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LKP Securities
Indian Energy Exchange (Buy)
Target: ₹244
CMP: ₹175.80
Indian Energy Exchange is country's leading power exchange with a market share of nearly 95 per cent and 40 per cent of spot and short term market respectively. The IEX offers a transparent pricing mechanism and liquidity to participants on its platform. Increasing traction of short term market with shift of volumes towards the power exchanges and with the launch of new products will aid IEX to garner more market share in the coming years. Also, with the launch of India's first gas exchange, IEX will be at the forefront to lead the gas market in India.
Despite the slowdown in the month of April and May owing to the lockdown, volumes on IEX have grown at 14 per cent YoY. We expect the company to grow at CAGR of around 16 per cent for the next three years (excluding volumes from IGX) capturing a market share of about 47 per cent of the short term market.
IEX is a zero debt company with an efficient cash conversion cycle. The company earns gross margin of 80 per cent resulting in higher operating leverage. IEX earns ROE/ROCE of more than 40 per cent/50 per cent with a dividend payout ratio of 50 per cent. We expect the company to maintain this going forward.
We initiate coverage on IEX with a 'Buy' rating and a DCF based target price of ₹244.
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