IEX Shares Slide Amid Market Coupling Concerns and Earnings Implications

Shares of Indian Energy Exchange Ltd. (IEX) continued their downward trend, falling an additional 3.5% on Wednesday, following a notable decline of nearly 12% on Tuesday. Prior to this, the stock had seen an impressive 33% increase over the last month.

The sharp decline in stock prices was prompted by a report from a government source to CNBC-TV18 on Tuesday, stating that market coupling of power exchanges was imminent. The source, however, did not provide a specific timeline for when the coupling would occur, leading to market uncertainty and subsequent sell-offs.

Market coupling is a system where buy and sell bids from all power exchanges are aggregated to discover a single, uniform price for electricity trading across these platforms. This proposed change has raised concerns about its impact on IEX’s current dominant market position.

A document from the Central Electricity Regulatory Commission (CERC) dated February 2024 highlighted the need for evidence-based results before proceeding with market coupling, suggesting a shadow pilot would run for four months following the development of necessary software by Grid-India.

During IEX’s earnings call for the June quarter, management indicated that simulations had shown no tangible benefits from coupling and acknowledged delays in the development of the necessary software.

Elara Securities analysts have suggested that if market coupling is implemented, IEX may experience a decline in market share from the current 84% to 70% by the financial year 2027. They also anticipate a reduction of 19% to 20% in IEX’s Earnings Per Share (EPS) estimates for the same period.

According to IIFL, market coupling could result in a 25% cut in IEX’s EPS for the financial year 2026, reflecting a negative outlook for the company should coupling proceed as feared.

Brokerage firm Motilal Oswal, while issuing a neutral rating on IEX, highlighted market coupling as a major concern for the stock’s future growth potential, given its significant market share dominance.

Out of the 13 analysts covering IEX, eight have a “buy” rating, two hold a “hold” recommendation, and three have rated it as a “sell.”

On Tuesday, approximately 7.8 million shares, equating to 0.9% of IEX’s total equity, were traded in a significant transaction valued at ₹171 crore, with shares changing hands at an average price of ₹215.

As of now, IEX shares are trading at ₹204.16, down 3.5%. Despite recent declines, the stock remains up by 21% in 2024, buoyed by a strong performance in the month preceding the current downturn. It reached a 52-week high of ₹244.4 on Tuesday morning, prior to the latest corrections.

The stock is currently under a Futures and Options (F&O) ban, preventing the creation of new positions.