Buy Indian Energy Exchange Ltd For Target Rs. 188 - Elara Capital
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Sustained performance; volume upbeat Favorable regulations provide further impetus to volume Electricity volume of Indian Energy Exchange (IEX IN) rose 16.8% in Q3 to 28.3billion units (BU), driven by healthy power demand. Robust coal production and a decline in eAuction coal prices increased sell liquidity. Average market clearing price on day ahead market (DAM) fell 14% YoY to INR 5/unit. Conducive policy initiative gave further impetus to DAM volume. Post implementation of general network access (GNA) and India’s electricity grid code cumulative volume in the day ahead contingency (DAC) have fallen to 0.4BU in Q3FY24 and shifted to DAM. At ~15BU, Q3FY24 volume for DAM was higher by 17.5% than DAM volume in Q1FY24 and up 30% compared to volume in Q2FY24. This trend is expected to continue. Buoyant volume keeps earnings afloat Q3 consolidated revenue rose 15% YoY to INR 1,153mn, led by robust volume growth on the exchange. EBITDA increased 19% YoY to INR 988mn. Operating margin came in at 86% in Q3 vs 83% in the past year. Reported PAT rose 19% to INR 918mn. Increased competition and market coupling remain key headwinds IEX faces near-term headwind of competing exchanges, such as Power Exchange India (PXIL) and Hindustan Power Exchange (HPX). PXIL has filed a petition with the Central Electricity Regulatory Authority (CERC) to extend the duration of TAM contracts to 11 months. This is expected to drag volume on IEX. IEX had already filed a petition with the CERC to extend the duration of long duration contracts (LDC) contract to 11 months and is awaiting approval. Valuation: reiterate Buy with a TP of INR 188 We retain our positive outlook on IEX, given the rise in short-term power market share in India along with an increase in the market share of power exchanges. Also, its subsidiaries, Indian Gas Exchange, and the upcoming Carbon Credit Exchange offer added benefits to investors. Regulatory overhang in terms of market coupling and increased competition are key concerns for the long term. We reiterate Buy with a DCF-based TP of INR 188 on 30x FY26E P/E.
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