Indian Energy Exchange Limited (IEX) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Indian Energy Exchange Q4 FY '20 Earnings Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Abhishek Puri from Axis Capital Limited. Thank you, and over to you, sir.

Yes. Thank you, Janet. Good afternoon, ladies and gentlemen. I hope everyone is safe working from home. On behalf of Axis Capital, I am pleased to welcome you all for the Indian Energy Exchange Q4 and FY '20 Earnings Conference Call. We have with us the top management team of IEX represented by Mr. Rajiv Srivastava, Managing Director and Chief Executive Officer; Mr. Vineet Harlalka, the Chief Financial Officer; and the entire top management team and businesses of the company. We will begin with the opening remarks from Mr. Rajiv Srivastava and followed by an interactive question-and-answer session. So over to you, Rajiv.

Thanks, Abhishek, and I hope everybody can hear me clearly. Good afternoon, ladies and gentlemen. I know these are unprecedented times. People are working from home. And so I really want to thank you all for joining this call. Welcome you all to the Q4 and fiscal 2020 earnings call. Abhishek mentioned Vineet with me on the call, but there are a few other colleagues of mine which I'd like to introduce. We've got Rajesh Mediratta, who is the Director in the company, and he runs our Strategy; Rohit Bajaj, who heads up Business Development; Samir Prakash, our Chief Human Resources Officer; Indranil Chaterjee, our New Product and -- New Initiatives and CRO; Amit Kumar, who runs our Market Operations and New Initiatives -- New Products; Guatam, Sangh, who is our CTO; Shruti, who is our Mar Comm Lead; and Aparna, who is Investor Relations Lead. And all of them are on the call, just like all of us right now, like I said earlier. First of all, let me just do the -- I hope [Technical Difficulty] Can you guys hear me? I'm back.

Yes, sir. We can hear you. Please go.

All right. Thank you so much. So I just wanted to say that I hope everybody in your family and your parents, your children, whoever, and your extended family, everybody is safe and healthy. And from our perspective, from our side, we obviously want to make sure that just to be -- every front line worker, and we express our gratitude to every front line worker and others who are providing selfless service, working tirelessly to provide relief and care to the people and all the utilities. So I think it's a great sense of gratitude that we want to express to them. Let me just move on and just give you a bit of a preamble, and we all understand power is lifeline of a country. At IEX, we clearly recognize this more than anything else. And we also have a huge responsibility to support and enable power and demand to facilitate a completely uninterrupted, seamless 24/7 power supply to almost every -- all the remotest corners of the country, especially to the stressed health care ecosystem, to the communication infrastructure, to all the public utilities and related businesses and to millions of employees who are working from home today, all the households who really deserve and need every single moment of power that they have to get. During the lockdown, the robust business continuity planning of IEX allowed us to make sure we are proactive and ensuring around-the-clock operations, completely seamless connectivity and very high levels of security. So the network is secure. The information technology infrastructure is completely secure. And that allows you to deliver an absolutely seamless 24/7 experience to all the utilities and all the buying and the selling agencies on both sides. The end-to-end automation allowed us the flexibility and capability to manage our regular book and operations remotely. And by virtue of that, by virtue of our very high level of technologically secure infrastructure that we've created in the company, we could pivot on employee safety as a first instance. So we have been continuing to work completely remotely even though we are under the essential services, but we can continue to work completely in remote regions because our technology allows us to do that. During the lockdown period, power procurement by distribution utilities from Southern, Western Northern States, such as Andhra Pradesh, Telangana, Tamil Nadu, Maharashtra, Gujarat, UP, Bihar and Punjab and a few others has increased just because there is ample power availability on the exchange with very attractive, extremely attractive prices right now. Now this is helping the utilities make significant savings in the procurement cost, and several utilities have shared their success stories on how much they've been able to optimize on cost to exchange their procurements in the media. So that's been a good story so far, people trying to optimize in this distressed times. Recognizing our responsibility to support the COVID-19 relief effort in times of this need, we did make a very small, very humble contribution of INR 5 crores to the PM CARES Fund. And we are -- as a public entity, we are obligated to do that. Otherwise, there's no reason for mentioning this point at all. Let me just give you an economic and industry update, and I'll share with you how it plays out for our business right now and what the progresses looks like over the near term. The industrial activity as captured by the Index of Industrial Production did register a serious de-growth of around 3% during the quarter Q4 gone by. Breakout of the COVID pandemic led to deterioration of the overall economic activity. We started to display moderate green shoots in the month of Feb, March, but obviously, the COVID pushed it back now in the new year. The economy, in our estimate, should be thereabouts in the region of 4 for -- 4.0 for the year FY '20, depending upon the analysts that you choose to end up -- all the reports that are coming in. Similarly, on the electricity front, Q4 registered a muted electricity demand. The demand growth was only 1.6%. Now the first 2 months were very good. The Jan and Feb months saw an average demand growth of 7.7%. March began very promising with a very positive growth, but in the second half of March, when the lockdown was implemented, the whole of March shrank by 9.2 points Y-o-Y. So a decline in the amount of 9.2% in March. And for a full year perspective, power sector was characterized by electricity demand growth of only 1.3% Y-o-Y. And for the first time in -- since FY '14, we did face considerable headwinds on account of severe -- several unprecedented developments related to economic growth, industrial growth and recovery and slowdown and a few weather-related changes as well. So all of them, both industrial demand, industrial and commercial demand, and the agricultural demand and the weather-related patterns contributed to the energy situation being the way it is there. So the total installed capacity during the year increased by 4% and reached 370 gigawatts. And in line with India's commitment to the Paris Agreement to increase the share of green energy in the overall mix, renewable grew faster. While the overall grew 4%, renewable energy grew 12%, and the thermal increased only by 2%. So I think that's how the whole energy shift is going to take place in the future as we will see more towards a more green, more sustainable mix. The much-awaited discom relief package, the Finance Minister announced a INR 90,000 crore liquidity injection on 20th of May 2020. We believe this is a welcome step for financially stressed discoms. The discoms will be in a position to pay back to the gencos and the transcos, which are stressed. And the measures like PFC and REC loans, rebates and reforms announced by the central government should create the much-needed short-term liquidity -- financial liquidity in the power sector value chain. Our belief is there will have to be further structural reforms undertaken to make it a much holistic, much more long term sustainable. But clearly, in the short run, it's an absolutely fantastic measure because it increases liquidity in the system. Additionally, on the policy and regulatory front, let me just tell you that the Ministry of Power recently did issue a draft Electricity Bill 2020 with a focus on a few things: abolishing cross subsidy charges and cost reflective tariffs; sublicensing franchise and/or distribution areas; creating a completely separate authority to adjudicate PPA-related disputes and obligations to augment the capacity of the Appellate Tribunal; promotion of renewable energy as a very, very sustainable way of going forward; allowance of cross-border trade of electricity; and payment security mechanism. Now we believe that these are great measures. And once the reform -- when the act gets implemented from a draft to an actual implementation, this will address several structural challenges being faced by the stakeholders today and probably also bring in the much-needed efficiency in the sector as a whole. Having said that, let me just move on and give you a sense of financial and business performance, our business performance for the year -- for the quarter. IEX reported -- in Q4, IEX reported a robust 40% Y-o-Y electricity volumes growth from a 9.9 BUs in Q4 '19 to a 13.84 BUs in FY '20 Q4. Now on the price front, the day ahead market did see an overall decline in prices by 14% in Q4 '20, and the attractive prices did help the commercial and industrial customers to increase procurement, and our open access buying went up by 41% during the same quarter. Including REC, the total volume still increased by 29%. The volume growth did contribute to a very robust set of financials. On a stand-alone basis in Q4, our PAT -- Q4 '20, our PAT at INR 47.2 crores was up 25% as compared to INR 37.8 crores in Q4 '19. So PAT up 25%, revenue for the quarter was up 17%. PAT margin at 59% was up 3 points from 56% a year ago. So versus 56% of Q4 '19, we are at 59% in Q4 of '20 at a PAT level. Starting Q3 '20, the company started consolidating the results of its wholly owned subsidiary, the Indian Gas Exchange, and PAT with the inclusion of Indian Gas Exchange is INR 45.62 crores during the quarter versus INR 47.2 crores which is stand-alone. Let me also give you a full year picture. For our fiscal full year FY '20, the electricity demand, like I said, was muted, 1.3% growth only. IEX reported a 3.2% growth in electricity volumes. The volumes increased from 52.2 BUs to 53.9 BUs during the year. REC volumes were impacted just because there was lack of sell-side inventory in the REC. So that part of the business did decline. For the full year FY '20, on a consolidated basis, the company did record a revenue growth of 1%, but our PAT went up by 6%, and the PAT margin stood at 59%. During the year, we continued to rigorously pursue tech-led innovations, technology-led innovations, and made very significant investments in revamping our back-end infrastructure, our trading platform, adding new products, security, cybersecurity and a whole range of automations of the internal processes. So a very significant investment in [ venue ] technology and automation, including getting additional resources on the technology front. So our CTO has been a really busy man over the last 1 year. Further, we undertook various capacity-building initiatives and investment in creating a very robust practices and processes because we want to make sure that we are robust, because exchange demands us to be, and your processes have to be absolutely automated. With a PAT of INR 175.7 crores on a consolidated basis for FY '20, the company continues to be very strongly placed with a very robust business model but, more importantly, with absolute 0 debt, which in times like this, you would understand, that it's such a huge boom. I'm pleased to announce that in March 2020, we paid out an interim dividend of 250% to our shareholders. We continue to progress and get close to launching new products, and you've been hearing us talk about new products, working with the regulatory authorities and the Ministry of Power. And there has been -- obviously, there has been some procedural delays because of the situation and times that we are in right now. CERC has approved the introduction of real-time markets effective first of June 2020. So you will see that first product getting launched, getting off the blocks on 1st June. And I just want to ensure you that operationally, technologically, we are completely ready to launch exactly on the same day. So we are absolutely prepared. Our state of readiness is very high. We are also ready to launch the gas exchange, Indian Gas Exchange. IGX commenced its membership drive in February of 2020. Manikaran Power Limited, which is already a trading member on IEX became the first member for gas exchange. And subsequently, we've had many other member additions. We've had 6 more member additions. And more importantly, more than the members, we got more than 75 clients who have registered on IGX. So we've got a ready pipeline of people who can off-take the volumes that we can put on the exchange, on the gas exchange. The company has been proactively developing the gas market, including doing a whole range of reach out activities to customers, including webinars, doing mock trading sessions to make sure our state of readiness is absolutely high and understanding about the role of markets and building a gas-based economy. Having said that, let me also give you a bit of a way forward, how we think this is going to evolve and change. We know that COVID-19 has shown up a huge range of challenges. But more than that, we see ourselves as staring on a range of opportunities for the power sector. Clearly, life will be the same. We will need to assess every single element of the electricity value chain, generation, transmission, distribution, the structure around that and the networks. We have to assess which business models deliver in the electricity business. Clearly, an overemphasis on a 25-year long-term rigid contracts may or may not be the most useful way forward. And there has to be a certain amount of work done on that topic as well. Strategic involvement of financial institutions, how does the whole funding mechanism work between the banks, the financial institutions, the generation companies, the distribution companies and the transmission companies. The whole regulatory environment which is working right now, over time to make sure that things become streamlined. Operational efficiencies, which is reducing the losses in transmission and distribution. And these are just a few which will help us accomplish the objective of power for all on a 24/7 basis in a very sustainable way and in a very cost-effective way. Collectively, we would need to find out way for these -- way out of these issues. And we are working very strongly with all the stakeholders in the Ministry of Power and the regulatory commissions to play a part, very strong part. We had to bring in more efficiency and flexibility in terms of structure, operations, finance into the system, and that is a key priority. Cost of power needs to be optimized for industry as well as homes and efficiency. And if you have been -- you guys have been obviously following the Make in India -- sort of Make in India big program that needs to really take shape for both getting self-reliance and also for generating a huge amount of employment into the country, that will happen. And that will be facilitated on the back of power being optimized for the industry as well as the homes. And then a huge amount of efficiency in the whole network and the value chain that I said. And because India has set itself on a path of rapid growth for the foreseeable future, in my opinion, I think this is a perfect time to make some real, fundamental, progressive shifts. And also just because most of the world has solved for these issues. So there's no reason for us to not solve them for ourselves in a very, very, very nice and a very progressive way. So we at IEX believe the sector will require a lot more automation and solutions that enable all of these elements of transformation that I talked about. And we stand -- because we are such a high-tech sort of a company, we believe that we are standing at the forefront to deliver around these solutions that the industry requires right now. The technology-led LNG markets will have a very key role to dislodge -- to enable this transformation. So business growth will be further aided by our proactive and collaborative efforts with various stakeholders and partners. Whether they are in the ministry or in the regulatory framework or the partners that help us in selling or our associates which help us in going and meeting and managing our customers, or our [ advocators ], then business development initiatives, capacity-building efforts and new product launches. So we also continue to rigorously pursue tech-led initiatives, like I said, tech-led innovations, to ensure best-in-class customer experience through a bunch of very defined practices and processes. Just the way -- it's unthinkable that an exchange like us could be automated to be working remotely in a very secure manner. But that's what our technology innovation and technology implementations have helped us secure. And I clearly look forward to working with all the stakeholders to draw a new energy order in this new normal, a new energy order which is built around the pillars of sustainability, efficiency, affordability and led by technology in all ways. Let me do this. Let me stop here and then open it up for questions or anything that's on your minds.

[Operator Instructions] We take the first question from the line of [ Sahal Deisai from Morgans Capital ]. As there is no response from the current participant, we take the next question from the line of Sumit Jain from ASK Investment.

Hope everybody is safe on your side. I just wanted to quickly check the volume quarter to date, that is from 1st April till date, overall total volume including REC, Y-o-Y, what is the growth or decline? Or how is the situation?

Okay. Look, the volumes YTD, which is till 13th of May, which is therefore yesterday, are 8.1% growth Y-o-Y for the same period including REC. The month of April, when it started, it was a slow start. We expected -- because everything was absolutely shut down. The lockdown was very intense when it started, and the lockdown started to get a little easier as we progress towards the end of the month. So all of April, the peak electricity -- and I am sure you're following these numbers, the peak electricity demand in the month of April fell by 25%. And the volumes on exchange in the month of April fell only by 6.6%. Okay. But come May, in the first 13 days of May, the peak electricity demand has recovered a bit from a negative 25% in April, it is now negative 15%. And the volumes in exchange have gone up by more than 50%. So YTD, we are at plus 8.1% or 8.2%, something like that.

And when you introduced real-time market contract in June and eventually long-term contract as well, what kind of growth over a 3 to 5-year period you expect?

Let me pass this question to my business leader, Rohit, to answer that. Rohit, can you take it on, please?

Yes, yes, yes. Thanks, Rajiv. Yes. So in fact, your question is about 2 new segments. One is the real-time market. Second is longer-duration contracts. So real-time market, we expect to start from 1st of June. And in this particular segment, as we have maintained earlier also, the potential that we see is about -- we see immediate conversion happening from Deviation Settlement Mechanism volume, which is about 20 billion units. Annual volume is about 20 to 22 billion units that we see now. So we expect that conversion will start to happen from this particular segment to begin with. And within a couple of years, a large part of that DSM will get converted into real-time market. So that's our estimate. And second thing that we see here is more distribution companies have become very, very price-sensitive now, cost-sensitive. So we see optimize also -- they will use real-time market also for the purpose of optimization. So DSM is not the only thing where we see volume coming into RTM. There would be some additional volume which will come from optimization as well. So that's the sizing of RTM. About LDC, also, we have more than 50 billion units of banking and bilateral transactions happening in the country today. So if you see the CERC report, you will find that more than 20 billion units of direct bilateral happens in the country and more -- about 30 billion units of banking transactions happen. So when we are going to launch this longer-duration contract, this will provide us ways and means to capture this market as well. So -- and of course, it is going to happen in a gradual way. We will -- once we start to roll it out, gradually, this conversion will happen, some part of it. That's the total potential we see. I think I have answered your question. You were talking about sizing only.

Yes, sure. I'll come back in the queue. Just one question. Real-time market, the charges will be 4 paisa?

Yes. So our -- it is expected to be 4 paisa because it is in line -- it is nothing but extension of our intraday market. Today, we have intraday market which is 2.5 hour in advance, and real-time market is going to be just 1 hour in advance. It is very similar to it, and it will be 4 paisa only.

And same for LDC?

Should be similar for LDC, but since it is a little far, a little away, we have not yet finalized the transaction fee.

[Operator Instructions] Next question is from the line of Mohit Kumar from IDFC Securities.

Yes. Sir, my first question is what is the state -- of course, you -- the long-term trading we have been in discussion to withdraw the petition, but I think this is getting prolonged. I guess [ the next hearing is ] in July. What is holding back the resolution? And what is the time frame in which you see the withdrawal of the petition and there is a suitable resolution to our liking?

So look, this is the matter in the Supreme Court from our point of view and from the point of view of the ministry and from the point of view of the regulators. And all the people engaged in the litigation, they want the disposal of that petition as of yesterday. Everybody wants to get on with doing something more active and meaningful versus trying to chase the petition. Unfortunately, right now, you understand it as much as I do, there are a ton of very significant and very important litigations which the Supreme Court is dealing with. Matters of great, great national importance Supreme Court is dealing with. And also, they are taking cases only which are extremely priority cases. They're not taking anything which is -- and priority cases are really, really priority. Okay. So the hearing which was meant to happen on 7th of May has been deferred to 8th of July. What the CERC, the regulator and the Ministry of Power have done, they have sought the opinion of the Solicitor General of India day before yesterday whether they can move on this without Supreme Court disposing of the petition. So you can just see the urgency in the ministry from all sides to make this happen. And our view is it will happen very, very soon, as soon as it happens. So there's nothing which is holding it up. It is just in line, it's sequential. It's a procedural thing that is stuck, which is there with the Supreme Court. Otherwise, every party engaged and involved wants to make this a reality because it will help not only the market, it will help a lot of customers as well just because it optimizes for everyone.

Understood. Second question, sir, given the COVID situation, do you think any challenges in uptake in real-time markets in near term? And do the states have built the capacity? Are they equipped enough to do the trading and to continue with the volume?

Yes. Look, we've been working -- and I'm going to defer this question to 2 other people as well. We've been working with all the state governments to make sure that they can come up -- and I don't know if you participated on the webinar that we did on the real-time market. Very good participation, and we've been working with LDC, which is at the central level and also the states to make sure that they understand how to trade, and we are providing them the software linkages for them to be able to trade very effectively and easily. So all the user interfaces which allow people to trade on a very seamless and very easy-to-use user interfaces, we are doing all of that. But let me -- for any further thing, let me also give it to Rohit to address this question if you have to.

Yes, Mohit. We have been regularly in touch with all these distribution companies. And I won't say all of them, but yes, most of them are fully prepared. They are geared up for participation in real-time market, and we do not see any impact on account of COVID as of now. See, what is happening is, as Rajiv rightly said, we conducted 1 webinar very recently, and there was huge participation. All the states -- most of the states participated. We did mock also some time back, and today, all of them have installed this -- our software on their platform, and they are doing it. That is one part. Second is we are also helping them in creating capacity to ensure that they are in a position to optimally utilize this new platform. See, there are 2 parts of it, as I earlier also explained. One is meeting your deficit, right, which is a very simple thing because you are so near to real time, you will immediately calculate what sort of deficit is there, and you can place your bet. But that is not the total thing. Large part of volume we are expecting from optimization also. So we have created a tool, which we have shared with couple of discoms now. And in next 1 week time, we are going -- we are reaching out to all of them, and we are in the process of sharing it with them. And there is so much excitement in distribution companies. This is one of the game changer market model that they are looking at it. And particularly, all those states where there is high renewal, they are also very, very excited about it because this gives them another opportunity to address the variability in generation that they see, which is a great problem for them on account of high variable in their particular state. So I won't say everybody is ready, but I think 80%, 85% of the states are directly dealing with us and creating capacity to participate on this platform immediately.

We'll take the next question from the line of Bhavin Vithlani from SBI Mutual Funds.

If you can just help us with how was the mix in terms of the sellers and the buyers, different -- I mean if you take the fourth quarter and the full year of fiscal year '20?

Okay. Rohit, do you want to go ahead?

Yes, yes. Yes, Rajiv. See, Q4 is a peculiar quarter when you do not have high demand in most parts of the country. So if you are following demand pattern, you see -- normally, you see high demand coming in Q2, particularly in the later part Q2 and early part of Q3. And Q4, we see demand start to pick up only in the month of March. So the pattern that we observed in Q4 was we were, if you have seen our results -- or this number may not be there, there was a very good participation coming from both distribution companies and also from open access consumers. Our volume growth in Q4 was about 40%. And in the open access side also, we saw 34% of that total volume came from open access side, and there was tremendous growth in the open access buy and sell. So there are a couple of things which happened. On the sales side, there was a participation from distribution companies, wherever, because of diversity in demand and supply across the country, there are many states who were surplus during those 3 months. They were selling very aggressively. Prices were low. And since the prices were low, there was huge participation coming from open access side also. So I would say, on the buyer side, it is state participation and also open access. State was a little limited because there are very few states where they have good demand in Q4. And on the sell side, mix was very healthy. There was ITP participation close to about 40% to 45%, and states were also selling, and their overall sale was a little above 50%. So that is how mix was.

And how would it compare on a year-on-year basis? Because I assume given the low prices that you mentioned, strong growth from the open access consumers?

Yes. So year-on-year basis, the open access, when we started last year in the month of April, open access contribution was just 20% of the total buy. But gradually, it started to build up. There were some favorable regulatory orders which came, a couple of them from -- particularly 1 from Gujarat. Also there was so much consumer addition happened from Tamil Nadu. So it started to change from start of Q2. And it -- up to end of Q4, it was almost 35% of our total buy. That is about open access. And the distribution company buy pattern is, again, dependent on their procurement cycle, their agriculture season largely. So we see participation coming from Northern States in Q2 and Q3. And then in Q4, there are very few states where you have high demand states like Telangana, AP, then you have some demand coming from Rajasthan. MP also has good demand during those times. So it keeps on changing. It varies from time to time. But on an average basis, for the last year, it was about 30% from open access and 70% from distribution companies.

Just one follow-up. Historically, it has been observed that as the share of open access rises, some of the states actually take actions to [ cause that tariff because they have their highest paying ] customer. Incrementally and more, I mean -- and if you could answer more qualitatively, have there been any states who actually changed their open access charges or maybe not giving commission on the bid cycle? Or was it more or less constant and actually that resulted in the strong growth?

Yes. So in fact, between last year -- throughout the last year, we have seen many favorable orders. And in fact, as I said, 20% increase to 34%, and overall volume was also very good in Q4. So many orders came and -- many order came, and most of them were favorable. But you are right, every year, in the month of March and April, we get to see new tariff orders. And in new tariff order, you have new tariffs, new cross subsidy surcharge, new additional surcharge, all these elements which are important for any open access consumer to source power from exchange, there is some change in that. So we are in middle of May. We have seen many of these orders, and none of these orders which came in the month of March and April, except for one, there has been any increase in open access charges. So in fact, before the lockdown, we were -- our mix was very healthy. The open access was -- and it is ever-increasing. So what started from last year Q1, it attained a very good height in Q4. And when we started this year, it was low because of lockdown, but we have not seen many -- any adverse order so far.

We take the next question from the line of Varun Goenka from Nippon Mutual Fund.

So actually, my question related to RTM and open access is answered. Maybe if you can also address the gas side. I think we are starting it very soon. What could be the challenges in adoption? And just like you explained in real-time market, how do you -- with what intensity or what success do you feel this adoption will be done over the next 1, 2 years in terms of volumes coming to the exchange?

Okay. Let me just give you a bit of a -- and thanks for asking that question, Varun. Let me just give you a bit of a preamble about what the gas -- intent of the government is and where the country is headed. So the country is very rapidly moving towards everything possible to do with the clean sources of energy. And gas actually falls in that bucket. So the stated objective of the government has been shift the energy mix of gas -- shift the adoption of gas in the overall energy mix from 6 percentage points of today to 15 percentage points over the next couple of years. And that's 2.5x the shift of today in a growing market because gas economy is growing because you're aware with the [ city gas distribution and such thermal insurance ]. There's a huge amount of gas that is building up there. So gas is going to be finding a lot, lot, lot more favor as far as the ongoing shift of the energy mix and of clean energy desire of the government. That's one. And as you know, gas is traded at multiple locations in the country right now, whether it is Western India or it is Southeastern India and Southern India, in those zones. We would be trying to play in all of those areas. Just to get you a flavor on numbers, the spot market -- because we will be a spot exchange to begin with. The spot market of gas already is about 30% today. So of all the gas that is taking -- that is traded, it's about 30% today. And we can -- we will really aspire to be, of course, a couple of percentage points of that spot market. I'm not sure if [ Artem -- Artem ], are you on the call?

No, Rajiv. He's not.

Okay. So [ Artem ] is the one who's leading our gas initiative. That's the reason I wanted to get his perspectives also. But the 30% is the spot market, and we will aspire to gain a couple of percentage points of that in year 1 of our operations.

Okay. Just another high-level thing is are we also to move towards derivatives or any intent towards that or government policy towards that?

Not in the gas side to begin with.

No, on the electricity side.

Of course. I mean derivatives has become a reality. Somebody asked a question, I think Mohit asked a question about -- one or 2 asked a question about the long-duration contracts. The long-duration contracts, which are going to get -- which are waiting the clearance of the Supreme Court will facilitate trading in forwards and futures on the -- because the spot contract, which is up to 11 days, will still get delivered out of the exchange. And the longer than that period, which are hedged futures and forwards, will get done out of the -- they will be under the [ power ] of SEBI. And so once the long-duration contracts are allowed, they will make it possible to do futures and forwards and derivative contracts on the -- in the list.

Our question is from the line of [ Avinash Sinha from Spark Capital ].

Sir, my first question is on amendment of electricity that's recently announced. So there is a direct subsidy transfer that from -- for consumers. What will be the impact because we understand that this might reduce the industrial tariffs in future? So open access volumes, are we looking at any drop?

Rohit, do you want to take that on?

Yes, yes, yes. See, it is talking about direct subsidy transfer, right? So this is different from cross subsidy. So cross subsidy is something where you are increasing tariff of 1 category and then using this excess extra money for subsidizing it for some other category, right? But when you are talking about direct subsidy, I can give you one example, like in most of the states, we supply electricity to farmers at a 50 paisa or INR 1 tariff. Now the real tariff for them is, as per the government policy, you cannot have tariffs less than -- minus 20% of -- less than 20% of your cost of procurement, right, which means that if INR 4 is cost of procurement, you cannot offer any tariffs less than 3 rupees 20 paisa. But we give subsidies for supply to farmers and give them tariff of INR 1, which means that there is 2 rupees 20 paisa being shelled out by government to -- for giving subsidy to that particular segment. Now this is called subsidy, tariff subsidy. So when we say that it is a direct subsidy transfer, it is -- by that, it meant that whatever subsidy government is giving, that will be directly transferred to end consumer. We do not see any impact of this on industrial tariffs because industry -- none of these industries are getting any subsidy from government. In fact, they are cross subsidizing it. Their tariff is more to facilitate subsidy of some other categories.

Understood. So another question is on this INR 20 crores of other expense in FY '20, [ how much is for ] software development and maintenance?

Can you repeat, please?

So we have these other expenses on stand-alone of INR 20 crores in FY '20. How much of this cost is [ for software ] development and maintenance?

Vineet, do you want to answer that?

Yes. So out of this [ INR 20 crores ] because the majority is the software team, now we have an in-house software. So the majority of the cost is the combination of our different technologies, we are not dependent on external agencies. So the INR 20 crores doesn't have a substantial portion of the cost in there. But if you look into the overall size, then you can see the cost is overall coming to be around cheaper in the operating side, other side, mainly the cost of the manpower is because we are building a robust technology team. So that cost is going into the manpower cost.

Okay. Any one-offs in this?

One-off charges, there's reduction because last year we did the buyback and now these 2, 3 things were the impact, which are the onetime costs in the last year, which are not there. And secondly, because of the earlier subsidy which came, so the cost moved to the depreciation and finance side. So that will also lead to a bit of reduction in the costs. So if you look into the [ depreciation, there's a bit increase to almost INR 2.5 crores ] and manpower. So we are spending on the top end but -- in order to build the in-house team, to have more robust tech team, to do the [ internal work analysis ]. So we are not dependent on external agencies. And the major reduction is on the [ shifting of the rent and other cost rate appreciation ] and a few onetime costs which we incurred last year.

Understood. Sir, my last question, if I may. On this DSM dependency, so this 25% that can be assumed on the conservative side from the real time, and what state that we can expect this to be converted towards RTM market?

Look, I won't want you to assume anything. And maybe, Rohit, you could get that.

Yes. Sir, I don't want to comment on numbers. So what we shared is a total potential, which is available. Now to answer your second question, which is about what states can be initially we can see participation from them. So generally, we are seeing major inquiries coming from all the states who are rich in renewable. So states like Tamil Nadu, Gujarat, Maharashtra, for that matter, AP, Telangana. So these are some of the states. But yes, there are some more states who are heavily overdrawing from grid, where their DSM bill is very, very high, deviation bill is very, very high. So these states are Orissa and then UP, Bihar also in some of the months, rate is very high. So these are 7, 8 big states, and they also contribute to almost 60%, 70% of the total consumption in the country. So all big states, we expect them to come to our platform to make use of this new plan.

[Operator Instructions] We take the next question from the line of Harshit Toshniwal from Premji Invest.

Sir, a couple of questions. One, when we look at the open access business itself, can you throw some light on the mix in the purchase side? And to the states from which they come, we have a lot of Maharashtra and Gujarat as one of our primary sellers to the exchange, is it more open access-heavy in those states? Or are those discoms who are [ participating more in ] that end? And the second question is more on the outlook on the FY '21 volume. The reason I am asking is that the recent May month is -- was a great number. But obviously, once demand again picks up, then how do you see the FY '21 volumes to kind of trend?

Let me give you the answer to the second question first, Harshit, and then Rohit can take on the first one. Is that all right with you?

Sure, sir.

Okay. Look, it is really tough to give a guidance at the moment. And we will continue to calibrate ourselves vis-à-vis the evolving situation. We have to really wait and watch when the industrial activity will get back to normal. May, like I said, is a little better than April but has a long way to go, long way to go. The 15% dip in the peak demand in May also is a long way to go. And you know that as much as I do, that unlocking the lockdown completely requires the whole supply chain to become as oil as before, if not more. And to my opinion, that's becoming oil of the supply chain across industry types, whether it is auto industry or it is consumer durables or it is FMCG or it is logistics, whichever one you pick, that oiling of the entire end-to-end supply chain is, in my opinion, quite some distance away. It's not happening yet. We've seen the migrant laborers going back, [ and ] it will take a while for them to get back. Even if they get back, they're -- all the new normal, people -- the manufacturing system, in my opinion, will go through a huge amount of change management because manufacturing in a factory, and I'm sure you've been to many factories like I have, manufacturing in a factory is a station by station by station activity, okay? That's how -- the work method in a manufacturing industry world. But with the new norms of social distancing and all, all the new norms of staying away from each other a bit, those have [ to undergo change ]. So I think all of that activity, we have to wait for the industrial activity to get back to normal. That's the reason we are choosing to be a little cautious and calibrating all the time vis-a-vis the evolving situation. But I already told you, look, if April is a good one to go buy and May is -- May first 12 days is a good one to go buy, our volumes in these 43, 44 days are up by amount I mentioned to you, so that's where it is. I think it's important for us to stay focused on doing what we do best, which is making sure every single customer of ours is covered, making sure that our exchange technology runs absolutely the best and making sure that we are reaching out in a very, very nice and good and very, very positive way to all our customers, consumers, partners, for us to be of any kind of assistance to them. So I think that's what we are trying to do, to make sure all of that we're doing. So let me just defer back to Rohit to answer your first question.

Yes, Rajiv. So to answer first one, which was essentially around 2 big states, Maharashtra and Gujarat. So as we know, they are -- Maharashtra is the biggest consumer in the country today, and Gujarat is also number #3 or #4. So what we are seeing is, Gujarat, your question was about balance between open access and discom buy. So this is undoubtedly a state where there is absolutely no deficit. So in fact, if I recall correctly, Gujarat was 1 state which declared it's a surplus state about 5, 6 years back. And if you see their participation at exchange, so in terms of distribution company buy, they are in top 3 most of these years. And in terms of open access buy also, they are in top 3. So this is 1 state where people, industries as well as distribution company [ vendors ], they are super commercial-sensitive. They do not want to leave any opportunity of doing optimization on cost. And this is precisely the reason that this is -- in Gujarat, you have all the [ 3, 4 ] distribution companies, they are positive. So they are making money by selling power, which is not the case with most of the distribution companies in the country. So in terms of overall balance, open access and discom, it is -- on both sides, they are doing tremendous. Their participation is very high. On the other hand, Maharashtra, their participation at exchange is extremely high. In fact, if you ask me, in last 2 months, they were most proactive and they, in fact, do a lot of replacement and saved hundreds of -- hundred crore rupees by doing that. But open access side, they are not so active. The charges in the state, open access charges, which is additional surcharge and cross subsidy surcharge are a little on the higher side. And then they have given subsidies also in some part of the state with [ urban ] and all. So we do not see participation coming from there as well. So open access, it is a little limited. But as a state, they have been very proactive in doing replacement and coming to exchange as and when there is some opportunity to save on the cost.

Okay. And sir, broadly, mix of open access and discom budget for FY '20.

So you are asking about share of -- share in the total buy?

Yes. [ Just an estimate, ] sorry.

Yes. So it is on the buy side. If you -- on the total buy side, about 30% was done by open access consumers and 60 -- 70% was via distribution company.

Okay. And sir, on the sell side?

[Operator Instructions] Next question is from the line of Lavina from Jefferies.

Just -- I might have missed this. I just want to check what were the annual fees that were booked in the quarter?

Annual fees from the clients?

Yes. Yes, please.

Yes. So total annual fee for the quarter is almost 5.5 CR,

Sorry, sir. I missed that.

It's 5.5 CR -- INR 5.5 crores.

INR 5.5 crores, okay. Got it. Sir, last thing, just in terms of your investment plans with your cash on books. I understand the gas exchange, that's being done. Any other plans over the next 12 to 18 months that you foresee? Any other areas that you might think of?

Look, as a company, we will continue to obviously assess opportunities in the market. There's nothing on the annual right now, but we will continue to be on the lookout for things that align with our approach which is in the energy field or in the field of technology.

Next question is from the line of [ Apurva Sinha ] from PhillipCapital. Excuse me, sir. I'm so sorry to interrupt your audio is not clear. Sir, we are unable to hear your questions. [Technical Difficulty] Next question is from the line of Shaleen Kumar from UBS.

My first question is on gas exchange. Is it possible for you to share about where are you taking the technology over here? Is it...

On the gas exchange?

What kind of commercial terms are there? Also, is most of the cost related to the employees as well as other business development costs are reflected in fourth quarter with respect to Indian Gas Exchange? Or should we expect it to increase gradually?

Are all your questions related to Indian Gas Exchange?

Yes, these are all related to Indian Gas Exchange. Yes, sir.

Because I missed something in the beginning, so I don't know if I got it all or not. The technology on -- okay.

Okay. I can repeat. So I'm talking about -- yes, the first was related to technology, like is it in-house or we have taken -- we have licensed it from some other gas exchange? And what -- if you can share, in broad commercial terms, like earlier for IEX, it was 10% of the revenue. So if that's [ how to look when it comes to Indian Gas Exchange ]? And also related to the cost, so your costs, I'm presuming that some of the cost has already been reflected in fourth quarter. But given you will be doing a lot of business development exercise in this year -- should we assume -- what kind of cost should we expect to come in subsequent quarters?

Shaleen, look, the technology on that has been in collaboration with a company in U.K. So the gas exchange technology comes from a company in U.K. called [ Genix Technologies ]. They are one of the leading pioneers in gas technology business across the world, and they are helping us develop. It's not a revenue share. We are buying it outright. It's not a revenue share, so it will not have an impact in the subsequent years in that. And [ so if you want to know ] what it is they're helping us with, and that's what I said, [ it's pretty ready ] right now. On the cost, on the manpower cost, look, we are building the business. So we'll obviously keep adding head count to the gas business as we go forward. Right now, the head count was very, very small head count, and it was just a start-up. So there wasn't too much needed because we had to get the rest of the operational infrastructure in place, which is what we've got now, and we've got a few businesspeople. And that's the place where we will hire the most to make sure we're getting more businesspeople, we're getting more strategic people, and we are getting more operations people in the business.

If I can also ask a question on real time. Sir, the -- I understand DSM is an obvious move or obvious shift we should expect. But do you think that we need some kind of stringent guidelines again for discoms to move away from DSM. So my understanding is like since there was -- RTM was not available...

Sir, we proceed to the next question. It's from the line of Abhishek Puri from Axis Capital.

Sir, just wanted to check, in terms of renewables, has been green that you were talking about -- the green market that you talked about as well as on the cross border, what are the updates on those plans? And secondly, in terms of any change in strategy for forward prices that we have seen. Obviously, open access volumes will take a hit in some of the products that we are launching, may take more time to stabilize, or at least targets or budgets that we had estimated. So any changes in strategies there, sir.

Okay. So we got 2 questions. In the green -- for the green market, Abhishek, we expect the launch to happen sometime in Q2. We are awaiting amendments from -- we are just awaiting regulation -- issue of the regulations from CERC level. And we're getting extremely positive feedback on the whole requirement of the green market, very keen interest from participants who have surplus [ higher ] energy available, states like Tamil Nadu, for instance. And also, the recent change in the transmission regulation which puts exchange on par with the interest rate transmission. So I think that's the thing which is helping us. From a sizing perspective, early to provide the guidance, but I think it should -- the whole green trading should become a reality over the course of Q2, in our opinion. So that's kind of a very positive thing from a green perspective. Your second question was on cross border, is it?

Yes, sir.

Yes. Look, cross border is awaiting final regulations from the Ministry of Power. A huge amount of work, the regulations were drafted, and there was a bit of a back and forth because we wanted some clarifications. And because it is cross border, Abhishek, it needs a bit of a vetting by the Ministry of Commerce as well. So between Ministry of Power and Ministry of Commerce, in my opinion, I think they are dotting the Is and crossing Ts. It is almost at the last leg, and we should see it very, very, very soon.

And just in terms of any change in strategy due to the COVID disruption, that's it.

A lot, a lot. Look, we do -- COVID is just the way it is going to force us to -- a lot of companies to change. You will see us also getting a huge amount of change on account of COVID. And a few things. Let me just give you a few things. One is I think the way in which you engage and interact with the customer is going to change. So the customers were used to coming to your office and dealing -- or you used to go to office and dealing with the customers and then you have been showing them a few things, I think that needs to change. And that has a very profound impact on what we do. If the customers are not going to be engaging with you physically in their premises or in our premises, then your tech has to have a step-up to make sure that you are able to handle the customers remotely in an extremely seamless way and in a very user-friendly manner. So that's one big change. And I talked to you about how IEX is taking this whole point up. So we are giving whatever is possible -- doing whatever is possible to make sure that our infrastructure is absolutely pretty much the best-in-class in the world. And we don't -- from a tech perspective, we'll never count India alone because tech has no boundaries. We want to make sure that the tech is -- your tech, your infrastructural technology is the best in the world. That is one thing that we are very, very keen in terms of doing. The second thing that we are very, very focused upon is from our -- first, that is one, the external aspect. The second is internal aspect. Internal aspect one, technology. Second internal aspect is about our own employees. We got to make sure that the safety and security and the safety and health of our employees is absolutely managed. But we also realize that when you do a huge amount of work from home, there is a need to engage with your employees in a very different manner. The social aspect is the same in our lives right now, but we've got to make sure that whatever we can do to engage with the employees is done absolutely, absolutely in a good way. So we are carrying out many such activities, including trainings of people, including just fun and games with them, including all kinds of regular webinars and engagement outreach so that our employees are motivated and employees are taken care of and we continue to do with regular engagement with them. The third piece, which is beyond tech and beyond employee engagement, is a huge range of new products that we need to enhance with -- because post-COVID world will make it almost imperative for customers will start to come back and demand different kinds of features and functionalities, which we believe will be absolutely the right thing to do from their perspective, but it makes sense for us to make sure that we are providing that. So that would be the other thing, that our investment in product development people, new product initiatives has to grow that much, much higher. So there's got to be a very strong pillar in the company now of innovation, and innovation around creating new products, developing new products, which make sense for the customer. Now earlier, we were typecast to do a broad-based release of new products. So you do a product release which really makes sense for a range of customers, right, for a whole range of customers. But I think that strategy is going to change. And so trying to typecast yourself across a broad range of customers, really one out of few require a new feature/functionality of a product, I think we have to be alive and agile enough -- we have to be agile enough and sharp enough to make sure we're providing that. So there's a bit of innovation angle which is coming in. So there is an extra angle of customer user interface and customer sensitivity, making sure that you can deal with them remotely in a very secure manner, very user-friendly manner. There is an element of internal technology readiness. There's an element of new product innovation and new product development. And the fourth element is the element of employee engagement. We are very, very focused across these 4 dimensions to make sure that our outreach is really -- or our sort of company -- our company is reorienting itself to make the best of this post-COVID scenario. And then there are other things. I mean we know that in the industry, there will be a liquidity challenge, and there will be liquidity plans. And so how can we help to step up that? That is part of my regular business because what we do is we provide energy at the cheapest cost, right, in the most flexible manner. So people who want to buy through us at the shortest duration of time today, tomorrow, whenever they have to over the course of the next 11 days, and then that's one, so we provide them the flexibility, and we provide them the cheapest cost. So their financial distress can be relieved by buying through the thing right now -- through the exchange right now because a lot of customers are -- a lot of states are doing replacement buying right now. So they're retiring or they are putting to sleep their costly generation, and they're coming to the exchange. And by virtue of that, they are saving money. And I can tell you, 1 discom in South saved INR 60 crores by doing such a thing with the exchange for the month of April. So I think that's a great story. So those are the things in which the financial liquidity -- the operational excellence, your financial liquidity is the other thing that we are helping with. And our communication, so -- and the last thing which I should have emphasized a little bit more, our communication has stepped up. We are engaging a lot more from a communication perspective, written communication besides verbal, with our customers and our partners to let them know what's happening with the exchange on a daily basis. So exposing them to liquidity availability, exposing them to savings that they can get through buying through the exchange on the price front because price is at an all-time low and just assuring them that, don't worry, whatever and whenever you require, IEX is standing behind you absolutely solidly to give you anything that is in our media. Okay. So long question -- long answer, but there's about 5 or 6 dimensions on which we believe [ how post-COVID scenario will really look ].

That provides us a great perspective in terms of understanding how you're taking it forward. Being a finance professional, I'll just follow up with -- sorry, just understanding on the numbers, whether your budget has gone up or gone down versus your internal assessment after COVID?

That's sort of a long question right now, right?

No. So for this, I think I was just trying to understand, as a finance professional, I mean would your budget would have gone up or gone down in terms of internal assessment of how the market would shape up?

Look, Abhishek, I answered that question earlier as well because there was a question on what do we -- how do we assess the market and how we are trying to see the market. And is there a -- are we willing to give a prognosis for the future? And we said, look, right now, providing a guidance is tough right now at the moment because the situation is evolving. If things go the way first 12 days of May have gone, surely, most certainly, there'll be an absolutely, absolutely huge increment in what we will take on as a task for the year. But we are not certain. This is an uncertain situation. And so we need to calibrate ourselves almost weekly, if not daily, May is better than April, the industrial activity has to start to show up. And like I said, the oiling of the supply chain, in my opinion, is some distance away. So we got to calibrate answers on many dimensions before we come back and let you know how it goes. But we are very closely working and we are putting all -- and look, we can do what we can do. We can't really control the way in which the current situation will continue to evolve or how the industry will come back on track from a completely well-oiled supply chain, but we can do what we can do. And what we can do is exactly what I told you: focus on technology, focus on new product development, focus on employee engagement, focus on user -- customer user experience. All of those elements you could do, I can tell you one thing, Abhishek, you will be maximizing the situation more than anybody else can ever have. And that's our state of readiness. That's what we want to pay ourselves to.

Thank you, and all the very best. I think we've overshot on the time. Thanks for taking time for this call. And apologies, there are a few questions which are pending in the pipeline. But due to time constraint, I think we'll have to cut this short.

Look, thanks so much. And I really want to appreciate everybody's time, there's a huge number of people joined on this call. My apologies that we will make some of you a little dissatisfied because we'll not be able to answer and handle all the questions. We can't go on forever. But if you have specific questions, Aparna is our Investor Relations lady. You can reach out to her, send your questions to her, and I can make sure -- we can make sure that you will get all the answers that you want. So nothing will be left unanswered, whatever the question might be, and reach out to us. But thanks so much for taking the time to join on this call. Thank you so much, and have a great time. Stay safe and stay healthy.

Thank you very much. On behalf of Axis Capital Limited, we conclude today's conference. Thank you for joining. You may now disconnect your lines.