Ladies and gentlemen, good day and welcome to the Q4 FY22 earnings conference call of Indian Energy Exchange hosted by Axis Capital Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sumit Kishore from Axis Capital. Thank you, and over to you, sir.
Thank you, Margaret. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I'm pleased to welcome you all for the Indian Energy Exchange Q4 FY22 earnings conference call. We have with us the management team of IEX, which is represented by Mr. Satyanarayan Goel, the Chairman and Managing Director. We also have the senior 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, everyone, and welcome to the earnings call for quarter four and fiscal year 2022. I hope everyone continues to be safe and healthy. Joining me today are Mr. Vineet Harlalka, Mr. Rohit Bajaj, Mr. Amit Kumar, Mr. Sanjh Gautam, Mr. Samir Prakash, Ms. Shruti Bhatia, and Mr. Archit Gupta. Friends, the COVID-19 pandemic-induced slowdown is now behind us. The Indian economy is gradually regaining the growth momentum and is now hailed as one of the most promising growth economies in the world. For IEX, the fiscal year 2022 was wholly special significance since we achieved all-time high volume of 102 billion units, achieving a growth of 37% on year-on-year basis.
As per recent government data, during the third quarter of fiscal year 2022, India's index of industrial production held up to 1.7% in February from 1.5% in January 2022. Cumulatively, for the fiscal year 2022, we expect India to achieve gross GDP growth of 8.9%. The increase in industrial and economic activity has direct correlation with demand for electricity. In the fiscal year 2022, the national peak demand for electricity increased to 201 gigawatts, seeing a 6% year-on-year growth, while electricity consumption increased to 1,370 billion units, seeing about 7.8% year-on-year growth. As on 31 March 2022, the total installed generation capacity reads 399 gigawatts. The renewable capacity at 157 gigawatts is approximately 39% of installed capacity.
The growing contribution of renewable energy is aligned to India's voluntary country commitment of 500 GW from renewable by 2030, made by our Honorable Prime Minister at COP26 summit held in November 2021 at Glasgow. The power policy and regulatory paradigm has been undergoing significant transformations to align to the aspirations of building a sustainable and efficient energy future. Several policy and regulations took place during this fiscal year, and most of these developments are conducive to further growth of and development of the power market. The most significant policy and regulations initiatives in this quarter are the CERC Ancillary Service Regulation 2022, which includes the secondary reserve ancillary services along with exchange-based tertiary reserve ancillary services, aiming to maintain the grid frequency stability close to 50 Hz besides increasing reliability.
Second, CERC has also now issued draft REC regulations redefining the process of issuance, including acquisition, issuance, replacement, exchange, redemption. The draft regulation also proposes inclusion of other non-conventional technologies such as offshore wind, hydro, municipal solid waste, biomass, and biofuel in the REC certificate category. CERC has approved procedures related to implementation of National Open Access Registry, which will enable automation, increase efficiency and transparency in market processes, making them seamless, automate transmission allocation, thereby enabling greater efficiency in the power market.
In fact, NOAR is going to be implemented from thirtieth of April of this month itself. CERC has issued draft connectivity and general network access regulations 2022, which will simplify as well as rationalize transmission allocation, transmission pricing, and support strengthening and augmentation of transmission networks. These regulations will further support growth of power market in the country.
On the policy front, the Ministry of Power recently introduced the Green Hydrogen Policy and guidelines for setting up EV charging stations. Both these initiatives are aimed at facilitating the energy transition. Continued thrust on distribution reform initiated process for amending National Electricity Policy 2021. Green open access for consumers with contracted load of 100 kW and above. Amendment to Deviation Settlement Mechanism Regulations, linking deviations to the price discovered at the exchange platform. A few other significant policy and regulatory initiatives undertaken during the fiscal 2022. We are keeping a close watch on the policy and regulatory developments, assessing their impact as well as the new opportunities that these developments will unfold.
IEX performance during the fourth quarter of the fiscal year 2022. IEX achieved 27.032 billion units of volume, comprising of 23.65 billion unit in conventional power markets, 1.12 billion units in green market, and 22.49 lakh certificates in the REC segments, which is equivalent to 2.24 billion units. We achieved 21% year-on-year volume growth across all market segments during the quarter. The growth in conventional power market was driven by increase in electricity consumption in states such as Maharashtra, Gujarat, Andhra Pradesh, Tamil Nadu, and Punjab. Cumulatively, in the fiscal year 2022, 102 billion units volume comprising of 90.6 billion unit in conventional electricity markets, about 5 billion units in green markets, and about 6.4 billion units in the certificate markets.
Further, the new segments such as RTM, GDAM, GTAM, played a pivotal role in accelerating volume growth and contributed 24% to the total volume. The conventional electricity volume, the day-ahead, intra-day and the real-time market achieved 96.1 billion units volume and saw 24% year-on-year cumulative growth. In the cross-border electricity market, which is a part of conventional day-ahead power market, we achieved about 1.05 billion units volume. Both Nepal and Bhutan have been participating actively on the sell side and buy side. We are consistently in touch with Bangladesh and are positive that they would be joining this market shortly. Thus, we are working towards building an integrated South Asian power market in the power market.
The green market comprising of green day-ahead and term-ahead segments achieved 4.945 billion units, which is 5 x increase over the last year. The renewable energy certificate market achieved a volume of 60.78 lakh certificates, equivalent to 6.078 billion units. The Energy Saving Certificate market achieved trade of 2.86 lakh certificates equivalent to 286 million units of volume. With customer centricity at its core, at IEX, our endeavor always has been to advance and strengthen exchange technology and introduce innovative products and services to provide the best-in-class experience to our customers. We launched the web platform to provide a digital onboarding experience anytime, anywhere, easy and secure access to the trading system. We also market data insights for our customers.
To make the bidding experience seamless with zero manual effort, we launched automated bidding through application programming interface, API, for the real-time market products. We soon plan to commence API-based automated bidding for DAM, GDAM and REC segments. API also has been launched for the market data to enable the market participants to automatically fetch data across the market segments. We have also provided bid creation tool to our customers to make it very easy and fast to create bulk bid details for upload on our exchange platform. Further, the value-added services have been introduced for the renewable generators to facilitate generation forecasting solutions from the best-in-class service providers and panel by IEX.
Lastly, I'm enthused to share with you that CNBC has recognized the outstanding leadership demonstrated by IEX during the challenging COVID times, as well as the positive and transformational effect we have been bringing to the power sector. Honorable Finance Minister, Srimati Nirmala Sitharamanji, recently conferred the Most Promising Company of the Year award to IEX by the seventh edition of India Business Leaders Award organized by CNBC-TV18, held on 1st of April at Mumbai. Indian Gas Exchange. I will now briefly touch upon developments regarding the gas market in India and IEX. IGX, the gas market saw significant traction in the fiscal year 2022. IGX has been growing from strength to strength since its inception and has been solidifying its performance by creating new records on the business front almost every month while accelerating development of the gas market.
IGX has achieved financial breakeven in the fiscal year with a profit after tax of almost about INR 1.8 crores. During the fourth quarter of the fiscal year 2022, IGX achieved a total volume of 7 million MMBtu. Cumulatively in the year FY 2022, IGX achieved total volume of 12 million MMBtu compared to 0.2 million MMBtu in the last year. During the year, prominent leaders in the petrochemical sector such as BPCL, IOCL, ONGC, Adani Gas, [audio distortion] among others joined IEX as members. I'm pleased to share with you that recently IEX also won the prestigious Diamond Award in the Smart Startup category of the Year at the sixth edition of the India Smart Grid Forum 2022. Financial and business performance of the company.
I will now come to the financial and business performance of the fourth quarter and the fiscal year 2022. On a standalone basis, the revenue for the fourth quarter of the fiscal year 2022 increased to INR 128 crores, witnessing a growth of 25% on year-on-year basis. The PAT grew by 27% with a margin of 63%. Revenue for the fiscal year 2022 increased to INR 478 crores, witnessing a growth of 24% on year-on-year basis. The PAT was INR 302.5 crores, which grew by 42% year-on-year basis with a margin of 63%. The company declared a final dividend of INR 1 equivalent to 100% of the face value of the equity shares, taking total dividend payout during the year to 200% of the face value of the share.
The key highlights of the fiscal year 2022 included 90.61 BU volume in the conventional market, achieving a growth of 24%. 4.945 billion units volume in the green market, achieving 530% volume growth. 63.64 lakh certificates, constituting 60.78 lakhs of REC and 2.86 lakhs of Energy Saving Certificates. We are working towards introducing long duration contracts in both electricity and renewable energy by the end of first quarter 2023. We are also working to commence other new market segments such as ancillary markets, capacity markets, gross bidding contracts, National Open Access Registry, etc., and remain optimistic about commencing these in this fiscal year itself. In February 2022, CERC also approved introduction of hydropower contracts at IEX, which will enable obligated entities to comply with hydropower purchase obligations.
In our quest to consistently advance customer centricity, we will be shortly launching web-based billing platform to enable our market participants easy and secure access for billing on IEX platform. Further, we also aim to provide advanced data analytics as well as new technologies such as robotic process automation to eliminate human dependency in our processes. These initiatives would allow us to focus on introduction of new products and services to enable our market participants to derive greater value through exchange platform. Besides expanding the core business through new products, we are continuously assessing adjacent business opportunities to further diversify our business. With that, I shall conclude by thanking all of you. We will now commence the question and answer session.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Anyone who would like to ask a question, you may press star and one at this time. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mohit Kumar from DAM Capital. Please go ahead.
Yeah. Good afternoon, sir, and congratulations on a very, very good quarter and a fantastic year. My first question is, sir, it has been a story of contrast, especially the April month. You see strong demand in India, in the country, but at the same time, our volume is suffering because of price caps. Also, the shift to TAM and GTAM is causing loss to volume for us. How do you see it now going forward?
Yeah, Mohit, thank you for congratulating us on the performance. As far as the demand scenario is concerned, in fact, increase in demand in the month of April is as high as 11%-12%. Mainly because of the level of economic activity and early onset of the summer. We did not expect summer to be so severe in the first week or second week of April. The demand has increased by 11-12%. At the same time, the imported coal prices are very, very high. Imported gas price, LNG price is also very high. What I understand that cost of generation on imported coal is about INR 9-INR 10. On the gas it is plus INR 25. So generation on these imported fuel is less. It is less by almost about 9,000-10,000 megawatts.
Because of this, I think there is a gap between the supply and the demand. This resulted in increase in the price on the exchange platform. Price had increased to almost about INR 80-INR 90. Many of the times was the price of INR 20. The regulator and the government when they analyzed that, even when the price is INR 20, gas-based generation is not coming, they are not selling on the exchange platform. It is only the imported coal with the variable cost is INR 9-INR 10. Besides that, it is mainly because of the high demand the price has increased. To avoid that high price in the market, they capped the price. That is one thing which has happened. They are capping the price in the efficient market.
That took the process of that there is no price discovery on the exchange platform. This has led to buyers shifting on the alternate platforms, alternate options. This is something which has happened now, but I believe this is a phenomenon which is for a short period. In the month of May, particularly after tenth of May, the wind generation starts increasing. We are expecting almost about 150-200 MU additional generation from wind. The hydro generation will also start increasing. I'm sure you will see in the month of May situation improving and price discovery again happening on the exchange platform.
Thanks for the detailed answers. My second question is on the gas exchange revenue which you have booked in the quarter. That number is INR 28 lakh. That number seems to be slightly on the lower side. Can you confirm the transaction fees which you have earned from the gas exchange during the quarter?
Just a minute. Yeah. For the quarter, the transaction fee was INR 5.6 crores.
Okay. Because it's segmental shows, INR 28 lakh. You know, that's the reason I'm asking.
The reason being because the IGX ceased to be a subsidiary company effective from the mid of January.
Okay.
The consolidation till date, and post that number being associated company, so the numbers are not consolidated. The majority of the volume started picking up from that, so that's why the numbers didn't match.
Understood. Understood, sir. Thank you, sir. All the best. Thank you.
Thank you. The next question is from the line of Pranay Vijaykumar from Spark Capital. Please go ahead.
Yeah. Good afternoon, sir. Am I audible?
Yeah. Good afternoon.
So, of the new products that we are planning to initiate in this FY 2023, like, National Open Access Registry product, ancillary markets, cross-border contracts, et cetera, could you individually highlight the potential in, say, billion units overall? And also, color on, you know, what is the purpose these products will solve for the buyer? Like, what is the need that it will serve?
Yeah. One is the long duration contracts. Long duration contract is today on exchange platform, we can launch only products for delivery up to 11 days. It was because of a reason, because of that, in the earlier, SEBI regulations, there was a provision that forward contracts cannot be launched on the spot exchanges. That issue has been resolved now, by the order of the Supreme Court. Now delivery contracts will be regulated by CERC and derivatives by the SEBI. CERC, we have applied to CERC for approval of long duration contracts for delivery up to 365 days. Hearing was held, public consultation was done, and now order is reserved. We are expecting the order shortly from the regulator approving this long duration contract.
Now, we will be able to offer to the market participants delivery contracts up to 365 days. With this, you know, we will be able to then also get a good share out of the bilateral market. Volume happening in the bilateral market is about 50 to 60 billion. That is the market size, and we want to get into this market side also. That is for the long duration contract. Ancillary market is, you know, regulator has notified the ancillary services. Under the ancillary services, the tertiary ancillary service is through the market, through the exchange. Exchange will be inviting bids from the market participants who want to participate in this market.
We will give the details to system operator for inviting the gas generation from them or requesting the generation from them based on their merit order. That market will be started by the regulator as and when they notify the date of execution of that. That is yet to be notified. The date of starting is yet to be notified. Third is gross bidding. We have applied to the regulators for the approval of this product. This is a very, very innovative product. I mean, I'm sure you have heard about the MBED. MBED is a concept which Government of India introduced to have the entire generation of the country through the exchange platform.
Since it was mandatory, there was a lot of observations, a lot of resistance by many of the market participants, many of the state distribution companies and states. We introduced gross bidding, which is a sort of voluntary ambit. I mean, it is up to the state to participate in this market, and if they participate in this, they will be able to make some significant gain out of it by efficiently selling and purchasing their power. I mean, this kind of products are in operation in a couple of exchanges in other parts of the world, Nord Pool and Japan Power Exchange. This gross bidding concept is working very efficiently.
We are also talking to the states, doing the policy advocacy, explaining them how can they get benefit out of it, so that as and when this product is approved by the CERC, we can launch this and we can get good participation in this. CERC is yet to approve this product. I think, they are looking for more public, discussions and comments on this. Fourth one was National Open Access Registry. National Open Access Registry is not a new product. It is basically an automation of the entire open access process. Today, for the open access, application has to be made in the SLDC, RLDC and NLDC. They have to do the process manually and give open access. Particularly at the state level, there are a lot of problems in this.
Now, with the National Open Access Registry, everything will be automated. This will streamline the process. I'm sure this will also further, you know, boost to the spot market. It is difficult to identify the potential opportunity through this NOAR, but then this will smoothen the process. You know, not only the new products, whatever products we launch in the year 2021, I think lot needs to be done in this year to get participation in these markets. Like green market, which we started last year. In this market, we have done a volume of almost about five BU. I think there is a large opportunity.
We are interacting with many IPPs, many public sector companies who are in the green generation space, and discussing with them that there is good opportunity for them to set up renewable energy through the market-based instruments. We are also getting favorable response from them. In fact, from the policymakers and regulators are also quite open to this idea. I'm sure all these with all the initiatives, it will be possible to maintain the growth momentum.
Yeah. Thanks for that. My second question is on the MBED. Can you give us update on when CERC is likely to come up with final guidelines on this? How much of volumes, you know, we can expect this year? And what could be the transaction fee on these volumes?
MBED, you say?
Yeah, MBED. Yes.
I think we should stop discussing about the MBED. I think nothing is happening on MBED. That's the only thing I can say. Ministry of Power has issued a small document to CERC, sent the document to CERC for further taking action, and CERC is not taking any action on that.
Understood, sir. Loud and clear. Thank you so much, sir.
Thank you. The next question is from the line of Sumit Kishore from Axis Capital. Please go ahead.
Thanks. My first question is, could you comment on the CERC order dated 26th April and the potential implications for transaction fee across contracts? Also, we understand that your competition might already be offering rebates and incentives on transaction fee. What is your business strategy in this regard?
Yeah. First of all, see, when we filed our petition with CERC, that was filed in the month of January. That petition had many items in that, and there were many compliances with respect to the PMR. We wanted to inform them to CERC and there are certain minor approvals in the rules and business law and also approval of the transaction fees. For the other activities, no public consultation was required, so CERC has approved all of that.
Yeah.
On the transaction fees, CERC said that you file a separate application, and we will deal with that. Same thing we have done for the other exchanges also. We will deal with these transaction fees for all three exchanges together. I mean, for the two operating exchanges and the third exchange who wants to start their business, they have also applied for approval of transaction fees. They will deal with the transaction fees for all three exchanges together. I'm reasonably sure to get approval of the fees as specified by CERC in the regulation, which is 2% on other side. It themselves are specified in the regulation, and that has been the industry practice from the last 11 years. I don't see any challenge in that.
In fact, CERC has approved a trading margin of 7% for the traders. Value provided by the exchange in that process is much higher than what a trader is doing. If 7% is a tool for the traders, I'm sure for the power exchanges 2% on the side is reasonable.
Sure. My second question is, could you also speak about the likely volumes expected in REC and Energy Saving Certificate in FY 2023? If you could comment on your market share in the last fiscal, and even data for liquidity might have come.
This year, we did up almost about 60 lakh certificates. I'm sure, in 2023, the number should be higher than this. Again, very difficult to say because transactions in REC market is dependent on participation of the states and state participation because of their financial condition. We don't know to what extent it will happen. In spite of these difficult conditions, still we are reasonably confident that almost about 80-90 lakhs of REC certificate transactions should happen.
Okay. INR 80 lakh-INR 90 lakh is for the market?
No, for IEX.
For IEX. Okay. Just to understand this better, I mean, in FY 2022, for the period REC traded, what was your market share? What was the market share of IEX?
It was 75%+ for IEX.
75%. Okay. Last question, is there any update on when HPX, you know, the plan of job likely to commence its operations in an exchange?
I think you should be in a better position to do than that.
Okay, sir. Will do that. Thank you.
Tell me if you have any queries then.
Sure.
Thank you. The next question is from the line of Kunal Thanvi from Banyan Tree Advisors. Please go ahead.
Hi, thank you for the opportunity. I had two questions. One was on the dividend payout policy. We look at, you know, balance sheet, you've got a lot of cash now, but dividend payout continues to be the same the way it was, you know, last year. Any, you know, thoughts on how dividend policy would play out going ahead? Second was on, you know, if you look at our volumes now and, that is ex-REC, given the higher base, we've, you know, kind of, plateaued or even de-growing on a, you know, on a month-on-month basis, and, because of the high base.
How do we then, you know, how do we look at volumes from here on, with, you know, of course, you talked about a lot of products that are expected to come, but those could be say in next two to three years, like, next one and a half year, two year, how do we look at the volumes? Like, will it be a decline first and then, you know, a rise in the volume, you know, post the new products are launched and, you know, they gain the scale?
First, number one is dividend. See, we paid this year INR 1 dividend, which is 100% of the face value in the month of January. Now we have declared another INR 1 that makes it almost about dividend outflow of INR 180 crore.
No. What I meant was as a percentage of the net profit, right? The payout ratio.
It is 60% of the profits. That is one. I mean, as I mentioned in the past also, our dividend policy is that at least 60% of the profit will be distributed in the form of dividends. We have given this year 60% of the profit in the form of dividend. Second question is about the volume projection for this year, and particularly because of the high base, which because of the large growth which we have achieved in the last two years. See friends, you know, our market share out of the total generation today is only about 7%. Government of India vision is to take this short-term market to 25% in the next three to four years. There is a purpose behind this vision.
If we are going to add large renewable generation capacity in the country, integration of that with the grid will require a very, very liquid market, so that if there is any variation, the utilities can purchase power through the market to make good the variations. Real-time market was also introduced keeping all this in view. There are many policy and regulatory initiatives which are being taken to deepen the market. I believe the opportunity size is much larger. Base is definitely high. To achieve growth of 35-40% is definitely going to be difficult. I'm sure a reasonable growth of 20-25% should be possible to achieve. That all depends on the market condition.
I mean, our USP has been creating efficiency in the market and an efficient competitive price discovery so that market participants can get benefit out of that. The shortage scenario is not conducive for the market. If power supply shortage scenario continues for a long time, it may have adverse impact on our volumes.
Sure. Got it. Makes sense. Thank you so much, and all the very best.
Thank you. The next question is from the line of Ankush Agrawal from Surge Capital. Please go ahead.
Again, on this, CERC order of restricting the prices. What kind of discussion did you have before this order was implemented and after this has been implemented in terms of, you know, would it be a long-term solution that wherein for permanently the prices would be capped at INR 12 or, you know, it's kind of a short-term tenure, something, some kind of communication that you've received from CERC?
No, we did not have any interaction for capping the price. We had interaction with CERC. They wanted to understand what is happening in the market, why the prices have increased. What I understand, that there was a direction from Government of India under Section 107 to review the market situation and cap the price. As per that direction, CERC has capped the price at INR 12. This capping is basically what we understand. Though there is nothing mentioned in the order, what we understand is just for this interim period when the deficit is there, and as soon as the situation improves, the capping will be removed.
Right. What you're saying basically, you know, is that the exchanges are not consulted before this order came.
Yeah.
Am I right to understand? Right. In the long term, don't you think this is a detriment to your business model? You know, every time power generation increases, obviously the prices is gonna go high, right? By the time, you know, the prices are gonna be artificially capped, which reduces the transaction on the exchange. Practically, you know, the exchange won't benefit from, you know, growth in power demand as such. If there's like in the short term, if the power demand increases, it's actually not beneficial. It's actually detrimental to our business. You know, any kind of, you know, communication that you think you need to have with the regulator in terms of this?
No. See, the power demand increase is definitely good for the sector. It is a good economic indicator. At the same time we have to ensure commensurate increase in the supply of power. Unfortunately, in the month of April, the demand increase was at a very high level, to 11%-12%, and commensurate supply is not available. I tell you, this is a phenomenon which is not only in India, this is world over, this kind of phenomenon is happening. Friends, in France, the prices of EUR 30 per megawatt hour, which is about INR 30 a unit, is very common on the exchange platform.
Right.
Which we have never heard of. Commodity prices have increased, input cost have increased, FX fee cost has increased. I think this is a phenomena which is for a short period and corrective actions already are being taken. Government of India has already advised all the states and the central PSUs to import coal so that they can supplement the generation by another 4%-5%. If we can have another 4%-5% of generation, that's all. That is what is needed to bring enough liquidity in the market.
Just another bookkeeping question. For the full quarter, you said IEX achieved INR 5.6 crores of revenue. Can you tell me the EBIT as well for the quarter?
Yeah. I'll request Mr. Vineet Harlalka.
The EBITDA level is, if you look at the number, absolute number.
Mm-hmm.
It was approximately INR 1.5 crore.
INR 1.5 crores. This is against INR 1.14 crores in Q3. Is that right?
Sorry. It's INR 1.8 crores.
INR 1.8 crores. Got it. Done. Got it. Thank you.
Thank you. The next question is from the line of Nikhil from DAM Capital. Please go ahead.
Hello. Thank you for the opportunity, sir. You are audible, sir.
Yeah, I can hear you.
He can hear you.
I've got two questions. How much was the open access volume as a percentage in FY 2022, and where do you think it will go in FY 2023?
See the open access this year, our clearing price was INR 4.40. There is a very high increase in the clearing price. At this kind of price, viability of open access is very, very low in most of the states. That is why our open access volume has reduced to almost about 8% of the total volume what we have achieved. There is a fall in that. In FY 2023, again, it depends on the clearing price. If our clearing price is in the range of INR 3.2-INR 3.5 per unit, I'm sure the open access volume will increase. It all depends on supply situation improvement.
Okay, sir. Understood. The second question is, there is a talk of unified carbon trading market. Is there any chance our company will play any role in it? Have you heard of anything?
We are fully aware about it. We are in fact interacting with the BEE, Bureau of Energy Efficiency, along with the Ministry of Environment and Ministry of Power. They are working on this initiative. We definitely want to intend to launch this. It is initially they want to merge with ESCerts and the RECs, and they will have some multiplication factor to convert them into carbon credits and do the trading of that, and subsequently more products will be added to this list.
Understood, sir. Sir, just one last question. There is some cash. Cash has increased from INR 46 crores to INR 225 crores. Any special reason for it?
Basically it's year-end, and we need to have a liquidity. Because if you look at the year-end, the banking holidays.
Uh-huh.
We need to maintain that the surplus fund to meet our payout obligations. That was surplus fund was kept. Because of the higher prices and the volatility in the prices, so you need to have a liquidity to meet out your payout obligations. Considering the bank holiday, we need to keep that liquidity with us.
Understood. No problem. Thank you.
Thank you. The next question is from the line of Swarnim Maheshwari from Edelweiss Securities. Please go ahead.
Yeah. Hello, sir. Thanks for the opportunity, and congratulations for the good set of numbers. The first question is, what is really causing the delay in LDC? Because I believe, it was well established, from the apex court, almost about quarter and a half back, and CERC was already studying it very closely. What is leading to the delay in the launch of LDC?
One is the regulatory process. Regulatory process of admitting the petition, inviting public comments and then doing the hearing. In this case, since it is a new product which they want to launch, we wanted to understand the implication of this, understand the product details. I think that process is over now. Order is reserved. We should get order in this month itself, maybe in this month or month of May.
Okay. What time will it take to officially launch it from the day of getting the order?
We're free to launch it. Anytime we get the order, we'll launch it.
Okay. I think it's a high chance that you may launch it in May or June.
Yeah, yeah.
Okay. Sir, the second question is, don't you think that there is a case that, you know, it's established fact that in the month of October and again in the month of April or May, there always is, you know, demand supply issues, some sort of mismatch. The merchant prices goes through the roof and, DISCOMs have to ultimately pay a very high price to, you know, get the things. And specifically when the international coal prices are very high. Do you think that this can revive the, medium-term PPA sentiment, in the country?
See, the point is, if this kind of situation continues for a long time, long time means maybe six months, one year, then yes, there will be tendency on the part of the buyers to secure some contracts. I don't think, I mean, October was for 15 days. After the first fortnight of October, second fortnight was very normal, and things were very normal. Their prices were happening, prices also came down. I'm sure this time also it is for the month of April and maybe for 10 days of May. After that the situation will be again normal. I mean, market development can take place only when we have sufficient liquidity in the market. I don't think any market can develop under deficit scenario.
If deficit continues for two to three years, yes, there will definitely be tendency on the part of DISCOMs to buy. That was the case prior to 2010-11. Many PPAs were signed because there was deficit of power in the country. I'm sure looking at the kind of capacity what we have, that deficit situation is not going to continue for a long time and we should have good liquidity on the sell side.
No, no threat to the merchant capacity, as per you?
Pardon?
As per you, no threat to the merchant capacity that we have in the country?
No, I don't see that.
Okay. Got it. Sir, one final question, is now with the, you know, new exchanges coming and the, existing exchanges getting more aggressive in terms of market share and all, you know, how do you respond if they were to reduce their transaction fees? I mean, will you respond equally or, you know, you will let the market share actually go away? I mean, if you can just help us with that. Your thoughts on that.
We are operating in this market from the last 14 years, and from the last 14 years there are two exchanges. If reduction in the transaction fees can help in getting the market share, I'm sure exchanges would have tried that, but I don't think that can happen. Market share is dependent on the value which you provide to the market participants. The liquidity which you have on the platform. It is basically a function of that. For a generator who is selling power, for him, it is important to sell that power. If that power is not sold, he loses the opportunity. He loses the opportunity forever. For him, getting that revenue of INR 4 is more important than two paisa transaction fees. Same with the capacity discounts.
I think transaction fees is a very insignificant component in that whole process of sale and purchase of power. We don't see any challenge because of this, and we don't want to enter into this game.
Got it, sir. Got it. Sir, what if it is actually more regulatory induced, say it's CERC, you guys have to respond within 15 days, and if CERC takes a case that, you know, INR 0.02, I mean, although PMR guidelines and all are there, but then, you know, you still have to respond to that transaction fee thing which came on 25th of April. If CERC was to induce it, then that will be for all the exchanges, and for all. Can it happen that you can be charged, you know, different transaction fees for different products? Is that a possibility, sir?
First of all, different transaction fees for different exchanges mean if you reduce my transaction fees, then you are asking other exchanges to close down.
No, sir. Not different exchanges. Different transaction fees for different products.
I mean, all products are of similar nature. Whether it is day-ahead market or time market or wind market, these are all same electricity transactions. I don't think that kind of a view will be taken. As far as approval of transaction fees by CERC is concerned, as I explained earlier also, I don't see any challenge in that because the regulators themselves very recently, about a year back, have approved trading margin seven paisa for the trading companies. Looking at the values which exchange provides, they themselves have mentioned the regulations two paisa on either side. I'm sure when regulator is mentioning the regulation two paisa on either side, they must have applied their mind before mentioning that. I am very comfortable in getting this approval.
Got it, sir. Sir, thank you so much, and wish you all the best.
Thank you. Thank you.
Thank you. The next question is from the line of Aditya Chheda from InCred Asset Management. Please go ahead.
Hello.
Yeah.
Can you comment on the change in trade payables and trade receivables, which is, payables is INR 635 crores and receivables is at INR 87 crores? What is the reason behind that?
The higher volume and the higher prices. As you know, the higher the electricity has been traded at almost INR 14-INR 15. This has resulted in a significant increase in the payable amount. This is a general temporary phenomenon because of the market sentiments. Nothing different. As and when the electricity prices get normalized, it will again settle down at the average rate.
Thank you.
Any other questions, Mr. Chheda?
No, that's it.
Thank you. The next question is from the line of Pavan Kumar from RatnaTraya Capital. Please go ahead.
Sir, I wanted to understand, suppose when a situation like that happened in April, there's certain discounts, like, say, Andhra Pradesh needed certain power. If any private player also wanted power and he was bidding for the same power from the same state, is it like the DISCOM has to purchase the power and then distribute it to the private player or the private player himself can directly access the exchange?
The question is not clear. Which private players we're talking about?
Industrial players, because I am assuming DISCOMs are directly dealing with both the commercial and industrial purposes. If a private player directly wanted an industry who was facing some shortage of power wanted access to the additional power, can it get it from the exchange directly without going to the?
The provision is like this. These industrial and commercial consumers are the consumers of distribution company. They have taken connection from distribution company. They are paying demand charge to the distribution company.
Okay.
Now, if these industrial consumers want to avail power from the outside, if they are able to avail power from the outside at a rate lower than what distribution company is charging them. Subject to open access regulations and open access charges, then they can do so. That is allowed at the end of the act. If they are not able to do that, then distribution company is obliged to supply them the power at the distribution tariff.
Okay. In the case distribution company is not able to supply the power, the other route for them to meet their demand, is it through the exchange or they have to get into bilateral contracts?
No. That is, they can buy from the exchange. The point is, if there is enough power available in the market, then distribution company will be more happy to purchase power and supply the power because these industrial consumers are their paying customers. Well, we have to supply some power. That kind of situation when distribution company is not able to supply then will happen only when there is a shortage of power in the country.
Okay. In that case, actually, even the exchanges face the same issue.
Yes, yes. You're right.
Okay. Thank you, sir. That was all.
Thank you. The next question is from the line of Aditya Yadav from Transient Capital. Please go ahead.
Hello?
Yes, sir.
Hello.
We can hear you. Please go ahead with your question.
Yeah. Hi, sir. Good afternoon to the management team. Sir, firstly, my question was regarding the long duration contracts. For the long duration contracts to be launched, is it necessary that the derivative should be launched before that?
No, sir. [crosstalk]
That the players have more of comfort, entering into longer contracts?
No, there is no such interplay. Both are independent activities and, derivatives have to be approved by SEBI and long duration contracts are
No, sir, I wasn't asking from the regulatory perspective. I was wondering from the market perspective, from the participants' perspective, do you feel that they will feel more comfortable, if they have, like the derivatives have also come in line and come online and they can, you know, hedge their position, so they might feel more comfortable with longer duration contracts and that might act as an impetus for you as well? Or, do you feel confident okay, it's okay to go ahead with the longer duration contracts without the derivatives?
Yeah, I don't see any issue in that. I mean, going ahead with long duration contracts without launch of derivatives can happen and there is because already these bilateral transactions are happening in the market.
True.
is also basically shifting those bilateral transactions on the exchange platform. I don't see an issue in that.
Okay.
Launch of derivatives.
On that you said is a- [crosstalk]
Sure, sure.
Sure.
Derivatives will basically bring more liquidity in the market and reduce price volatility.
Mm-hmm.
There will be hedging options available to the market participants. This will definitely further deepen the market.
Mm-hmm. Sure. As you had mentioned before, that anyways is a large market where you said the bilateral long contracts are around 50-60 billion units, if I got it right.
Yeah, yeah.
Okay, okay, cool. Sir, my next question was regarding the developments on the gas business, the gas exchange business, where you've discussed a couple of quarters back. There were certain impediments in the interim, certain GST issues and a couple of other structural issues which are there before the gas market can be in a full-fledged mode. If you can give further updates on that. How have we come forward in last 12 to 18 months or so?
I mean, most of the impediment.
What are your expectations for the coming 12 to 18 months in the gas business?
Yeah. I mean, most of the issues are still persisting.
Uh-huh.
Under GST, there are different charges, taxes which are being charged by the different states. I mean, we are not able to launch a uniform contract across the states. That is one issue. Secondly, is the system operator. System operator, yes, there is a positive development on that. Ministry has decided that they will create a system operator in the gas sector. The work on that is going to start very soon.
Mm-hmm.
Rationalization of transportation tariffs, regulator PNGRB has indicated some action on that. It will take some time, but then, yes, there is good news on that. They have initiated some process in rationalizing the transportation tariff.
Mm-hmm.
The biggest problem what we are facing in the gas market today is very, very high gas price.
Mm-hmm.
Unfortunately, the prices are so high that they are unaffordable for the Indian consumers.
True.
The gas price, which used to be $5-$6, today more than $30.
Mm-hmm.
Because of that also and IGX volumes are impacted. I'm sure these gas prices which are very high today, in the coming days, the prices should come down. Even if they come down to a range of $10-$12 also, that will lead to good transactions on the IGX platform.
The end usage of the gas continues, no sir? The city distribution, city gas distribution and every other end usage continues, although the high prices are there. I mean, yeah, we are in a nascent stage and the business is developing, but the ecosystem is running. Apart from the power part, I agree, where you said the cost goes too high for the power generators from the gas fuels.
Well, you see.
Uh.
City gas distribution is getting gas out of the government-produced gas, which is administered by IGX.
Mm-hmm.
The gas which was given to the power sector is now getting diverted to the city gas distribution sector.
Mm-hmm.
Industries, they are forced to buy gas at high price, but many of the industries are now switching over to the other fuel options.
Mm-hmm.
There was a time when using naphtha was almost 30% costlier than using gas. Today, using gas is 30% costlier than now.
Okay.
I think, economics has changed, but, gas price coming down to $10-$12 will again change the whole economics and industries will stick to the gas.
Mm-hmm.
Gas will become affordable at that price.
Mm-hmm. Okay. The other issues also you mentioned, so like in coming quarters, let's say, or we should expect more rationalization from the
Yes. I mean, government is also committed to increase consumption of gas in the country.
Mm-hmm.
Today, gas consumption is 6% of energy bucket.
Mm-hmm.
In the developed countries, the share of gas is almost about 25%-30%. Government has decided to increase gas share to almost about 15% by 2030. If government want to do that.
Mm-hmm.
Government will have to create a vibrant market in the country.
Mm-hmm.
that can happen only when all these issues which we discussed.
Mm-hmm.
are removed. I mean, GST is something which is necessary. If you don't have a uniform price across the country, then how buyer and seller will know what kind of costing they are going to have?
Sir, my last question is regarding the pricing we charge on the transactions. Can you help us understand the regulator's rationale behind, you know, traders getting a 7 paisa price and whereas exchanges are capped at a much lower price per unit?
No, if you look at the 2010 regulations for trading margin.
Mm-hmm.
there was a provision of INR 0.07 if the rate is more than INR 3 and INR 0.04 if the rate is less than INR 3.
Mm-hmm.
Since the power rate has increased to more than INR 3, regulators feels that the second option is redundant now, so they have made it INR 0.07. Very simple.
Mm-hmm.
In case of gas, in case of exchanges, they feel that this is a technology platform driven process.
Mm-hmm.
Exchanges are charging two paisa on other side from the last 11 years, so this is a market accepted practice. They have specified two paisa on other side.
Although there have been questions regarding the competition and the pricing and everything, and you've done it very well, key you provide much more value to the ecosystem. Are there possibilities that we could have an upward revision in exchange fees? Or is that very remote?
No. Upward revision will take place only if we ask for it. We don't intend to.
You don't intend to.
Ask for it.
Okay. Understood, sir. Thank you.
Thank you.
Thank you. The next question is from the line of Lokesh Shetty, an individual investor. Please go ahead.
Hello, sir. Thank you for this opportunity. This happens to be my first question, so thank you for the opportunity. I read some time back in one of the interviews that there is a plan to launch an IPO for IGX. Do you think now is the right time or do you think that we should? I mean, the plan is to wait for things to get re-regularized in terms of GST and the other bottlenecks that we are facing with the gas exchange.
I think you haven't read the fine print in that. What I said was that as per the PNGRB regulations, we will have to bring down our stake in IGX to 25% within 5 years of the issue of regulations. Let's say our exchange got PNGRB approval in the first week of December 2020. By December 2025, we will have to bring it down to 25%. That means we will have to divest 25% equity. I mentioned that the best option to divest this equity is through the IPO process.
Right.
That means to IPO, I mean, we will like to hold the equity as long as we are allowed, and whenever we have to divest this, we will, I mean, we'll explore this option of IPO.
Right, sir. There is a possibility that you can explore the other routes also like a tying of similar routes.
This is the market condition. Three and a half years down the line, how can I say today what will be the best option? As of now, what we understand, what we see that IPO is probably the best option.
Right. Yeah, that was my only question.
Okay. Thank you.
Thank you. As there are no further questions from the participants, I now hand the conference over to Mr. Sumit Kishore for closing comments.
Thanks a lot, sir, for your time and for giving Axis Capital the opportunity to host this call. Mr. Goel, do you have any closing comments?
Yeah. I would like to thank each one of you for being part of today's con call. There have been many significant developments in the fourth quarter and fiscal year 2022. However, there are few challenges too, especially the increasing energy prices, including the commodity prices driven by various factors, including the global factors. We are working proactively to further develop and strengthen the recently launched market segments, which have immense potential for the growth. At IEX, we remain committed to doing our bit towards facilitating India building a sustainable and efficient energy future. Thank you. I look forward to our next interaction with you. Till then, take care and stay safe. Thank you very much.
Thank you.
Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.