Basant Maheshwari, a market veteran, has expressed concerns about the business model of Indian Energy Exchange (IEX) and its potential impact on the company’s stock performance. He pointed out that the Ministry of Power’s decision to implement market coupling could undermine IEX’s dominance, which he referred to as “puncturing its business model.” Market coupling refers to the integration of multiple electricity markets, potentially reducing the influence of a single exchange like IEX.
Maheshwari highlighted that the recent decline in IEX’s stock price and valuation metrics, such as price-to-earnings ratio, market cap-to-sales, and EV/Ebitda, may seem attractive to some investors. However, he cautioned against using these numbers as a pacifier, stating that when a business faces a permanent problem like this, it can take months or even years for the stock to recover. Based on this assessment, he suggested that IEX’s stock is likely to underperform significantly in the future.
Maheshwari emphasized that his statements are not advice to buy or sell the stock, and he encouraged investors to consult their financial advisors before making any investment decisions. He also advised minority investors to evaluate whether the business model and prospects of the company remain the same. If the answer is no, he suggested considering moving on from the investment.
Additionally, Antique Stock Broking, in a separate analysis, noted that IEX shares have been experiencing a bearish trend, with a 21% decline in the past month and a 30% decline over the last year. The brokerage firm also mentioned that competitor exchanges and potential coupling regulations could affect IEX’s volume growth.
Antique further explained that if spot rates for electricity are lower than bilateral rates (like power purchase agreements), volume shifts to exchanges. However, if spot rates are higher, there is more incentive for power distribution companies (DISCOMs) to pursue bilateral contracts. They highlighted that the market coupling and spot prices remaining higher than bilateral rates could make it difficult for IEX to replicate the higher volume growth seen in the past.
In summary, Basant Maheshwari and Antique Stock Broking have expressed concerns about IEX’s business model and its potential impact on the company’s stock performance. They believe that recent developments and market dynamics could significantly affect IEX’s market share and volume growth, leading to underperformance in the stock.