IEX share price target at Rs 105! Why Antique sees 10% further downside on stock

Shares of Indian Energy Exchange (IEX) plunged 15 per cent in Friday's trade amid concerns over structural volume growth drivers ahead.  If one were to go by Antique Stock Broking, the stock could see a further 10 per cent downside ahead.

Antique said spot market prices will be higher than bilateral prices, unlike in the past which was favourable for exchanges. It said the possibility of a coupling operator can net the power flow within each zone, posing a new challenge for dominant exchanges like IEX. Besides, it noted that incentives by competitor exchanges such as HPX and PXIL can eat into volume growth of IEX

"With the current market price dissociated to underlying changes, we downgrade IEX to sell," the brokerage said in a note. Antique Stock Broking downgraded the stock on a day it plunged 14.98 per cent to hit a low of Rs 116.05 on BSE.

Antique Stock Broking noted that if exchange rates for electricity (spot rates) are lower than bilateral (like PPA) rates, volume shifts to exchanges, as was the case in Dadri-I with Delhi DISCOMs or Barh with Bihar DISCOM. Backing down charges, DSM, and transmission charges too play a role, to bring additional elements in realistic cost savings, it said.

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"On the contrary, if spot rates are higher, there is more incentive for DISCOMs to chase bilateral contracts. For instance, even CERC’s May 2023 approach paper makes a pitch for extending bilateral contracts for older power plants," it noted.

Further, Antique said, the seasonality for pricing in 96 blocks too has a say, along with treatment of base-load and peak-load management.

"However, the big picture remains: it is indeed during FY11–22 that Indian electricity consumption grew by 5 per cent CAGR. And with favourable spot prices over bilateral, during FY11–22, volume grew 19 per cent CAGR in electricity exchanges. The real question to ponder is: will history repeat itself?," it said.

The role of an exchange in an MBED era, if that ever happens, is unclear, Antique said.

"Coupling regulations, which could be on the cards, will stabilise the market share of exchanges. Spot prices remain higher than bilateral, making the past era of higher volume growth difficult to mimic. All in all, we fail to see big structural volume growth drivers," Antique said.

Another brokerage Nuvama, however, showed faith in IEX and suggested a target of Rs 127 on the stock.  This breokerage said IEX is the most trusted platform for electricity spot price determination in India, which is its business moat. The introduction of a full-fledged market coupler, however, implies an independent third-party will collate all buy/sell bids and derive a uniform market price across all exchanges.

"This potentially negates IEX’s ‘moat’, as other exchanges can eat into its market share over time. We reiterate our ‘REDUCE’ rating on the stock with a TP of Rs 127," it said.

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