IEX share price at Rs 110? Nuvama cuts energy exchange's target post Q1 results miss

Nuvama Institutional Equities has cut share price target for Indian Energy Exchange Ltd (IEX) to Rs 110 from Rs 127 earlier while suggesting a 'Reduce' rating on the energy exchange, citing a 5-11 per cent miss on top and bottom line fronts in the June quarter. Key variables to watch out for over next 18–24 months includes the implementation of market coupling and its resultant impact on market share, high power price-driven shift in power volumes away from spot market to longer duration instruments and rising competition, the brokerage said.

Nuvama said IEX missed Q1FY24 consensus revenue by 5 per cent, Ebitda by 7 per cent and profit forecast by 11 per cent on lower volume growth and higher other expenses. Exchange volumes in the June quarter grew 6 per cent YoY only, due to rising power price-led volume shift to longer-term contracts (where IEX has lower market share). Day-Ahead-Market or DAM (spot) volumes grew 11 per cent YoY even as spot prices fell 34 per cent, the brokerage said.

"With the MoP directive – to introduce market coupling – IEX may lose it’s business ‘moat’ (best platform for price discovery). This implies that IEX may potentially concede market share to other exchanges over time," the brokerage said.

IEX is the first and largest energy exchange in India providing a nationwide, automated trading platform for physical delivery of electricity, Renewable Energy Certificates and Energy Saving Certificates. A total of 6,600 participants are registered on IEX from 29 states and five union territories. Out of participants registered to trade electricity contacts

include 56 distribution companies, over 500 electricity generators and over 4,200 open access consumers. The DAM constitutes majority of the energy contracts that are traded on IEX.

Nuvama said while Q1 spot (DAM) prices fell 34 per cent YoY, the average prices in FY24 at Rs 5 per kWh are still 55 per cent higher than pre-covid average of Rs 3.22 per kWh (FY15-19), given rising demand-supply gap.

This implies an end of the ‘low power price era’, evident in weak IEX volume growth (5 per cent YoY fall in FY23/Q1FY24 growth of only 6 per cent).

With July volume growth reviving (up 22 per cent YoY), the management expects 15 per cent YoY volume growth for full year FY24.

"We factor in 15 per cent/19 per cent volume for FY24E/FY25E, with 16 per cent growth from FY26 and yet find limited upside in our DCF-based target of Rs 110. With rising risk to volume growth, we trim our EPS by 3 per cent/8 per cent for FY24E/25E," Nuvama said.

The IEX management cites continued anomaly of 2 times transmission charges in DAM versus DAC affecting volumes – may correct with GNA implementation, which is expected October.

"While LDC (long duration contracts up to 90 days) has been launched, volumes are yet to pick up given higher prices," Nuvama said.

IEX recently launched IEX power price index –‘PowerX’ – India first Electricity price index, which aims to provide

competitive benchmark signals and enable more effective and informed decision-making for industry stakeholders.

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