Indian Energy Exchange Rating: Buy- Momentum in volumes continued in December

Rolling ahead to 30x Dec’22e EPS, we preserve our Buy score with a TP of Rs 255/share.

Electricity volumes on Indian Energy Exchange (IEX) jumped 49% y-o-y to 7BUs in Dec’20, led by: (i) continued development (up 29% y-o-y) in day-ahead market (DAM) volumes, and (ii) sturdy volumes for the lately launched RTM. In Q3FY21, electrical energy volumes grew 61% y-o-y to ~20BU. Based on preliminary information from POSOCO and energy ministry, energy demand for the quarter is estimated to have risen 6.5% y-o-y, with a era of 337BUs. This implies a 5.9% market share for IEX for the quarter (v/s a 4% share in FY20).

While an uptick in service provider costs (as demand improves) and the massive base of Q4FY20 must be watched, we conservatively revise our FY21e electrical energy quantity/EPS estimates by 10%/8% given its sturdy efficiency. Rolling ahead to 30x Dec’22e EPS, we preserve our Buy score with a TP of Rs 255/share.

New merchandise faring properly: The launch of recent merchandise such because the Real-Time Market (RTM) and Green Term Ahead Market (G-TAM) has additionally offered a fillip. RTM crossed over 1BU in Dec’20 and contributed ~14% of IEX’s electrical energy volumes in Q3FY21. Total, TAM (incl. G-TAM) + RTM now contribute 20% of its volumes.

Await resumption of REC buying and selling, launch of LDCs: Trading for RECs continues to be suspended since Jul’20. While we count on buying and selling in RECs/LDCs to finally resume/launch, we don’t construct in incremental volumes from the identical for the rest of FY21.

Market share good points to drive quantity/PAT CAGR of 16/18% over FY21-23e: Long time period potential for IEX stays enormous given the nascent market share for exchanges in India’s energy era. With new product launches, steady oversupply in the market, and IEX’s aggressive positioning, we count on volumes/PAT to extend at 16%/18% CAGR over FY21-23e. Given the sturdy development and excessive return profile (RoEs of ~45%), the inventory trades attractively at 25x FY23e EPS. Maintain Buy .

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