- Electricity volumes jumped 11.7% YoY, beating most peers.
- REC volumes fell 30%, creating a margin‑compression tail risk.
- Standalone PAT beat estimates by 5% thanks to non‑operating income.
- Motilal Oswal values IEX at 25x Dec’27E EPS, implying a target of INR 142.
- Valuation sits below the long‑term sector average, suggesting upside.
You missed the quiet surge in IEX's electricity trade – and that could cost you.
Why IEX's Volume Surge Beats the Sector Trend
The Indian Energy Exchange reported 34.1 billion units (BUs) traded in Q3 FY26, an 11.7% year‑on‑year rise that matched consensus but outpaced the broader power‑trading market, which grew roughly 6% in the same period. This divergence stems from IEX’s robust platform upgrades, tighter integration with renewable generators, and a growing appetite among industrial consumers for spot‑market hedging. Higher volumes translate directly into transaction‑fee revenue, a key driver of the company’s EBITDA, which held steady at INR 1.2 billion.
Impact of REC Decline on IEX's Bottom Line and What It Means for You
While electricity volumes surged, Renewable Energy Certificate (REC) volumes slid 30% YoY. RECs are tradable credits that certify renewable generation; a fall can erode ancillary fee income and signal slower renewable‑capacity onboarding. However, IEX’s management argues the dip is temporary, linked to a policy‑timing mismatch rather than a structural weakness. For investors, the REC contraction raises a caution flag: if policy incentives stall, the fee‑mix could shift toward lower‑margin electricity trades, pressuring future PAT growth.
Comparative Landscape: Tata Power, Adani Power, and Power Grid vs IEX
Traditional generators such as Tata Power and Adani Power continue to rely on long‑term PPAs, limiting their exposure to spot‑market volatility. Power Grid Corp., by contrast, operates the transmission backbone and benefits from regulated tariffs. IEX’s pure‑play exchange model gives it a unique upside‑leverage: every BU moved on the platform adds a marginal fee with minimal capital outlay. The peer‑group analysis shows IEX’s EBITDA margin (≈86%) vastly exceeds Tata Power’s (≈35%) and Adani’s (≈30%), underscoring the scalability advantage of a marketplace business.
Historical Earnings Patterns: What 2022‑24 Teach Us About IEX's Trajectory
Looking back, IEX’s FY22‑24 earnings displayed a classic “volume‑driven” growth curve. In FY22, volumes grew 8%, PAT rose 4%; FY23 saw a 12% volume jump and a 9% PAT increase; FY24’s 15% volume surge delivered a 12% PAT lift. Each step was accompanied by incremental fee‑rate tweaks and modest cost‑structure improvements. The pattern suggests that as the Indian electricity market liberalizes further, IEX can continue to capture incremental trade flow without proportionate cost escalation, reinforcing the high‑margin profile.
Valuation Deep‑Dive: 25x Dec’27E EPS Explained
Motilal Oswal’s target price of INR 142 assumes a forward‑looking EPS of INR 5.7 for December 2027, multiplied by a 25× price‑to‑earnings (P/E) multiple. The 25× multiple is modest relative to the sector’s long‑term average of 28×, reflecting a slight discount for the current REC headwind but also acknowledging the upside from sustained volume growth. At the current market price of roughly INR 115, the implied upside is about 23%.
Key valuation drivers:
- Projected volume CAGR of 10% through FY27, driven by policy‑backed renewable integration.
- Stable fee‑rate environment with potential incremental hikes tied to market‑depth improvements.
- Low capital intensity: cash conversion cycles are short, and free cash flow conversion remains above 80%.
Investor Playbook: Bull and Bear Cases for IEX
Bull Case
- Continued volume acceleration (>10% YoY) fuels fee revenue growth.
- Regulatory reforms (e.g., open access expansion) broaden the addressable market.
- REC policy stabilization restores ancillary fee streams.
- Valuation discount to sector peers provides a margin of safety.
Bear Case
- Prolonged REC volume slump reduces high‑margin ancillary income.
- Policy uncertainty around renewable subsidies could dampen new entrant participation.
- Competitive pressure from emerging regional exchanges erodes market share.
- Higher‑than‑expected cost inflation (staffing, technology upgrades) compresses EBITDA margin.
Bottom line: If you believe the Indian power market will keep liberalizing and IEX can capture the bulk of the trade flow, the current price offers a compelling entry point. Conversely, if you view the REC dip as a symptom of deeper policy risk, a cautious stance may be prudent.