IEX: CMP: 209: Long term Gr: 15 Cy Gr: 19% | Q1_FY25 Result Update
### 1. **Company Overview**
#### History and Business Model
IEX is the first and largest energy exchange in India providing a nationwide, automated trading platform for physical delivery of Electricity, Renewable Energy Certificates, and Energy Saving Certificates. The exchange platform enables efficient price discovery and increases the accessibility and transparency of the power market in India while also enhancing the speed and efficiency of trade execution.
### 2. **Sector Overview**
Decarbonization (Deployment of Low-Carbon Technologies - Wind and Solar), Decentralization (Small-scale Generation Across T&D Network), Digitization (Empowered Consumers - Economic Power Shift), and Democratisation (Intelligent Apps to Optimise Plants and Grid) will drive the future of energy across the world. India will be no different, in fact despite its huge population, India is doing well. These four megatrends will lead to sustainable, reliable, and affordable energy for the future. The Share of renewables capacity (including large hydro) has increased from 33% in 2010 to 41% in 2023 and is expected to reach 50% by 2030. India aspires to achieve 500 GW of renewable capacity by 2030. Renewable installed capacity is 172 GW with 49% from Private capacity. With an Inter-regional transmission capacity: of 112GW India has the World's largest network in Transmission. Consumption-wise Peak demand at 229 GW. India has become a Net Electricity Exporter. Installed capacity has grown at a faster pace compared to demand. Capacity growth of 7% and generation increase of 5.5% in the last 10 years has led to surplus generation in India. Total Installed Capacity = 428 GW where 51% generated by private players. Driven by competition and flexible procurement, the Exchange markets constitute >50% of the power market. Markets are in the range of 30-80% in developed economies. At 7%, India has an opportunity to deepen the power market. Per capita consumption in India is 1/3rd of the global average. Per capita consumption is expected to double in the next 5 years. High GDP growth of about 7% expected to drive electricity. Core sector, traction, EV, cooking will drive electricity consumption. 17 of 20 world’s fastest-growing cities in India. Power demand is Expected to grow at CAGR of 6%. Currently, 57% of capacity comes from Thermal, 2% from Nuclear while 41% from Renewables.
#### Why Industry Could Grow:
Exchanges provide a transparent, competitive, and efficient platform for transactions in any market – Stock or commodity. The same is true for the power sector. The concept of Exchanges in the Power Sector was initially introduced in 1990-91 in Europe. Now, worldwide Power Exchanges are operating in almost 40 countries. The share of exchanges in the short-term market has grown from 30% in the year 2016 to today around 54% of the market share. Volumes have been growing by 20% CAGR for the past 8 years. Efficient price discovery has been the biggest growth driver for exchanges in the past.
### 3. **Peer Group Comparison**
#### Market Position
IEX have 89% Market Share currently. We saw during the IPO in year 2018 where sales were 233 Cr which have grown from just 70 Cr in year 2012. We expected sales growth of 15-20% and today we can see sales have reached 431 cr while profits have grown from 3 cr in 2012 to 132 cr during IPO and today have reached 300 cr. Hence, we saw a rally of 3X along with good dividends during the last 5 years. Yes, happy to say we have been recommended as the Wealth Creator and even in the future we can expect a multi-year rally along with consistent dividend payout, good for retired people as can expect consistent dividend. India is placed as the most promising economy on the global map.
####4. Peer Group and Comparison
- *Peers*: Power Exchange India Limited (PXIL) and other regional power exchanges.
- *Comparison*: IEX has shown stronger growth metrics in terms of volume and profit compared to its peers, indicating a leading position in the market.
####5. Comparative Ratios (Example)
- **D/E Ratio**: Debt Free company
**ICR Ratio**: Strong ICR of 126
- **NPM% Ratio**: Strong Net Profit Margin of 80%
- **P/E Ratio**: At the PE of 46 (30 is the Fair PE for this company)
- **ROE**: Strong 39%
### 6. **Financial Performance**
#### Revenue and Profit Trends (Example)
- **2004**: NA
- **2014**: Revenue: INR 174 Cr, Net Profit: INR 92 Cr
- **2019**: Revenue: INR 294 Cr, Net Profit: INR 165 Cr
- **2023**: Revenue: INR 401 Cr, Net Profit: INR 306 Cr
- **2024**: Revenue: INR 449 Cr, Net Profit: INR 350 Cr
Sales growth of 2.6X which is 10% CAGR was seen during the last 10 Years. Profit growth from mere 92 Cr during Fy_14 to 350 Cr shows the growth of 3.8X or 14% CAGR. We saw the share rally by 3X during the last 6 Years since the IPO along with high and consistently dividend yield.
### 7. ### Analysis of IEX Q1 FY25 Financial Results
#### Highlights and Key Metrics
- *Overall Volume*: 30.4 BUs, a 21.1% YoY increase.
- *Revenue*: ₹154.5 crore, up 21.3% YoY.
- *Consolidated PAT*: ₹96.4 crore, a 27.2% YoY increase.
- *Standalone PAT*: ₹93.4 crore, up 26% YoY.
#### Sales and Profit Growth
- *Sales Growth*: Revenue increased by 21.3% YoY from ₹127.4 crore in Q1 FY24 to ₹154.5 crore in Q1 FY25.
- *Profit Growth*: Consolidated PAT increased by 27.2% YoY from ₹75.8 crore to ₹96.4 crore.
#### Profit Margin
- *Profit Margin*: 62.4%
#### Segmental Revenue Growth
- *Electricity Volume*: 28.2 BUs
- *Certificate Traded Volume*: 2.2 BUs
#### Growth, Profitability, Solvency, and Liquidity
- *Growth*: Strong YoY growth in both revenue (21.3%) and PAT (27.2%).
- *Profitability*: High profit margins with consolidated PAT at ₹96.4 crore.
### 8. **Future Estimates and Projections**
#### Expectations
We may see IEX grow by 18% CAGR sales and 17% CAGR profits this year which could help share recover from the current correction mode. We have been recommending this company since the IPO. New buying again can be done during any fall near 152 while the 3 years target could be 356 where some 5% profits can be booked.
Regulatory and Policy Developments:
Implementation of the General Network Access (GNA) and Indian Electricity Grid Code (IEGC) regulations.
Various measures by the Ministry of Power to ensure stability and growth in power supply, including mandatory sale of surplus power on exchanges and shifting maintenance schedules to monsoon seasons(iex).
### Future Growth Drivers: Expansion Initiatives
Indian Gas Exchange (IGX): Trading volume of 41 Million MMBtu in FY24 with ongoing developments in LNG contracts and hydrogen market initiatives.
International Carbon Exchange (ICX): Aimed at promoting voluntary carbon markets, contributing to India's goal of reducing emission intensity(iex).
Innovative Products and Services
Introduction of new market segments like High Price-DAM and Ancillary Services.
Continuous enhancement of the trading platform and user experience through technological upgrades
We may see IEX grow by 15% CAGR this decade taking the company to the landmark sales of 1000 Cr till 2030 and Profits may cross 500 Cr in the next 2-3 years itself. High profit margins can yield good and consistent dividends in the future. Multiyear rally can be expected. Definitely the new development of coupling with reduce their projected earrings by 20% but still this company can grow near to 15% CAGR.
Total MF & Insurance companies hold around 9.2% stake while FPI holds around 36% stake.
### Disclosure
Do not treat this document as a recommendation of stock, this was created for educational purposes.
