80% market share, 80% EBITDA margins: Is IEX’s monopoly cracking?

Fig 1: Source: http://www.tradingview.com

Yet beneath this carnage lies a striking divergence. Between March and September 2025, while FII shareholding declined by ~3%, both DIIs and public shareholders were net buyers. DII ownership rose from ~34% to 36%, while public shareholding increased from 49.5% to 50%.

The question, therefore, is not whether risk exists, but whether a certain category of smart money has overestimated its long-term impact.

India’s electricity marketplace and IEX’s role

Think of IEX as the Zerodha of electricity, a platform where buyers and sellers trade power. The platform carries no inventory, requires minimal working capital, and operates with zero debt. Sellers include thermal generators like NTPC, discoms with surplus power, and renewable producers. Buyers include deficit discoms, industrial consumers like Tata Steel, and even neighbouring countries.

The business model is simple. IEX charges 4 paise per unit of electricity traded: 2 paise from the buyer and 2 paise from the seller.

In FY25, these transaction fees contributed Rs 424 crore out of the company’s total revenue of Rs 535 crore.

Fig 2: Source: IEX Investor presentation

IEX serves over 8,500 participants, including 75+ discoms and 5,700+ commercial and industrial users. Every major power producer and consumer in India is plugged into its system, reinforcing strong network effects.

The dominance is reflected in market share. IEX commands ~99% market share in both the Day Ahead Market (DAM), where electricity is bought a day in advance, and the Real-Time Market (RTM), where power is traded just an hour ahead of delivery. Across all segments, IEX holds an 84% share of India’s power exchange market.

Fig 3: Source: IEX Ltd Investor presentations/Conference calls

However, dominance alone does not guarantee durability, especially in regulated markets.

A structural shift in India’s power market

India’s electricity market is undergoing a fundamental transformation, and it’s this shift that makes IEX’s long-term story compelling, even as short-term regulatory risks cloud the picture.

For decades, India’s power sector operated under 25-year Power Purchase Agreements (PPAs) between generators and discoms. But the world has changed. Weather patterns have become erratic, causing demand estimates to swing by ±5% from actual consumption, and renewables are scaling rapidly, expected to hit 60% of India’s total power generation capacity by FY30.

Fig 4: Source: CEA

There is one challenge: renewables are intermittent. When the sun doesn’t shine or the wind doesn’t blow, states need backup power immediately. Long-term contracts can’t solve this volatility. Short-term markets can.

In FY20, less than 10% of India’s power generation was traded in short-term markets (contracts under one year). Today, that figure stands at around 13%. While overall demand is growing at 7-8% annually, the short-term market is expanding at an 18% CAGR.

Fig 5: Source: CERC, JM Financial

This expansion is IEX’s tailwind. As states like Gujarat and Rajasthan, which already derive a significant portion of their power from renewables, grapple with supply volatility, exchanges become indispensable for real-time balancing.

The business is showing exactly this momentum. In Q2 FY26, IEX traded 35.2 billion units, up 8.6% quarter-on-quarter. For the first time, RTM volumes exceeded DAM volumes, a sign that the need for flexibility is intensifying.

Management has guided for 15-20% volume growth for the remainder of FY26.

Market coupling: The central regulatory risk

So if the business is growing and the market is expanding, why has the stock crashed by ~40%? The answer lies in one word: regulation.

Today, India has three power exchanges: Indian Energy Exchange (IEX), Power Exchange India (PXIL), and Hindustan Power Exchange (HPX). Each operates independently. When a discom in Gujarat needs 1,000 MW at 7 pm the next day, it submits bids on one or more exchanges. Generators submit their supply offers. Each exchange runs its algorithm and discovers its own Market Clearing Price (MCP), the point where demand meets supply.

Here’s the catch: because IEX has 84% market share and the deepest liquidity, prices discovered on it are often different from PXIL or HPX. On a given day, DAM prices might be Rs 4.20/unit on IEX, Rs 4.35/unit on PXIL, and Rs 4.50/unit on HPX.

Fig 6

This is where market coupling enters. CERC’s July 2025 order mandates that by January 2026, all three exchanges must pool their bids into a single system that discovers one uniform price across all platforms. Think of it like SEBI forcing NSE, BSE, and MCX to discover identical prices for Reliance shares.

The bear case: Market coupling strips IEX of its core moat: price discovery. If all exchanges use the same algorithm to arrive at the same price, IEX becomes just a bid-collection platform. Its 84% market share could compress to 60% (or lower) as participants spread across platforms. There’s precedent for fee pressure too: IEX already cut certificate trading fees from 4 paise to 2 paise in 2023.

CERC also reportedly released a staff paper proposing a reduction in the transaction fee cap from 2 paise to 1.5 paise per unit per side, a move that could slash IEX’s primary revenue stream by 25%.

The Bull Counter: Management argues the moat isn’t just pricing, it’s the 17-year-old technology platform, 8,500 customer relationships, and settlement infrastructure that competitors can’t replicate overnight. A CERC shadow pilot showed market coupling would increase social welfare by just 0.3% in DAM and 0.01% in RTM – negligible benefits.

Fig 7: Source: Q1FY26 Earnings call transcript

More importantly, DAM now accounts for only 35-44% of IEX’s volumes. RTM, which is growing faster and isn’t slated for coupling yet, recently overtook DAM for the first time. As CEO Satyanarayan Goel stated in the Q2 call: “We are working to retain the present market share [99%].”

There’s also a structural quirk helping IEX: PTC India, a major trader, holds a 22% stake in HPX, which CERC regulations prohibit from trading on that exchange, limiting HPX’s appeal.

CERC targets January 2026 for DAM coupling implementation. However, in the October 2025 earnings call, management revealed regulators hadn’t yet contacted them for software integration, suggesting delays are likely. IEX has also filed an appeal in APTEL, with a hearing scheduled for January 6, 2026.

The regulatory cloud is real, but the timeline and impact remain uncertain.

Beyond electricity: Diversification underway

Amid market coupling, IEX has quietly built new revenue streams.

Indian Gas Exchange (IGX): India’s first natural gas trading platform traded 60 million MMBtu in FY25 (+47% YoY) and now commands 17% of the spot gas market. In Q2 FY26 alone, it traded 16.1 million MMBtu.

International Carbon Exchange (ICX) commenced trading through International Renewable Energy Certificates (I-RECs), issuing 82 lakh I-RECs in H1 FY26, already exceeding FY25’s full-year total of 59 lakh, and generated Rs 1.78 crore in revenue.

Renewable Energy Certificates (RECs) volumes grew 136% YoY in FY25.

Green Market: Volumes surged 171% to 8.7 billion units in FY25.

Additional initiatives, including Virtual Power Purchase Agreements (VPPAs) and a proposed coal exchange, are under regulatory consideration.

An asset-light business model

The company is asset-light (Rs 91 crore in assets, Rs 1,159 crore of reserves) with zero debt and Rs 1,732 crore in cash and cash equivalents. In Q2 FY26, it delivered Rs 123 crore PAT on Rs 154 crore revenue, a 80% PAT margin, and 86.4% EBITDA margin.

Return on Equity currently stands at ~40%. Every additional rupee of revenue flows almost entirely to profit because there’s no incremental cost to processing one more transaction.

The flip side: if the 4-paise transaction fee is cut to 2 paise or to 1.5 paise (as with certificates), margins would collapse. This is a high-margin, low-risk business entirely dependent on regulatory pricing freedom.

Why are DIIs betting big?

DIIs (and public shareholders) appear to be anchoring their thesis on four factors:

Market coupling risks may be overstated, with limited welfare benefits and uncertain implementation timelines.

Absolute market growth could offset share loss, as the short-term market potentially expands from 13% to 25% of total generation by 2030.

Diversification is already contributing revenue, particularly through IGX and REC trading.

Valuation compression, with the stock trading at ~27x earnings versus historical multiples of 40-50x.

Fig 8: Source: http://www.screener.in

A binary outcome?

This isn’t a consensus trade, it’s a binary outcome scenario, at least in the near term, where either the bulls or bears will be proven decisively right.

The bull case hinges on delays or muted impact of coupling, strong RTM growth, and expansion of short-term markets. The bear case rests on swift implementation, material market share erosion, and fee compression.

Four developments merit close monitoring:

1. Outcome of the January 6 APTEL hearing
2. Quarterly market share trends that might reveal gains by competitors,
3. Any CERC updates on coupling implementation timelines, and whether IEX can sustain its 15-20% volume growth guidance through FY26?
4. The divergence between DIIs and FIIs ownership suggests that a certain section of sophisticated capital believes the regulatory risk is manageable.

Whether that conviction proves correct will become clearer over the next six months.

Note: We have relied on data from http://www.Screener.in and http://www.tijorifinance.com throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.

Rahul Rao has helped conduct financial literacy programmes for over 1,50,000 investors. He also worked at an AIF, focusing on small and mid-cap opportunities.

Disclosure: The writer or his dependents do not hold shares in the securities/stocks/bonds discussed in the article.

The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.