While Indian Energy Exchange’s shares continued to rise after its strong Q1 results, brokerages advised caution on the stock due to threat of market coupling and limited upside from current levels.

What Happened: IEX in its June quarter saw its net profit jump 27% year-on-year to ₹96.44 crore. The company’s revenue from operations increased by 18.75% YoY to ₹123.5 crore. In June, the electricity volume produced by the company soared 24.7% year-on-year to 10,185 million units.

Brokerage Views: Bernstein had an "underperform" call on the stock with a target price of ₹110. The company had a strong quarter and run rate for July, which indicated more than 25% volume growth. However, the next three to six months could have some uncertainty on the stock due to the implementation of market coupling expected from the regulator. 

Market coupling refers to forming a single government-owned power trading entity where price discovery will happen with power getting dispatched to short-term power trading platforms.

Nuvama also maintained a "reduce" call but raised the target price to ₹150. The brokerage said even with the higher income growth projection based on the quarter's volume growth, there is limited upside for the stock. In June 2024, the company's total volume grew 21% and the management expects 15%-20% volume growth in the medium term. 

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The brokerage expects a 17% volume compound annual growth rate over FY24-26 and 16% in the long term. However, the company needs to have a volume growth of 18% to justify its target price. 

The brokerage also added that a shift to market coupling over the next three to five years could lead the company to lose its business moat, hurting medium-term volume growth. 

Price Action: Shares of IEX rose 6.63% to an intraday high of ₹188.39 on Monday. 

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