Indian Energy Exchange IPO opens today, analysts recommend medium to long-term subscription
Mumbai: Analysts are upbeat about the Rs1,000-crore initial public offer (IPO) of Indian Energy Exchange Ltd (IEX) opening on Monday, with several of them recommending subscription from the medium to long-term perspective.
IEX and Power Exchange India Ltd are the two power exchanges facilitating short-term power trading. IEX dominates the market, with its share in total volume traded through exchanges in the last five years at an average of over 93.5%.
IEX, India’s largest energy exchange, has priced its shares at Rs1,645-1,650. At the upper end of this price band, the initial share sale values the firm at Rs5,000 crore.
The company reported a profit of Rs113.6 crore in 2016-17, up 13% from a year ago. The IPO values the company at 44 times its fiscal 2017 earnings.
In a note on 5 October, brokerage firm Prabhudas Lilladher Pvt. Ltd said it believes energy trading is at a nascent stage in India with only 3% market volume traded through exchange against around 30-50% in developed countries.
“High return ratio, strong cash generation and strong industry dynamic make IEX an interesting investment candidate for medium/long-term gains. We believe stock could deliver 12-15% earnings CAGR (compounded annual growth rate),” its analysts said, while recommending a “subscribe” on the IEX IPO with a medium/long-term perspective.
Others agreed the business was an attractive one.
“Growth in power trading business could by around 20% annual rise in turnover, but that kind of growth is hard to come by for stock exchange business,” said Arun Kejriwal, director of Kejriwal Research and Investment Services.
“IEX (is) a business which is unique in itself. Besides, that it has most of the market share. With open access being a recent concept, the demand for these kind of services is only going to increase and not decrease,” said Kejriwal.
“Foreign investors are eyeing such business in India as they find them very attractive. It is a good issue to subscribe to,” added Kejriwal.
Others were optimistic too, even as they believed the IEX IPO was fully valued.
“Given the dominant market share, healthy financials, stable growth, the IPO could garner interest in the current market environment,” Centrum Broking Ltd said in a note on 4 October.
“Hence, we believe that despite fair valuations, the listing may still be at a premium to the offer price,” Centrum analysts added.
The IEX IPO is a pure offer for sale where existing investors will be selling around 6.06 million shares. Tata Power Co. Ltd plans to fully exit the firm. Tata Power will sell its entire 1.25 million shares, which at the upper end of the price band will fetch Rs206 crore.
The company will not receive any money from the offer. The objects of the offer are to achieve the benefits of listing to enhance the company’s brand and provide liquidity to the existing shareholders, IEX said in its draft offer document.