IEX faces headwinds from spot prices and competition, Antique says sell

 IEX loses its spark, Antique cuts target price by 25%

IEX share price today: The stock of Indian Energy Exchange (IEX) plunged 15 per cent on Friday amid concerns over structural volume growth drivers ahead. The stock hit a low of Rs 116.05 on BSE, its lowest level since July 2020.

According to Antique Stock Broking, the stock could see a further 10 per cent downside ahead as it downgraded the stock to 'sell' from 'hold' and cut its target price to Rs 105 from Rs 140.

The brokerage said that spot market prices will be higher than bilateral prices, unlike in the past which was favourable for exchanges. It also said that the possibility of a coupling operator can net the power flow within each zone, posing a new challenge for dominant exchanges like IEX.

"Spot prices remain higher than bilateral, making the past era of higher volume growth difficult to mimic," Antique said in a note.

The brokerage also 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," it said.

IEX is India's largest energy exchange platform that facilitates trading of electricity and renewable energy certificates. It has a market share of over 90 per cent in the short-term electricity market.

The company reported a 7 per cent decline in its consolidated net profit at Rs 71.20 crore for the quarter ended September 30, 2021. Its total income also fell to Rs 113.77 crore from Rs 122.30 crore in the same period a year ago.

The company said that its electricity volumes grew by 3 per cent year-on-year to 19,929 million units (MU) in Q2FY22. However, its renewable energy certificate (REC) volumes declined by 97 per cent year-on-year to 0.06 MU due to regulatory uncertainty.

The company also said that it has incorporated a subsidiary named International Carbon Exchange Private Limited (ICX) to explore business opportunities in the voluntary carbon market.

The company's management said that it expects volume growth to pick up in the second half of FY22 due to seasonal factors and easing of Covid-19 restrictions. It also said that it is confident of maintaining its market leadership position and expanding its product portfolio.

However, some analysts are sceptical about the growth prospects of IEX in the near term.

"We believe that IEX's near-term growth outlook remains challenging due to high spot prices, regulatory uncertainty and competition from other exchanges," said Motilal Oswal Financial Services in a note.

The brokerage has a 'neutral' rating on the stock with a target price of Rs 130.

"We remain positive on IEX's long-term growth potential given its strong network effect, diversified product mix and favourable industry dynamics. However, we await clarity on regulatory developments and volume recovery before turning constructive on the stock," it added.