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Oct 09, 2017 11:06 AM IST | Source: Moneycontrol.com

Brokerage View: Indian Energy Exchange IPO opens. Should you subscribe to the issue?

Brokerages largely are upbeat about the issue and recommend subscribing for the same.

Brokerage View: Indian Energy Exchange IPO opens. Should you subscribe to the issue?

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The new initial public offering (IPO) of Indian Energy Exchange opened on October 9, 2017 and will be closing on October 11, 2017.

The price band for the same has been set at Rs 1,645-1,650 per share and the company plans to raise up to Rs 1,001 crore ($152.9 million), according to a public notice.

Shareholders of the electricity exchange are selling a little over 6 million shares, or 20 percent of the post-issue paid-up capital, in the IPO.

Axis Capital, Kotak Mahindra Capital and IIFL Holdings are managing the sale.

Brokerages largely are upbeat about the issue and recommend subscribing for the same.

Brokerage: Hem Securities | Subscribe

Hem Securities highlighted that the company is the first and largest energy exchange in India with a strong brand recognition, benefits from a fast growing market and has achieved deep penetration of the market for trading of electricity over exchanges.

“Looking after strong fundamentals and sound financials, we recommend subscribe on the issue,” the brokerage house said in its report.

Brokerage: KR Choksey | Subscribe

The brokerage house highlighted that the issue’s valuation is at a premium, primarly on account of its dominant presence, which is reflected in strong financial performance over FY13-17.

“We believe strong business outlook owing to increase in the short term power volumes on exchange to benefit the players like IEX and hence we recommend SUBSCRIBE rating with a view of medium to long term perspective,” the brokerage house said in its report.

Centrum | Listing gains

At the higher end of the price band of ₹1,650, the issue is priced at P/E of 44.1x and EV/EBITDA of 31.5x, on FY17 basis, which appears to be fairly valued, compared to other listed exchanges, although not directly comparable — P/E BSE 24.3x and MCX 42.5x.

“IEX has a decent set of financials - revenue and PAT CAGR of 14% and 12%, over FY13-17, with healthy EBITDA margins of 72%, positive free cash flows over the period, high RoE 40%,” the report stated.

It also said that IEX has a near monopoly in the traded contract volumes of electricity contracts. “Given the dominant market share, healthy financials, stable growth, the IPO could garner interest in the current market environment,” the report added.

The report further stated that the listing could be at a premium.

SPA Research | Subscribe

SPA Research said that energy trading is at a nascent stage in India with only 3% market volume traded through exchange against 30-50% in developed countries.

“We believe IEX is a stable business with modest growth rates and low risk. Considering this aspect, with high return ratios and strong cash generation we believe this is a good investment for investors with low risk appetite and stable long term growth,” the report added.
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