Indian Energy Exchange IPO opens: 10 things you should know

The book running lead managers to the offer are Axis Capital, Kotak Mahindra Capital Company and IIFL Holdings.

Here are 10 things you should know before investing in the issue:-

Company Profile

Professionally managed Indian Energy Exchange is the largest exchange for trading of a range of electricity products in India, in terms of traded contract volumes in the financial year 2017, according to the Central Electricity Regulatory Commission (CERC).

It is the first energy exchange in India, having commenced operations in June 2008.

Exchange primarily brings together sellers of power, such as independent power producers, captive power plants, distribution companies and
Government owned power generation companies, and buyers of power, such as distribution companies and industrial, commercial and institutional power consumers.

Electricity products traded over electronic trading platform comprise of electricity contracts in blocks of 15 minutes in day-ahead-market (DAM); electricity contracts for fixed terms in the future (such as intraday contracts, day ahead contingency contracts and contracts up to 11 days ahead, known as the term-ahead-market (TAM); renewable energy certificates (RECs).

In FY16 and FY17, the company commanded a 99.6 percent and 99.4 percent market share, respectively, of electricity contracts in the DAM, in terms of volume, according to the CERC. According to the CERC, in FY16 and FY17, 93.7 percent and 94.8 percent of the traded contract volumes of electricity contracts in the DAM, TAM and RECs combined, were conducted over Indian Energy Exchange.

As of August 31, 2017, the company had over 5,900 registered participants (located across 29 states and five union territories in India), of which over 3,200 participants were active.

In FY17, participants traded and cleared 40,528 million kWh of power on the exchange, representing a growth of 77.5 percent from 22,827 million kWh of power traded in FY13.

About the issue

The issue is an offer for sale of up to 60,65,009 equity shares by 11 shareholders, including Tata Power and Multiples Private Equity Fund.

The offer would constitute up to 20 percent of the post-offer paid up equity share capital.

Bids can be made for a minimum of 9 equity shares and in multiples of 9 equity shares thereafter.

The 50 percent of the total offer is reserved for qualified institutional buyers (QIBs); of which the company may allocate up to 60 percent of the QIB portion to anchor investors. Out of 60 percent to anchor investors, at least one-third is reserved for domestic mutual funds.

Further, 15 percent of the net offer is reserved for non-institutional bidders and 35 percent for retail individual bidders.

Selling Shareholders

Objects of Issue

The company will not receive any proceeds of the offer.

It is expected to raise Rs 997.7-1,000.7 crore at a price band of Rs 1,645-1,650 per share.

Financials

In FY17, Indian Energy Exchange generated total revenue of Rs 237.42 crore and profit after tax was Rs 113.56 crore. For the quarter ended June 2017, it generated total revenue of Rs 61.66 crore and profit after tax was Rs 30.63 crore.

Total revenue and profit after tax have grown at CAGR of 14.45 percent and 14.40 percent, respectively, between FY13 and FY17.

Strengths

> It promotes efficient price discovery and offers participants the flexibility to trade in a variety of electricity products.

> It is the largest exchange for trading of a range of electricity products in India, in terms of traded contract volumes in FY17, according to the CERC.

> It is well placed to benefit from conducive Government policies and regulations that encourage trading of energy and increase the volume of electricity products available to be traded over exchanges.

> The company has diverse participant base ensuring liquidity on exchange.

> It is highly scalable and proven technology infrastructure.

> It is professionally managed company with a highly qualified and experienced management team.

Promoters

Indian Energy Exchange was promoted by FTIL (Financial Technologies) and PFS (PTC Financial Services), which currently hold no equity shares in the company post divestment.

Allotment of shares passed by board at its meeting held on January 4, 2008 to FTIL (1,09,50,000 equity shares); PFS (65,00,000 shares); Rural Electrification Corporation (12,50,000 shares); Reliance Energy (12,50,000 shares; Adani Enterprises (3,00,000 shares); IDFC (12,50,000 shares); Lanco Infratech (12,50,000 shares); and Tata Power Company (12,50,000 shares).

The board had approved allotment of 9,50,000 shares to Adani Enterprises on January 21, 2008. The board had approved preferential allotment of 4,39,190 shares to PFS and 12,50,000 shares to Jindal Power on March 31, 2009.

Shareholding

Top 10 shareholders of the company as of September 26, 2017 (the filing date of red herring prospectus):-

Top 10 shareholders of the company two years prior to the date of filing of red herring prospectus:-

Board of Directors

Dividend Policy

Dividend declared and paid on equity shares during the last five financial years (Face Value Rs 10 each):-

Risks and Concerns

Here are risks and concerns highlighted by brokerage houses:-

> Unforeseen regulatory changes and implementation of the same could impact business.

> Insufficient system capacity or power supply could impact trading volume on the exchange.

> IEX operational success depends substantially on its ability to maintain and increase the number of participants.

> Expansion into new markets may increase risks due to regional unfamiliarity.

> IT system limitations or system disruptions can affect IEX’s operations and future business prospects.