Indian Energy Exchange: Defensible Moat, Superior Business Economics

Vinod Moras of Kiara Advisors presented his in-depth investment thesis on Indian Energy Exchange (India: IEX) at Asian Investing Summit 2020.

Thesis summary:

Indian Energy Exchange is India’s largest energy exchange with 97% market share but still a small fish in a large pond as it trades ~4% of India’s energy consumed. Power consumption is a structural growth theme in India due to the low per-capita consumption. On top of this, the industry dynamics are driving both the power supply and demand from the long-term to the short-term market, benefiting the energy exchanges.

IEX has been taking market share from other products in the short-term market as the company is providing real solutions to industry problems. Since launching eleven years ago, IEX has established itself as a dominant exchange and built a wide moat due to a high-quality management team, wide network of buyers and sellers, technological edge, and product innovation. Business economics are attractive, with low operating cost, fixed cost, and maintenance capex resulting in strong FCF and ROICs of 40+%.

The market quotation is attractive, with the shares trading at ~20x trailing earnings, despite long-term double-digit growth visibility. The company also has new products in the pipeline, where the potential opportunity is large, which offers option value.

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About the instructor:

Vinod Moras is a value investor focused on Asian equity markets scouting for undervalued companies with high quality business models, strong moats and top quality management teams. He is currently a senior investment analyst at KIARA Advisors, an Asia focused long/short equity fund, covering India and Southeast Asia markets. In his prior role, Vinod served as a senior investment analyst at APS Asset Management, a $3bn Asian hedge fund investing in long/short equities focused on the Chinese internet sector and India. Vinod is a member of the Value Investors Club (VIC) since 2010. Vinod holds a Master’s degree in Finance from New York University, Polytechnic Institute.