Ladies and gentlemen, good day and welcome to the Indian Energy Exchange Q3 FY 2022 investors conference call 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 Limited. Thank you and over to you, sir.
Thank you, Ritija. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I'm pleased to welcome you all for the Indian Energy Exchange Q3 FY 2022 earnings conference call. We have with us the management team of IEX, which is represented by Mr. Satyanarayan Goel, Chairman and Managing Director, Mr. Vineet Harlalka, Chief Financial Officer, Mr. Rohit Bajaj, Head of Business Development, and Ms. Aparna Garg, Lead, Investor Relations. We also have the entire management team. We will begin with the opening remarks from Mr. Goel, followed by an interactive question and answer session. Over to you, sir.
Good afternoon, friends, and welcome to the IEX earnings call for quarter 3 FY 2022. Happy New Year to you all, and I hope everyone is safe and healthy. Joining me today I have Mr. Vineet Harlalka, Mr. Rohit Bajaj, Mr. Amit Kumar, Mr. Sangh Gautam, Ms. Shruti Bhatia, Ms. Aparna Garg, and Mr. Akshay Gupta. Friends, the impact from the third wave of COVID caused by Omicron variant appears to be mild and shortly, and there is no major lockdown and no significant impact on our economy. In India, we expect the economic and industrial growth to continue on a vibrant track. A mild correction has been seen recently due to COVID-19 surge and restrictions in certain part of the country. During the quarter, both services and manufacturing PMI saw good momentum.
Manufacturing PMI in November 2021 recorded a 10-month high of 67.6, led by spending demand and improving market conditions as against 55.9 in October. The PMI, however, eased to 55.5 in December 2021. Even on the services side, we witnessed an increase in activities leading to services PMI rising to a decade high of 58.4 in October and then 58.1 in November 2021. The services PMI in December was 55.5. The second quarter of the fiscal 2022, India's GDP grew at 8.4% on a year-on-year basis. Growth was driven by strong exports and domestic private investment as businesses ramped up production to meet massive demand. India is likely to close this fiscal on similar note.
For the full fiscal year 2022, the GDP is expected to be 8.3% year-on-year basis as per World Bank. On the power sector front, at the end of December 2021, India's renewable installed capacity is now 151 GW. The share of the renewable in India's total capacity base has increased to 38%. This is in line with the recently held COP26 summit at Glasgow, where India announced an ambitious target of achieving 500 GW of renewable energy by 2030. With a ramp up in manufacturing and industrial activity, the power consumption in the country in Q3 FY 2022 at 321 BU increased by 5% on a two-year CAGR basis. Key contributors in demand increased by industrial states of Maharashtra, where 18% increase happened. Gujarat, 14% increase. Andhra Pradesh, 12%.
Telangana, 12%, and Tamil Nadu, 9%. Coal is a dominant source of energy, and we have been seeing that its availability has improved significantly compared to situation in October. Now, generating plants have started getting enough fuel to meet the growing demand of electricity. In the month of October, due to high demand and supply constraints from the domestic coal and also because of the high increase in the imported coal prices, the domestic coal inventory was only about 4 days, which led to increase in the price of electricity and our prices increased to almost about INR 8 per unit. However, with the increase in coal supply, the domestic coal inventory has now increased to 9 days in the month of December, and our prices in the month of November were about INR 2, and in December was INR 3.54 per unit.
On the regulatory and policy front also a number of developments took place. A few highlights are on the 16th of December 2021, CERC has issued draft regulations for general network access. This will simplify, ease, and clarify how transmission access will be available for participants on the exchange. Post-implementation of GNA, decision-making by market participants to participate on the exchange will not be contingent upon transmission access and charges. GNA will promote development of power market in the country. On the 16th of October 2021, the 10-year-old pending jurisdictional conflict related to power market between CERC and SEBI was resolved by Honorable Supreme Court, giving way for the introduction of much-awaited long-duration contract on the power exchanges. This will also enable launch of electricity derivative on commodity exchanges.
Electricity derivatives will smoothen out the price volatility and also buyers will be able to hedge their position and take delivery in the spot market. I am sure this will lead to increase in the exchange transactions. Following this resolution of conflict, IEX has also applied to CERC for approval of long-duration contracts. The petition is under approval now, and we are expecting the approval in the next 2-3 months. Next financial year, we should be able to launch this contract. Additionally, CERC issued draft daily settlement mechanism regulation and linking the DSM charges to the time block, time block-wise price discovered on the exchange platform. When implemented, this will help further expand and deepen the real-time market. The National Open Access Registry is likely to be implemented in quarter four of FY 2022.
NOAR will automate processing of open access applications and will thus reduce its lead time. This will also make the transmission allocation more transparent and efficient. All these initiatives are favorable for further development of power market in the country. I am pleased to share that there has been several positive updates from IEX front in quarter three of this fiscal year. The Green Day-Ahead Market was inaugurated by Mr. R.K. Singh, Honorable Minister of Power and New and Renewable Energy, on 25th of October 2021. It now complements the term ahead contract for solar and non-solar energy within the green market. The collective auction of Green Day-Ahead Market is helping with competitive and efficient price discovery of renewable energy. Also, the Green Day-Ahead Market and Term Ahead Market together providing a spectrum of choices to the market participants.
The green market is expected to see even greater momentum and newer products going forward as penetration of renewable energy increases in India's energy mix. Under the Perform, Achieve and Trade Cycle II, PAT Cycle II, IEX commenced the trade of energy savings certificates on 26th of October 2021. However, Bureau of Energy Efficiency has issued an office memorandum on 29th of December, indicating a temporary pause in the ESCerts trading due to some administrative reason. We are likely to resume ESCerts trading soon. Trading in the REC market started on 24th of November 2021 after a 15-month gap and post issue of supportive and facilitative order by APTEL and CERC. We have been seeing a very strong momentum in REC trading. Calendar year 2022 started on a very positive note for IEX.
On the first day, cross-border trade with Bhutan commenced in the day-ahead market. Our cross-border electricity trade initiatives had begun with Nepal in April 2021, and now Bhutan is also with us. We are also closely working with our key stakeholders in Bangladesh to garner their participation as well. These developments augur well for developing a large and well-leveraged South Asian regional power market in future. The Indian Gas Exchange has been achieving consistent growth in terms of volume as well as ecosystem development. In quarter 3 2021, IGX recorded trade volume of 3.6 million MMBtu.
The person you are speaking with has put your call on hold.
Sorry for that. Please go ahead, sir.
Hello? Hello. Yeah. In quarter three 2021, IGX recorded traded volume of 3.6 million MMBtu, cumulative with trading 5 million MMBtu in this financial year. I'm delighted to announce that IGX has achieved breakeven in quarter three of FY 2023 within one year of our commercial. We are pleased to also share that IOCL has joined IGX as a new strategic partner. With the increasing volume and participants, IGX is well on its way to contribute substantially towards the government's goal of achieving 15% share of country's overall energy mix for natural gas by 2030. On a standalone basis, revenue for the quarter increased by 32.4% from INR 95.7 crores in quarter three of FY 2021 to INR 126.7 crores in quarter three of FY 2023.
The PAT grew by 33% on year-on-year basis with a margin of 663.1%. The company has announced an interim dividend of 100% for equity share. During the quarter, traded volume on the exchange grew by 37% year-on-year, with 27.6 BU volume traded versus 20.1 BU in quarter three of FY 2021. The growth in volume was driven by an increase in electricity consumption as well as resurgence of trading in REC and ESCerts. Gujarat, Andhra Pradesh, Punjab, Maharashtra, Haryana contributed the highest to exchange's electricity volume. The Real Time Market continues to be one of the fastest-growing market segment on the exchange. With a contribution of 20% to the overall electricity volume.
RTM witnessed 4.8 BU of volume, registering a growth of 70% on year-on-year basis in comparison to Q3 of FY 2021. The consistent growth of real-time market is an indication of growing reliance on distribution utilities and industries to achieve power demand supply balancing in the real-time market in most efficient manner. The green market, including the day-ahead and term market, cumulatively traded 1.2 BU during the quarter and contributed 5% to overall electricity volume. On the REC front, a total of 38.28 lakh certificates and a total of 2.86 lakh Energy Saving Certificates were traded during the quarter. We are now gearing up for the launch of much awaited long duration contracts in both electricity and renewable energy.
We are also working on other new initiatives such as exchange-based ancillary markets, capacity markets, as well as cross-bidding contracts. The power sector is undergoing a significant change with greater focus on sustainability, and this has been redefining the industry outlook. The demand for electricity is expected to continue to grow. At IEX, our constant endeavor is to innovate, improve technology and introduce new market segments and products to help the market participants meet their fast-changing requirements. Besides that, we are continuously assessing new opportunities that are unfolding. Thank you everyone. We can now start the question and answer session.
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. 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.
Hi. Good afternoon, sir, and congratulations on a very, very good set of numbers. So my first question is on the cross-bidding. How do you see this cross-bidding changing your volume, the behavior of DISCOM and incremental volume as you see, you know, from FY 2023 onwards? Secondly, on the MBED, is there any update which you can share? Has CERC started, you know, implementing that? The last question is on ESCerts. Why was there no trading from ESCerts in December? And do we maintain the projection of 3.3 BU, which is expecting in ESCerts in this particular financial year? Those are three questions. Thank you.
Yeah. Thank you, Mohit. Let me first discuss about MBED. Government of India has sent a discussion paper to CERC because it is CERC who has to frame rules and regulations for implementation of MBED. Are you able to hear me? Hello? Hello?
Yes, we can hear you, sir. Please go ahead.
Yeah. CERC has to now take up the activity for framing draft rules, regulations for implementing the MBED. Once they finalize that, only MBED will be implemented. I will not be able to tell you any timeline for that. Cross-bidding, you know, MBED is mandatory market, but we devised a product which is cross-bidding, which is a voluntary market. See, in case of MBED, power under PPA has to be sold through exchange, and distribution company to buy power from exchange. The same thing distribution companies can do on voluntary basis also. The exchange clearing price is 3 INR per unit. What they can do is, the power plants with variable cost is say from 2 INR to 3.50 INR.
Below INR 2, they know in any case they will need to schedule that power, so they can directly schedule that power. From INR 2 or INR 2.50 to INR 3.50 of variable cost plant, they can sell that power on the exchange platform and buy power from the exchange depending on their requirement for the different time block. This is a voluntary mechanism, and by cross-bidding, they can achieve whatever Government of India wants to achieve through the MBED process. I am sure through this cross-bidding also they will be able to achieve that efficiency and make it out of the dispatch. We applied to the regulator for approval of this product. Again, stakeholder discussion is going on for this, and we are expecting approval maybe in the next 3 or 4 months from the CERC.
As far as ESCerts is concerned, BEE has temporarily put a hold on the trading of ESCerts. I think there are some administrative reasons for that. Once that is resolved, then it is expected that the ESCerts trading may start from the next month.
Understood. Thank you, sir. Thank you.
Thanks. Thank you, Mohit Kumar.
Thank you. The next question is from the line of Devansh from SiMPL. Please go ahead.
Yeah, sir. Thanks for the opportunity, and congratulations on good set of numbers. A couple of questions. One is in case of gas exchange, after the recent stake sale, have you complied with the ownership norm? That is I think below 50% was where we were supposed to comply, and there was also a discussion regarding the same. If you can just throw some light over there.
Yeah. I mean, after sale of 4.93% stake to IOCL, now our IEX shareholding in IGX is reduced to 47% now. Now IGX is not a subsidiary company of IEX, it is an associate company of IEX.
Will there be any further selling in stake?
No, no. As of now, we don't have any plan because we wanted a strategic investors, strategic stakeholders of the gas sector on board so that we together can develop the market, and I think we have done that job. We have today ONGC, GAIL, Indian Oil Corporation, Torrent, and Adani with us. I think these are large stakeholders in the country.
Okay. This is it from my side. Thank you.
Thank you.
Thank you. The next question is from the line of Ankush Agrawal from Surge Capital. Please go ahead.
Hi, sir. Thanks for taking my question. Firstly, again, on the MBED, so the first one was supposed to get implemented from first of April of this year, right? Even though, like, you are saying that CERC has yet to frame the rule, but what is the progress like? Have there been any kind of discussion between the industry participants till now?
To the best of my knowledge, nothing like that. April appears to be difficult. Let's see. It all depends on the action by CERC.
All right. Given that, do you think it is feasible that since just two months pending from the date of implementation session, it will be possible to do that?
No, no. There are a lot of things to be done. Lot of things to be done because it amounts to amending couple of regulations, making a framework for this.
Right. Right.
making a clearing and settlement arrangement for that. Then you will have to also build module for that. There are a lot of work to be done before implementing this.
Right. In your expectation, it won't happen from April of this year, right?
No, no.
Correct. Okay. Got it. Secondly, on this, stake sales in IGX, right? Selling stakes to, say, GAIL, IOCL, Adani, that is understandable that these guys are strategic partners in the gas economy. But I want to understand the reason for selling such huge stake of 26% to NSE, right? Because NSE, I am not able to understand what value they bring. I mean, we have more experience than NSE in running a delivery-based power, I mean, commodity exchange, right? If you can highlight what was the reason behind selling stake to NSE.
I think, it was mainly because, you know, NSE is a large exchange in the country. The largest exchange in the country. Though in shares, currency, commodity, I mean, not in the spot market, but then they have large reach in the market. We decided to take them as a strategic partner, and we are definitely getting a lot of value in the process. Also, you know, instead of having multiple exchanges competing with each other, it is good to have one exchange and work together in that market.
Correct. It was more on the competition side as opposed to.
Yeah.
That's right. Got it. Fine. That was all. Thank you, sir.
Thank you.
Thank you. The next question is from the line of Swarnim Maheshwari from Edelweiss. Please go ahead.
Hello, sir. Good afternoon, and thanks for the opportunity, and congratulations for the set of numbers. First question, if you just see, how does this, the General Network Access, work? Do we mean that this will actually, once implemented, we will get rid of the open access charges which are made by the state?
Yeah. General Network Access is a very, very friendly, market-friendly regulation. Under this regulation, distribution companies will have to take General Network Access on long-term basis. As long as the transactions are happening within that quantity, within that access they have taken, then they don't have to pay network charges. I mean, suppose for a state of UP, they have taken General Network Access depending on their seasonal requirement and the peak demand for 10,000 MW. What they are getting power from under their long-term contract is only about 8,000 MW. They can buy 2,000 MW power from the market, from the exchanges, without paying any additional network charges. Earlier, they were required to pay charges for the short-term also. Now they are not required to pay that. That will be one positive thing.
Similarly, if they are selling power, then also earlier they were required to pay charges for selling in the network charges, now they are not required to pay the charges. It is only the buyers who are required to pay. Earlier it was buyer and sellers, both were required to pay the charges. Now it is only buyers who will have to pay. It is making the process much simpler. There is also a provision for short-term General Network Access. If anybody has seasonal demand for maybe three months time, and he wants to take additional access depending on the availability, that can be given to him.
Right. Essentially, sir, this talks about the reduction or, elimination of the excess charges or the transmission excess charges, not the open excess charges, which are two different things. Is that right?
No, I think transmission charges and open access charges, you know, all these things, all these regulations will be now merged into this GNA regulation.
sir, knowing that, open access charges is more of state prerogative, isn't it, sir?
No, state prerogative is intrastate charge.
Okay.
GNA is for interstate charges.
Interstate. All right.
Yeah, yeah. Inter-state charges are going to be rationalized.
Mm-hmm.
Intra-state.
Okay.
Intrastate, you know, as of now, they will continue as it is. Maybe in future if states also taking a lead from this GNA, then also start rationalizing that.
Okay. Got it. Sir, secondly, on this Cross Bidding, now I just wanted to better understand, are you trying to say that, this once implemented, I mean, of course it's a voluntary mechanism, but if it is implemented, does this circumvent MBED by any chance?
Yes.
Is this what-
Yes, yes. Yes, yes.
You're meaning here?
We are confident that if Cross Bidding is effectively implemented and used by the states effectively, there is no need of MBED.
There is no need of MBED at all. Okay.
Yes, yes. You can achieve the same kind of efficiency through this Cross Bidding mechanism.
Okay. Okay.
Yeah.
All right. Will there be any kind of draft or some sort of regulation that's likely to come, or has it already come on Cross Bidding?
No, for gross bid, Cross Bidding we have applied to CERC for approval of this product. Because, you know, when there is a regulatory approval, then the acceptance by the market participants is much better.
The person you are speaking with has put your call on hold.
Hello?
Okay.
Hello.
Yeah.
Yeah. Once, you know, there is a regulatory approval, then the acceptance by the market participants is much better. We are waiting for the CERC approval. CERC has heard the petition. They said to please do the stakeholder consultation and let us know the views of the stakeholder. We are working on that.
All right. Well, thank you so much, sir. I've got more questions. I'll get back with you. Thank you.
Okay, thank you.
Thank you. The next question is from the line of Sumit Kishore from Axis Capital Limited. Please go ahead.
Thanks for the opportunity. The first question is, well, the total backlog of REC yet to be redeemed is about 65 million odd. So do you see a potential for a pickup in the pace of, say the quarterly run rate of REC trading that we are seeing? Because, you know, there has been a big backlog which has got accumulated over the last few months the trading was halted.
Yeah, I mean, demand for the REC is definitely much higher because there is a backlog of 2 years. If you look at the RPO compliance also there is shortfall in that. REC inventory is going to be limited somehow because new capacities are not getting added in this scheme. Whatever capacities was there under the REC scheme earlier, they are continuing. Every year, almost about 50, 60 lakh RECs are issued, and trading is happening for that number of RECs. Since for 2 years trading had not happened, so this year we expect almost about 1 crore REC trading.
Okay. IEX should be able to garner a decent market share of this?
Yeah, yeah. Definitely.
Okay. Could you also speak about the timeline of launch of electricity derivatives by MCX from here? Also elaborate on the role of IEX, the revenue sharing arrangement that is likely to be between IEX and MCX. You know, what quantum of derivatives contracts will come up for physical settlement on exchange? If you could please elaborate on the whole, you know, electricity derivatives story.
Yeah. First of all, let me tell you one thing, that there was a dispute between SEBI and CERC about regulating the electricity contract, delivery contract, and the derivative contract. The reason behind this was that electricity regulator was quite apprehensive of electricity derivatives. You know, electricity derivatives may have adverse impact on the spot market. When this issue was discussed and the committee discussed about this thing, it was decided that let there be a joint working group of SEBI and CERC, and this joint working group should look into the kind of derivatives which are going to be launched and what kind of impact it will have in the spot market. A joint working group has been already constituted. They had couple of meetings, and they will.
What I understand that those commodity exchanges have already applied to the SEBI for approval of the derivatives. They are looking at that. What kind of derivatives this particular product can be approved to start with. I think within this financial year, the approval should come.
FY 2022 itself?
Yeah, FY 2022 itself this will start. That is my estimate, but then, depends on the joint working group, but it will start definitely shortly. There are no hitch in that. Government and regulators both want to start this activity because this will deepen the market. As far as our role in this market is concerned, see, number one, when electricity derivatives are launched, this will definitely smoothen out the price volatility in the spot market. This will also provide an option to the buyer for hedging their position in the derivative market and take delivery in the spot market. What we understand from the international exchanges, you know, whenever these derivatives were launched there, the liquidity in the spot market increased significantly. We expect the same thing in Indian market also.
We have an arrangement with MCX, because MCX will be launching the contract based on the highest grade price. We have, as you pointed out, that we have a revenue sharing arrangement with them. As and when these products are launched, then they will start the trading of that, and then we will see what kind of volume happens there in that.
Sure. Thank you so much for answering my question.
Thank you. The next question is from the line of Suraj Nawandhar from Sampada Investments. Please go ahead.
Hello, sir. Good afternoon. I'm looking to understand our customer and supplier concentration. Like, how much of our volumes are contributed by, let's say, top buyer or top five buyers? How much of our sell side volume is provided by top seller or top five sellers?
Just a minute. There is definitely some concentration because there are few states who are the. If you add the power consumption of the states of Gujarat, Maharashtra, U.P., Tamil Nadu, these 4, 5 states itself will be contributing to 60% of the consumption of the whole country. Naturally, on the buy side also there's going to be concentration because they are the big buyer. Top 10 buyers are constituting almost about 58%.
Okay.
58% of the total buy. Top 10 sellers are almost about 56% of the total sell.
Okay. Sir, how much do we charge for renewable energy certificates? Like we charge 2 paise each from buyer and seller per unit. What are the charges for the green market and renewable energy certificates?
On the certificates we charge INR 20 on either side.
INR 20 per certificate?
INR 20 from buyer and INR 20 from seller.
Okay, on the green TAM and DAM?
It is same as the conventional market. We charge on either side.
Sir, what would be our volume growth ex of the new products? Like last year the same time we did not have the Green Day Ahead Market or we did not have renewable energy certificates. What would be our volume growth ex of these products which were not traded last year same quarter?
Just a minute. See, our third quarter electricity volume growth is 17%, only in electricity. After taking REC and ESCerts, it is 37%. Out of this 17% growth, the growth was mainly because of the RTM.
Mm-hmm.
RTM we had significant volume increase and then also because of the DAM market. In DAM market our increase was 4%, but in the RTM market the volume increase was 70%. You can say the new products have given significant volume increase.
Okay. Okay, sir. Thank you, sir.
GTAM, GDAM in that market also, last year it was about 0.5, and this year it is about 1.2 BU. There also is a good jump. Green market, I'm sure in the future also we will continue to see good growth in this market.
All right. Thank you, sir. Thank you very much.
Thank you. The next question is from the line of Siddharth Gupta from Rucker Capital. Please go ahead.
Good afternoon, sir. I had the opportunity to look through the investor presentation that was uploaded on the BSE website, which, according to some analysts, predicts about four times top line growth by FY 2024. My question is pointedly about the fact that we have two power exchanges coming into operation in the next financial year. One of which is PTC India, which is a market maker on our exchange. Could you please comment on what is the expected effect on our revenue projections or our margins over the next financial year due to these particular exchanges coming into play?
As of now, there are already two exchanges, IEX and PXIL. Next financial year, we may have a third exchange, which is Pranurja or HPX. I think the new name is there starting now. Which has been promoted by BSE, that may be there. I don't see any challenge in that. I mean, we are already working in a competitive market right from the beginning. There are two exchanges and we are competing with each other. In spite of that, we have been able to maintain significant market leading position in the market. Even with the new exchange also, I'm not really concerned. See the point is, what we have to do is provide an efficient technology platform to the market participants. Innovate, provide new products, understand the requirement of the market and provide new products.
I'm sure if we are able to provide that value, customers will stick to us. We are upgrading our technology platform, also going to go ahead with the system to provide the ease of doing business for our participants. All these things are going to provide a lot of value to our market participants. We are also working on data analytics to help our customers to do efficient bidding. A lot of initiatives we have taken. I'm sure this is, with this we will be able to deal with the competition.
No, no, sir. I appreciate the effort you are taking to retain the market share. My question was just about what is your internal projections or estimates with regard even in the most conservative way as to what volume de-growth, if at all, we see over the year due to the existence of the new exchange or any fall in margin. Secondly, sir, I would like to know what share of PTC India's business do we handle currently, and do we see this as an outflow in the future because of their new exchange coming up?
In the earlier concall also, I have said the same thing. When we do trading of share go through a Zerodha platform, who decides on from this particular exchange they want to buy BSE or NSE, who decides that? It's not Zerodha platform. It is the buyer of shares who wants to decide or seller of shares who wants to decide when they want to buy or sell. He has to give that option. Not Zerodha or ICICIdirect.com or other platform. Similarly, in case of the trading company, it is not the trader who decides whether they want to sell or buy. It is the buyer or seller of electricity, they have to decide where they want to do it. For a buyer and seller, electricity, you know, is a commodity, which is a perishable commodity.
For a generator, if electricity is not sold, the opportunity is lost forever. He cannot store the electricity and sell it tomorrow. He will like to sell the electricity on exchange platform where there is liquidity, where he knows that buyers are there. Same thing is for the buyers also. I'm very sure that, there's not going to be any impact of this. We will deal with the situation as it emerges. I don't see any challenge in that.
Okay. Thank you so much, sir. Thank you for your comments.
Thank you.
Thank you. The next question is from the line of Apoorva Bahadur from Investec. Please go ahead.
Hi, sir. Thank you so much for the opportunity. But sir, I wanted to understand on this Cross Bidding. Now, correct me if I'm wrong, but what will be the incentive for states with low variable cost power to place their power on the exchange? Right. Because my understanding is that even in MBED, this was a bone of contention wherein states with excess or with coal reserves were not very keen on letting go of their ability to schedule power even just before gate closure. Can you please help us with that?
See, states who have allocation from the low cost power plant and does not have demand to utilize the full allocation, they can sell that power on the exchange platform at the exchange clearing price and take advantage of the low variable cost power. Presently, most of the states what they are doing is they are not scheduling that power. That power remains unscheduled. Under this gross mechanism, they will be able to sell the power and take advantage of the market clearing price. If the market clearing price is more than the variable cost of those plants, they can make some gain out of that.
Okay. Will this happen on day-ahead basis or RTM?
Yes, this will happen. This will happen on day ahead basis, mostly on day ahead basis.
In case there is a last-minute demand increase for these plants, they will not be able to reschedule those banked power. They will have to buy on Exchange.
They have the option of RTM market. You know, when you participate in the market, you can fine-tune your bidding strategy. You know what kind of variation can take place, how much of power I should take for the intraday variation, and how it's going to be the RTM market. Can I depend on that or not? To what extent I can depend on that? All these things when you participate in the market, you fine-tune your strategy. I don't see any issue in that.
Right. Fair enough. One last question on this, and this is something which we saw when there was a coal shortage in October as well, that the central government started issuing directives that excess, I mean, states should not sell power and try to gain from an opportunistic thing and rather than conserve coal. Generally the idea is since more or less we have times of coal deficit, do you think if this is not mandating and it is voluntary, the sanctity of exchange market will prevail even when there is a time of coal tightness for these low variable cost power plants?
Number one, this kind of situation happens maybe, you know, for 10, 15 days in a year. It don't happen throughout the year. Second is, I personally believe that we should not tamper with the market. We should allow market to operate freely. A state which has got less demand and more power availability, if they have the option to sell, they should be allowed to sell because they are also buying power when the rates are costly and the demand is high. We should leave it to them. If suppose that power availability increases in the market, the market clearing price also will go down. It will help the market.
I mean.
Anyhow, I mean, that situation was for 15 days, in the first 15 days of October, and in the second 15 days of October, the rates came down. In the month of November, the rate was only about INR 3. That situation was just for 15 days.
Sure, sir. Any inkling by when we can expect the regulator to act on this or any timelines for this, sir?
Well, they have asked us to do the stakeholder consultation and, it will take, I think, 3-4 months time. After consultation, we will file, and then they will have hearing, and I think we will also have to see what kind of products we are doing.
Sure. This becomes redundant if MBED is implemented anyway.
I will say if this is implemented, MBED will become redundant.
Okay. Okay, sure, sir. Looking forward to it. Thank you so much.
Thank you for your time.
Thank you. The next question is from the line of Prashant Rane from Exclusive Advisors. Please go ahead.
Hello?
Mr. Prashant Rane, please go ahead. Your line is unmuted.
Hello?
Sir, please give me a moment. There is no response from the line of Prashant Rane. As there is no response from the participant, we'll move to the next participant, which is the next question, which is from the line of Udan, an individual investor. Please go ahead.
First of all, good evening all, and congratulations for the best results ever. Can you hear me?
Yeah, yeah, I can hear you.
Yeah. From the results which I can see, there is a significant expense increase in the other expenses, which is approximately double of previous quarter as well as previous year quarter. Can we have some light on that?
Vineet Harlalka, would you like to-
I just like to confirm because this quarter we come out with a bonus issue. The mainly the increase of the expenses were on the two accounts. One, the higher CSR expenses and the bonus expenses. Lot of regulatory fees and other things which we need to pay. These are the two reasons for the higher cost. Otherwise, the rest basically cost are more or less in line with the previous quarter.
From next quarter, can we stick with the same like previous quarter and previous-
Yeah, 5,000 and a half year. That is our trend.
Okay, fine. Thank you. That's all from my end.
Thank you.
Thank you.
Thank you. The next question is from the line of Akash Srivastava, an individual investor. Please go ahead.
Yeah. My question was on the gas exchange. If you could throw some light on the volumes. Is it breaking even? How is it looking? That was one question. The other, with your stake down below 50. Does the profit of the gas exchange as and when it happens, will it get consolidated with the holdco?
Yes. Consolidation is, I mean, it depends on us. As far as the numbers of IGX is concerned, let me tell you one thing. First quarter of this year, IGX did a volume of about 3.3 lakh MMBtu. Second quarter, they did about 10 lakh MMBtu. Third quarter they did 36 lakh MMBtu. Every quarter they are almost multiplying their volume by three times. I mean, this is a lighter part of it, but the volumes are increasing. I'm sure, with the increased participation of the participants in the gas sector, IGX is doing very well and the volumes are going to increase further. In the third quarter of this year, for the first time, IGX has done the break even and made a profit of INR 0.8 crore.
Oh, thank you. That's very impressive. You do expect exponential growth in the gas volumes going forward too?
Yes. Definitely.
Thank you so much. That was all. Thank you.
Thank you.
Thank you. The next question is from the line of Abhilasha Satale from Dalal & Broacha. Please go ahead.
Yeah. Thank you for taking my question. My first question is on the DAM volume. We are seeing, you know, the RTM growth is substantially higher, whereas DAM volume growth has slowed down, you know, from whatever the highs we've left behind. Is it that RTM is cannibalizing DAM, those two products are complementary to each other or, you know? How do you think this trend going forward? This is my first question. Second is, with the third exchange coming in, we are levying the charges which are highest kind of the CERC approval charges. Do we have any intention to reduce that, as the competitive intensity increases?
You know, how do we see the charges trend going ahead as volumes increase substantially? Thanks.
Yeah. I mean, in the first 9 months of this year, we have achieved an electricity volume growth of 37%. Electricity is electricity, whether it is purchased in DAM, RTM, Green DAM, wherever you know. It is the total electricity volume growth. Participants are trying to optimize different products. They are trying to optimize the cost and the requirement, meeting the requirement through these different products. It was expected that with the launch of the RTM market, maybe some of the demand will shift to the RTM market because they will be able to more accurately forecast their demand during the day and purchase that power instead of buying it day-ahead basis. I mean, whether it is cannibalizing the RTM day-ahead markets, that is difficult to say. Definitely, RTM market participation has increased.
Going forward, I think you will see further increase in the Green market. Because Green market, which was launched last year is GDAM, and this year GDAM. In these two markets, presently the volume is slightly lower, but the participation is further going to increase in these markets also. At that time you may see that the DAM volume growth is further impacted. You know, to us, volume has to come from all these products. As far as transaction fees is concerned, we are working in the market based on the value which we are providing, and this participation on the exchange platform is dependent on that. Our job is to continue to provide value to the customer.
I believe that the transaction fees which we are charging is much, much lower in comparison to the value which we are providing them. We have no intention to compete based on the transaction fees.
Okay. Sure, sir. Thank you.
Thank you.
Thank you. The next question is from the line of Swarnim Maheshwari from Edelweiss. Please go ahead.
From Cross Bidding again. Suppose this gets implemented, what about the transaction fees? Will it be similar to all the other products or will it be regulated in a different manner?
It will be difficult to answer that today because it depends on the quantum of volume which is coming. It depends on the volume. If the state is bringing significant part of the sell and buy volume on the exchange platform, then maybe we can think about different charges for the Cross Bidding. Because, you know, he is supposed selling 100 MU and buying 60 MU. Then effectively he is selling 40 MU. We may have to think something about that. As of now, we have not decided anything on that. Let the product be approved, let participation happen and start, and then we can think about that also if required.
Okay. Do you see a real case for it to get started in FY 2023?
That is our target. We are working on that.
All right. Sir, thank you so much, and I wish you all the very best.
Thank you. Thank you.
Thank you. The next question is from the line of Vikas Kasturi from Focus Capital. Vikas, please go ahead.
Hello. Good afternoon, sir. Sir, recently you sold about 4.90% stake in IGX to IOCL. When I did the calculation-
No, no. I'm getting slight echo and not able to get your question.
I'm sorry, sir. My apologies, sir. I hope I'm audible now.
Yeah, much better. Much better.
Yeah. Sir, recently you sold 4.93% stake in IGX to IOCL. That was at a valuation of somewhere around INR 75 crore, if I'm not wrong. My question is, sir, in your own words, you said that every quarter the volumes on IGX has been growing. In fact, it's been growing exponentially. In the future, it could have the same kind of growth that we have seen in IEX. Sir, don't you think just for INR 75 crore valuation was little on the lower side?
See, last year when we started this exchange, at that time itself, we decided to have some strategic partners with us. We decided who are those partners going to be. It was not, say, open to everybody. We decided whom we want to give that. Because we felt that, yes, they can bring a lot of value to the exchange. IOCL was there in the list. We offered them at that time. Only thing is there was slight delay from the IOCL side to give the confirmation. We have sold this equity to all the participants, whether it is ONGC, GAIL, IOCL, Torrent, and Adani at par. We are selling at par. It is basically not a sale. It is an investment, strategic investment by all these participants. It was good that way.
I know very well that there were couple of private equity investors who are willing to offer much higher valuation to us. No, it is not a sale. It was a strategic investment. We want a strategic investor in the company.
Okay. Sure, sir. Thank you. That's all. No more questions.
Thank you.
Thank you. The next question is from the line of Aniket Mittal from Invest Research. Please go ahead. Aniket Mittal, please go ahead with your question. Your line is unmuted. May we request Mr. Mittal to unmute yourself. It's muted from your handset. As there is no response, we'll move to the next question, which is from the line of Ankush Agrawal from PhillipCapital. Please go ahead.
Hello, sir. Thank you for taking my question. Just coming back to Cross Bidding, and please pardon my ignorance. I just basically wanted to understand what is the difference or rather what will be the benefit of Cross Bidding compared to the current mechanism that we have? If you can just explain that briefly, that would be very helpful. Thank you.
Presently, the state, suppose they have allocation from the different power plants, and they have PPAs with the different IPPs. The total quantum available with them is, suppose, 10,000 MW. The demand during the day-
Mm-hmm.
It is not constant. It is sometimes maybe in the peak hours it is 11,000 MW. Maybe during the night hours it is 8,000 MW. Daytime it is 9,000 MW. What we're doing is we giving schedule to the generator accordingly. Whenever the demand is lower than the total allocation from this plant, a part of that capacity is remaining unscheduled. It is remaining unutilized. Whereas the exchange clearing price at that time, even in comparison to the power plants which are unscheduled, may have been higher. The state could have sold that power on the exchange platform instead of, I mean, instead of not giving schedule to them. Instead of, I mean, if you want to do the fine-tuning by scheduling directly to the state and then partly selling on the exchange platform, it becomes slightly difficult.
What you can do is, you know, power plants having variable cost less than INR 2.25, definitely the state will need 100% of that. They can schedule that power directly to the state. The power plant where the variable cost is INR 2.25 to maybe INR 3.55, in those plants, depending on the requirement, the schedule will be varying. Instead of varying the schedule, they can sell that power on the exchange platform, those plants. They can schedule, then sell the power on the exchange platform, depending on the exchange clearing price. Purchase their requirement from the exchange utilizing day-ahead market or RTM market. They can fine-tune their purchase to meet the demand. They can utilize this platform for making money by selling under utilization power and also meet the demand efficiently.
Okay, sir. Got it.
Thank you.
Thank you.
Thank you. The next question is from the line of Mohit Kumar from DAM Capital. Please go ahead.
Sir, two questions. The first is one clarification. Does behavior of private DISCOMs utilizing this new innovation like cross-bidding should be higher in your opinion versus DISCOMs owned by the states?
I agree with you, but I find these days even state discoms, their, I mean, power purchase optimization also has improved significantly, particularly in states like Gujarat, MP, Telangana, Andhra Pradesh, UP. There are many such states, you know, who are also optimizing their power procurement cost. I'm sure their purchases-
Sir, do you see any significant improvement by the states in optimizing their power cost compared to, let's say, five years back? Do we have any role to play in that in terms of consulting or something? Is it possible?
Mohit, I can tell you one thing. There is lot of change. Lot of change if you compare in the last five years. States like UP, they were not buying or selling on the exchange platform. They were not participating in the exchange platform. They were getting into only the long-term and the short-term contract in high price. Today, UP is buying power also when they need it, and they are selling power also whenever they have surplus. Yes, they are under the PPA, the variable cost is lower, and they are selling from the exchange platform at higher cost and making money in the process. Same is the case with other states like Telangana, UP, Andhra Pradesh, Karnataka. But there are many states.
You know, it is happening because my business development team, they are continuously interacting with the states, their power procurement sales team, telling them how they can utilize this exchange more efficiently, how they can do the bidding, how can they improve upon their bidding strategy. There are optimization tools also which have been developed. How can they use those optimization tools to optimize their cost? All those things are being done now.
Then lastly on the dividend policy, given the fact there is no major capital expenditure lined up in the near future, do you expect the dividend to go up in the FY 2023 and FY 2024?
See, we have been giving more than 50% of our profit in the form of dividend. That has been the consistent policy of the company, so we intend to maintain the same. Maybe if there is no need of money, there is no point in keeping money with the company. Maybe in future, if we feel, we can increase the dividend also.
Understood, sir. Thank you. I'm just all up, sir. Thank you.
Thank you. Thank you, Mohit.
Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments. Sir, would you like to give any closing remarks?
Yeah, thank you very much for participating in today's call. I must say that energy markets have been playing a pivotal role in building India's sustainable and efficient energy market future. We are very excited about the prospects of the company and the new opportunities that will unfold. I look forward to a positive interaction with you all in the next quarter, just like this one we had. Thank you very much.
Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you. Thank you.