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

Ladies and gentlemen, good day, and welcome to the Indian Energy Exchange Q3 FY '25 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rohan Gheewala. Thank you, and over to you, sir.

Thank you, Sagar. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I'm pleased to welcome you all for the IEX Q3 FY '25 Earnings Conference Call. We have with us the management team of IEX, which is represented by Mr. S.N. Goel, the Chairman and Managing Director; Mr. Rohit Bajaj, Joint Managing Director; Mr. Vineet Harlalka, Chief Financial Officer; Mr. Amit Kumar, Head of Market Operations, New Product Initiatives and Exchange Technology; and Ms. Aparna Garg, Head, Investor Relations and Corporate Communications. We will begin with the opening remarks from Mr. Rohit Bajaj, followed by an interactive Q&A session. Over to you, sir.

Good afternoon, everyone. Am I audible?

Yes, sir, you're audible, loud and clear.

Okay. Thank you. Good afternoon, everyone. I welcome you all to the IEX earnings call for Q3 FY '25. With me today on this call are Mr. Satyanarayan Goel, CMD, IEX; Mr. Vineet Harlalka, our CFO and Company Secretary; Mr. Amit Kumar, Head of Market Operations, New Product Initiatives and Exchange Technology, Ms. Aparna Garg, Head of Investor Relations and Communications; and Mr. Aditya Wali. Friends, the last quarter was a challenging one for the Indian economy. Economic growth in Q2 experienced a dip on account of weaker private consumption and slowed to 5.4% after more than 2 years of sustained accelerated growth. Subsequently, the RBI has also revised India's GDP growth forecast for FY '25 from 7.2% to 6.6%. However, based on high-frequency indicators of economic activity, RBI expects a recovery in Q3 FY '25 from the previous quarter's slowdown driven by increased private consumption. On the power sector front, electricity demand at 393 BUs during the third quarter was higher by 3% Y-o-Y, better than the previous quarter's muted 0.5% growth. Power demand in the country for the first 9 months of FY '25 has been higher by 5% over the same period last year. The Ministry of Power has continued to maintain its focus on monitoring capacity addition and strengthening overall power infrastructure. Already, 28 gigawatt of thermal capacity is under construction and about 40 gigawatt is under planning and tendering stage. In addition, 40 to 50 gigawatts of renewable capacity is to be added every year till 2030. This additional capacity is expected to increase sell-side liquidity on the exchanges in the coming years. On the fuel side, there has been ample availability of coal this fiscal. At 726 million tonne, coal production for the first 9-month period from April to December FY '25 has been higher by 6.1% compared with the same period last fiscal. Coal is available at a nominal premium of 10% to 20% under the Shakti B8 auction and coal inventory today stands at a healthy 19 days. Imported coal prices in Q3 have also been competitive at $50 per tonne. To meet the growing demand for power, MoP also made adequate provisions to ensure availability for the winter months by extending Section 11 directive to imported coal-based power plant to operate at full capacity up to 28 February 2025. These imported coal-based assets should support liquidity on the exchanges. Gas price at $14 per MMBtu, however, has seen a slight uptick in Q3 compared with $12 per MMBtu in Q2 due to onset of winters and continued geopolitical issues. Adequate availability of fuel in this quarter led to higher liquidity on the exchange platform as sell quantum increased by 62% on a Y-o-Y basis, leading to softening of the prices. For Q3 FY '25, prices in the Day Ahead market averaged at INR 3.71 per unit, a decline of nearly 26% on a year-on-year basis. As prices remain competitive, DISCOMs and Commercial & Industrial consumers continue to have an opportunity to meet their demand at competitive prices and optimize their power procurement costs. With these trends, volume growth is expected to continue going forward. Let us now talk about important regulatory updates and policy initiatives during the quarter that helped deepening of the power markets. Under the amendments to late payment surcharge, LPSC rules, generating stations which have long-term PPA can now offer un-requisitioned power in the Day Ahead market as well as the Real-time Market segments. Recent amendments in the LPSC procedures has now also brought the state government-owned generating stations under its ambit, mandating them to offer URS power on the exchange platform. This is expected to further increase liquidity of the exchanges. The Deviation Settlement Mechanism, DSM regulation 2024 is work in progress towards renewable integration and grid stability. Under the proposed amendments, deviation charges are again linked to grid frequency. With regards solar and wind generators, deviation percentage allowed for levy has been narrowed to 10%. This is expected to help increase RTM volumes at exchanges. With regards the carbon market, CERC issued draft procedure for trading of Carbon Credit Certificate for both obligated as well as non-obligated entities through power exchanges. This will result in trading of Carbon Credit Certificates on IEX in the near future. IEX business performance during Q3 FY '25 has been robust. At 30.5 billion units, electricity volumes for the quarter were 16% higher on a year-on-year basis. For the first 9 months of FY '25, electricity volume at 89 billion units were higher by 19% Y-o-Y basis. In Q3, a total of 26.5 lakh renewable energy certificates were traded, a jump of 31% over the same quarter last fiscal. REC trading volume touched 110.6 lakh certificates for the first 9 months of FY '25, a rise of 158% over the same period in FY '24. The RTM segment continues to demonstrate strong growth. For Q3 FY '25, RTM volumes were higher by 30% Y-o-Y at nearly 9.3 billion units, showcasing its critical role in helping DISCOMs as well as open access consumer efficiently manage their short-term electricity requirements. For the first 9 months in FY '25, 29.3 billion units were traded in this segment, a growth of 29% year-on-year basis. RTM stability to offer flexibility and immediate responsiveness highlights the opportunity to efficiently integrate renewables with the grid. With regards to the Green Market, in Q3 FY '25, volume rose over 300% to nearly 2.5 billion units, compared with Q3 FY '24. While we continue to await approval from CERC for our long duration contracts of up to 11 months, the hearing of our petition on the Green RTM segment was held recently by the CERC. As per the commission's direction, we have sought public comments on our proposal. Green RTM would provide an opportunity for RE sellers to avail price premium over conventional power and allow buyers to avail green attributes of electricity. This segment shall also help reduce deviation exposure due to weather events by providing an avenue to trade green power one hour in advance. Let me now summarize the financial performance of the company in this quarter. On a consolidated basis, revenue for the company grew 13.7% on a year-on-year basis in Q3 FY '25, increasing to INR 160.5 crores from INR 141.2 crores in Q3 FY '24. Consolidated PAT increased by 16.9%, rising to INR 107.3 crores in quarter 3 of FY '25 compared with INR 91.8 crores in quarter 3 of FY '24. For fiscal year 2025, the Board of Directors of the company announced an interim dividend of INR 1.50, equivalent to 150% of the face value of equity shares. IGX traded volume of 162 lakh MMBtu for Q3 FY '25 compared with 84 lakh MMBtu traded in Q3 last fiscal. In the first 9 months of FY '25, IGX traded volumes of 398 lakh MMBtu, higher by 24% over the same period in FY '24. The profit after tax for IGX for Q3 FY '25 came in at INR 8.3 crores compared with INR 7.4 crores in Q3 FY '24. For the first 9 months of FY '25, IGX recorded a PAT of INR 22 crores, higher by 18% compared with the same period last fiscal. Hence, development of new market models in the form of battery storage arbitrage, firm and dispatchable renewable energy, FDRE, or virtual power purchase agreement, VPPA, is slated to be the future driver of India's power market, eventually pressing a successful energy transition. In a recent SECI tender, the price of INR 3.52 per kilowatt was discovered for a 2,000 megawatt solar with 1,000 megawatt or 4,000 megawatt hour energy storage requiring 4-hour discharge for one cycle a day. Storage prices are already competitive to make a promising case for market development and provide enough arbitrage to make it commercially viable. Rates under the VGF scheme have also declined. Visibly, battery storage remains poised to improve liquidity during nonsolar hours and help meet the power demand. Further, the government recently reiterated its plan for setting up India's first coal exchange in the calendar year 2025, details of which are being worked out. The draft note for the cabinet for setting up a coal exchange has already been circulated for interministerial consultations. Exchange is expected to work under the supervision of coal control organization. With the CEA forecast of peak power demand of 458 gigawatt by 2032, power consumption growth will continue to drive exchange volume growth. Government's effort to facilitate the path of energy transition continually support market development. As India marches towards achieving its net zero target, there is bound to be a growing role of power exchanges in the country's energy landscape and IEX shall continue to be part of this journey. Thank you, and now we can move towards question and answers.

[Operator Instructions] Our first question comes from [ Mayuresh. M ], individual investor.

Am I audible? Do you hear me well?

Yes, you are audible.

Congratulations for the quarterly results. I would just like to know that...

There is some disruption in the voice.

Sorry, just one moment, sir. Yes, Mayuresh sir, please go ahead.

Okay. My question was, what is the current revenue breakdown for IEX, IGX, ICX and coal trading in terms of numbers and in terms of percentages?

Yes. I'll request Mr. Vineet Harlalka, our CFO, to respond to this.

So if you look at the overall numbers for the IEX, the IEX stand-alone PAT was at INR 103 crores, which was higher by 15.5% on a year-on-year basis, quarterly basis, and consolidated PAT was INR 107 crores, which was almost 17% higher than the previous year. The IGX stand-alone PAT for the quarter was INR 8.3 crores, which was higher by 13% in the corresponding period from the previous year -- quarter for the previous year. And ICX during this quarter made a profit of INR 20 lakhs against a loss of INR 1 crore during the quarter 3 of financial year '24.

And how about coal trading?

Coal trading, nothing has happened. Coal exchange is still on the paper. And only after the approval by the government, they will decide who will do, when it will start. I think nothing -- no clarity on that.

Okay. All right. Understood. And what are the -- what is the expected growth? Or what are the expected revenues for the next 1 or 2 years, FY '26 and FY '27 as a whole? And also for the section -- for the sub-companies like IGX, ICX and IEX?

Yes. As far as IEX is concerned, it is difficult to make any projections. I mean, since it is a technology platform, it all depends on growth in demand and supply. But looking at what we have achieved in the last 4, 5 years, I think a number of 15%, 20% growth is definitely achievable. In case of gas exchange, at present, it's a challenging business environment with our gas prices are very high. These are in the range of $14, $15. And at these rates, gas affordability is not there in India. So gas import -- I mean, gas consumption is not increasing at the rate at which it was expected to increase. But it is expected that in 2026-'27, not many liquefaction terminals which are under construction in the countries where the gas is available, and that will increase the gas supply in the world. And the gas prices are expected then to come down to almost about $8, $9. And if that happens, I'm sure gas consumption in India will increase and gas exchange will -- should also see a jump in the volume growth. But it's difficult to make any projections at this stage now.

Yes, yes, I understand that. And for IEX, considering the fact that the government is promoting a lot of investment in new renewable technologies like wind and solar energy, and we have made a lot of progress in the past 3 years and also, we will be making a lot of progress in the coming years in terms of installations and capacity, do you think that would help IEX to increase its volumes by more than 15% maybe after 2, 3 years when this capacity will come into operation?

Yes, that should definitely help. Because what we have seen that when there is a good supply, the clearing price on the exchange reduces. And with the -- if the clearing price reduces, it provides opportunity to distribution companies to optimize their power procurement cost and also to industrial consumers to optimize their costs. So definitely, the volume will increase further. But again, it's difficult to make projections for the future growth.

I understand. So the profitability, I would say, is inversely proportional to the cost. So -- or you can say the volumes are inversely proportional to the cost. If the cost of electricity or gas, it reduces, the volumes will increase as the companies will try to buy them from exchanges rather than their normal contracts, which they have signed for a higher cost, right?

Yes, you're right.

Okay. But if the demand also increases with the supply, then maybe this might not be the thing that we are expecting the cost to reduce? It may not happen?

When demand increases and supply don't increase, commensurate supply increase don't happen, then the rate increases. And that puts a lot of pressure on the distribution companies. So it is good when both demand and supply increase, then we really see a jump in the volume increase.

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

My first question is, you've had very strong volume growth on the collectives Day Ahead market RTM. Has that been accompanied with an overall increase in market share also as of 9 month FY '25? If you could give us the data.

In the electricity segment, we are maintaining a market share of around 83%, 84%. And that was the trend last year also. And this year also, we are maintaining the market share at the same level.

Okay. And what would be your market share in the REC segment?

REC segment, I think the market share is about 60%, 65%. But then REC -- see, REC is not counted as far as the market share is concerned. REC is done twice in a month. And the revenue stream also for REC, we have reduced the fees. So we quote now these days -- electricity market is basically the main market as far as the market share is concerned. In any case, in electricity, our market share is 84.5% and in REC, it is about 60%.

84.5% overall. Okay. And within that, for the TAM, including DAC, your market share is still around 40% or so?

Yes. I mean, RTM and DAM is practically 100%. And rest of the products, it is about 35%.

The second question is, in the opening remarks, it was mentioned about the new products and the regulatory developments. So this trade up to 11 months for TAM, how soon can this materialize? And similarly on the Green RTM front, what is the stage of progress? So if you could break up the LPSC rules, Green RTM and TAM and the time lines over which you expect these to materialize and the volume uptick they can translate into?

11-month contract hearings were complete, order is reserved. So it depends on CERC, but then the hearings were complete a couple of months back. So we are waiting that order. As far as volume in the 11 months contract is concerned, again, it is difficult to say because we already have 3 months contract and distribution companies normally purchase power on a seasonal basis. Only thing is there are a few distribution companies who purchase power maybe for the month of June to September, maybe 3, 4, 5 months in advance. So maybe that kind of opportunity, if 11 months contracts are approved, we can get that opportunity also on the exchange platform. So that may not be very significant, but then we are waiting CERC order approval on that. RTM, the petition was admitted. We have posted the petition on the website for public comments. Thereafter we will respond to CERC also on those comments and CERC will then have a hearing. It will take some time, maybe a couple of months, 3, 4 months, it may take.

Okay. And in LDC right now, what kind of volumes have you seen in the 9-month period? And what has been IEX's share?

Our volumes, total volumes for all the 3 exchanges in the LDC has been about 18 billion units and our share is about 38% in that.

So 18 billion unit, because this number, I think, was just 5.2 billion units as of first half. So there has been a big uptick in LDC in third quarter?

So this number is Term Ahead Market and GTAM taken together. It is TAM segment and TAM segment number is...

So 5.8 must be for IEX...

Okay, okay. Yes, yes, yes, it's for IEX.

This one is for the market [Technical Difficulty] together. For IEX alone, this number is 7.1 billion.

7.1 billion.

Okay. Just one last question on update on how, if at all, market coupling is -- study and et cetera, events are panning out?

No update. CERC had issued order in the month of February for simulation of the market -- different market segments and submit the report with CERC, report is awaited.

So that shadow pilot study, et cetera, is done? Or...

No, shadow pilot report is awaited. So only when they submit the report, CERC will take a view thereafter.

So in terms of time line, you think that this can keep getting delayed for how long?

This was to be submitted in the month of July, and we are now in the month of January of next year. So already 6 months are over. So let's see.

[Operator Instructions] Our next question comes from [ Rushabh Shah ] from BugleRock PMS.

Am I audible?

You are bit muffled, sir.

Am I audible now?

This is much better.

Sir, my question is, in one of the calls, you mentioned that even if coupling happens, we will be able to defend it and defend the market share. Could you please explain in detail how would you do that? What measure will you take to defend your share?

Your question is not clear. Can you repeat the question?

In one of the calls, you mentioned that even if the coupling happens, you will be able to defend your market share. So can you explain in detail?

I don't think we have ever said that in case of coupling we will be able to maintain the market share. What we are always only saying is that even in case of coupling, we are doing a lot of customer-centric activities to ensure customer loyalty and we should be able to retain a significant market share.

Okay. Next question is, as you said that on the sell side, you have thermal generators who are registered with you. So what do you do for engaging more and more customers on our platform? Are there any incentives you offer for both buy side as well as sell side?

Getting customers on the exchange platform, today, we have all distribution companies are registered with us, all large generators, captive generators, they're all registered with us, renewable generators, they are all registered with us. So there is hardly any generator in the market who is not registered with us. We have practically more than 400 generators who are registered with us. So all major sector participants are already registered.

Okay. So practically speaking, 90%, 95% of all of them are registered on IEX?

Yes, yes, yes. Not only registered, they are participating in the market also.

And sir, my last question is the REC market in India, which is a compliance market, so which type of companies have to take these certificates for compliance? And is it important for them to purchase these certificates?

See, one is that distribution companies have to meet their RP obligations, which is specified by Government of India and the state regulators. So there are many states who do not have renewable power with them. So they purchase RECs to meet their RP obligation. Then there are industrial consumers who have captive generation capacity. So they have to also meet the RP obligation. So they also purchase certificates. There are many steel plants, cement industries, aluminum industries, who have large captive generation capacities with them. So they also purchase RECs. Then there are many open access consumers who buy power from the market. So they also have to meet the RP obligation, and they also purchase the certificates.

Okay. And my last question is what is your vision for IEX in the next 5 years? What are the top 3 priorities for the last 4 to 5 years?

Can you repeat the question, please?

So what is your vision for IEX in the next 4 to 5 years and your top 3 priority for the next 4 to 5 years?

My vision is to provide a robust, reliable technology platform so that my all market participants can do trading through this. And the numbers will depend on the demand and supply growth in the country because demand growth is not dependent, that is not something which we can create. It is a function of demand and supply. And we will not like to give any projections on the numbers.

No, sir, I don't want the projections, nothing on the projections. Just your vision and the priorities for you.

Vision I told. I mean, a growth of 20% is something which we are targeting.

The next question comes from Yashodhan Nerurkar from Ionic Wealth.

So one question that I had was in terms of the contract for differences. So most of the PPAs which are coming in the renewable space, right now, there's some delay from the...

Your voice is not clear. Can you put the question slightly slowly?

Just a second. Hello, is it better now?

Yes, yes, better now.

Yes. So what I was saying is I was asking in terms of your volume. So something like a contract for differences, would that make a big difference in terms of increasing the volumes, at least in the renewable space where we are seeing most of the PPAs, there's a delay in signing by the DISCOMs because the prices are consecutively dropping. So would CfD be the ideal solution for you to boost the volume?

We are working on this with the government and renewable generators, but so far, they are not willing to set up the capacity without the PPA because one of the problems which they are facing is that the banks are not willing to lend without the PPA. But definitely, there are alternate mode of transactions which has been worked out like virtual PPAs, some of the MNCs are working on that also and government is also thinking about that. So that will definitely bring more liquidity in the market and should give a boost to the volume.

So at least there's some thought given to it in terms of increasing the liquidity at least in the renewable space to increase the adoption of it. So that's the whole purpose behind it?

Correct.

And secondly, I just wanted to understand. So most of the solar parks that we are seeing currently, I mean, it is suggested that it should come along with a battery pack, like a storage battery. So does that reduce the variability of the energy demand? Because I think there is this concept of net metering, where post [Technical Difficulty] as with the demand, most of the power is traded in the short term like power market. So with battery storage coming into picture on a larger scale, would that variability be reduced? And does that reduce the volumes in the exchanges?

Wherever battery is coming, that battery, most of the generators are setting up additional capacity for charging the battery and supplying that additional power in remaining hours. So battery will ensure availability of larger power during the non-solar hours also, and that is good for the market.

Okay. So that extra power, which is getting generated through -- I mean, dispatched through the battery, even that could be a part of the short-term power market like through the exchanges?

You are right.

The next question comes from Bharani from Avendus Spark.