IEX share price target: Q4 results below estimates, 20% downside likely, says Nuvama

Indian Energy Exchange Ltd (IEX) Q4 results were a miss on revenue, Ebitda and profit after tax, with Ebitda margin falling on higher other operating expenses. Nuvama said it finds limited upside potential for the power trading platform despite factoring in a 17 per cent volume growth over FY24–26E against 13 per cent in FY24, and long-term growth of 14–15 per cent. 

With March 2024 volume growth reviving (15 per cent YoY), the management expects 15–20 per cent YoY volume growth for full-year FY25 (driven by a rise in electricity demand estimated at 7.7 per cent YoY in FY25E). 

"We factor in 17 per cent volume CAGR for FY24–26E and 14–15 per cent over the long term and yet find limited upside potential in our DCF-based target price of Rs 119 (CMP factors over 35 per cent growth: Exhibit 7). Furthermore, in case of a shift to market coupling IEX can lose its ‘business moat’ (considered the best platform for price discovery), hurting its medium-term volume growth as competition creeps in," Nuvama said. 

On Thursday, the stock closed at Rs 148.05 on BSE. Nuvama's target price suggests a 19.62 per cent potential downside over this price.  The company said its its March quarter profit grew 9.5 per cent year-on-year (YoY) to Rs 96.70 crore on 15.2 per cent YoY rise in sales at Rs 149.30 crore. The IEX board announced a final dividend of Rs 1.50 for FY24.

Nuvama said while FY24 spot (DAM) prices fell 18 per cent YoY, the average price in FY24 at Rs 5.2 per kWh is still 61 per cent higher than pre-Covid average of Rs 3.22 per kWh (FY15–19) given rising power demand-supply gap. 

IEX’s overall volumes grew 15 per cent YoY in Q4. However, DAM volumes (49 per cent of FY24 revenues) grew only 4 per cent YoY, even as volumes shifted back from DAC to DAM (GNA regulation implemented from October 2023) led by discoms shifting power purchase to cheaper bilateral/longer duration contracts, amid high exchanges prices driven by peak power deficits. 

"IEX’s volume growth is inversely related to exchange prices. Other products such as RTM fared well in Q4 (up 27 per cent YoY) with high growth in TAM (longer duration contracts – 14 per cent of FY24 sales). IGX (gas exchange) volumes fell 57 per cent YoY to 8.7mmbtu, due to large demand/supply variations for gas," it said.

Nuvama said IEX revenue missed its estimate by 11 per cent, Ebitda by 14 per cent and profit after tax by 4 per cent. Revenue growth in Q4FY24/FY24 t (13 per cent/ 12 per cent) was in line with volume growth at 15 per cent/13 per cent YoY . 

"Q4 EBITDA margin fell 92 bps YoY to 85.2 per cent due to higher other operating expense (up 31 per cent YoY) while Q4 PAT grew 9.5 per cent YoY below overall volume growth on lower share of IGX in profits (down 62 per cent YoY). Still, macro headwinds from power deficit led volume shift to LT PPAs, and “market coupling” (await CERC decision) risk imply IEX needs to reinvent its products. We find limited upside despite factoring in 17 per cent volume growth in FY24–26E (13 per cent in FY24), and long-term growth of 14–15 per cent. Retain ‘REDUCE’ ‘with DCF-based target price of Rs 119.