The Reason Behind the Thrilling Performance of IEX in the Last few Sessions

Lately, the stock of Indian Energy Exchange (IEX) is witnessing a lot of traction in the market.

Shares of IEX hit an upper circuit of 10% at Rs 832.9 on the BSE today after the company posted strong earnings for the second quarter ended September 2021 and also announced issue of bonus shares.

The stock has increased by about 165% in the last six months, and it has so far generated a multibagger return of over 335% in 2021 (year to date).

The stock has risen from a low of Rs 220 per share in January this year to a current high of Rs 956 per share.

IEX net profit rises 75% in the September 2021 quarter

The IEX on Thursday posted a nearly 75% jump in consolidated net profit at Rs 777.3 m for the September quarter, mainly on the back of higher revenues.

The consolidated net profit of the company stood at Rs 443.3 m in the same quarter of the previous fiscal.

Its revenue from operations jumped 55.6% YoY to Rs 1.1 bn in the reported quarter.

Earnings before interest, taxes, depreciation, and amortisation (EBITDA) jumped 69.1% in the September quarter 2021 over the same period last year.

The second quarter of fiscal year 2021-22 saw a significant growth in the industry and economic activities leading to an increase in the overall power consumption.

The increasing economic activity spurred demand for electricity. The national electricity consumption at 366 bn units (BU) during the second quarter of the fiscal, saw 9.7% YoY growth while the peak demand touched 200.5 gigawatt (GW) on 7 July 2021 was the highest ever registered in the country.

Bonus Issue

The company also announced that its board has recommended issuing bonus shares in the ratio of 2:1, which is subject to the approval of shareholders.

The board in its meeting on Thursday recommended a bonus issue of equity shares in the proportion of two shares of Re 1 each for every one existing share of Re 1 each held by the shareholders as on the record date.

The bonus shares will be issued out of the free reserves created out of the profits of the company available as on 31 March 2021.

The issue of bonus shares for their shareholders will help to increase the liquidity of the stock as well as to decrease its stock price to make if affordable for investors.

Bonus shares are fully paid additional shares issued by a company to its pre-existing shareholder.

Electricity volumes increased during the quarter

In the September quarter, electricity volumes on the exchange grew by 58% YoY with 25.9 BU volumes traded versus 16.5 BU in the same quarter last year.

The growth in volumes was driven by substantial increase in electricity consumption as well as the preference by the distribution utilities to meet their short-term supply requirements in a competitive and flexible manner through IEX.

The real-time market (RTM) remained one of the fastest-growing electricity market segments on the exchange, achieving a growth of 125% YoY with 5.3 BU of volumes traded during the quarter.

Continuing its outstanding performance, RTM contributed 20% to the overall volumes during the quarter.

On 21 August 2021, the green term ahead market marked its first anniversary, recording a cumulative volume of 3.4 BU since its inception and 1.7 BU in this quarter.

Understanding IEX

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. It commands a market share of around 95% in the power exchange market.

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.
  
  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.

How the stock markets reacted to IEX

Shares of IEX opened the day at Rs 832.9 on the BSE and Rs 833.7 on the NSE.

Its share price closed at Rs 773.5 (up 2.2%) on the BSE and Rs 768.3 (up 1.4%) on the NSE.

The share touched its 52-week high of Rs 956.2 and 52-week low of Rs 181 on 19 October 2021 and 4 November 2020, respectively.

Over the last 30 days, the IEX share price is up 33%. Over the last one year, the company's share price is up 289%.

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...