Indian Energy Exchange IPO (IEX IPO) opens today for subscription as the first IPO by a power exchange in India. While investors are understandably excited about the IPO, it appears analysts and brokerage houses are divided over valuation concerns. While Indian Energy Exchange IPO recommendations are mostly positive, analysts have pointed out that the price band reflects a huge jump in valuations. Here is a snapshot of Indian Energy Exchange IPO recommendations.
Choice Broking has advised investors to “Subscribe with Caution” in the IPO considering robust fundamental, dominant market position, consistent financial performance and dividend payout. The research house also highlighted that the demanded P/E valuation of 44.1x is at a huge premium to the recently concluded deals in which Reliance Infrastructure and PTC India exited the company at a maximum valuation of INR2,650 crore. Through the IPO, the company is asking for a valuation of INR5,004 crore.
In its research report, Centrum acknowledged that Indian Energy Exchange is the leading power exchange in India but went on to state that it is fully valued. “At the higher end of the price band of ₹1,650, the issue is priced at P/E of 44.1x (post dilution) 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%. IEX has a near monopoly (combined market share of 94.8% in FY17) 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. Hence, we believe that despite fair valuations, the listing may still be at a premium to the offer price,” noted the brokerage house without assigning rating to the IPO.
Prabhudas Lilladher is among the brokerage houses having positive Indian Energy Exchange IPO recommendations. “We believe energy trading is at a nascent stage in India with only 3% market volume traded through exchange against ~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. At the upper end of the issue price, the post money market cap works out to be ~Rs50bn and will trade at 44xFY17 earnings. We recommend “Subscribe” with a medium/long‐term perspective,” said
Angel Broking has a positive rating on the IPO. “IEX is likely to continue its current growth trajectory as the short-term electricity market would continue its migration away from other platforms and to the exchanges. The company is also likely to sustain its position as the dominant market player. The company is also likely to benefit from long-term industry trends as the Indian power market moves towards global standards. The company has an ROE of 30.8% Vs 7.4% for Multicommodity Exchange (MCX), based on FY18 annualized earnings. At the upper end of the price band, the pre issue P/E multiples works out be 40.9x of FY2018 annualized EPS or IEX,Vs 51.5x of FY2018 annualized EPS for MCX. We recommend ‘SUBSCRIBE’ on the issue for a mid-to-long term period,” said its research note on the IPO.
While analysts are divided over valuations, everyone is optimistic about the long-term prospects of the exchange in Indian Energy Exchange IPO recommendations. To get an idea how bullish are fellow readers, head to our discussion page for Indian Energy Exchange IPO.