Multi Commodity Exchange of India Limited (MCX) Earnings Call Transcript & Summary

Things are good. I think given the good [indiscernible] I think we are very optimistic on -- at least on the India [indiscernible] bit of the story. I don't know what happened globally, but...

[indiscernible].

Companies are actually doing very well on the ground in the[indiscernible] . I think everyone is talking in a very conservative manner simply because they've been founded by global recession and et cetera. when you speak with company, they say, what do you expect us to say. I can't say everything hunky dory when you question me but -- but otherwise could it not be that it's just that the way to not succeed as yet. That is Yes. What we also see is that if it were 3, 4 months, yes, what probably you are saying could be right, but what we have been seen now quite some time, 9 months in the year, 8 months rather.

And India's behavior this time around in the global context has been quite uncharacteristic but showing a lot of resilience on. If you look at the currency, if you can the stock not contributive in the presence of its large steel selling by foreign investors. So that kind of resilience is reassured at our acquisition has already peaked. This is the third forward imprint of inflation, which is down and there the peak. So a lot of stock comparisons are coming to now. Hopefully, for the better and for the long term, as you rightly question. But it looks like it is possible. for us to at least be shielded in a way on a comparative basis. Obviously, we can't stay away from global happenings. It's a question of relativity. 10 years back or 20 years back to the way you could have got hurt in a global geopolitical and global monetary policy tightening environment. Today, on a comparative basis, we are far, far more stronger in that sense.

That is the sense we are getting out.

That is the sense we are trying to push to our investors abroad as well that India is different this time, at least compared to its own history. We may argue it may not be so very different from in comparison to many other alternatives but compared to its own past, there is a lot which has changed.

But in estate Russian war has brought in some kind of gains for [indiscernible] so that you have another subglobal system. If you're dealing with Russia, Ukraine, not Russia and the other fixed allies is 1 economy, 1 global economy and then U.S. and Europe are other maybe other global economy.

Very true.

You are servicing on that kind of by quarterly.

Yes. I guess Europe is hurting but I don't think U.S. is hurting really. U.S. is trying to talk it down because of their place inside of it. I mean we are a U.K.-based fund. When we are in London, they are feeling the pain. The gas cost, et cetera. Normal mandates in Europe is in. And I guess I'll point out in this part of the world is actually gaining to some extent. But we also have to give it that -- the policy environment in India will also change. We are standing up to the world and saying that we will do what is in our interest. I don't think that would have been versus...

That's very true. The way that the situation has spoken some more there is audio and video on this one.

Yes, that's right. As is only the blood on our hands and not on the Europeans when they're getting gas from Russia.

I think that's made a big difference. And that stems from the confidence on the political [indiscernible] this has today.

Yes. But look at this year because U.S. also can't make enemies everywhere so that's why they are soft peddling on us and then now dealing with China and Russia and what is happening in Taiwan and all that. So they don't want to pick up the [indiscernible] with India.

I think we are in the sweet spot in that sense. We are being [indiscernible] by everybody.

But I used to see South Korea and all, they are also buying a lot of oil from Russia.

That's right. It makes sense to them.

From the other point, India is not getting a gap because the Europeans are taking our commitments. So I think we know about us. We know about us, we know about Ocean Dial, right? We don't need to introduce the I surely. It's always nice to meet you in person. So it's nice to see that you started meeting in person. And we've also launch as far as possible, we insist on if possible, if the management is agreeable to actually go and meet personally.

In Bangalore we have 2 funds. I manage 1 the manage has a long history of any MCX. My fund currently owns it with historically. Within this earlier growth now big in span when he came in the first half of MCX and I kind of covered him with it. So really, we just -- great meeting. We like the business and we -- our idea was really to give us this long-term perspective of where you see yourself.

Just between the numbers, last 10 years, we kind of been visibly flat. I mean lots of reasons, regulatory, et cetera, but this is some behind.

No, exactly. If I look at the last 3 years, your turnover has been around INR 400 crores or roughly around that INR 100 crore to INR 110 crores or so. We understand the reasons agreed. Our whole interest is to understand from the next 3 to 5 perspective, what are the prospects for growth in terms of the size of the opportunity for you because we know that there are 3 pillars, one is the distribution part. A lot of things have happened again. The second is the number of participants, the nature of participants recently in the FPIs have been provisionally allowed I guess. And the third is the products. We've launched not many new products now. So I would request you if you could take us through these 3 losses to how -- what has happened, what has not -- what you are not happy with and what is the possibility in each of the -- and in future, what are the other possibilities. There's distribution, the product part and the participant part. I guess that could help us.

Now coming but the products part of it, which is something that we can do all the time and which is in our hand. And that is something which we have been looking at. And the electricity futures is something which we are looking at, we have major growth driver on the energy side. Because going forward, energy is going to make a big difference. And there is also a kind of a thought that we need to pay premium from renewable energy source electrician generation process, then that is something which we will launch another contract also. That is where we can see that. And no carbon credits sees another thing that is coming. And I think these are all areas which will help in generating this particular business, especially the energy sector. So that is one major thing that we are looking at. The second thing is at this again, the temporary, but then gave an opportunity to just keep improving the market. Thanks to the [indiscernible] and some of these companies in those areas are also looking at it whether they can use MCX platform, including the RUSAL as well as the one Rosneft. They're also -- they have an office in Delhi. So they are including how we do hedge MCX platform and others. These kind of things will help us bring them and then see what we can offer, okay? So I think I understand this is kind of event, maybe once in a blue moon happens is kind of warrant the but even if you start looking how we realign our businesses, the service plot is available. I mean, where we can go on. So the participation wise if you ask me, then we would like to be not just a pan-India platform. But to be cut into most of the Asian countries, Asia and Middle East countries. Now it requires a much what should I say? Much broader policy change, okay? It's not just in the form of application process. And even those players who are in those respective domains jurisdiction, they should also be able to participate, and they will not be FPI in that sense. I mean, they will not be just another FPI with the Indian government or something like that. So today, probably to trade on LME, you don't need to go and register in their local jurisdiction the regulators and just talk to the broker and then give him all your KYC. Something of the kind is what we look forward to. I think those things happen in another life. And yes, the FPIs I mean, usually, if people ask me how does FPI help you, Because the FPI have other markets also to hedge and/or participate. So there are 2, 3 areas or 2 areas where they can only do here but not elsewhere. Okay. Because you will market the cash and carry offices okay? So cash and carry between the 2 contracts. Contracts near month and far months. So they have to actually come here, take that interest rate interest difference between the near month and the far months benefits. And then participate. The second one is which we are looking at is that the international [indiscernible] it used to happen. Very -- I would call rampantly maybe unregulated. And Indians only are doing there and here and then one on book, they are maintaining big income tax problems other -- they have discontinued anyhow. Through [ FTRO ] now they can do a domestic as well as international [indiscernible]. That is something that can happen, okay? And they still have one single book and they can offset the profits and losses, which are between the -- across the markets, [indiscernible]. And then see the part benefit from this. The 2 direct benefits that we get. In once our market grows, probably they can see other opportunities solve, so when a commodity explodes, they can take exposure on the delivery. this is one area of participation. Another area of participation, the hedges terms of the physical marketplace. That's a huge scope. But the problem is banks don't understand the hedges don't understand, okay and understand not having understanding pardonable, not willing to understand is unpardonable. So that is what the problem with us is -- so we are breaking our heads with many bankers, many of these people. And if they lose in the physical market, gain here a profit [Foreign Language]. And then they loose here and then they gain in the physical, they don't look at it anyway. I would have not benefited. Actually, I lost my money. otherwise I would've got -- it is the way they were talking.

The have to add up right?

They have to add up. that's a -- exchange no loss, more gain situation which the culture is not there as yet. They are not looking at the value addition, which they get it as a profit they are looking at it in the material itself, the raw material itself should be -- if it is fluctuate, then they should make money out of it. I mean I don't think...

So how much would be the physical market players and hedge -- the business related hedging.

Most of the open interest is held 50% to 60% open interest. Open interest is generally held by a whatever interest that you are seeing here.

The algo and the speculative.

They close the position at the end of the day. Some of it is left out, little is left in, but mostly [indiscernible] .

So how can this be changed? I'm sure the responsibility lies in terms of educating these people and training and all that.

We are doing that only as we sell. And also I mean various ways of education at 18, once we organized the CFOs program and giving them one days workshop free of cost of company's products, what you call material managers, CFOs, et cetera. And we ride it for 2, 3 weeks. And thereafter, no interest has come so that is something which we are not able to vacate that on top. I think what we are at is pointing and asking is the broker -- bank broking companies are there we have we are asking them to tap your banking corporate client accounts and then go to them, explain and tell them that this is the way we can do it. We will join you if needed, okay? And we will explain to them. So that is -- that character will help. Second, IPA, we have written and the banks house individually, we are working, telling them they should tell their clients who have exposure to commodities to pitch on the exchange there's only secured in that sense indirectly.

What sort of companies are you talking about? Your clients, these are the small and medium enterprises or are you seeing the large companies also have this problems?

Large companies also are having problems. If you see the -- what you call, disclosures under the listing agreement in their annual report companies are making only 10% or so, how much is the percentage very less who are hedging were actually acknowledging that we are hedging. Many said that we don't...

We take directional bets. [indiscernible]

So coming back to this, so we are at different levels, we are asking them to pursue this, okay? For example, we have gone to SIDBI and told SIDBI that your main focus is to protect these MSMEs, okay? You may be directly or indirectly extending the loans. And that will go down that range, they don't take the proper risk management measures. So we have conducted some webinars with day-to-day clients also. So it's a continuous process, put it that way. For example, there is currently so much clamor so much clamor for suspending our cotton contract, okay? Now, cotton prices are going up. But then somebody we have recently organized a Textile Advisory Committee members and our Product Advisory Committee all the members have pointed out, if thermometer is showing temperature, you don't break the thermometer. So you better treat the cause of it, why there is a fever. So you're doing like that, asking us to suspend the contract, it doesn't help because there is a cotton production, there is a deficit in this current year. I mean, season is ending in the month of August, September. So prices are going up. And yesterday, I was reading this one. Even the U.S. cotton crop, I think Texas is the state which is submitting supplying a maximum contributing for the year. There is a deficit I mean in the last decade, never did it happen, that kind of deficit that they're facing. So the ICE prices also gone over by 6%. The point is it is reflecting what is happening on the ground. You should see that we can pitch it, why are you not hedging the question is that we're asking an instrument which is meant for you to defend you, and you are asking that to be suspended. No, no, because your prices are going up, we have to buy in a physical market at that price -- that's not my problem boss.

Yes. Looking on the paying side, there's no pre-COVID. You've talked a lot about the number of sessions you did in the previous months.

And still we talk. 2008, 500 plus are organized, okay? But now a combination. No. Earlier only webinars. Webinar come physical warehouses, our physical awareness programs. 2,500 of that. That's what we have...

We have a budget allocated for.

By and large, it is paid out of the IPO. So we have about INR 10 crores in the IPF it is used. We have an ISF for this fund from that also we pay for it. The advertisements and others come from the IPF. Is that correct? And ISF is used for, Mr. Vibra some other things like booking of haul and all the up and down.

So in the case of the participant part of what we are discussing, the challenge is to get more of the digital and the hedging.

That's the only thing. They keep coming. Speculators will anyway come. You don't need to make any attempt to bring speculators on to the plate.

But beyond this FPI and all, I think we don't need any further expansion on that.

Not required. On the mutual fund side, there are certain regulatory what we call clarifications needed. That is not coming through. That is the other way of submitting it. And mutual fund industry itself is happy where they are because they are earning a lot of money out of it. So they are okay. They are not looking at commodities. Now that is -- so what I have requested, I think Mr. Bhala [indiscernible] has agreed to contribute the commodities committee within AMC, so that some focus will be there. People will be discussing it, what happened in commodity markets. That will happen shortly. That's what my hope.

From the product services we are discussing, there's a mention of a product committee that you have. In any way when you reach...

Product Advisory Committee, service for each product. We have one per quarter, one per [indiscernible] soon.

Okay. So I was assuming that this is like the innovation just like we should we market it separately to come up with more -- Okay. So this is like for every.

Why are you -- like, for example, a nominally contract, we are doing so. So we constituted a committee with the value chain participants of that product. So you have OEMs who use the wheel bases is aluminum alloy. Most of these weak automobile sector. And there are some traders. That is in the physical market and the final process are there. All those are the [indiscernible] from [indiscernible].

So on the product side, sir, what is the potential? I mean, I know there are a few products waiting for approval, including the electricity that -- what are the status on that? And existing wise, what is the scope? I know options have done very well. We'll come to that. But maybe if you can, on the future products, what is the potential and how big -- and we waited for long after the electricity [indiscernible] to happen and what is the status there?

That's right. patience is running low not only for me, but even for [indiscernible] just before I came here , I finalized another letter to SIDBI asking them on the electricity derivatives contract okay? And we said also in the letter we used in a sense, very -- maybe very silly but by delaying it, you are helping that [indiscernible] to launch futures contracts, futures forward over, right, with 1 month, 1 year, 3 months another thing. And clearly, the domain of the future experience. That's the way we are telling the SIDBI they are also feeling that. But every time CERC says, no, I need to understand this product better. I need to understand this product, organize some webinar plus some meetings with some of the industry partners. we have raised a webinar with the European exchange, EEX and we have arranged another meeting with [indiscernible]. You must have heard of them. And RWEE. They're all leading players. So we have organized them. They know it but still, they're pretending ignorance at this point in time. I see just to wake up and say, no, is sitting on me.

but where is the pain point? Is it IES, which is so very close to...

It is CERC, which is delaying that. They are a part of the joint working group. The members of the joint working group. That's the way I look at it. But we are -- we want this to be played at the earliest. We submitted in last October 20 or so in 2020. We submitted our proposal.

So I asked about IES because IES has been allowed for the forward contract now...

But there are so many that have. No, no. It's not because of that. I'm not looking because we have a relationship with them. Okay. We are going to settle our contract on IES.

On the dam?

That's right. That's right. So but everybody is Hindustan Power also has come. There is a Power Action, PXL is there so everybody who wants to launch. Hindustan Power was also inaugurated as well where BSE and others have -- they...

how confident are you on the approvals coming through very soon?

It should, it should. Enough time is passed it should get it in this quarter itself. Maybe maximum one more month by October.

Okay. And how big would that be the opportunity theoretically speaking, as of now.

It will take some time for us to mature this Because the physical markets are the ones physical market players have to make the maximum play here. If CERC put conditions on those -- them on their participation, then we will have a problem. No, no, you can't hedge your PPE contracts also on the exchange. One more. Why shouldn't they why shouldn't they take advantage of, then we will continue to supply the power at whatever agreed the price. But if they are able to make some benefit out of this market, why not do that. That's -- and there is some -- at times there is surplus also. And they should be allowed to participate. But I think it will -- there's a lot of excitement on this. A lot of as I said, we are made with 50-plus meetings with each one of them on a one-to-one basis. As that is a new Administrative Staff College of India in Hyderabad. We conduct programs for this discoms or cost, et cetera, part of their internal staff another. We invite us as one of the speakers. So that is the way that we are able to reach out to the ecosystem. So coming back to the product, yes, this is something which we -- the big opportunity is what we are looking for.

In terms of, let's say, ADTV on electricity futures, what could be the potential in the numbers will it be 10, 20, 30?

I will not be able to answer that.

It won't be small, though.

No. Our ambition is to make it big. That's how I can tell you our ambition is to make it a big. No, no. So what I'm saying is this is 1 growth potential area. Metals is -- base metals is another big area that I'm looking forward to. And I think -- some -- I mean, again, these are all the cash at contracts, so there's no problem of GST and other things. When it comes to these base metals under, I think GST is a big pain point for us. While we are trying to address it, we are also looking at is there any other way we can do the business, okay? So one way which we are debating and discussing at this point is that free trade warehousing Jones are permitted within the country also, okay? So if we have Northeast West South and I think, 3-train warehousing Jones are there, if participants can take delivery there, where there's no GST, no customs or other thing and our price will reflect as ex, I mean, what we call free on board of whatever it is. Very clearly telling that anybody who's taking delivery, they should pay our customs and then bring it. So that is something which we are working on. And because this feels into almost a 1920 are approved, but actually in existence or in activity that our core are there. And so we are already tied up with one Arshiya at Panvel and that is something which has just started with the recently 2 months. Hopefully, we'll get more. Like I said, we are looking at some of these some of these European countries, East Europe and some of them may want to deliver, then they can deliver here.

Anything else on the product side potential wise or product side or any other potential.

Index options is something which the [indiscernible] has recently come out with. Thanks to the nickel contract, which has caused a lot of dampness in the nickel futures contract also. If once that product is -- I mean, we approach SIDBI to gain the contract specifications. Currently, it's 1.5 metric tons, which is very high and the payment of margin, that is another 20% means about INR 7 lakhs, INR 8 lakhs. We requested them a smaller size so that it is attributable to the market participants. Yes, then again, we'll provide the underlying futures contract, then index futures will be active. Then we can look at this. Unless there is enough volume we would not like to ask the options on index futures.

Are you surprised with the way options volumes have gone up. Is it faster than what you?

It's a pleasant surprise, no doubt about it. And we didn't expect so much when we budgeted such the others. That's our usual way of working. But yes, in fact, yesterday, it clocked the highest turnover, 62,000 is it options, highest yes at day forest I highest turnover. But we would like this to be spread. That's largely NSG crude oil and natural gas. And now we would like to introduce monthly gold options contract on a bimonthly gold futures.. 1 kg, that's right. So that should also help us to see good amount of rating.

What could be the potential -- where do you think the options volume can settle down the reason I'll explain what we are trying to understand here. From a revenue perspective, we were looking at the equivalent of futures so what should it be? Should be 2.5x, 3x of interest for you to be revenue neutral vis-a-vis future options?

So as I explained, we thought it is only 33%, okay? Options getting 33% revenue of future but it has happened I got 48% quarter.

Where do you think it is a -- and the right thing to.

I would like to keep it as 33%. I know if anything that extra comes is bonus. And because currently, water trading that is happening, it is happening in the money close to money and the money kind of but so premiums is high so we get higher. But what happens in index features and other things elsewhere, what is happening in banking -- far away from the money. So that is our speculation. Look -- but here [ standard ]. That's why we are getting good.

Is it because I think your aggregate volume, if I were to add on future's [ EBT ] the optional converted into future so at about 35,000. So it is actually much higher than pre options.

Yes, yes.

But where should we settle. That's what we are trying to understand because...

Why do you want it to settle? It's growing.

We are coming on a phase of the aggregate, your top line has been flat for the last few years. so that is where we are trying to understand that have you reached an inflection point or notice something we are missing? Or what is it that is holding you back even now? Or something like that. Just to understand that context. So like, for example, when you touch a run rate of INR 600 crores or INR 700 crores per year in that way.

Don't forget now after [ '82 ] '19, '20 was our best year.

Yes, yes. Agreed. So I'm not referring to pre...

We had the COVID. You have to keep that in mind. We follow by peak margin.

No, no. So we understand the reasons there were specific reasons. Our point is that now that we are out of it, are we sitting at a threshold of a sharper rise in your ability to transform all these things into business.

My focus would be more and more on features. Okay. That is the base options are on the features.

Correct.

So we would like to continue to grow the features and then launch options contract on it. So then it will pick up on its own. That's the way it has happened. So we would like the options contract to -- I mean, the features contract to grow. So that is where I would like to have more and more participation from these participants. And that's the way I look at it. I'm not having a target is, it's for options to -- I don't know, when options will stop. That is the way it is, stop doing as much as it did so far. But we would like SGF-cover related issues to be addressed specially which we are expecting sometime in the month of -- in the end of this month or early next month is RMR meeting in June. And in that meeting, if it pro outcomes, then we would like to contribute more, reduce margins then automatically, the features will also.

Interesting. So most of your issues are more regulatory related.

The mini contracts, for example, I mean, there's no reason why they should sapient do all this kind of -- they just simply stop me. What is your problem? What is your problem? We have made a presentation, a Venn diagram, made exclusive here is this, exclusive in many contracts on so many participants, [ Carmona, ] who are participating in both the contract. We've given all the presentations for each product wise. Okay. And anyway, there are some files in the what you call, CD, what you call what is it? Commodity derivative see that. Okay. And like what do you mean? Anyway members are there. No, these all speculator, speculator. Without speculator nobody will survive. Why don't you see that? Who is taking the risk. It is a speculator who is taking the risk. And it just are actually giving up the risk. I don't appreciate that point.

Speculators are required to bring liquidity, liquidity in the system for any market. No, that's a fair point.

Yes. And we were candid about it. We are not ashamed of telling the speculators how are you really getting this? And it is they're there anyway.

In terms of this the IGX, you have been saying that this is actually beneficial to you and of course, that's a spot exchange. We understand -- but is there a -- do you think IGX firstly is a very strong contender for a very large amount of volumes out there or it will take time?

IGX you expect almost all the imports okay? To come via the IGX. And the kind of regulatory that we made is also condition for that development. So there are qualified sellers and today, also some regression has come for sellers. Almost 70, 80 of them have already become are major players, they want to import via this, okay? So [indiscernible] agencies are going to be in history. That is the way I look at it. So that they are not able to compete with and exchange and like this. Then the only thing at this point in time, we are at to get conformities billion bank, some of them, like JPMorgan and others. That there too, should take membership and then say that I'm delivering. Currently, we are participating to via [ Canada ]. And we would like them also to directly participate, put their gold in the walls in their city and then say that now I will start functioning from here. So that is something which the regulatory is also lobbying with the seniors in these billion Banks so it will happen. And in fact, some of the -- and the other thing has happened, thanks to economic sanctions, LBM has said these refiners are not eligible, okay? No, not because of anything else. I mean just because of sanctions, they said they are not eligible. I think there are -- for all these years, you have accepted them as having good processes and all that kind of thing. So they are looking at. And one day has come here directly and then they had discussions with our response to how do we use it? Because we are a stakeholder.

They are 30%.

Can you help us how you do this and all that. So we have a handheld them so some of the refiners are willing to deliver there. Right.

Do you think the shift in India there's been a lot of noise about this in the people going there and inaugurating this do have a rub-off effect on the commodities it seems or itself part being added or it's just 2 very different markets altogether.

I didn't get the question, right? But is it that rub-off negative side or is...

Positive side.

On the positive side on the MCX.

But in terms of more participants looking at commodities per se? Or it's just a very different -- people who just import...

So publicity helps, no doubt about it. And gold publicity helps more because when one also look at that and then try to take EBITDA of that. And we have also started -- so the people, whether they are importing, whether IGX or whether they are input into [ Canadian ] agencies, once they import they hedge on the export -- those who wants to head, they will do that. So going forward also, they will continue to do it even if they do the business by IGX in all the north. The only thing is publicity helped, but we also, in a sense, integrating or bringing in wherever possible, the spot axis characteristics or spot exchange -- what to call, features related to the delivery and other things into the futures market also. So we have recently asked our [ world ] one of the awards have given quotation dose of delivery of gold. Since we have 1 gram gold, 10-gram board, 8 grams, 150 grams, 100 grams, which I think medium to other small can always buy it off the exchange and take delivery. But brokers also, those brokers who are not actively looking at commodities, I think with the gold, the door will open for them to get into the MCX-fold. Because their customers currently maybe going to the banks to buy the gold clients or something like that, they charge INR 700, INR 800, INR 1000 or even more, I don't know, for delivery of that coin. On the exchange platform, if the broker has got 25 customers or something 10 grams to 150 grams or something, it comes to INR 10 per gram. Okay. So hardly any money in that sense, what he pays. Or even much even less, that is what could be charging minimum [ service ] guarantee, then I will give you fixed price. So does a -- so they are doing it. I think we would like to spread that awareness through social media and others. Also coming back to IGX, it's not just that. But I think independently also, we would like these products to create that awareness.

Interesting. So nothing more on the product side. You discussed everything.

Yes. I mean steel TMT bar any others we want to introduce it and one more thing also. We are not giving enough time for each of the products to mature also, okay? It's like releasing something and ribbon-cutting there. No, that's not the case. And it takes time for the contract to mature and brokers say that if you launch -- because for me, at the end of the day, I go to those only 500 brokers who have, okay? That will not increase it because currently, the only 500 are active members. It can happen on 600, nothing beyond can happen. And consolidation is also taking place. A lot of members are surrendering. And so this where you guys keep saying it, how many contracts have to promote for you. That's the way it is coming I think, yes, we need to give some time for them.

Yes. So there are existing products like the index futures, then, of course, that we follow my options in the industry -- and of course, the options in the gold side because -- there is a lot of work out.

Yes. Yes. And usually, people tempted to compel DC markets, our base and other thing and that's where you are not grown on other thing, but I think it doesn't give us time to grow. That's the way it is. I don't think you can compare us. And again, it's quite different. Customers -- because of equity, balance sheet is the same. The sense is our earnings per share, earnings per share either same definitional revenue, okay, whatever is it before sectors or before verticals. That's not the case here. each product individual investors have to understand it. If he is taking delivery, then he has to get into the new VST and all that, that's not the case with the equity. And more important, you just buy 1 share, INR 200 to INR 2,000. That's not the case here or large size itself sees for last. So people ask me why you don't have annual share in this commodity market. It's different for all of the markets.

On the distribution side, sir, you were talking about the bank brokers some time. That has not grown much, right? Still a small portion of your business. What is the challenges out there? And where do you think it can go? Because there was a lot of excitement earlier that this would be like a big thing in terms of reach and...

We are able to put everything in place for as far as ICICI banks, ICICI Securities. They're [indiscernible]. They are marketing ever. HDFC is not online asset. When I say it's online, online training platform is not offered to the retail. They are undergoing a change. They call it a sky or something like that. By the end of this year, they are launching. Once that is launched, again, we will be a part of that. Okay. It all related to system changes. Then you have Axis Bank . I mean there, the process is less but better than HDFC at this point in time. And SBI, again, they are changing their systems, and this is also happening that way.

How much are they, as they are not very big, right? Bank brokers.

Actually not very big. Kotak is the best. But Kotak has got a lot of -- I mean, the HMIs and a lot of what we call corporate checks. That is where we are telling others also, "Please start your banking network, bring them here." Which they have to do that then they should have -- we have the drive -- they say that unless I have a proper platform, I can't go on and tap and then give a bad experience to the customer who wants their option. SBI, it's a monolithic giant elephant rather not able to move them. But they -- but they never said no to it. So that is one thing which is doing. But otherwise, SGF is doing, HDFC Securities as a I told you, it's less, but then that will happen. Yes, ICICI has exceeded the even Kotak also. It's a miracle.

So ICICI and Kotak are the main ones. And how much would that be, the bank broking business as a percentage.

Yes.

How big is that as a percentage of [indiscernible].

No, banks, it will be about INR 1,000 crores out of 45,000 crores.

Still very small. But has the potential to actually grow quite effect. And this is basically only from 2 banks largely.

Largely 2. Axis is active, so is ICICI Securities and Kotak Securities. SBFC is small still.

Interesting. So there is a lot of potential products yet to become more successful, probably the bank groups get to do more in terms of the pipeline of what can happen in. It's all about execution with the help of regulatory support in that sense. And just one more question was in terms of -- is it is our understanding right, that with the TCS contract your variable cost essentially comes down drastically. The P&L becomes more fixed cost heavy. So any improvement in your overall turnover business can have a substantial operating leverage impact. Is that fair to say?

At the current ADT of -- not INR 35,000 crores, it's about INR 30,000 crores last year. There won't be an improvement. That's the way I've been telling you. But once it goes up, that impact -- I mean, part of that is not taken away by the technology, so that's one part of it. Second, even the -- I mean we start incurring a variable cost, we were doing the depreciation is something which is taking away a lot of our [ power ]. But that happens for 5 years or 6 years. Thereafter, even that one will go away, and there will be a complete one single, what we call, fixed cost per form of it, what you call...

That's that I'm saying your P&L is moving, earlier there was a large variable component, which was linked to the turnover, which was the software expenses. You had salaries and other expenditures. salaries in the region by definition, by or other characters they are largely fixed, not necessarily moving with the turnover. But now a large part of your cost is going to be completely fixed in a way in capitalized okay. So that's a big step change, the understanding is profit, right? So as sir said that you have a tick on your on the turnover the impact can we expect visible out there. Yes. Got it. But at this level of the turnover you are saying, there is no -- it's better not to assume any impact only on an incremental basis, we have to be because your depreciation cost will be higher.

So your EBITDA margin will move up sharply, very sharply, actually by 15 percentage of the platform plus the hardware would be amortized return.

And one of the conversations I think mentioned that only, there will be no outlook in TCS for the next 1 year.

It will be under warranty. Once they go live [indiscernible].

So there would not be even the AMC cost for the next one. So actually, there could be a year wherein there is no cost even from 63 Moons, the variable bit and the fixed bid of a cost.

There will be some like application like I had to say many like growth all that will be there. But more importantly, whatever contract we are structured with TCS, it is once a 5-year contract, all it is lumped into them. Including AMC, thereafter, they have mentioned this much is the , which is a single-digit figure or something like that.

And just a clarification, sir, here single digit, when you say like single digit in INR crores, and not of percentage is what you're saying. Percentage of the AMC.

That is what the license fee and implementation initial contract. That's one.

And amortization is [indiscernible].

And we are fairly confident by December, it will be when running live.

It has to. That is what my [indiscernible]. I have been let down the path to believe that it will happen by cannot able to see that. And we have taken up a boost taper itself we have moved up and they are not able to pick some of the bugs that the whole map because ECL platform is a German platform banks, they have different file structure. They have mapped it, but still some bugs are coming. Something should flow from banks to C32 banks and for trading. So that integration issues are challenging. So -- but they are addressing it now, we are in a comfortable, but let us see by the end of August or sometime in the middle of September, this will be engineered, then we will need maybe another 2 months to do the one on [indiscernible]

Meanwhile, has 63 Moons replied to your request for extension.

So they are still evaluating the request. We have looking at also plans. Statement that one is that 63 Moons will not shut down any time the last 3 years. Once in a while, some problems will come related to some pileup cloud sales and so you once again upload the file, then it will go through. That is what the kind of data-based level issues once in a while may come. And we are requesting others also, whether they can support it without catching the core. Obviously, we don't have a call in EV. Whether they can fix the problems as and when it happens. So some have expressed study, including TCS. They have given that conference. We have been doing it in the past also, we have done with several projects where we have done the transition. Now also the way that they explained is something goes wrong in your systems or my system, anywhere. Nobody touches the code because it takes time for them to understand it. The immediate fix that they give you there? Database fix, okay? So I can give you what's around. I will not give you any changes. So I'm confident that I will be able to handle for you. That's the way they were telling.

That was TCS, that we can hold your hand, right? So what is the worst case scenario out there? What can really go wrong out there? What are your fears? What can really go wrong?

See, we are not -- we are focusing the developments in the system -- no more new developments. We are running whatever it is and whenever there is a problem. In the last development was the client level margining system, that's what we have done. So there once in a while, I mean, sometimes they're failing the files are filing and then they are reuploading it. Speed of system is low in accepting the files. These are the things we are -- not the software of it, okay? So we don't -- we have decided not to implement it. Second, we have also done, what we call, some back testing in a sense where we have actually run a future date, okay? Whether it's beyond a year, it works are not. It's working. We have been doing it every day, one future date so it's working. So we would like to continue to manage it for the next 2, 3 months. And that is where we are looking for the TCS to be under pressure to deliver this house solution. So that's what we have appraised the regulators also on this. And of course, they are also concerned, they are all concerned, obviously. But most of the time, the way that is explained is that never -- the code changes have done whenever a system goes down, that's how it is. I always say, what you call a database related issues. And it's running, whatever was running yesterday, it doesn't stop automatic, unless you touch that. Something you do. So no patches nothing. We're deciding nothing in that. Don't touch the code at all.

So as you can run it -- it may happen that in the next 3 months, you may not require any help at all. There is also a possibility.

Yes.

So there is no risk of, let's say, continuity in terms of the trading activity coming to a halt or something like that?

We never had it in the last 3 years.

Yes, exactly.

Okay. We never had a last 3 years trading halt for which reason we want to 63 Moons. Although 63 Moons is there, we never went to trading halt there never -- so why we think that in the next 3 months, there will be trading halt.

Because our concern is that we -- the same thing that ultimately your power is the network effect because people can get cases done at MCX, everybody comes, if that network if it gets affected even for 15 days, there is a big problem.

No, no, that's fair.

You're right -- what happens to be thing happens, like say, what happened with oil price is going negative [indiscernible] happens and.

We have already implemented.

No, I know. But I'm seeing something that's what happens. Would you need to touch the code in such a scenario where the regulator says you have to put this in place?

I mean I don't see that trend up to you also. I mean, again, last funding it. Unless I imagine the black [indiscernible], I can't prepare myself for the last one. That's true. Okay. And especially ITT. We can always do an operational one, given our bylaws and the powerful rules that we have. We can always settle contracts outside and do this -- okay, these contracts will be closed and all that kind of thing we can do it. But system-based things on the via system, you have to do it, then we can't do it.

[indiscernible] been implementing that income tax and the issues have just kind of dragged down for after launching into once on -- in [indiscernible] And I mean I'm sure that's also worrying you that you implement and new stuff happen as well.

The way that I look at it -- we would like to go forward. I don't know if you keep fearing them, you will never be able to take that forward, okay? And next 2 months, once the delivery comes over 2 months, vigorous testing we do it. We have asked every member day in and day out we do good testing, et cetera, et cetera. If I'm able to guarantee in the latency or whatever that is currently there, not as we can only be better. It will be better not doubt it. And then that is fine for me. Coming back to the next item. If somebody don't launch even new contracts, so I don't mind, you not launching no contract and cause any problem in this. I don't mind stopping that also. But I want PCS, once it is launched, they are all around to help you know there is a problem, including the potash. This is the black box [ server ] That is the way we look at it.

Yes. Okay. On the surplus cash you were talking about moving to state development loans. How much is it -- what is the mix now?

[indiscernible]

Little louder, come forward.

Internally we have already moved a substantial amount to state development loan, also in the coping bonds of Bank of Baroda as well as [indiscernible] more importantly, the accounting is on the [ MO ] side. Even if the interest rate goes up further we are stable.

Because there's a lot of fluctuation in the other income, which is not necessary because it's not your business that way. So last part will move towards.

Its already moved.

Okay. So no longer the short term and ultra-short term treatment.

Yes...

Is it fair to expect a good amount of stability in your other income part, which is a very nice thing to see actually and you're probably getting a better interest rate also.

That is the reason why you parked in what to call ultra-short term or other.

Perfect. And this was only mark-to-market so it's okay. You don't have the mark-to-market...

Maturity. HTM, yes.

Just on the TCS thing. Obviously, it helps you on the cost front as in when you the volumes like to pick up substantially in all because they are also provider of the software services or the platform services globally. I think they also have the net. Is there anything that enhances for us now that they are building this for us, apart from the cost element, is there anything that would be different or would help?

I told that some new features, which we are -- we don't have in the 63 Moons, that can be built, for example, that is trade execution ratio I mean they wanted some members, what we call kind of a filter around the trade that has taken. So that they won't exceed and then all the circuit limit is 10%, 15% and other things. They don't want anybody of their dealers to put any trade at the lower end or bottom end and sometimes they figure out that can happen and then lift the -- I mean paying up the order book. So they would like that to be reduced. You want it but he doesn't want it, so that is why we are doing a customized trade execution kind of. Unlike many others are there, but yes, flexibility is there for us. And we don't need to touch the code. That's another thing is they're going to give us APIs. They're also need to develop additional APIs [indiscernible]. So you take the data from the system. And then outside, you build your own IT teams develop the system, generate reports, all that.

And even in terms of capacity, like given that the way the option volumes are moving, how is the system like is it like capable of just scalable.

Scalable. So we have budgeted for -- I mean budgeted not the word will budget -- don't translate into your financial numbers. That is what it is [ 2 lakhs. ]

Any pricing on the product pricing for options of sees any strategy going forward? You don't want to [indiscernible]

See, all the options were introduced, maybe the right time we caught it, I would say that September may reduce it. Actually started building only from September, October onwards last year. Now just introduced, we don't want to touch that. That's point number one. And features the algo players demand smaller and smaller. And they are the ones who are contributing bulk. So if at all to do it, how to downward original not from your expectation point of our quarter revision. So I might leave it as it is, that is the way I look at it. It's a very sensitive subject...

Prepared for us. And allow the volumes to come through.

Actually that's the way we would like to grow.

Makes sense. I think I have run out of all of my questions, unless you have something Varun?

Appreciate the fact that you are quite transparent and all the discussions are uploaded. Not many companies are doing it yet. So people are recording it, but they're not probably sharing it so publicly, I guess, which is actually a very nice initiative on your part ahead of the regulatory core, which is good.

That's -- it's important for us that once posture is breached, then it takes years to build it. And we never went -- don't want to do that, that way. very clear.

Thank you, so much taking all of the time. welcome. And we'll love to be in touch, continuous in touch along these months.

Sure, thank you very much for raising it. Thank you.