IEX IPO - Information Analysis

IEX runs India's largest energy exchange based on traded volumes. It operates a marketplace for electricity trading bringing together electricity producers and buyers such as discoms and factories. It helps these buyers meet their short term electricity requirements.It accounted for 95% of the short term electricity contracts (contracts less than 1 year) traded over exchanges in India in FY 17. The short term electricity market however is only 10% of the overall generation capacity of the country giving it plenty of room to grow. IEX was promoted by Financial Technologies India Limited. However, due to regulatory breaches, the promoters stake was divested converting it to a professionally run company with diverse ownership. Advantages IEX started its business in 2008 and has the first mover advantage. It has acquired a large number of trading members who actively use its platform. Both revenue and net income have grown at a robust 28% CAGR over the last 5 years. The company has an average profit margin of an astonishing 51% for the last five years. Most of its profits have been transferred to shareholders as dividends with an average dividend payout ratio (what portion of earnings are paid out as dividends) of 96% over the past three years. The UDAY scheme compels discoms to be more efficient in their operations, pushing them towards electricity exchanges such as IEX rather than inefficient bilateral contracts. Globally, 50% of electricity generated is traded through power exchanges. This is only 3% in India indicating a large expansion opportunity. Disadvantages The company operates in a highly regulated industry with the Central Electricity Regulatory Commission (CERC) exercising tight control. Business expansion is subject to regulatory approvals to a substantial extent. Demand is also uncertain with cycles such as the current one seeing excess generation and poor electricity demand.The company relies on government entities such as the National Load Distribution company (NLDC) and the Power Grid Corporation of India (PGCIL) for successful execution of transactions entered through its platform. These companies ca