Ahead of its Q2FY22 earnings results, the Indian Energy Exchange Limited (IEX) share hit a 52-week high on exchanges, going up almost 20 per cent on the intraday basis on Tuesday. The stock touched an intraday high of Rs 956.15 on the BSE. It was trading at Rs 924 around 1:10 pm, which was higher by Rs 127 or almost 16 per cent from the Monday closing price.  

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If you are an existing investor or planning to make fresh position in IEX, this is what you must consider from the fundamental and technical standpoint. 

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The stock is seeing strong upward movement on the news around the board meeting on 21 October to take a view on the bonus issue proposal. This issuance of bonus shares was on the cards, Vice President at ElaraCapital said. It will also be announcing its quarterly results on this day. 

In terms of fundamentals, Sankhe said that the company is into a monopoly business with exchange volumes going up by 60-65 per cent in the last quarter. All the discoms (distribution companies) are now buying on the exchanges owing to a better price discovery.  

Another major trigger for the share is the pending dispute over long term contracts getting settled in the Supreme Court. The apex court has allowed a delivery-based buying on the exchange under the CERC (Central Electricity Regulatory Commission) regulation. The financial products will be regulated by Securities and Exchange Board of India (SEBI), the VP said.  This means that electricity can now be traded like other commodities with forward contracts and derivatives on exchanges. This will pave way for the introduction of longer duration delivery- based contracts on IEX. These products could be 1-month, 3-month, 6-month or 1-year, he said. 

Currently, it is up to 11-days market, Sankhe said. It will be a medium term volume driver on the exchange, he further said. 

The gas exchange volumes have also seen a lot of traction. A lot of green energy market will also come on the exchange, going forward, he said. 

The brokerage firm sees a 49 per cent year-on-year (YoY) jump in its net sales at Rs 106 cr for the quarter ended 30 September. Recurring net profit is seen at Rs 67 cr, up over 51 per cent YoY. 

Should you buy/sell/hold the stock? 

IEX shares are trading above their 5-day, 20-day, 50-day, 100-day and 200-day moving averages.  The stock has outperformed the index by over 300 per cent with regards to 1-year returns. Over a week period, IEX is up over 16 per cent versus Sensex which has risen 3.2 per cent. 

Sankhe said that FY22 forward earnings have already priced in and the market is now looking beyond 5 years and if the volumes could be sustained. The stock is overbought and is trading at a PE multiple of 70-75 based on FY23 estimates, he said. Investors are unwilling to sell it because of its monopoly in this business with 97 per cent market share. 

Since there is no capex required, ROC/ROE will be significantly higher. That has led to stock trading at higher multiple. 

His advice to investors is to note enter at current levels. They must wait till the bonus issue is announced, he said expecting some profit booking in this stock.  

Technical View – Nilesh Jain, Assistant Vice President (AVP), Equity Research Technical and Derivatives at Centrum Broking 

Technical Analyst Nilesh Jain said that the risk-to-reward ratio was favourable at Rs 800 to make a fresh entry in this stock, suggesting an avoid at current levels. The existing investors must hold this stock for a price target of Rs 1000 and a stop loss of Rs 850. 

(Disclaimer: The views/suggestions/advises expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)