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

Ladies and gentlemen, good day, and welcome to the Indian Energy Exchange Q3 FY '22 Investors Conference Call, hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sumit Kishore from Axis Capital Limited. Thank you. And over to you, sir.

Thank you, Rituja. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I am pleased to welcome you all for the Indian Energy Exchange Q3 FY '22 Earnings Conference Call. We have with us the management team of IEX, which is represented by Mr. Satyanarayan Goel, Chairman and Managing Director; Mr. Vineet Harlalka, Chief Financial Officer; Mr. Rohit Bajaj, Head of Business Development; and Ms. Aparna Garg, Lead, Investor Relations. We also have the entire management team. We will begin with the opening remarks from Mr. Goel, followed by an interactive question-and-answer session. Over to you, sir.

Good afternoon, friends, and welcome to the IEX Earnings Call for Quarter 3 FY '22. Happy new year's to you all. And I hope everyone is safe and healthy. Joining me today, I have Mr. Vineet Harlalka, Mr. Rohit Bajaj, Mr. Amit Kumar, Mr. Sangh Gautam, Ms. Shruti Bhatia, Ms. Aparna Garg and [ Mr. Ajit Gupta ]. [indiscernible] the impact from the third wave of COVID caused by Omicron variant [indiscernible] [ mild and short lived ]. And there is no major lockdowns and no significant impacts on economics. In India, we expect the economic and industrial growth to continue [ on a wideband track. And mild traction ] has been seen recently due to COVID-19 [indiscernible] and restrictions in certain part of the country. During the quarter, both services and manufacturing PMI saw good momentum. Manufacturing PMI in November 2021 recorded 10-month high of 57.6, led by [ spending demand ]and improving market conditions, [ as against ] 55.9 in October. The PMI, however, [ moves to ] 55.5 in December 2021. Even in the services side, we witnessed an increase in activities leading to services PMI rising to a declared high of 58.4 in October and then 58.1 in November 2021. The services PMI in December was 55.5. In the second quarter of the fiscal 2022, India GDP grew at 8.4% on a year-on-year basis. Growth was driven by strong exports and domestic [indiscernible] as businesses ramped up production to meet [indiscernible] demand. India is likely to close this fiscal on similar note. For the full fiscal year 2022, the GDP is expected to be 8.3 year-on-year basis, as per [ World Bank ]. On the power sector front, at the end of December 2021, India's renewable installed capacity is now 151 gigawatts. The share of the renewable in India's total capacity base has increased to 38%. This is in line with the recently held COP26 summit at Glasgow, where India announced an ambitious target of achieving 500 gigawatts of renewable energy by 2030. With the ramp-up in manufacturing and industrial activities, the power consumption in the country in quarter 3 FY '22 at 321 BU increased by 5% on 2-year CAGR basis. Key contributors in demand increased [ by industrial state of Maharashtra ], where 18% increase happened; Gujarat, 14% increase; Andhra Pradesh, 12%; Telangana, 12%; and Tamil Nadu, 9%. Coal is a dominant source of energy, and we have been seeing that its favorability has improved significantly compared to situation [ in October. Now generating ] plants have started getting enough fuel to meet the growing demand of electricity. In the month of October, due to high demand and supply constraints from the domestic coal and also because of the high increase in the imported coal prices, the domestic coal inventories [ have only about 4 days, with lesser increase ] in the price of electricity. And our price has increased to almost about INR 8 per unit. However, with the increase in coal supply, the domestic coal inventory has now increased to 9 days in the month of December. And our prices in the month of November were about INR 3 and in December was INR 3.54 per unit. On the regulatory and policy front, also a number of developments [indiscernible]. A few highlights are, on 16th of December 2021, CERC had issued draft regulations for general network access. This will simplify and even clarify how transmission access will be available for participants on the exchange. Post implementation of GNA, decision-making by market participants to participate on the exchange will not be contingent upon transmission access and charges. The GNA will promote development of power market in the country. On [ 16th ] October 2021, the 10-year-long pending jurisdictional conflict related to power market between CERC and SEBI was resolved by honorable supreme court, giving way for the introduction of much awaited long-duration contracts on the power exchanges. This will also enable launch of electricity derivative on commodity exchanges. Electricity derivatives will smoothen out the price volatility, and also buyers will be able to hedge their portions and take delivery in the spot markets. I am sure this will lead to increase in the exchange transactions. Following this [ regulation ] conflict, IEX has also applied to CERC for approval of long-duration contracts. The application is under approval now; and we are expecting the approval in the next 2, 3 months. Next financial year, we should be able to launch this contract. Additionally, CERC issued draft Deviation Settlement Mechanism [ regulations ] and linking the DSM charges to the time block-wise price discovered on the exchange [indiscernible]. When implemented, this will help further expand the -- further expand and deepen the real-time market. The National Open Access Registry is likely to be implemented in quarter 4 of FY '22. NOAR will automate processing of open access applications and will thus reduce its lead time. This will also make the transmission allocation more transparent and efficient. All these initiatives are favorable for further development of power market in the country. I am pleased to share that there have been several positive updates on [indiscernible] in quarter 3 of this fiscal year. The green day ahead market was inaugurated by Mr. R K Singh, honorable minister of power and renewable energy, on 25th of October 2021. It now complements the term ahead contracts for solar and nonsolar energy within the green market. The [ collective option ] of green day ahead market is helping with competitive and efficient price discovery of renewable energies, also the green day ahead market and term ahead market together providing a spectrum of [ service ] to the market participants. The green market is expected to see even greater momentum and newer products going forward as [indiscernible] renewable energy increases in [indiscernible]. Under the Perform, Achieve and Trade cycle 3 -- cycle 2, IEX commenced the trade of energy saving certificates on 26th of October 2021. However, Bureau of Energy Efficiency has issued an office memorandum on 29th of December indicating a temporary pause in the ESCerts trading due to some administrative reasons. And we are likely to resume ESCerts trading soon. Trading in the REG -- REC market started on 24th of November 2021 after a 16 months gap and post issue of [ supportive and facilitative ] order by APTEL and CERC. We have been seeing a very strong momentum in [ REC trading ]. Calendar year '22 [ started on ] a very positive note for IEX. [ On the first day ], cross-border trade will become commenced in the day ahead market. Our cross-border electricity trade initiatives had begun with Nepal in FY '21 and now becoming [indiscernible]. We are also closely working with our key stakeholders in Bangladesh to garner their participation as well. These developments augur well for developing a large and [ well-leveraged ] South Asian regional power market in the future. The Indian gas exchange has been achieving consistent growth in terms of volume as well as ecosystem developments. In quarter 3 2021, IGX recorded trade volume of 3.6 million MMBtu -- in quarter 3 2021, IGX recorded traded volume of 3.6 million MMBtu, cumulatively trading 5 million MMBtu in this financial year. I'm delighted to announce that IGX has achieved breakeven in quarter 3 of FY '22 within 1 year of authorization. We are pleased to also say that IOCL has joined IGX as a new strategic partner. With the increasing volume and participants, IGX is well on its way to contribute substantially towards the government's goal of achieving 15% share of country's overall energy mix for natural gas by 2030. On a stand-alone basis, revenue for the quarter increased by 32.4% from INR 95.7 crores in quarter 3 of FY '21 to INR 126.7 crores in quarter 3 of FY '22. The PAT grew by 33% on year-on-year basis, with a margin of 63.1%. The company has announced an interim dividend of 100% per equity share. During the quarter, traded volume on the exchange grew by 37% year-on-year with 27.6% BU (sic) [ 27.6 BU ] volumes traded versus 20.1 BUs in quarter 3 of FY '21. The growth in volume was driven by an increase in electricity consumption as well as resurgence of trading in REC and ESCerts. Gujarat, Andhra Pradesh, Punjab, Maharashtra, Haryana contributed the [ highest day ] exchanges in electricity volume. The real-time market continues to be one of the fastest-growing market segments on the exchange, with a contribution of 20% to the overall electricity [ volume number ]. RTM business' 4.8 BU of volumes [indiscernible] growth of 70% on year-on-year basis in comparison to quarter 3 of FY '22 -- FY '21. The consistent growth of real-time market is an indication of growing reliance on distribution utilities and industries to achieve power demand-supply balancing in the real-time markets in most efficient manner. The green market, including the day ahead and term ahead market, cumulatively traded 1.2 BUs during the quarter and contributed 5% to the overall electricity volumes. On the REC front, a total of 38.28 lakh certificates and a total of 2.86 lakhs energy saving certificates were traded during the quarter. We are now gearing up for the launch of much awaited long-duration contracts in both electricity and renewable energy. We are also working on other [indiscernible] such as exchange-based ancillary markets, capacity markets as well as gross bidding contracts. The power sector is undergoing a significant change with greater focus on sustainability, and this has been redefining the industry outlook. The demand for electricity is expected to continue to grow. At IEX, our constant endeavor is to innovate, improve technology and introduce new market segments and products to help the market participants meet their fast-changing requirements. Besides that, we are continuously assessing new opportunities that are unfolding. Thank you, everyone. We can now start the question-and-answer session.

[Operator Instructions] The first question is from the line of Mohit Kumar from DAM Capital.

Congratulations on a very, very good set of numbers. Sir, first question is on the gross bidding. How do you see this gross bidding changing your volume, the behavior of discom and incremental volume as you see from FY '22 onwards? And secondly, on the MBED, is there any update which you can share? Has CERC started implementing that? The last question is on ESCerts, why is -- there was no trading from ESCert in December. And do we maintain the projection of 3.3 BU [ which you're expecting in ] ESCert in this particular financial year? [ They're the 3 questions ].

Yes. Thank you, Mohit. Let me first discuss about MBED. Government of India has [ strengthened discussions referred to ] CERC, [ where the ] CERC [indiscernible] differing rules and regulations for implementation of MBEDs -- are you able to hear me?

Yes, we can hear you, sir.

Yes. So CERC has to now pick up their activity for planning draft rules, regulations for implementing MBED. And once they finalize that, then only [ the regulations ] [indiscernible]. So I will not be able to tell you any time line for that. And gross bidding, look. [ MBED is our inventory ] market, but we devised a product which is gross bidding, which is a voluntary market. So in case of MBEDs, our [indiscernible] exchange. And you see this in companies that buy power from exchange. The same thing, [ you see ] different companies can do on voluntary basis also. So the exchange [ clearing ] price is INR 3 per unit. So what we can do, the power plants with variable costs is [indiscernible] from INR 3 to INR 3.50. Below INR 3, they know in any case they will need to [ fill in that ] power. So they can directly [ fill in ] that power, but from INR 3 or INR 3.50 [indiscernible] per plant, they can trade that power on the same platform and buy power from the exchange, depending on their requirements on their different time block. This is a voluntary mechanism. And what -- by gross bidding, they can achieve whatever government of India wants to achieve through the MBED process. And I am sure, including gross bidding also, they will be able to achieve that efficiency and [indiscernible] dispatch. So we applied to the regulator for approval of this product. Again, stakeholder discussion is going on for this. And we are expecting approval maybe in the next 3, 4 months from the CERC. As far as ESCerts is concerned, [ you know very well that central really ] put a hold on the trading of ESCerts. I think there were some administrative reasons for that, and once that is resolved, then it is expected that the ESCerts trading may start from the next month.

The next question is from the line of Devansh from SIMPL.

Congratulations on a good set of numbers. Sir, a couple of questions. One is in case of gas exchange. After the recent stake sale, have you complied with the ownership [ norm ]? Maybe -- I think below 50% was where we were supposed to comply. And there was also a discussion regarding the same, so if you can just throw some light over there.

Yes. I mean, after sale of 4.93% stake to IOCL, our -- IEX shareholding in IGX reduced to [ 47% now ]. And IGX is not a subsidiary company of IEX. It is an associate company of IEX.

Okay, all right. And will there be any further selling in stakes?

No, no. As of now, we don't have any plan because we wanted the strategy to get a strategic stakeholder for the gas sector on board so that we -- together we can develop the market. And I think [ we have done before ]. We have today ONGC, MGL [indiscernible] Torrent and Adani. I think these are large [indiscernible] in the sector.

The next question is from the line of [ Ankush Agrawal from Surge Capital ].

Sir, firstly [ on MBED ]. So the [ first wave ] is supposed to be implemented from 1st of April of this year, right? So even though like you are saying that CERC has yet to frame the routes, but what is the progress like? Have there been any kind of discussion between the industry participants until now?

To the best of my knowledge, it's nothing like that. So [ APTEL ] appears to be difficult [indiscernible]. So it all depends on [ facts and, like, the assets ].

All right, but so given that, do you think it is feasible that -- to think, in these 2 months pending the -- from the date of [ incremental experience ], it will be possible to do that?

No, no, no. There are a lot [indiscernible] because it amounts to amending a couple of regulations, making [indiscernible] claim and settlement arrangements for that. And then we will have to also build [ module ] for that, so I think [ we have a lot of fixing with that ] before implementing this.

All right, so your expectation that it won't happen from [ key pilots ] this year, right?

[ Right ], no, no...

All right, okay, got it, sir. And sir, secondly, on these stake sales in IGX, all right: So selling stakes to, say, MGL, IOCL, Adani [indiscernible] are understandable [indiscernible] strategic partners in the gas economy, but I want to understand the reason for selling such huge stake of 26% to NSE, right? Because NSE, I am not able to understand what value they bring. I mean we have more than -- more experience, than anything, running and delivering these power -- I mean, commodity exchanges. So if you can highlight, what was the reason behind selling stake to NSE?

I think that mainly it's because NSE is [ the largest ] [indiscernible] the country, the largest [ section ] in the country doing such as -- I mean not in the spot markets, but then they have largest reach in the market. And we decided to take them as a strategic partner, and we are definitely getting a lot of value in the process. And also, instead of having multiple exchanges competing with each other, it is good to have an exchange and work together in that market.

[ Got it ]. So it was more on the competition [indiscernible].

Yes.

The next question is from the line of Swarnim Maheshwari from Edelweiss.

Congratulations for this set of numbers. Sir, first question, [ if you'll receive ], how does this general network access [indiscernible]? Do we mean that this will actually, when -- once implemented, we will get rid of the open access charges which are needed by the state?

Yes. General network access is a very, very friendly, market friendly, regulation. Under this regulation, distribution companies will have to take general network access on long-term basis. And as long as the transactions are happening within that quantity within that access they have taken, then they don't have to pay another charges. I mean, for the [indiscernible], they have taken general network access depending on their [ seasonal ] requirement [ and the first 3 months ] for 10,000 megawatts. And what we are getting power from under the long-term contracts is only about 8,000 megawatts, so they can buy 2,000 megawatts power from the market, from that [ figure ], without paying any additional network charges. Earlier, they were required to pay charges [ for the custom also ]. Now they are not required to pay [ back ]. So that will be one positive thing. [ And secondly ], if they are selling power, then also earlier they were required to pay charges [ for selling network charges ]. Now they are not required to pay those charges, so it is only the buyers will be -- who are required to pay. Earlier, [ if not ] buyer and sellers, both were required to pay the charges. Now it is only buyers will have to pay it, so it is making the process much simpler. There is also a provision for short-term general network access. If anybody is -- has seasonal demand for maybe 2 to 3 months time and he wants to take additional access, depending on the availability, there can be [indiscernible].

Hence essentially, sir, this talks about the reduction or elimination of the access charges or the transmission access charges, not the open access charges, which are 2 different things. Is that right?

No. I think, transmission charges and open access charges, all these things, all these regulations will be now merged into this GNA regulation...

But sir, [ we see that these ] open access charges is more of state prerogative, isn't it, sir?

No. State prerogative is intrastate charges. GNA is -- are interstate charges.

Interstate, all right.

Yes, yes. So interstate charges are going to be [indiscernible] intrastate. Intrastate, as of now, they will continue as it is. Maybe in future [indiscernible] [ taking a lead ] from this GNA [indiscernible].

Okay, got it, got it. Sir, secondly, on the gross bidding, I'm not sure. I need to better understand. Are you trying to say that this, once implemented -- I mean, of course, it's a voluntary mechanism. What -- if it is implemented, does this circumvent MBED by any chance? This -- is this what...

Yes, yes, yes. We are confident that, if gross bidding is implemented effectively and used by the states effectively, there is no need of MBED.

There is no need of MBED at all.

[ Yes, yes ]. We can achieve the same kind of efficiencies through this gross bidding mechanism.

Okay, okay, all right. Sir, will there be any kind of, say, [ draft concern, sir ], on regulations that is likely to come? Or has it already come on gross bidding?

No. So gross bidding, we have applied to CERC for approval of this product. When there is regulatory approvals, then the acceptance by the market participants is much better -- yes. So once there are regulatory approvals, then the acceptance of the market participants is much better, so we are waiting for the CERC approvals. CERC has the application [ based on the period we did of ] stakeholder consultations. And [indiscernible] with the stakeholders. So we are working on that.

The next question is from the line of Sumit Kishore from Axis Capital Limited.

The first question is total backlog of REC yet to be redeemed is about 65 million-odd, so do you see a potential for a pickup in the pace of, say, the quarterly run rate of REC trading that we are seeing because there has been a big backlog which has got accumulated over the last few months the trading was halted?

Yes. I mean demand for the REC is definitely much higher because there is a backlog of 2 years. And if you look at the RPO compliance, also there is shortfall in that, but REC inventory [ is going to be unlimited for now ] because new capacities are not getting [ lower ] in the scheme. So whatever capacities there under the REC scheme earlier, they are continuing. So every year, almost about 50 lakh, 60 lakh RECs are issued. And trading is happening for that number of RECs. So since -- for 2 years, trading had not happened, so this year, we expect almost about 1 crore RECs traded.

Okay. And IEX should be able to garner a decent market share of this.

Yes, yes, yes, definitely.

Okay. Could you also speak about the time line of launch of electricity derivatives on -- by MCX [ from here ]; and also elaborate on the role of IEX, the revenue-sharing arrangement that is likely to be between IEX and MCX? What quantum of derivative contracts will come up for physical settlement on exchange? If you could please elaborate on the whole electricity derivative story.

Yes. First of all, let me tell you one thing, that there was a dispute between SEBI and CERC about regulating that, [ electricity in contracts ], delivery contracts and the derivative contracts. The reason behind this was that electricity regulation was quite apprehensive of electricity derivatives. Electricity derivatives may have an adverse impact on the spot market. So when this issue was discussed and the committee discussed about this, [indiscernible] decided that, "Let there be a joint working group of SEBI and CERC. And this joint working group should look into the kind of derivatives which are going to be [ locked ] and what kind of impacts it will have in the spot market." So a joint working group has been already constituted. They had a couple of meetings. And they will -- and what I understand, that this -- commodity [indiscernible] have already applied for -- applied to the [ SEBI ] for approval of derivatives. So we are looking at that; what kind of derivatives with this particular product can be approved, to start with. So I think, within this financial year, the approval should come.

FY '22 [ itself ].

Yes, FY '22 [ itself ], this will start. That is my estimate, but then it depends on the joint working group. But this will start, definitely, shortly. There are no [ stopping that ]. Government and regulators both want to start these activities because this will deepen the market. And as far as our role in this market is concerned, number one, when -- let's say the derivatives have [ locked ]. This will definitely smoothen out the price volatility on the -- in the spot market. And this will also provide an option to the buyers for hedging their positions in the derivative market and take delivery in the spot market. And what we understand from the international exchanges, whenever these derivatives [ are launched ], that the liquidity in the spot market increase significantly. So we expect the same thing in the Indian market also. And we have arrangement with MCX because MCX were -- will be launching their contracts based on the [ IEX clearing ] price. And we have -- as you pointed out, that we have a revenue-sharing arrangement with them, so as and when the products are [ locked ] and -- they will start [ tailing off that ]. And then we will see what kind of volume happen during that.

The next question is from the line of Suraj Nawandhar from Sampada Investments.

Sir, I wanted to understand our customer and supplier concentration. Like how much of our volumes are contributed by, let's say, top buyer or 5 buyers? And how much of our sell-side volume is provided by a top seller or top 5 sellers?

[indiscernible]. There is definitely some concentration because there are a few states who are -- if you look at the -- if you add the power consumption of the states of Gujarat, Maharashtra, UP, Tamil Nadu, these 4, 5 states itself contributing to 50% of the consumption of the whole country. So naturally, on the buy side also there will be contribution to the concentration because they are the big buyers. So top 10 buyers are constituting almost about 58%.

Okay.

58% of the total buy. And top 10 fill up almost -- about 56% of the total sell.

Okay. And sir, how much do we charge for the new energy certificates? Like we charge 2 paise each from buyer and seller for the per unit. So what are the charges for the green market and renewable itself -- certificates?

On the certificates, [ we charge ] INR 20 on either side.

INR 20 per certificate.

INR 20 from buyer and INR 20 from seller.

Okay, okay. And on the green [ time line then ]...

It depends [ on the consumption of markets ] [indiscernible] [ on either side ].

Okay, okay. And sir, what would be our volume growth ex of the new products? Like last year, at the same time, we did not have the green day ahead market. Or we did not have [ any renewable ] certificates. So what will be our volume growth ex of these products which were not traded last year, same quarter?

[indiscernible]. See, our third quarter electricity volume growth was 17%, only in electricity. And after taking REC and ESCerts, it is 37%. And [ out of this ] 17% growth, the growth was mainly because of the RTM. RTM, we had significant volume increase. And they are also because of the [ DAM ] market. In [ DAM ] market, [ we have an ] increase about 4%, but in the RTM market, the volume increased of -- 70%. So we can say the new products have given significant volume [ growth ].

Okay, okay, sir.

And green term [indiscernible], in that market also, last year, it was about 0.5. And this year, it was about 1.2 BU, so there also we did a good jump. Green market, I am sure, in the future also we will continue to see good growth in this market.

The next question is from the line of [ Sudha Gupta ] from [indiscernible] Capital.

Sir, I had an opportunity to look through the investor presentation that was uploaded on the BSE website, which according to some analysts predict about a 4x top line growth by FY '24, but my question is pointedly about the fact that we have 2 power exchanges coming into operation in the next financial year, 1 of which is PTC Indian bank which provides a lot of -- which is a market maker on our exchange. So could you please comment on what is the expected effect on our revenue projections or our margins over the next financial year due to these particular exchanges coming into play?

So as of now, there are already 2 exchanges, IEX and [ PXIL ]. And next financial year, we may have [ a kind of spin, which is kind of ] [indiscernible]. I think [indiscernible] the new name is [indiscernible]. So this has been promoted by [ BSE ]. So that may be there, but I don't see any challenge in that. I mean we are already working in a competitive market right from the beginning. There are 2 exchanges and we are competing with each other. So in spite of that, we have been able to maintain significant market-leading place in the market. [ So even with the same also ], I'm not really concerned. So the point is what we have to do is provide an efficient technology platform to the market participants; innovate, provide new products; understand the requirement of the market; and provide new products. And I'm sure, if we are able to provide that value, [ customers will shift to us ]. We are upgrading our technology platform also, going to go ahead with the web-based system to provide ease of doing business for all participants. So all these things are going to drive a lot of value to our market participants. We are also working on data and analytics to help our customers to do [ efficient bidding ]. So a lot of initiatives we have taken. I am sure we'll see, with these, we will be able to deal with the competition.

No, sir, I appreciate the effort you are taking to retain the market share. My question was just about what is your internal projections or estimates with -- and even in the most conservative way, as to what volume de-growth, if at all, we see over -- due to the existence of the new exchange; or any fall in margins. And secondly, sir, if -- I would like to know. What share of PTC India's business do we be handle currently? And do we see an outflow in the future because of their own exchange coming up?

In the earlier con call also, I have said the same thing. When we do trading [indiscernible] platform. Who decides on from which particular exchange you want to buy? [indiscernible] decides that, not [indiscernible]. It is the buyer of shares who wants to decide or seller of shares who wants to decide if they want to buy your [indiscernible]. We have to give that option -- not [indiscernible] or director of other platforms. Similarly, in case of the trading company, it is not the seller who decides if they want to sell or buy. It is the buyer or seller of electricity. They have to decide where they want to do it. And for a buyer and seller, electricity is a commodity which is a [ priceable ] commodity. [ Core generator's ] electricity is not sold. It is the opportunity is lost forever. We cannot [ stall ] the electricity and sell it tomorrow, so we would like to sell the electricity on exchange platform. [ That is liquidity ], where there -- you know that buyers are there. And same thing is for the buyers also. So I am very sure that there is not going to be an impact of this. And we will deal with the situation as it emerges. I don't see any challenge in that.

The next question is from the line of Apoorva Bahadur from Investec.

Sir, I wanted to understand on this gross bidding. Now correct me if I'm wrong, but what will be the incentive for states with no variable-cost power to place their power on the exchange, right? Because my understanding is that, even in MBED, this one was bone of contention wherein states with access -- or with coal reserves are not very keen on letting go of their ability to schedule power even on the -- or before the -- before [indiscernible]. So can you please help us with that?

The states who have allocation from the low-cost power plants and does not have demand to utilize the full allocation, they can sell that power on the same platform at the same [ clearing ] price and take advantage of the low variable costs. Presently most of the states are -- what they are doing is they are not [ filling in ] their power. That power [indiscernible]. Under this gross bidding mechanism, they will be able to sell the power and take advantage of [indiscernible] [ clearing ] price. When the market [ clearing ] price is more than the variable costs of those plants, they can make some gain out of that.

Okay. And this will happen on a day ahead basis or RTM...

Yes, this will happen on day ahead basis, mostly on day ahead basis.

Okay. So in case there in the last minute a demand increase for these plants, they will not be able to reschedule those -- that power. They will have to buy on exchange.

Then they have the option of RTM markets. And when you participate in the markets, you can fine tune your bidding strategy, what kind of [ a system ] takes place, how much power I should pay for the [ intra devaluations ] and how [ it's going to be the entire ] RTM market. Can I depend on that, or not? To what an extent I can depend on that. All these things -- when you participate in the markets, you fine tune your strategies, so I don't see any issue in that.

Right, sir, fair enough. Sir, one last question on this. And this is something which we saw when there was a coal shortage in October as well, that the central government started issuing directives that [indiscernible] states should not sell power and try to gain from an opportunistic thing and rather than convert coal. So generally the idea is, since more or less we have times of coal deficit, do you think, if this is not mandatory and it is voluntary, [indiscernible] exchange market will prevail even when there is a time of coal tightness for these no-variable-cost power plants?

Number one, this kind of situation happens maybe for 10, 15 days in India. It don't happen throughout the year. And second is I personally believe that we should not [ compare ] with the markets. We should allow markets to operate freely. A state which has got less demand and more power availability, if they have to -- often to sell, they should be allowed to sell because they are also buying power when the rates are costly and demand is high. So we should leave it to them and expose that power availability [ to users ] in the market. The market [ clearing ] price also will go down. It will help the market. And I mean that situation ran for 15 days, in the first 15 days of October. And in the second 15 days of October, the rates went down. Month of November, [ there was a lot of the opportunities ]. So that situation, we had just for 15 days.

Sir, any inkling by when we can expect the regulator to act on this? Or any time lines for this, sir?

They have asked us to do the stakeholder consultation. And it will take, I think, 3, 4 months time. After consultation, we will file, and then they will have hearing. And I think we will also have to [ see ] what kind of products will be approved.

Sure. [ And this becomes redundant as MBED ] is implemented, anyway.

I will say, if this is implemented, MBED will become [ redundant ].

The next question is from the line of [ Prashant Rane from Exclusive Advisers ]. As there is no response from the participant, we'll move to the next participant, which is the next question which is from the line of [ Oden ], an individual investor.

Congratulations for the [ best results ]. Can you hear me?

Yes, yes, I can hear you.

Yes. From the results which I can see, there is a significant expense increase in the other expenses, which is approximately double of previous quarter as well as previous year quarter, so can we have some light on that?

Vineet, would you like to take that?

Yes. I'd just like to confirm because, in this quarter, we come out with a bonus issue. So the -- mainly the increase of the expenses are on the -- 2 accounts: one, the higher [ CSR ] expenses; and the bonus expenses. So [ 1 of the 2 reasons of this increase ] can be [indiscernible]. So these are the 2 reasons for the higher quarter, though the additional costs were more or less in line with the previous quarter.

So from next quarter, can we stick with the same, like, previous quarter...

Yes. [indiscernible], that is our trend.

The next question is from the line of [ Vikash Avasta ], an individual investor.

Yes. My question was on the gas exchange, if you could throw some light on the volumes. Is it breaking even? How is it looking? That was one question. And the other: With your stake down below 50%, does -- the profit of the gas exchange, as and when it happens, will it get consolidated with the holdco?

Yes, [ consolidation ] is -- I mean it depends on us, but as far as the number for gas exchange is concerned, let me tell you one thing. First quarter of this year, gas exchange did a volume of about 3.3 lakhs MMBtu. Second quarter, they did about 10 lakhs MMBtu. Third quarter, they did 36 lakhs MMBtu. Every quarter, they are almost multiplying their volume by 3x. I mean [ these are lighter part of it ], but the volumes are increasing. And I'm sure, with the increased participation of the participants in the gas sector, the gas exchange is doing very well and the volumes are going to increase further. In the third quarter of this year, for the first time, IGX was on the breakeven and made a profit of [indiscernible].

Well, that's very impressive. So you do expect the exponential growth in the gas volumes going forward too.

Yes, yes, definitely, definitely.

The next question is from the line of Abhilasha Satale from Dalal & Broacha.

Sir, my first question is on the DAM volume. So as -- we are seeing the RTM growth is substantially higher, whereas DAM volume growth has slowed down from whatever the highest we've had. So is it that RTM is cannibalizing [ than those 2 credits ] are complementary to each other? Or I mean -- so how do you think this trends going forward? This is the first question. And second is the third exchange coming in. Are you leaving the charges which are higher trend of the CERC approval charges? So do we have any intention to reduce that as the competitive intensity increases? Or how do we see the charges trend going ahead as volumes increase substantially?

Yes. I mean, in the first 9 months of this year, we have achieved an electricity volume growth of 37%. And electricity is electricity, whether it is purchased in [ GDAM ], DAM, RTM, green -- and green DAM, whatever. So it is a total electricity grow -- volume growth. Participants are trying to optimize different products. They are trying to optimize the costs and the requirements, meeting the requirements through these different products. It was expected that, with the launch of the RTM market, maybe some of the demand will shift to the RTM market because they will be able to more accurately forecast the demand during the day and purchase that power instead of buying it day-ahead basis, yes. So I mean, whether it is cannibalizing, the RTM, day ahead markets, that is difficult to say, but definitely RTM market participation has increased. And going forwards, I think you will see further increase in the green market because green market, which was lost last year, is returning this year [ in demand ]. And these 2 markets are -- presently the volume is slightly lower and -- but the participation is further increasing in the markets also. So at that time, you may see that the DAM volume growth is further impacted, but [indiscernible] volume has to come from all these products. As far as the [indiscernible] is concerned. We are working in the markets based on the value that we are providing. And the participation on the exchange platform is dependent on that, so our job is to continue to provide value to the customer. And I believe that [indiscernible] is much, much lower in comparison to the value which we are providing [ then ], so we have no intentions to compete based on the value [indiscernible].

The next question is from the line of Swarnim Maheshwari from Edelweiss.

On gross bidding again. So I suppose that this gets implemented. What about the transaction fees, will it be similar to all the other products? Or they will be regulated in a different manner.

It will be difficult to answer that today because it depends on the quantum of volume which is coming. It depends on the volume. So if the state is bringing significant part of the selling by volume on the exchange platform, then maybe we can think about different charges for the gross bidding because, even post selling like 100 MUs and buying 60 MUs -- so then effectively we are selling 40 MUs. So we may have to think something about that. As of now, we have not [ handled anything on that ] -- and letting the products be approved [indiscernible] happen and starts. And then we can think about that also if required.

Okay, but do you see a real case for it to get started in FY '22?

That is our target. We are working on that.

The next question is from the line of [ Vikas Kasturi from Focus Capital ].

Sir, I just want -- the reason that you sold about 4.93% stake in IGX to IOCL. So when I did the calculation...

[indiscernible], I'm [indiscernible]. I'm not able to...

I'm sorry, sir. I'm sorry. My apologies, sir. I hope I'm audible now.

Yes, much better.

Yes, yes. So sir, recently you sold 4.93% stake in IGX to IOCL. Sir, that was at a valuation of somewhere around 75 crores, if I'm not right -- if I'm not wrong, so my question is, sir -- in your own words, you said that, every quarter, the volumes on IGX has been growing. In fact, it's been growing exponentially. And so -- and in the future, it could have same kind of growth that we could see in -- that we have seen in IEX, so sir, don't you think this 75 crores valuation was a little on the lower side?

So last year, when we started [ this CapEx spend ], at that time itself, we decided to have some strategic partners with us. And we decided who are those partners going to be. It was not offered [ next to ] everybody. [ They decided they want to do that ] and [indiscernible] [ a little bit then ]. So IOCL was there in the list. We offered them at that time. [indiscernible] was there was slight delay from the IOCL pricing [indiscernible]. We have sold [ these entities ] to all the participants, [ whether it was ] ONGC, GAIL, IOCL, Torrent and Adani [ at par ]. We have sold it [ at par ]. It is basically not [indiscernible] investment by all the participants. So [ it is what that view ]. I know very well that there were a couple of private equity investors who were willing to offer much higher [indiscernible], but no, [indiscernible] strategic investment. We want a strategic investment [indiscernible].

The next question is from the line of [ Ankit Mittal from Invest Research ]. As there is no response, we'll move to the next question, which is from the line of [ Ankur Agarwal ] from PhillipCapital.

I'm just coming back to gross bidding, and please pardon my ignorance. I just basically wanted to understand. What is the difference? Or rather what will be the benefit of gross bidding compared to the current mechanism that we have? If you can just explain that briefly, that will be very helpful.

So presently the state is they have allocation from the different power plants. And they have people with the different RPCs. And the total quantum available with them is 10,000 megawatt. And the demand during the day is not constant. It is sometimes maybe [indiscernible] hours [indiscernible] 11,000 megawatts. Maybe during the night hours, it is 8,000 megawatts. Day time, it's maybe 9,000 megawatts. So what we're doing is giving [indiscernible] generator accordingly. And whenever the demand is lower than the total allocation from this plant, a part of the capacity remain [indiscernible]. It's they're remaining unutilized, whereas the exchange [ clearing ] price at that time, even in comparison to the power plants which are [indiscernible], may have been higher. So the states [ do not -- sold ] that power that [indiscernible] instead of [indiscernible]. So instead of -- I mean, if you want to give it fine tuning by distributing directly to the state and then partly selling on the exchange platform, it becomes slightly difficult. So what we can do -- you know power plants having variable costs less than INR 2.25. Definitely [ the site will need ] 100% of that, so they can [ distribute ] that power directly to the state, but the power plants where the variable cost is INR 2.25 to maybe INR 3.25, in these plants, depending on the requirement, [indiscernible] will be varied. So instead of [indiscernible], they can sell that power on the exchange platform [ on the plant ]. They can distribute them, sell the power on the exchange platform, depending on exchange [ clearing ] price; and [indiscernible] their requirement from the exchange utilizing day ahead market and RTM market. So they can fine tune their purchase to meet the demand. It's they we can utilize this platform for making money by selling [indiscernible] power and also meet the demand efficiencies.

The next question is from the line of Mohit Kumar from DAM Capital.

Sir, 2 questions. So first is one clarification. The behavior of private discounts utilizing this new innovation like gross bidding should be higher, in your opinion, versus discounts owned by the state.

I agree with you that -- I find the behavior of state discounts -- they're -- I mean power purchase optimization also has improved significantly, particularly in states like Gujarat, MP and Telangana, Andhra Pradesh, UP. There are many such states who are also optimizing their [ power-purchasing costs ]. And I'm sure [indiscernible].

Sir, do you see any significant improvement by the states in optimizing their power costs compared to, let's say, 5 years back? And do we have any role to play in that in terms of consulting or something? Is it possible?

Mohit, I can tell you one thing. There is a lot of change, a lot of change if you're comparing the last 5 years. They like UP. They were not buying or selling in the exchange platforms. They were not participating in the exchange platforms. They were bidding in -- on the long-term and short-term contract in high price. Today, UP is buying power also [indiscernible], and they are selling power also whenever they have surplus. They have -- under the PPA, their variable cost is lower. And they are selling from an exchange platform at higher cost then making money in the process. And same is [indiscernible] with other states like with Telangana, UP, Andhra Pradesh, Karnataka, but there are many states [indiscernible]. No, it is happening because, my business development team, we are continuously interacting with the states, the power procurement sales team, telling them how they can utilize this exchange more efficiently, how they can do their bidding. How can they improve upon their bidding strategies? So they are optimizing some tools also which have been developed. How can they use these optimized -- different tools to optimize their costs? All those things have been done now.

And sir, lastly, on the dividend policy, given the fact there is no major CapEx [ initial ] lined up in the near future, do you expect the dividend to go up in the -- in FY '23 and FY '24?

So we have been giving more than 50% of our profit in the form of dividends. That has been the consistent policy of the company, so we intend to maintain the same. And maybe if there is no need of money and there is no point in [ keeping and sitting ] money with the company, maybe in future, if there is [indiscernible] we can increase the dividend [ outlook ].

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments. Sir, would you like to give any closing remarks?

Yes. Thank you very much for participating in today's call. I must say that energy markets have been playing a pivotal role in building India's sustainable and efficient energy [ of the future ]. We are very excited about the prospects of the company and the new opportunities that will unfold. I look further to a positive interaction with you all in the next quarter just like this one we had. Thank you very much.

Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

Thank you.

Thank you.