Indian Energy Exchange (NS:IIAN) (IEX) had a robust first quarter in FY25, showcasing impressive volume growth and favorable market conditions. The company is on track for over 25% volume growth in July, driven by abundant domestic coal availability and renewable plants leveraging power sales. However, regulatory uncertainties loom over the next 3-6 months, particularly with the shadow coupling results expected from the regulator.
Positive Highlights
1. Volume Growth: IEX reported a 21% year-on-year (YoY) and 0.5% quarter-on-quarter (QoQ) increase in volumes for Q1FY25. The Day-Ahead Market (DAM) volume rose 7% YoY (though it declined 11% QoQ), while the Real-Time Market (RTM) surged 27% YoY and 22% QoQ. The green market also saw a 28% YoY increase.
July 2024 saw DAM volumes up 27% YoY and RTM volumes up 31% YoY, trends expected to continue due to improved coal availability and the accelerated commissioning of renewable plants.
2. Improved Coal Availability: At the end of June 2024, plants and mines had approximately 120 million tonnes of coal in stock, a significant improvement compared to previous years. E-auction volumes remained high, ranging from 11 to 13 million tonnes in April and May 2024. This better coal availability is crucial for sustaining the positive volume trends observed at IEX.
Potential Risks and Negative Catalysts
1. Regulatory Uncertainty: The regulatory landscape presents potential challenges for IEX. The shadow coupling process has begun, and while management remains optimistic about it not proceeding, the outcome is still uncertain. Another regulatory concern is the possible discussion on transaction charges, which has yet to be updated.
2. Renewable Energy Certificates (REC (NS:RECM)): REC volumes grew 50% YoY, accounting for 4% of IEX’s Q1FY25 volumes. Despite this positive development, the transaction charges remain a point of contention. Currently, the exchange charges Rs. 0.13 per unit, which implies that approximately 30% of the product's price is paid as a transaction charge. There is a risk that these charges could drop below the 4 paisa ceiling due to competition among exchanges or the bilateral market.
The company has benefitted from improved coal availability and the growth of renewable energy sources, driving significant volume increases. However, regulatory uncertainties, particularly around shadow coupling and transaction charges, pose potential risks.
Investors also need to note the fair value of the stock which is INR 154 which can be seen in InvestingPro. This makes the stock overvalued with a downside potential of 21.1%, from the CMP of INR 195.3. Hence, even with strong results, InvestingPro users stay ahead of the game with accurate valuations
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