About the Company

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. In August 2016, the Exchange received ISO Certifications for quality management, Information security management, and environment management. The Exchange is now a publicly listed company with NSE and BSE. IEX is approved and regulated by the Central Electricity Regulatory Commission (CERC) and has been operating since 27 June 2008.

Q1FY22 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q1FY22 Q1FY21 YoY % Q4FY21 QoQ %
Sales 102 81 25.93% 102 0.00%
PBT 84 58 44.83% 84 0.00%
PAT 64 43 48.84% 64 0.00%

 

Consolidated Financials (In Crs)
  Q1FY22 Q1FY21 YoY % Q4FY21 QoQ %
Sales 103 81 27.16% 100 3.00%
PBT 82 56 46% 80 2.50%
PAT 62 42 48% 61 1.64%

 

Detailed Results:

  1. On a consolidated basis, PAT was up 48% YoY while revenue for the quarter was also up 27% YoY.
  2. Q1FY22 saw an increase of 42.9% YoY in electricity exchange volumes.
  3. Indian Gas Exchange sees volume growth of 206% QoQ with 3,60,050 MMBTU traded in Q1
  4. Nepal becomes the first country to start doing the Cross Border Electricity Trade with IEX.
  5. Total installed power capacity in India grew 3.5% YoY to 384 GW. The renewable capacity saw 10.4% YoY growth with cumulative capacity to 97 GW in Q1FY22.
  6. The Govt of India has issued the draft National Electricity Policy 2021 which stipulates intention of the Government to increase the share of spot markets to 25% by the year FY24.
  7. The real-time electricity market traded 4,635 MU in Q1 at an average price of Rs 3.01.
  8. There was a 39.5% YoY growth in open access volumes.
  9. The green market cumulatively traded 937 MU during Q1 which was higher than the total volume of 785 MU in FY21.
  10. The company announced a final dividend of Rs 1.5 per share for FY21.

Investor Conference Call Highlights:

  1. IEX launched Phase 1 of the web-based platform for the market participants.
  2. It is in talks with Bhutan and Bangladesh for commencing cross-border electricity trades.
  3. The company has implemented a Mixed-Integer Linear Programming price history algorithm.
  4. RTM now contributes to over 20% of traded volumes.
  5. GTAM grew 41% YoY in FY21 while the bilateral market declined 25% in the year.
  6. Ancillary services through the exchange have an opportunity size of 3000-4000 MW but the exchange will only be collecting the bids and passing it on to NLDC who will take care of everything else.
  7. The management states that MBED should only be implemented once each state has adequate contracted capacity to meet its demand.
  8. The management states that in the case of DAM, price matching for buyers and sellers takes place while for the day ahead, price discovery takes place. DAM markets provide more flexibility by allowing for sales of electricity for a specific time block and removes the need to buy power throughout the day ahead.
  9. Power consumption in India in Q1 was up 17% YoY.
  10. The management states that the LDC issue can be expected to be resolved in the courts by Q4FY22.
  11. REC trading started in July, but it is still being discussed by the Ministry of Power and can be expected to see orders coming in by Sep.
  12. Right now, DSM rates are the same as the day ahead rates so there is little incentive for discoms to buy from the RTM. The management states that the regulators are working to establish a DSM rate where there is an additional incentive for buying in RTM for discoms instead of over-drafting on the grid. When this happens, DSM volumes will start shifting to RTM.
  13. DSM should be seen as only a component of the opportunity size for RTM which is much bigger than DSM.
  14. The management is expecting an opportunity size of 8-10 billion units from the cross-border trade in the next 5 years.
  15. GTAM should continue its good momentum for the next 4-5 months till wind generation is high.
  16. The margin mechanism for LDC is expected to be 2 days of margin for the transaction. This is yet to be approved by the regulator.
  17. The management is not worried about the incoming competition as it is confident of IEX’s edge and long customer relationships.
  18. The company is advocating for a policy change to make solar power generators keep up to 15% of power for sales to the market.
  19. The management states that the long-term shift to renewables in the energy sector should be beneficial for the exchange.
  20. The primary opportunity for IEX is coming from the shift from bilateral contracts and PPAs to exchanges for energy procurement. The opportunity size for the short-term market is expected to be around 50 billion units.
  21. 20% of total volumes were purchased by industries.
  22. The company does see an opportunity to create emissions trading products like those in the EU.
  23. The potential GDAM market size is very big with the Govt looking to create 175 GW by 2022 and 450 GW by 2030.

Analyst’s View:

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. It has a very asset-light business model and a strong Balance Sheet. In the last several years it has done well by constantly adding new products and improving offerings for the participants on its platform. The company continues its growth march with another good quarter with volume growth of 43% YoY and sales & profit growth of 27% & 48% YoY. IEX continues to see increased participation from discoms in the exchange given the flexibility and competitive pricing as compared to bilateral contracts.  This is the biggest opportunity for the company according to the management. It also expects the GTAM to continue its momentum due to the additional capacity expected to be generated by wind generators till Oct at least. It remains to be seen how the policies and regulations will evolve in the power sector and how IEX will fare with the addition of a new rival exchange in this space. It is still very early days in the power exchange market. However, as of date, IEX looks like a pivotal player in this industry.

 


 

Q4FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q4FY21 Q4FY20 YoY % Q3FY21 QoQ % FY21 FY20 YoY%
Sales 102 79 29.11% 96 6.25% 357 297 20.20%
PBT 84 59 42.37% 78 7.69% 282 228 23.68%
PAT 64 47 36.17% 60 6.67% 213 178 19.66%

Consolidated Financials (In Crs)
Q4FY21 Q4FY20 YoY % Q3FY21 QoQ % FY21 FY20 YoY%
Sales 100 80 25.00% 96 4.17% 356 297 19.87%
PBT 80 58 38% 76 5.26% 270 226 19.47%
PAT 61 46 33% 58 5.17% 205 176 16.48%

Detailed Results

  1. On a consolidated basis, PAT was up 33% YoY while revenue for the quarter was also up 25% YoY.
  2. FY21 saw an increase of 37.3% YoY in electricity exchange volumes. Q4 saw 62.1% YoY growth in electricity volumes.
  3. Digital transformation and new market segments – RTM and GTAM, were the key growth drivers for Company in FY21.
  4. Total installed power capacity in India grew 3.3% YoY to 382 GW. The renewable capacity saw 9% YoY growth with cumulative capacity to 94 GW in FY21.
  5. The REC trading remains halted in the quarter due to a stay order from APTEL (Appellate Tribunal for Electricity).
  6. The day-ahead market saw an average market clearing price of Rs 2.82 per unit in Q4 which was 6% down YoY.
  7. The real-time electricity market traded 3,766 MU in Q4 & 9,468 MU YTD.
  8. There was a 39.5% YoY growth in open access volumes.
  9. The green market cumulatively traded 785 MU during the year till date.
  10. The company retained its market shares of 92% in DAM+TAM, 99.9% in RTM, & 99.9% in GTAM markets.
  11. Share of exchanges in total electricity consumption has risen to 6.1% in FY21 from 4% last year. Share of exchanges in short term market has risen to 54% in FY21 from 41% last year.

Investor Conference Call Highlights

  1. In Feb 2021, the CEA laid down the procedure for approval and facilitation of cross-border trade of electricity. IEX has already started the commencement of the cross-border electricity trade on exchange with Nepal as of 17th April 2021.
  2. The company expects to start electricity trading with Bhutan & Bangladesh soon.
  3. It is also working to introduce longer-duration delivery contracts up to 365 days in both electricity and green markets.
  4. The latest date given by APTEL on the hearing for REC is July 14th.
  5. The management expects it to start no earlier than Q2.
  6. The company was looking to launch trading in Energy Saving Certificates or ESCerts market in Q3FY21 but was delayed due to the pandemic. It is now expected to commence in Q2FY22.
  7. The company is also expecting the launch of the LDC product to be in Q2 or Q3 in the year ahead. It has all the tech ready and is only waiting on regulatory approval to go ahead here. The company expects trade volumes of 25-30 BU from this forward contract platform each year.
  8. The RTM accounts for 13% of total volumes in FY21. It has risen to 17-17.5% in Q4. IEX is seeing increased participation coming from almost all the segments, which includes distribution utilities as well as open access consumers. Thus, the management expects this rising trend for RTM to continue to maybe 20-25% in the next few quarters.
  9. The company has already applied for Green day-ahead market contracts, but it doesn’t expect CERC to pass approval on this before the end of June. Thus, this product is also expected to be launched in Q2.
  10. The main market gains in RTM are from the DSM market where there are high penalties to overdrawing requirements and thus any pending or extra requirements are serviced by the exchange at a much lower price. To make up for the lost opportunity in DSM, the captive plant also has to come to the RTM, thus deepening the shift.
  11. The management states that the company wants to endeavour that 50% of the profit should be distributed in the form of dividends. But it has not given out any dividends in Q4 due to the uncertainty from COVID-19.
  12. The company is sitting on a cash pile of Rs 600 Cr.
  13. The GTAM market is expected to gain momentum going ahead as the summer season brings in additional generation from wind which is largely present in H1 and from more sellers joining in.
  14. All green generators are under some PPA. Most of them are small generators so the PPA in question is of smaller duration. IEX has over 10 such generators on the platform already. The company is not only targeting generators but also distribution companies that may have surplus green capacity.
  15. The cross-border trade has seen volumes go up to 5% of DAM. The volumes remain low here since the only mechanism allowed currently is spot market of fewer than 7 days. Anything greater than 7 days comes under bilateral contracts which is not under the exchange mechanism.
  16. The company is also expecting the RTM market to become the option for discoms as an immediate answer to demand-supply gaps that used to result in load shedding. Thus load shedding can become less frequent as discoms participate more in the RTM.
  17. The main use of the day-ahead market is to meet the deficit for discoms. The management believes that once the discoms see that they can service most of their requirements from the day-ahead market, they will come to it automatically to optimize their power costs.
  18. The management has stated that it will not divest any more of the pending 30% in IGX any time soon since it has 4 years to do so, and will only do so after deciding on the premium.
  19. The management states that it welcomes the formation and approval for the new exchange in the power sector as it should increase adoption of power exchanges and should be ultimately good for the expansion of the sector.
  20. The company launched an automated bidding option for the customers through the API. This was required as with the launch of RTM, the customers had to bid 48 times in a day. This auto bidding option has been adopted well by customers such that some large members have close to 60%, 70% of the cleared volume in the real-time market placed using this mechanism.
  21. Most of the tech initiatives by the company revolve around automation of the process to speed up customer response time and enhance customer experience. It has also provided customers with a web-based platform to provide a bidding option for all products and a mobile platform for the same. Both platforms are expected to enhance customer convenience and help gather data on customer behaviour and preferences.

Analyst’s View

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. It has a very asset-light business model and a strong Balance Sheet. In the last several years it has done well by constantly adding new products and improving offerings for the participants on its platform. The company continues its growth march with another good quarter with volume growth of 62% YoY and sales & profit growth of 25% & 33% YoY. It has also divested 47% of IGX till date and brought on NSE as a marquee investor in Q4. IEX continues to see increased participation from discoms in the exchange given the flexibility and competitive pricing as compared to bilateral contracts. It also expects the GTAM to gather additional momentum due to the additional capacity expected to be generated by wind generators in the summer season. It remains to be seen how the policies and regulations will evolve in the power sector and how IEX will fare with the addition of a new rival exchange in this space. It is still very early days in the power exchange market. However, as of date, IEX looks like a pivotal player in this industry.


Q3FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 96 69 39.13% 79 21.52% 256 218 17.43%
PBT 78 53 47.17% 62 25.81% 198 169 17.16%
PAT 60 42 42.86% 47 27.66% 150 131 14.50%

 

Consolidated Financials (In Crs)
Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 96 69 39.13% 79 21.52% 256 218 17.43%
PBT 76 53 43.40% 58 31.03% 191 168 13.69%
PAT 58 42 38.10% 44 31.82% 145 130 11.54%

Detailed Results

  1. On a consolidated basis, PAT was up 38% YoY while revenue for the quarter was also up 39% YoY.
  2. Q3 saw an increase of 61.8% YoY in electricity exchange volumes.
  3. Indian Gas Exchange secures PNGRB authorisation to become India’s first delivery-based Gas Exchange. Adani Total Gas & Torrent Gas become the first strategic investors in IGX by acquiring 5% stake each.
  4. The REC trading remains halted in the quarter due to a stay order from APTEL (Appellate Tribunal for Electricity).
  5. The day-ahead market saw good volumes growth of 43% YoY. The market witnessed an average market clearing price of Rs 2.76 per unit in Q3.
  6. Total volumes including REC rose 48.2% YoY.
  7. There was a 39.5% YoY growth in open access volumes.
  8. The Real-time electricity registered an all-time high monthly volume of 1129 MU in December.
  9. The green market cumulatively traded 473 MU during the quarter.
  10. The company announced an interim dividend of Rs 2.5 per share.

Investor Conference Call Highlights

  1. IEX successfully introduced 2 new contracts (daily and weekly) in the green market.
  2. It also signed a licensing agreement with MCX to launch electricity derivatives in the market using IEX price as a clearing.
  3. The national energy consumption increased 7% YoY in Q3.
  4. As on 31st December 2020, the installed power capacity in India was at 375 GW with a growth of 1.8% YoY. The renewable capacity grew 6% YoY.
  5. On Dec 4th 2020, the Ministry of Power introduced a draft proposal to enable distribution utilities to exit from the power purchase agreements after completion of the term of the PPA. This initiative will enable more buying by the utilities and sale of power by the generators on the exchange platform.
  6. The REC market used to have transactions of around Rs 80-90 Lacs a year for IEX.
  7. The management has clarified that IEX is only looking for strategic partners to invest in IGX at the moment.
  8. The increase in the open access volume is 14% YoY in Q3 and it formed 24% of total volumes in the quarter. Majority of the open access is traded through day ahead market only.
  9. The remaining 76% volumes are all from distribution companies.
  10. Although there is an opportunity for monetizing of software that IEX owns, the management has stated that IEX will not be doing so as the best way to make money with the software is to maintain it as the USP of the exchange.
  11. The electricity derivative by MCX is still pending approval from regulators. These derivatives will be physically settled on IEX platform and financially settled using IEX price.
  12. The main business development activity for IEX is to create awareness about the platform and values that it provides energy at.
  13. In the green market, the sellers are mainly distribution companies, distribution companies of Telangana and Karnataka. As the demand in these discoms is rising the volumes to be sold is coming down. The green market clearing price is between Rs 3.5-4.
  14. Annuals fees collected in Q3 was at Rs 4.2 Cr which was flat QoQ. This is because the number of participants is not increasing but the volumes are. Top 10 DISCOMs contribute almost about 75% to 80% of the total buy.
  15. IEX is looking to maintain a significant stake in IGX within permissible levels and will bring it down to 25% in the next 5 years.
  16. Participation in exchange is increasing mainly due to the flexibility and the competitive pricing offered as compared to bilateral traders contracts which have fixed terms for price and quantum.
  17. The main hurdles in the growth in adoption of the gas exchange are the absence of a uniform tax system for gas which is not under GST, gas transportation tariffs and almost no spare capacity in active LNG terminals.
  18. The company is seeing more and more states making power available as open access as it contributes to ease of doing business and thus IEX is seeing more states doing so to promote industrial activity in their territories.
  19. The company has filed a petition with CRC for long duration contracts and is waiting for the result. In the case of cross border activities, it will be dependent on whether the Govt of India will approve to do so with neighbouring countries.
  20. The top 3 states for open access are Gujarat, Tamil Nadu and Telangana. In many states, the breakeven rate for open access is around Rs 2.8-3.4 depending on various charges like cross-subsidy surcharge, transmission charges, billing charges, etc.
  21. The management has stated that there is scope for volumes rise in states like Andhra Pradesh, Maharashtra and Gujarat as there may be power plants here which have variable costs higher than exchange clearing price and thus there is an opportunity for cost savings here. On the other hand, such opportunities are low in states like Chhattisgarh, Orissa, West Bengal where the variable costs are very low due to plants located near RM sources.
  22. The company has kept transaction charges constant for the last 8 years at INR 0.02 from the buyer and INR 0.02 from the seller.
  23. The company will be looking to do a lot of marketing awareness with the participants to bring enough liquidity in long-duration contracts and GDAM when they are launched. Once these products reach sufficient liquidity and the market evolves, the company will look to develop new products.

Analyst’s View

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. It has a very asset-light business model and a strong Balance Sheet. In the last several years it has done well by constantly adding new products and improving offerings for the participants on its platform. The company has seen a good quarter with its highest ever volumes traded on the platform and sales & profit growth of 39% YoY. It has also gotten approval for IGX and has already gotten strategic partners like Adani Total Gas and Torrent Gas to invest 5% each in it. IEX is also seeing increased participation from discoms in the exchange given the flexibility and competitive pricing as compared to bilateral contracts. It remains to be seen how the policies and regulations will evolve in the power sector and how the issues capping the gas sector in India will be resolved in the future. It is still very early days in the power exchange market. However, as of date, IEX looks like a pivotal player in this industry.

 


Q2FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 79 79 0.00% 81 -2.47% 160 148 8.11%
PBT 62 61 1.64% 58 6.90% 120 115 4.35%
PAT 47 49 -4.08% 43 9.30% 90 88 2.27%

 

Consolidated Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 79 79 0.00% 81 -2.47% 160 148 8.11%
PBT 58 61 -4.92% 56 3.57% 115 115 0.00%
PAT 44 49 -10.20% 42 4.76% 86 88 -2.27%

Detailed Results

    1. On a standalone basis, PAT was down 4% YoY while revenue for the quarter was flat YoY largely on account of a fall of 20% YoY in power prices.
    2. Q2 saw an increase of 13.2% YoY in exchange volumes due to a rise in overall energy consumption.
    3. Consumption has risen and there has been a 4.6% YoY increase in energy consumption in Sep ‘20.
    4. The REC trading was halted in the quarter due to a stay order from APTEL (Appellate Tribunal for Electricity).
    5. The day-ahead market saw good volumes on the sell-side with sell volumes at 2.2x of cleared volumes which led to a 20% YoY decline in power prices.The market witnessed an average market clearing price of Rs 2.53 per unit during the quarter as compared to Rs 3.15 per unit in Q2FY20.
    6. There was a 39.5% YoY growth in open access volumes.
    7. A new market segment Green Term-ahead Market (G-TAM) was launched on August 21, 2020.
    8. The Real-time electricity market (RTM) traded 2,350 MU in Q2FY21. It crossed a cumulative volume mark of 3 billion units.

Investor Conference Call Highlights

  1. The company did an equity infusion into IGX and has filed an application for approval with the PNGRB, who is the gas regulator in India.
  2. The total installed power capacity of India has risen to 373 GW which is a rise of 3% YoY.
  3. Power demand is back to pre-covid levels in September.
  4. The company filed a petition with CERC for approval to commence trade in the long-duration delivery-based contracts. CERC is expected to give its approval only after the jurisdiction issue is solved in the Supreme Court.
  5. The Supreme Court hearing mentioned above has been postponed to the first week of December.
  6. There are a number of issues that have hampered the expansion of IGX such as gas transportation tariff, not GST for gas which means that each state has a different tax rate, Fewer enablers in place as compared to the electricity market.
  7. The demand for gas remains robust and intact. This is evident from the fact that both of the company’s regasification terminals by Petronet & Shell are working at near 100% capacity.
  8. The management has stated that the opportunity in the gas exchange space is much bigger than that in the electricity exchange space.
  9. The company’s volumes in TAM have dried up and shifted to the RTM market. Because of the competitive price offering, many state distribution agencies are also purchasing increasing quantities from the RTM platform.
  10. Long-term duration contracts should not cannibalize the TAM market rather it is expected to take away volumes from the bilateral market.
  11. The management has clarified that the DEEP platform is only used for price discovery and it does not enable future delivery, financial and physical settlement while in the case of the long term duration contracts, all of the background work of future delivery, financial and physical settlement is also taken care of by the platform.
  12. The verdict from APTEL on REC trading is expected to come on 28th
  13. The company has seen an increase of 10% in manpower costs mainly due to the annual increment impacts and larger workforce needed to operate the 24-hour market.
  14. GAIL is interested in acquiring 26% of IGX but according to regulations, it can only acquire a max of 5%. The company is also looking at other strategic buyers to come in and invest in IGX and bring down its holding to the required levels.
  15. The management has stated that the participation of all states has increased and particularly Punjab has been seeing more demand during this season. Large states like Maharashtra, Telangana, Tamil Nadu, and others have also seen good demand and participation as overall power consumption is rising.
  16. Currently, the short-term market is almost about 11% of the total generation. IEX’s share used to be around 35%-40% market share. Of this, the short-term market has risen to 50% in H1FY21.
  17. The management believes that on the introduction of long-term contracts, IEX will be able to address around 70-75% of the market. On the introduction of the financial contract, which would be similar to banking, the company will be able to address the whole 100% of the power market in India.
  18. The management has clarified that there is no other product available in the market which can meet the demand from the REC volumes from IEX. CERC has revised the forbearance price and the base price from Rs 1,000-2,400 to Rs 0-1,000 which is expected to attract a lot of industrial consumers and captive industries.
  19. The management has clarified that NTPC is not the one selling in RTM. NTPC has to allocate all of its power to the states which in turn are allowed to sell the excess to the RTM whenever required.
  20. The management feels that all the underproduced power should also be allowed to be sold on the DAM market to boost liquidity but it has not been accepted by the regulator and the government so far.
  21. The management is confident that the MBED provision mandating all power transactions through the exchange for 100% of the power generators (which requires uniform power pricing throughout the country) will not be taking place in the future.
  22. Open access volumes for H1 were up almost 40% YoY. This was mainly due to the low clearing price which was at Rs 2.50 vs Rs 3.15 last year. But open access is still being hampered by states through tariff and non-tariff barriers. Open access volumes now account for 23-24% of total volumes.
  23. Every day almost 400 participants participate in the real-time market including institutional buyers and DISCOMS.
  24. There are almost 40 participants in the GTAM market every day. The clearing rate in the green market is almost about 70%, 80% more than that rates cleared in the conventional market. Earlier states were backing down the green generators when the demand was less. Now they have a market to sell that power instead of backing down the generators.
  25. The annual fees collected in Q2 was at Rs 4.46 Cr.
  26. On the draft merit order dispatch from states, it says that if there is any shortfall in demand from long term contracts, it can purchase power from exchanges. That is – If the exchange clearing price is lower than the variable cost of some of the plants under the long-term contracts, the entity should back down the power from those costly plants and purchase power from the exchange.
  27. The management has clarified that transaction fees have remained the same and are not dependent on the clearing price at all. The main reason for volume growth to outpace revenue growth is that REC volumes have stalled. REC contributed to almost 12-13% of revenues for the company.
  28. On average, other expenses would be at Rs 5-6 Cr per quarter.
  29. The management reiterates that it doesn’t expect market coupling to come into place and even if it does there shouldn’t be any issues for having different prices in different exchanges just like in the case for BSE & NSE for equities.
  30. The entire renewable capacity is tied up under the long-term contract. So most of the participation in the GTAM is done by the distribution companies who have got surplus renewable power generation beyond the RPO application.
  31. Currently, the major participants in GTAM are Karnataka and Telangana and the management expects states with large renewable capacity like Andhra Pradesh, Gujarat, Rajasthan, and Maharashtra to start participating soon.
  32. Short term market has stayed at 10-11% of the total market for the last 4-5 years and the govt is working hard to increase liquidity in this space. One of the measures taken is that long-term PPAs are not happening. Another source for rising in demand for short term market will the phasing out of old plants which service long term contracts. When these plants will be phased out the unaddressed demand will have to fulfilled using the short-term market. Thus the management expects the market size of the short term to rise to almost 15% in the next 2-3 years.
  33. The management reassures that even if market coupling takes place, given the company manages to defend its market share, its overall volumes will rise drastically which will ultimately be good for IEX.

Analyst’s View

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. It has a very asset-light business model and a strong Balance Sheet. In the last several years it has done well by constantly adding new products and improving offerings for the participants on its platform. With the share of renewable energy rising in total energy consumption, and the launch of the GTAM market, the future of IEX looks very exciting. However, it seems that competition in this sector is also increasing at a rapid pace. It remains to be seen how the whole COVID episode plays out and how will the supreme verdict on the derivatives on power will go. However, the company seems to have the financial muscle to tide over the disruption of COVID and also launch new segments as it goes along. It is still very early days in the power exchange market. However, as of date, IEX looks like a pivotal player in this industry.


 

Q1FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 81 70 15.71% 79 2.53%
PBT 58 55 5.45% 59 -1.69%
PAT 43 40 7.50% 47 -8.51%

 

Consolidated Financials (In Crs)
Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 81 70 15.71% 80 1.25%
PBT 56 55 1.82% 58 -3.45%
PAT 42 40 5.00% 46 -8.70%

 

Detailed Results

    1. On a standalone basis, PAT was up 7.5% YoY while revenue for the quarter was up 16% YoY largely on account of the increase in overall volumes.
    2. Q1 saw an increase of 14.5% YoY in exchange volumes despite overall energy consumption declining 16% YoY.
    3. Exchange power prices were down 26% YoY which yielded significant savings for distribution utilities and Industries.
    4. Consumption started rising towards June which saw rise 28.7% MoM.
    5. The newly launched real-time electricity market commenced on 31st May 2020 and now accounts for 10% of total volumes.
    6. The Indian Gas Exchange commenced operations on June 15, 2020 and traded a total of 9600 MMBTU of gas within the first 15 days of launch.

Investor Conference Call Highlights

  1. Renewable capacity in the domestic space grew 10% YoY while thermal production contracted 23% in the same period.
  2. The company made a contribution of Rs 5 Cr to COVID CARES fund and had a tax liability of Rs 2.6 Cr. Without these non-recurring items, PAT growth would be at 18% YoY.
  3. On July 10th Ministry of Power released an office memorandum that should facilitate the introduction of long-duration power contracts. The longer-duration, delivery-based forward contracts, and derivative contracts are expected to alter the way power is procured in our country because you get a hedge over a long period of time.
  4. The company hopes to launch long-duration power contracts in Q3.
  5. The management is clearly seeing the need for derivative at this stage because the dependence of Discoms in the stock market is increasing.
  6. The company is going to launch the forward market in the IEX platform while it is looking at other options for the pure financial product where the company may need to float a new company to operate it.
  7. The management has stated that derivative volumes are higher than spot volumes everywhere around the world and this should also be the case here.
  8. The company is expecting the market size for the forward & futures combined to be around 20 billion units.
  9. IGX is currently owned 100% by IEX and GAIL has issued an expression of interest to invest 26%. There are also other proposals and inquiries from big gas players in the works currently.
  10. The company wats to maintain a majority shareholding of at least 51% in IGX at the end.
  11. There is indeed a regulation that states that a neutral player should hold 15% at most. The company is reviewing the situation and looking to talk to the regulator regarding this.
  12. The management has maintained a neutral stance on the issue of power coupling which was included as a provision in the draft of PMR 2020.
  13. The management has stated that the transaction margin cannot be changed easily and needs approval from CERC to be changed in any direction.
  14. The long duration derivative contracts will be under SEBI and the company is looking to collaborate with the exchange in India to make this new company to launch energy derivatives. The company will also be formed such that all delivery happens on IEX.
  15. The management has stated that cash-settled electricity futures will also be available and these can also be converted to electricity on the spot.
  16. Currently, the company has a weekly contract as the longest contract. With the launch of the longer duration contracts, the company will be looking to offer monthly, quarterly, and annual contracts.
  17. The intraday market has been cannibalized by the RTM market. Around 80-90% of volumes have shifted.
  18. The REC fee in Q1 was at Rs 4.35 Cr.
  19. TAM volumes accounted for less than 5% of total volumes.
  20. The management expects that every buyer would want to play in the whole basket to figure out what is the optimum procurement program for themselves.
  21. The management has stated that if the 3 functions of the price coupling operator, the exchanges & clearing, and settlement mechanism need to separate, then the company can easily do so.

Analyst’s View

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. It has a very asset-light business model and a strong Balance Sheet. In the last several years it has done well by constantly adding new products and improving offerings for the participants on its platform. With the share of renewable energy rising in total energy consumption, the future of IEX looks very exciting. However, it seems that competition in this sector is also increasing at a rapid pace. It remains to be seen how the whole COVID episode plays out to understand its impact on IEX. However, the company seems to have the financial muscle to tide over the disruption of COVID. It is still very early days in the power exchange market. However, as on the date, IEX looks like a pivotal player in this industry.


Q4 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 79.4 67.8 17.11% 69.4 14.41% 297.2 294.2 1.02
PBT 59.1 53 11.51% 53.3 10.88% 227.8 231.7 -1.68%
PAT 47.2 37.9 24.54% 42.3 11.58% 177.9 165 7.82%
Consolidated Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 79.6 67.8 17.40% 69.4 14.70% 297.4 294.2 1.09%
PBT 57.6 53 8.68% 52.7 9.30% 225.6 231.7 -2.63%
PAT 45.6 37.9 20.32% 41.7 9.35% 175.7 165 6.48%

Detailed Results

    1. On a standalone basis, in Q4 FY’20 PAT at Rs. 47.2 crores was up 25% as compared to Rs. 37.8 crores in Q4’19; revenue for the quarter was up 17% YoY largely on account of the increase in overall volumes.
    2. PAT margin at 59%, was up from 56% a year ago.
    3. Starting Q3’20, the company started consolidating results of its wholly-owned subsidiary Indian Gas Exchange and PAT with that inclusion was Rs. 45.6 crores during the quarter.
    4. For the full-year FY’20, on a standalone basis, the company recorded a 1% increase in revenues, PAT increased by 8% with a PAT margin at 60%.
    5. IEX reported a robust 40% YoY electricity volume growth in Q4 FY’20 from 9,908 MU in Q4 FY’19 to 13,835 MU in FY’20. TAM volumes increased by 89% YoY.
    6. Distribution companies leverage attractive prices on exchange to accrue significant financial savings as well as supply 24*7 uninterrupted power.
    7. All set to launch Real-Time Market on June 1, 2020, and India’s first Gas Exchange soon.
    8. All India’s electricity demand bounced back in Q4 FY’20 with a 1.6% YoY growth after a decline of 5.9% in Q3 FY’20.
    9. From a full-year FY’20 perspective, the power sector was characterized by muted electricity demand growth of 1.3% YoY, due to headwinds on account of several unprecedented developments related to economic and industrial growth slowdown as well as weather-related changes.
    10. India’s total installed power capacity reached 370 GW as on March 31, 2020, with renewable energy comprising 24%.
    11. In line with India’s commitment to the Paris Agreement to increase the share of green energy in the overall energy mix, the renewable capacity grew 12% YoY in fiscal year 2020 and reached 87GW as on March 31, 2020, whereas thermal capacity increased only 2% YoY.
    12. The southern distribution utilities continued their preference for TAM contracts.
    13. On the price front, the day-ahead market saw an overall decline in prices by 14% during Q4 FY’20.
    14. Attractive prices helped the commercial and industrial consumers increase procurement by 41% during the same quarter. Including REC, total volumes increased by 29% YoY.
    15. For the full fiscal year 2020, IEX reported 3.2% YoY growth in electricity volumes. The electricity volumes increased from 52,189BU in FY’19 to 53,862 MU during FY’20.

Investor Conference Call Highlights

  1. Volumes in FY21 YTD till 13th May were up 8.1% YoY. The month of April was a slow start as the lockdown was intense during the month. The Peak electricity demand in April fell by 25%. However, volumes fell only by 6.6%. Peak electricity demand has recovered a bit in the month of May and volumes have gone up 50%.
  2. Real-Time Market (RTM) is about starting from the 1st of June.
  3. Management expects that immediate conversion will happen from deviation settlement and mechanism volume, which is about 20 billion units.
  4. And within a couple of years, a large part of that Deviation Settlement Mechanism (DSM) will get converted into a real-time market.
  5. Since distribution companies have become very price-sensitive so they will use real-time market also for the purpose of optimization. So DSM is not the only thing where management expects volume coming into RTM. There would be some additional volume, which will come from optimization as well.
  6. Transaction charges for RTM look to be the same as in the case of the intraday market.
  7. For LDC, the management has not yet finalized anything as it is still far away.
  8. The company says most of the distribution companies are geared up for the Real-Time Market.
  9. Management says that 80%, 85% of the states are directly dealing with IEX and creating the capacity to participate on the RTM platform immediately.
  10. In power, high demand comes in Q2, particularly in the later part Q2 and early part of Q3, and Q4 demand starts to pick up only in the month of March.
  11. In Q4FY20, On the sales side, there was good participation from distribution companies. Wherever, because of diversity in demand and supply, across the country, there are many states who were surplus during those 3 months.
  12. As distribution companies were selling very aggressively, prices were low. And since the prices were low, there was huge participation coming from open also.
  13. On the buyer side, it is state participation and also open access. The state was limited because there are very few sites where they have good demand in Q4.
  14. Buyers on an average basis, for the last year, it was about 30% from open access and 70% from distribution companies.
  15. The government has been trying to shift the energy mix of gas — increase the adoption of gas in the overall energy mix from a 6 percentage point of today to 15 percentage points over the next couple of years.
  16. The spot market for gas already is about 30% of the total market today. And IGX aspires to be the first couple of percentage points of that market in the first year of operations.
  17. While the company intends to move into derivatives in the electricity side, but not on the gas side.
  18. The benefit of Direct Subsidy Transfer goes directly to the consumer so the management does not see any impact of this on the industrial tariffs.
  19. Maharashtra is the biggest consumer of electricity in the country today, and Gujarat is #3 or #4.
  20. Gujarat is a state where there is absolutely no deficit of power. In fact, as per management, Gujarat was the only state, which declared it as a surplus state about 5, 6 years back.
  21. In Gujarat, you have all the 34 distribution companies that are positive. So they are making money by selling power, which is not the case with most of the distribution companies and states in the country.
  22. Annual fees booked in the quarter was Rs 5.5 Cr.
  23. The company expects the green market launch to happen sometime in Q2. They are awaiting the awaiting amendments from the regulators.
  24. Cross-border is awaiting final regulations from the Ministry of Power. It needs a bit of vetting by the Minister of Commerce as well.

Analyst’s View

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. It has a very asset-light business model and a strong Balance Sheet. In the last several years it has done well by constantly adding new products and improving offerings for the participants on its platform. With the share of renewable energy rising in the total energy consumption, the future of IEX looks very exciting. However, it seems that competition in this sector is also increasing at a rapid pace. It remains to be seen how the whole COVID episode plays out to understand its impact on IEX. However, the company seems to have the financial muscle to tide over the disruption of COVID. It is still very early days in the power exchange market. However, as on the date, IEX looks like a pivotal player in this industry.

 

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