What Basant Maheshwari says on IEX shares, business model

Market veteran Basant Maheshwari says a poor business model can make a good balance sheet bad and vice versa. In a YouTube video that has been watched by 60,000 viewers so far, Maheshwari cited Ministry of Power's recent decision to go ahead with market coupling, potentially negating Indian Energy Exchange (IEX) domination, "puncturing its business model".

Maheshwari said investors following the IEX stock selloff would be tempted to the idea that the stock's price-to-earnings ratio has gone down to 45 times from 80 times, share price has fallen to Rs 125 from Rs 250, market cap-to-sales is now 25 times against 60 times earlier and that EV/Ebitda is reasonable now.

But "These are stories to pacify oneself. To me, whenever a business see a permanent problem of this sort, the stock takes months and years to recover. The IEX stock should underperform significantly going ahead," Maheshwari said while also suggesting investors to consult their financial advisors before taking an investment decision and that his words are not an advice to 'Buy' or 'Sell' stock.

Maheshwari, whose YouTube handle 'bmtheequitydesk' has 1,71,000 followings, said minority investors should ask self whether the business model and prospects remain same for the company. If the answer is no, one should move on, he said.

Shares of IEX are in the bear grip, falling 21 per cent in the last one month. The stock is down 30 per cent in the last one year. Antique Stock broking last week suggested a target of Rs 105 on the stock. It noted that incentives by competitor exchanges such as HPX and PXIL can eat into volume growth of IEX.

"Coupling regulations, which could be on the cards, will stabilise the market share of exchanges. Spot prices remain higher than bilateral, making the past era of higher volume growth difficult to mimic. All in all, we fail to see big structural volume growth drivers," Antique said.

Antique Stock Broking noted that if exchange rates for electricity (spot rates) are lower than bilateral (like PPA) rates, volume shifts to exchanges, as was the case in Dadri-I with Delhi DISCOMs or Barh with Bihar DISCOM. "On the contrary, if spot rates are higher, there is more incentive for DISCOMs to chase bilateral contracts. For instance, even CERC’s May 2023 approach paper makes a pitch for extending bilateral contracts for older power plants," it noted.

Maheshwari said that IEX used to enjoy 80 per cent market share and wherever a company becomes a dominating player in critical sectors such as power, sooner or later the government takes action. Maheshwari said market discounts the proposal in advance.

"Unless the government takes a U-turn, which I don't see in this case, the stock should be impacted" he said.

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