Brokerages roll out a cautious growth outlook for IEX; shares flat

In recent times, the company’s shares have been facing persistent downward pressure, primarily due to the Central Electricity Regulatory Commission’s intention to introduce market coupling.

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Shares of Indian Energy Exchange opened flat in early trade on July 31 after brokerages charted out a cautious growth trajectory for the company post its Q1 results.

Despite posting a 9.6 percent-on-year rise in its net profit for the April-June quarter at 75.8 crore, the company’s operational performance remained weak.  EBITDA margins for the power trading company slipped to 78.6 percent from 82.1 percent recorded in the year-ago period.

At 9.23 am, shares of Indian Energy Exchange were trading at Rs 1,23.05 on the National Stock Exchange, up 0.3 percent from the previous close.

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In recent times, the company’s shares have been facing persistent downward pressure, primarily due to the Central Electricity Regulatory Commission’s intention to introduce market coupling. The Ministry of Power (MoP) has reportedly requested the CERC to implement a market coupling process for various electricity exchanges. The main objective behind this move is to establish uniformity in prices across the exchanges.

Consequently, shares of IEX are down nearly 14 percent year-to-date and around 12 percent in the past six months.

Brokerages also factored in the probable change in policy and IEX’s weak operating numbers to paint a bleak growth outlook for the company, which further weighed on the sentiment.

Bernstein highlighted that IEX’s Q1 earnings came below the firm’s estimate and sees few positives but a lot more negatives awaiting on the regulatory front. Moreover, the foreign brokerage also anticipates long-term supply to remain a challenge for IEX as new renewable plants continue to come with PPAs (Power Purchase Agreements). On that account, Bernstein has an ‘underperform’ call on IEX with a price target of Rs 95.

Jefferies also expects the second half of the current fiscal to be impacted for IEX on account of regulatory changes. The firm also believes that IEX faces the risk of moving to a competitive market due to regulatory changes as against its current monopolistic standing. Consequently, the brokerage cut its price target for IEX to Rs 105 but retained its ‘underperform’ rating on the stock.

Nuvama Institutional Equities also reiterated that with the MoP’s directive to introduce market coupling, IEX may lose it’s business ‘moat’ as the best platform for price discovery. “This implies that IEX may potentially concede market share to other exchanges over time,” the firm explained in its report. Factoring that, Nuvama retained its ‘reduce’ rating on IEX but cut its target price for the stock by over 13 percent to Rs 110.

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