on 27 August 2021.

Over the period of one year, the company has managed to give a return of more than 165%.

Last week, National Stock Exchange (NSE) said it will add ten new stocks for trading in the futures & options (F&O) segment.

Among the 10, IEX in one of the new entrants in the F&O space along with Dixon Technologies, Hindustan Aeronautics, Ipca Laboratories and Polycab India.

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Factors driving the rally

IEX is a prominent player and enjoys a monopolistic status in the business. It is India's premier energy exchange providing a nationwide, automated trading platform for physical delivery of electricity, renewable power, renewable energy certificates and energy saving certificates.

  • Adani's Mundra Power Plant and Tata Power may get to sell electricity on power exchanges

    The power ministry is preparing to issue a statutory order allowing two plants with an aggregate capacity of 8,000 megawatts (MW) at Mundra in Gujarat to sell electricity on the power exchanges, in a bid to ease the coal and power supply situation, a senior official told Economic Times.

    Due to this, the sell bids on the power exchange will increase and lower the spot power prices.

    Power prices at the day-ahead market of the Indian Energy Exchange (IEX) have peaked due to desperate buy by distribution utilities.

    The average price per unit is hovering around Rs 6-7 against Rs 2.95 per unit in the month July.

    According to industry executives, Gujarat is buying the maximum (4,000-5000 MW) from IEX, followed by Rajasthan, Punjab and Haryana.

  • IEX achieved 37% volume growth in power market

    Earlier this month, IEX recorded power trade growth of 37% year on year (YoY) growth in July 2021.

    The company said that it has traded over 7,322 mega unit (MU) volume for the same month. The day-ahead market traded 4,238 MU volume during the month at the average monthly price at Rs 2.95 per unit.

    The sell-bids at 2X of the cleared volume ensured ample availability of power and provided competitive procurement opportunities to the distribution utilities and industries.

    The newly introduced cross-border electricity trade (CBET) under day-ahead market saw 72 MU volume traded and registered 68.4% month on month (MoM) increase.

    Currently, Nepal is the only participating country in IEX CBET market while other South Asian Countries like Bangladesh and Bhutan are expected to join the platform shortly.

    Also, the stock is in limelight due to its green energy theme.

    The green term-ahead market traded the highest-ever volume of 726 MU in July 2021 seeing a 76% sequential increase.

    During the same month, the market saw participation from 51 members which is the highest-ever since inception in August 2020.

    The market saw participation from distribution utilities from West Bengal, Bihar, Haryana, Telangana, Karnataka, Uttar Pradesh, Goa, Maharashtra, Punjab, DNH, Daman & Diu, Assam and Tamil Nadu among others.

  • Company witnessed substantial profit growth in the June quarter

    Its consolidated profit after tax (PAT) grew 47% to Rs 621 m in the June quarter, mainly due to higher revenues.

    The company had posted a Rs 421 m profit after tax (PAT) in the same quarter last year.

    The company's total revenues during April-June 2021 stood at Rs 1 bn, higher from Rs 811 m in the year-ago period.

    As of June 2021, installed power capacity at 384 gigawatts (GW) saw 3.5% YoY growth.

    The renewable energy capacity reached 97 GW from an earlier 88 GW in the financial year 2020 witnessing a 10.4% YoY growth.

  • Boost in the power demand and consumption

    Despite the partial lockdown during the quarter, the electricity consumption showcased significant growth through the quarter, registering a YoY growth of 17% to 340 bn units (BU) with the revival of economic activities.

    The country saw its highest-ever peak demand of 191.5 GW (gigawatt) in June 2021. The power consumption growth soared further in July, with peak demand reaching over 200 GW, the highest ever in India.

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A look at IEX's business

IEX is the first and the largest energy exchange in India. It allows for trading of electricity (for physical delivery), just as NSE or BSE allow for trading in stocks.

Just like the stock exchange, IEX is a marketplace where the electricity market prices are 'discovered' through the transactions done between the buyers and sellers in the market and the fundamental laws of demand and supply.

In other words, if demand is higher than supply, then the prices increase. Conversely, if the supply is higher than demand, then the prices reduce.

The company's platform has six major segments.

The day ahead market (DAM) allows for trading electricity in 15-minute time blocks, that would be delivered the next day.

Then there's also the Real-Time Market (RTM) which allows for electricity to be delivered within 1 hour of purchase.

Similarly, it also provides trading in the term-ahead market or TAM which allows for delivery for up to 11 days.

Besides that, IEX also allows trading in the Green Term Ahead Market, Renewable Energy Certificates, and Energy Saving Certificates.

Equitymaster's view on IEX

We reached out to Richa Agarwal, Senior Research Analyst at Equitymaster, and Editor of the smallcap service, Hidden Treasure, for her view on the company.

Here's what she has to say -

  • While IEX is reaping the benefits of being a virtual monopoly, one must note that it operates in a highly regulated industry with the Central Electricity Regulatory Commission (CERC) exercising tight control. Business expansion is subject to regulatory approvals to a substantial extent.

    Demand is also uncertain with cycles such as the current one seeing excess generation and poor electricity demand.

    Further, the competitive landscape is undergoing a shift with more exchanges such as BSE establishing and operating power exchange.

    At current valuation of 69 times price to earnings (PE) ratio, most of the positives seem factored in stock price of IEX, with little margin of safety in our view.

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This could accelerate EV adoption in India and lead to a potential massive rally in a few EV stocks.

We've already identified 3 such EV stocks for you.

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How the stock markets reacted to Indian Energy Exchange

Shares of IEX opened the day at Rs 507.5 on the BSE and Rs 507 on the NSE.

At the time of writing, the company's shares were trading up by 8.6% on the BSE.

At its current price, it is trading at a P/E of 66.8.

The share touched its 52-week high of Rs 555 and 52-week low of Rs 181 on 1 September 2021 and 4 November 2020, respectively.

Over the last 30 days, the IEX share price is up 20%. Over the last one year, the company's share price is up 168%.

About Indian Energy Exchange

The Indian Energy Exchange is an Indian electronic system-based power trading exchange regulated by the central electricity regulatory commission (CERC).

It started its operations on 27 June 2008.

IEX pioneered the development of power trading in India and provides an electronic platform to the various participants in power market, comprising state electricity boards, power producers, power traders and open access consumers (both industrial & commercial).

IEX is one of the two operational power exchanges in India. Ever since its incorporation, it has held an influential market share.

It has over 3,800 registered clients, over 300 private generators and more than 3,300 industrial electricity consumers.

For more details about the company, you can have a look at IEX factsheet and quarterly results on our website.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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