IEX shares: Bernstein upgrades stock to 'Market-Perform', cuts target price; here's why

Bernstein upgraded Indian Energy Exchange Ltd (IEX) shares to 'Market-Perform' from 'Underperform', while lowering its price target to Rs 110 from Rs 115 earlier.

The global brokerage said the timeline for market coupling has been pushed out by about a year, reducing the near-term risk from the regulatory change.

Bernstein now expects coupling by the end of FY28. It also said that, particularly for real-time markets, reducing the RTM window could be difficult considering plans to reduce it further.

"We initiated on IEX nearly 5 years back with a simple thesis - the transaction charge is unsustainable - It will come down either due to competition or due to regulation," Bernstein said.

The brokerage added that its thesis remains unchanged that market coupling is inevitable, and transaction charges are likely to soften. However, it believes the stock is fairly priced for its base-case outcome.

Bernstein said medium- to long-term volumes could benefit from the government's move towards more market-based power products.

It pointed to the formalisation of virtual power purchase agreements (PPAs) and the ongoing tender for the first contract-for-difference renewable projects, which it said should drive exchange volumes over the medium to long term.

In the near term, however, the brokerage expects volume growth to remain soft. It said the biggest constraint for IEX volume growth is supply rather than demand, with strong power demand being offset by factors such as weak hydropower generation and coal shortages.

Bernstein said transaction charges remain a significant potential negative catalyst for IEX. It noted that the Central Electricity Regulatory Commission (CERC) had highlighted in a 2023 discussion paper that transaction charges should be benchmarked against global levels and the risks involved in the business.

However, the brokerage believes the near-term risk is low, as the regulator is likely to wait for market coupling to be implemented before taking a call on transaction charges.