IEX stocks continue to fall for second day on consolidation fears and earnings impact

Shares of Indian Energy Exchange Ltd (IEX) fell 3.5% on Wednesday, after falling nearly 12% on Tuesday. Prior to this two-day decline, the stock had gained 33% in the last one month.

On Tuesday, a government source told CNBC-TV18 that the power exchanges are going to be merged into the market and it will happen eventually. However, the official refused to say when the merger will happen into the market. This led to a sharp decline in the stock on Tuesday.

Market coupling is a model in which buy and sell bids from all power exchanges will be aggregated and matched to arrive at a uniform price, which means there will be only one price for power traded at any point through these exchanges.

The February 2024 CERC document said more evidence-based results are needed before the implementation of market coupling, and added that a shadow pilot would be implemented for four months after the development of the required software at Grid-India.

During its June quarter earnings call, IEX management revealed that simulations have shown no benefit from the pairing and the software is still in development and facing delays.

Analysts at Elara Securities said if market coupling is implemented, IEX's market share could decline from the current 84% to 70% by FY27.

The brokerage has also expected a 19% to 20% cut in IEX's earnings per share (EPS) estimates for FY27.

According to IIFL, the market coupling for IEX is negative, which believes that if this happens, the company's FY26 EPS will be cut by 25%.

The effect of market coupling has been seen on IEX for some time now. Brokerage firm Motilal Oswal also said the same on Tuesday when it initiated coverage on the stock with a neutral rating and forecast a decline in the stock from Monday's closing level.

Motilal Oswal believes that the possible implementation of market coupling is a significant drag on the stock and could weaken its growth prospects going forward given its dominant market share.

Of the 13 analysts covering IEX, eight have given a “buy” rating to the stock, two have a “hold” recommendation, while three have a “sell” rating.

Earlier on Tuesday, 78 lakh shares of IEX or 0.9% of total equity changed hands in a big deal worth ₹171 crore. The average price of the shares was ₹215 per share.

IEX shares are currently trading 3.5% lower at ₹204.16. Prior to today's decline, the stock has gained 21% so far in 2024 thanks to the surge seen in the last one month. On Tuesday morning, the stock had hit a 52-week high of ₹244.4 before correcting.

This stock is currently under F&O restriction, which means no new positions can be created in the stock.

(With inputs from Vivek Iyer and Abhimanyu Sharma)