IEX, for a second consecutive year, is likely to report >30% year-on-year (YoY) growth in power volumes, thereby increasing its market-share from 3.9% in FY20 to 6.3% in FY22, believes brokerage house IIFL in a note.
“The improving ST power market and low visibility on MBED implementation augur well for IEX’ earnings growth. We cut FY22ii EPS by 5%, given lower than expected REC/ESCert volumes, and estimate Cagr of 20% over FY22-24,” the note stated.
The stock fairly prices-in near-term earnings and is likely to consolidate at current levels, however, given the long-term growth potential, the brokerage has maintained its Add rating on the multibagger stock that has rallied over 102% in a year’s period.
“We cut FY22ii EPS by 5% to account for lower than expected volumes in REC and ESCerts trading. We expect earnings to grow at 20% over FY22-24ii. Stock valuations at 53x 1yr fwd P/E fairly prices-in near-term earnings in our view; hence, we await a better entry point. We maintain ADD, given LT growth potential and strong business moat, especially in view of the low visibility on MBED,” IIFL added.
Based on the Ministry of Power’s consultation paper dated 1-Jun-2021, the first phase of market-based economic dispatch (MBED) was to be implemented from 1-Apr-2022. Ahead of this, the CERC was required to align regulations for implementing this.
However, CERC is yet to finalise MBED regulations, implying delay in implementation. As highlighted earlier, MBED along with market/price coupling could risk IEX’ market-share and is hence seen as a regulatory risk, highlighted the brokerage house.
“Delay in this also lowers competition risk from PTC’s new power exchange (likely to start in 1QFY23). Separately, IEX’ proposal to implement ‘gross bidding’ bids (stakeholders’ comments invited) could achieve similar benefits, as envisaged under MBED,” IIFL’s note added.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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