Indian Energy Exchange, or the IEX share price soared nearly 6% intra-day after JM Financial initiated coverage on the stock with a buy rating and a target price of Rs 231 per share. This implies 14% upside based on 35x PE estimates for FY27.
With rising power demand and an increasing share of exchange-based transactions in the total electricity market, JM Financial expects the volume traded through the exchange to grow at 13% between FY25-FY28, on a compounded basis. The estimated surge in exchange-based volume is likely to drive profits and revenue for IEX by 16% and 14%, respectively, over the same period.
JM Financial on IEX: Power market poised for growth
The short-term power market, which is 7% of total generation, is growing at 18% Vs demand growth of 5-6%. According to JM Financial, “this is poised for significant growth driven by burgeoning power demand, increasing share of variable RE and new market instruments like virtual PPAs.” However, power demand uncertainty due to changing weather and the inherent variability of renewable energy is leading “RE-rich states to increasingly rely on short-term power purchases.”
According to JM Financial, this can be good news for IEX, “with 84% market share, it has consistently adapted to market dynamics by consistently introducing new products, providing a superior technology platform, and expanding its participants’ base.”
JM Financial on IEX: Regulators to address price discrepancies
The Regulators (e.g. CERC) have been “exploring the implementation of market coupling to centralise scheduling and dispatch of power. The aim is to optimise resource allocation and reduce costs to address perceptible price discrepancies due to IEX’s 84% market share.
According to JM Financial, the risk-reward is not in favour of nationwide implementation of market coupling in the near future. This indirectly may work in favour of IEX.
Indian Energy Exchange: Business model
The Indian Energy Exchange is an electricity trading platform. The other key offerings include RE certificates and energy-saving certificates. IEX, with 84% market share and a base of 7,900+ participants, has maintained its leadership. New products and superior technology platform continue to be the key factors helping the evolving dynamics.
In FY24, IEX crossed 100BU mark for the first time since inception and has issued nearly 8.4 million certificates. It recorded a monthly electricity traded volume of 10,946 MU, +14% YoY in May. Real-Time Market (RTM) clocked its highest-ever monthly volume, +42% YoY.