Indian Energy Exchange (IEX)

From what I understand: the bids will be taken across exchanges and submitted to a central authority who will match the bids to determine price.

The worry is that people can choose which ever exchange they want, and there could be a race to the bottom in pricing because of competition.

This is something which could take 3yrs or so to play out.

So,

The market (or at least some) priced an extreme dominant position for a long period of time. The dominant position is a factor of volumes * price. The news basically hits at both: losing power pricing and hitting volumes. This has caused a panic leading to massive sell-offs.

Realistically no business, unless the moat is supported artificially through government interference can remain a single dominant player for a long long period of time. Competition is inevitable. And there are already other exchanges out there.

What’s the moat based on, and is it relevant?

Forget the moat for a second:

Are energy related products going to be traded on exchanges? Yes

Are the volumes going to go up many fold from here? Yes (and not static, as the apparent hit on volume assumes)

Do we have a visbility of the entire mature market from here? No. One thing is sure it will be many folds larger and mature than what it is now. And a centralised price setter could be positive in the long run, for an essential resource.

What’s the worst possible per unit operational margin (viz ebitda)? 40%? 60%?

Being a first mover and the dominant player for next 3 years at least, there’s a good chance that IEX can react well in maintaining their leadership. We need to watch out for the next few quarters to see how they innovate and what they innovate. The why is clear.

Can they execute enough to be at 700-800crores ebitda by 2026-27? Time will tell.

Further, let’s not forget that there’s an election in between and things can change.

Disc: invested