Ladies and gentlemen, good day and welcome to the Indian Energy Exchange Q2 FY 2021 Earnings Conference Call hosted by Axis Capital Limited. As a reminder, all participant lines will be in the listen-only mode and there would 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 would now like to hand the conference over to Mr. Abhishek Puri from Axis Capital Limited. Thank you, and over to you, sir.
Thank you, Janice. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I am pleased to welcome you all for the Indian Energy Exchange Q2 FY 2021 Earnings Conference Call. We have with us the management team of IEX, which is represented by Mr. Satyanarayan Goel, the Non-Executive Chairman of Board, Interim Managing Director and Chief Executive Officer. Mr. Vineet Harlalka, Chief Financial Officer, and the entire management team. We will begin with the opening remarks from Mr. Goel, followed by an interactive Q&A session. Over to you, sir.
I welcome you all to the quarter two FY 2021 earnings call of IEX. I hope all of you, your teams and families continue to stay safe and healthy. While we are still coping with COVID pandemic, efforts are being made across the country to revive the economic engine and cautiously moving towards the business as usual. As a critical part of the energy and power sector ecosystem, the exchange continues to be committed to facilitate the distribution utilities and industrial consumers in procuring 24*7 power in the most competitive, transparent and efficient manner. The quarter two FY 2021 has been significant one for the IEX. During the quarter, we witnessed the launch of yet another new market segment. It is Green Term-Ahead Market.
We continued momentum on our customer outreach efforts to disseminate awareness and build capacity through various webinars as well as one-to-one digital engagements. We upgraded the technology platform to support the green markets. We further strengthened our subsidiary, IGX, through equity infusion as well as filed application for approval with the PNGRB, the gas regulator. With these and many more initiatives, we could achieve and sustain a positive momentum in terms of our business and financial performance, even during these unprecedented times. We acknowledge and thank our members, clients, employees, and all our energy ecosystem partners for their continued support. Now I'll talk about economic and industry updates. Overall, the second quarter of fiscal 2021 saw significant relaxation in the lockdown restrictions across the country. We saw a sharp recovery in industrial activities in the month of August and September 2020.
This is evident from the fact that Nikkei manufacturing PMI for the month of September 2020 rose to 56.8 from 46 in July 2020. Notably, September witnessed the highest manufacturing PMI numbers in the last eight years, which is an encouraging sign for the economy. With an increase in economic and commercial activities, power demand also returned to pre-COVID levels in September 2020. India witnessed 4.6% year-on-year increase in the national energy consumption. However, due to slump in the months of July and August, overall national energy consumption declined by 0.5% in quarter two on year-to-year basis. India's total installed power capacity has reached 373 GWs as on September 30, 2020, an increase of 3% on year-to-year basis.
In line with the national vision to increase the share of renewable energy and its effort to fulfill its commitment under Paris Agreement 2016, the renewable energy capacity has registered a rate of 8% growth. As on September 30, 2020, India's installed renewable capacity has now increased to 89 GW and constitutes about 24% of the total installed capacity. On the regulatory front during the quarter, Uttar Pradesh Electricity Regulatory Commission issued draft Merit Order Dispatch and Power Purchase Optimization Regulations 2020. Aimed at improving the efficiency in generation and power procurement in the state. The regulation rightly recognizes the exchange-based short-term power market as a possible avenue for power purchase by distribution companies and for efficient and cost-effective optimization while meeting the state's overall demand supply situation.
Similar such regulations are already in vogue in the states of Delhi and Maharashtra and serve as a precedent for other states in pursuing an efficient merit order dispatch for procurement of electricity. As regards the gas industry, PNGRB issued final gas exchange regulations on September 28th, 2020, which is a significant development for the gas market in India. It will mobilize the market and should hopefully accelerate the pace of gas release. Financial and business performance. On a standalone basis, the quarter witnessed 4.9% year-on-year growth in revenue from operations on account of an increase in volume. However, due to decline in treasury income, overall revenue increase i n quarter two by 0.8%. Profit before tax increased by 1.5% on year-on-year basis from INR 60.65 crore to INR 61.56 crore, reported before tax.
Tax at INR 46.7 crore was down by 4.4% as compared to INR 48.82 crore in quarter two of FY 2020. Last year tax was more because of one-time tax benefit of INR 3.7 crore. The electricity volume from the exchange witnessed an increase of 13.2% year-on-year increase in quarter two and stood at 16.486 billion units as compared to 14.56 billion units in quarter two of FY 2020. The REC trading could not take place during the quarter owing to stay order from honorable SLDC, and hence the total volumes including REC saw 3.8% year-on-year growth since quarter two of FY 2021. The day-ahead market on the exchange continues to see robust volume on the sell side, with sell-side volume of 2.2x of the cleared volume. The market witnessed average clearing price of INR 2.53 per unit, a very competitive price.
Last year during the same quarter, it was INR 3.15 per unit, and a decrease of almost about 20% in the clearing price. This enabled the distribution companies and industrial consumers to take significant cost advantages by purchasing power through the exchange. Attractive prices also led to 40% year-on-year increase in the open access volume from the exchange platform. The real-time electricity market, which was launched on 1st of June, also continued to witness robust volume and traded 2.350 billion units of volume in quarter two. On a cumulative basis, market crossed the milestone of 3 billion units on 6th of October this month. Quarter two initiatives. We are pleased to inform you that in line with our efforts to commence trade in the long duration delivery-based contracts, we have filed a petition with CERC for its approval.
Simultaneously, the exchange is working towards ramping up its market operations, business, communication, and technology infrastructure to support commencement of trading in the new market segments. During the quarter, we launched a new market segment, Green Term-Ahead Market, on August 21st, Market witnessed an encouraging response from the participants with cumulative traded volume of 75 million units. On every day, we trade almost about 1,000 MWs during the peak hours. On the first day of the launch of G-TAM, there was participation of only about six participants, and today we are seeing participation of almost about 40 participants on daily basis. Average volume is traded about eight to 10 MU per day. IEX continues to strengthen IGX platform through various capacity building initiatives and investments.
We have also filed application with PNGRB for the authorization, and being a regulated entity would bring in more credibility in the platform, enabling greater penetration of the gas market. We continue to undertake various policy and regulatory advocacy, market development as well as customer outreach initiatives with an aim to build the pickup of positive trade momentum. While COVID-19 has adversely impacted the energy and power sector, a favorable policy and regulatory framework could unleash transformation in the sector. We feel this time is opportune to establish a new market-led energy order, which is forward-looking and consumer-centric for India's economic growth. IEX is committed to support this transformation and ensuring reliable energy and power procurement in the most sustainable, efficient, and flexible way. Thank you. I and my colleagues would be pleased to answer your questions now.
Thank you very much. Ladies and gentlemen, we will now begin the question answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Before we start with the question answer session, a reminder to all participants, please limit your question to two per participant. You may rejoin the question queue if you have a follow-up. The first question is from the line of Mohit Kumar from IDFC Securities. Please go ahead.
Yes. Good afternoon, sir, congratulations on good set of numbers. Sir, two questions, sir. Firstly, sir, what is the expected timeline of power market regulation, does launch of TAM require only CERC approval or it requires the power market approval and Supreme Court judgment? This is the first question.
Yeah. Power market regulations, we were expecting them to be issued in the month of September. As you are aware, because of the Supreme Court order, two of the members are now on leave, so the quorum is not available in CERC. Only when Member (Law) is appointed and other members are allowed to function, I think then they will take up this PMR activity. Nothing can be said right now when the PMR will be issued. As far as long duration contracts are concerned, we have filed our application with CERC for approval, but CERC will take up the approval only after the jurisdiction issue is settled by the Supreme Court. We have filed this petition basically to save some time, the procedural aspect of the time. Otherwise, CERC will give the approval only when the Supreme Court issue is settled.
When do you expect Supreme Court approval to be in place, sir?
Very difficult to say. I mean, the application in the Supreme Court was filed by. It was a joint application of the parties who had filed the case, which is SEBI, CERC, Ministry of Power. It was done about a year back. During this COVID time, unfortunately, only urgent matters are being taken up. This hearing is getting postponed. The hearing was to happen on the 8th of October. It has now been shifted to December 1st week.
Okay, sir. My second question on the gas-
It is getting shifted from the last seven, eight months, so we can't really say whether it will happen in the month of December or not.
Yes, sir. Understood, sir. Secondly, on the gas volumes, of course, last quarter was very muted. How do you think gas volumes are in the next few years? Do you think these all the enablers for creating a gas trading market are taking shape? If you think that, can you update on all the enabling regulations, which can materially lead to increased trading on the gas exchanges?
When we started electricity exchange in 2008, at that time, all enablers were put in place for starting the electricity exchange. Enablers like we had a system operator, which is NLDC, RLDC, and SLDCs. There was a revision settlement mechanism, which was in the form of UI. We had open access regulations by CERC. There was non-discriminatory open access to all participants. There was no taxation on interstate sale of electricity. All these issues were settled, and the trading of electricity became a reality from day one when we launched this IEX. In case of gas exchange, we knew that many of these enablers are not in place. Even to get these enablers in place, there's a lot of policy advocacy to be done. We launched this exchange.
Mechanisms are happening, transaction in a big way will happen only when these enablers are in place. First thing is our gas exchange regulations. We launched the gas exchange on 15th of June. In the month of July, the draft regulations were issued, and after the public hearing, the final regulations were issued on 28th of September. That is one enabler which is now in place. PNGRB again has issued draft regulations for the access code and also to issue regulations for the gas transportation tariff. They are again coming out with a simplified gas transportation tariff in September, which is required for the exchanges. That is another activity which is work in progress.
Gas is unfortunately not under GST, different states have got different taxation on the gas, and because of that, it is very difficult to introduce standard contract on the gas exchange. We are working with the government. What we understand is that government has already referred this issue to the GST Council. Hopefully, that should also happen in the next couple of months. System operator, for that also, GAIL is already working in this area. They have in one of the office, all those activities have been provided. All the information systems are available now with them. They are also going to do this data gathering from the other pipeline operators. I think system operator also will be operational maybe in the next couple of months. On all these enablers is work in progress.
It may take another five, six months, and only thereafter we will see gas trading in a big way. Even if you look at the infrastructure part of it, gas LNG terminals, regasification terminals, today we have practically only two regasification terminals which are operational, which is by Petronet and Shell. Petronet terminal is overbooked and operating on more than 100% capacity under the long-term contracts. Shell terminal, they are also practically operating on 100% capacity. So if you want to develop the market, I think we need more terminals so that there is spare capacity available for the traders who want to bring cargo and sell in the market. A lot of activities are happening on the regasification terminals. I understand work is happening on five, six terminals, and maybe two, three terminals will get commissioned in the next one year.
Pipeline also, lot of work in the eastern and southern part of the country is happening there. We should see a interconnected gas pipeline network in the country the way we have for the electricity. That will be the time when we will have real good volume on the gas exchange. What we are doing at the moment is investment in the gas exchange and creating all these enablers. I'm sure about one thing, that opportunity in the gas exchange is much bigger than what we have in electricity. In case of electricity, 90% of the transactions are happening in the long-term contract. The short-term market is very small. In case of gas exchange, already the short-term market is almost about 15%, 20% of the transactions are happening to the short-term market get spot contract.
Going forward, most of the incremental quantity is going to happen under the spot contracts. The opportunity for the gas exchange is much larger.
Understood, sir. Thank you.
Thank you. Before we take the next question, a reminder to the participants again. Please limit your questions to two per participant. You may rejoin the question queue if you have a follow-up question. The next question is from the line of Nikhil Upadhyay from Securities Investment Manager. Please go ahead.
Yeah. Hi. Good afternoon. Am I audible?
Good afternoon. Yeah.
Yeah. Hi, sir. Sir, my question is on the RTM market. The earlier idea was that when we will launch the RTM market, there would be a shift of the market from the DSM to the RTM. Just wanted to know, what we have seen is that the RTM has cannibalized the TAM market. Is there a shift which is happening from DSM to RTM and how are you seeing the scale-up in the TAM market? That is one. Secondly, on the long-dated contract, when you talk of volumes of 20 billion units and on the Green TAM and all, do you see there could be similar cannibalizations which can happen from our existing volumes?
Yeah, RTM market, initially we thought that a substantial part of the DSM will get shifted to the RTM market. Actually what has happened is our intraday TAM transactions, they have now reduced practically to zero and the transactions have got shifted to the RTM market. That makes a lot of sense also. Now distribution companies can buy on real-time basis and at a competitive price. At the same time, in fact, volume in the RTM markets are much more than what we used to do in the TAM market. Good part of the volume is also the additional volume for the exchange, because of the competitive price, many of the states are replacing the high variable cost power by purchasing power in the real-time market. We are working with the states.
We are doing analysis of the power drawn by the states under the DSM, what kind of penalty they have paid, at what rate they have overdrawn the power, and does it make sense for them to purchase power to replace that DSM power by the exchange power. We are doing all that kind of analysis and interacting with the states, and I'm sure it will take some time, but even some shifts from the DSM to RTM should also happen.
Okay. Secondly, on this long-dated contracts and the new products which we are launching where we believe the volumes of 20 billion units, additional volumes come up, do you see there is a risk of cannibalization of existing volumes there as well or how do you see it?
In the long-duration contracts, I don't think there is a risk of cannibalization of the TAM market because TAM market is on day-to-day basis. It is the difference in the demand and supply of the distribution company which they purchase from the market. Long-duration contracts will be basically getting volume from the bilateral market. Today, bilateral market, our volumes are also about 40 billion units, so maybe a part of those volumes will get shifted to the long-term contracts.
Okay, fine. Thanks a lot, sir.
Thank you. The next question is from the line of Devansh Nigotia from SIMPL. Please go ahead.
Yeah. Thanks for the opportunity. Sir, my question was relating to long-duration contracts, where earlier we highlighted that we will be looking for reverse auction pricing structure, which is basically similar to what is actually happening right now in DEEP platform. I think there are no transaction charges on DEEP platform as of now, and we will be taking transaction standard INR 0.02 per unit. What will be the value proposition that we'll be offering for which volumes on bilateral will shift on our exchange? If you can just throw some light on that.
See, on the DEEP platform, it is only discovery of price which is happening. Once the price is discovered, the DEEP platform will indicate who are the sellers who are willing to sell power at this rate, and it is up to the distribution companies to enter into agreement with those sellers. Future delivery, financial and physical settlement is happening between the DISCOM and the seller directly. DEEP platform is only doing price discovery. After that, the role is over. In case of our long duration contracts, there are going to be auction mechanism. There's going to be another matching mechanism also. Under the auction mechanism also, we will do physical and financial settlement also.
We will take open access and ensure there's supply of power under the contract and supply to the distribution company, and payment to the generators on daily basis. That is the value add which we are going to provide.
Okay. Responsibility of the payment and delivery of the volume, which is the edge.
They will be counterparty to all these contracts.
Okay. In case of REC, there was this news flow where the APTEL has actually concluded that REC trade can now continue. If you can just re-clarify on that, when can we see REC volumes back on the exchange? If you have any visibility.
APTEL has not completed that. APTEL has concluded the hearing, o rder is reserved . We are expecting orders in this week, so that REC trading can happen on 28th of October. That is what we are expecting. Market participants, they have all requested APTEL that for three months trading has not happened. They should issue the order before 28th so that the trading can happen on 28th of October. We are looking for that.
Okay. If you could just throw some light on the increase in employee cost by, I think it has increased by 10%. If you can just divide it between increase in number of employees and increments that we have given, if any, and other income. Normally we do a run rate of INR 11 crore and it's been INR 8.5 crore . If you can just elaborate on these two differences.
I will request Mr. Vineet Harlalka, our CFO to answer this.
Thanks. First of all, I'd like to answer on the treasury income. You rightly said the treasury income during the September 2019 quarter, we had around INR 11 crore, and in the June it was around INR 13 crore on a consolidated basis. If you look at the trend in the interest rates, the interest rates have fallen significantly. In the June, what happened, because of the first quarter when the interest rates were reduced significantly by the RBI because of the COVID thing, there was a lot of mark-to-market gain which we got in the first quarter, which is in the range of around INR 5 crore. If you look into the overall our treasury side, which is in the range of around INR 5.8 crore, and if you compare the lower interest rates in comparison to the September 30, the net impact is around INR 5 crore.
Because of the lower interest rate, that is the impact. June was an exceptional quarter because of the mark-to-market gain what we have got because of the lower interest rates. This was the one factor I was hoping to clarify. Now we look at the manpower cost. Manpower cost has increased 10%, but if you look into the launch, there is a lot of new contracts we had launched. RTM mechanism for our market enabler for which we needed manpower, and annual increment impacts were there. We had a lower interest rate, so there was some add-on provision for the gratuity and the provisioning of the actuaries were there.
These are the basic factors, but looking at the overall structure of the side, I think now we have reached at the level where we will be able to sustain on this cost for at least for the annual term.
Okay. What would be the average yield on the bonds right now or treasury income average interest?
Average yield we are getting for the overall the September quarter this year we had around 5.6% of the average gross yield.
Okay. If you can just elaborate more on Indian Gas Exchange where there was a debate around the percentage of ownership that we want to retain, and we even made an application for that. What is the current status where GAIL was a prospective buyer to whom we could have sold some stakes? If you can just re-clarify a bit on that.
Yeah. GAIL was interested in taking 26% equity and become a strategic investor in the company. PNGRB regulations provide that members can only have 5% equity in the company. GAIL is the largest seller in the country, and they are also our member. I think they will be able to take only 5% equity in the company.
Okay. I'll come back in the queue. Thanks a lot for answering all this.
We are in discussion with them, and we are also discussing with couple of strategic investors who have large presence in the gas sector for investing in the company. It is basically to get more value for this initiative.
Thank you.
Otherwise, as on date, it is IEX which is holding 100% equity in the company.
Thank you. The next question is from the line of Lavina Quadros from Jefferies. Please go ahead.
Yeah. Hi, sir. Great set of results. Just two questions from my end. Sir, one is October, what volumes I am seeing on your website, it indicates very strong growth. I just wanted to understand, are there any one-offs or maybe just a low base effect? That's one. Secondly, sir, any color on states that are contributing? I mean, within all your states, any particular state that has increased contribution or someone that's reduced? Thank you.
October is not one-off. September we had volume growth of 45%. In the month of May also we had, I think, a similar kind of volume growth. Yes, one is base effect also. In fact, in the month of October, the per day average volume itself is quite significant. RTM market is also giving almost about 2,500 per day. Green Term-Ahead Market is another 7-8, 10 MU per day. I think overall volumes are good in the month of October. I'm sure going forward also as the demand of electricity, consumption of electricity keeps on increasing, the volume on the exchange should also be good. Significantly better than last year.
Sir, on the states, any color over there? Any states which are contributing with an increase share?
Participating of all states. I mean, large states definitely by right, is more like states like Maharashtra or Tamil Nadu, Telangana, Punjab. Punjab because in the case of Punjab, the demand is higher during this particular season, they have got large quantum of power. By and large it's spread over all the states except for the eastern region. Eastern region is comparatively much lower.
All right. Thank you, sir.
Thank you. The next question is from the line of Ankush Agarwal from Stallion Asset Management. Please go ahead.
Hello. Yeah. Thank you for taking my question. Just two questions. If you can give how much percentage of total short-term market is currently addressable by the IEX? And by what time do you expect a level wherein IEX will be able to address the entire short-term market? We are looking to launch new products in terms of long-term contracts. Will that be able to give you a product portfolio that would be able to address the entire 100% of the short-term power market? If you can verify that would be the first. Secondly, in some of your presentations, I have seen a mention of you looking to market banking contracts as a new product. Just want clarity on here. Is the banking contracts volume, which is being currently undertaken by DISCOM, is it separate from the short-term power market?
Is it over and above the short-term power market or it is included in the short-term power market?
Yeah. Today, short-term market is almost about 11% of the total generation. IEX exchange share out of that used to be almost about 35%-40%. I'm glad to share with you that this year, in the first six months, our share has been 50% out of the short-term market. There's a significant increase in our shares. That is one thing good which has happened. Secondly, when we introduce these long-term contracts, see, the short-term market is consisting of exchange, bilateral transactions, DSM, and the banking transactions. When we introduce long duration contracts, with that, our reach will increase from 50% to maybe about 70%-75% of the addressable market.
Okay.
With the Real-Time Market, we are also trying to get some volume from the DSM market. Banking transactions, it may not be possible for us to introduce an equivalent of the banking transaction. We are working with the states that they can sell power on the exchange platform and maybe bank that money and use that money to buy power when they need it. This kind of financial products also, we are working on that. I think with all these things, whether we will be able to get the entire short-term market or not, difficult to say. Yes, addressable market size will increase to 11%, 12% in the next two years.
Okay. Just one clarification on this. With long duration contracts, you expect the total addressable short-term power market would be 70%-75% for IEX.
Yes.
With some variation of a financial contract, which would be similar to banking, you expect the total addressable market to be 100% for IEX short-term.
Yes. Out of that, how much we are able to get?
Yes. How much IEX will gather, that would be a separate thing. The addressable market will be 100% for that.
Yes. You are right.
Okay. Thank you. Bye.
Thank you. The next question is from the line of Abhishek Puri from Axis Capital. Please go ahead.
Thank you for the opportunity. Sir, on the REC market that you mentioned earlier, if it starts from now, would it mean that the demand which is not met for the last three months will be pent-up demand or is it already met elsewhere and we will not see the volumes coming in, the lost volumes, I mean to say, the last three months volume?
No, the demand is not met. There is no other product available to meet the demand. You have to meet the demand only through purchase of REC. Because of pandemic, many of the states are giving a carry forward provision to, I mean, benefit to the distribution companies. Some of the state regulators are doing that. Whether the REC volume will be similar to what we did last year, I think it will depend. We'll have to wait and see in the next couple of months. With the reduction in the REC price, CERC has revised the forbearance price and the base price from INR 1,000 and INR 2,400, which is now down to zero rupee and INR 10,000. The REC prices are expected to be significantly lower. With that, we feel that the purchase by industrial consumers and captive industries will be significant.
Okay. This is the exact case why APTEL case was there, right? The REC owners had questioned the reduction in rate.
Yes, you are right.
Okay. Secondly, in terms of the DISCOM short-term open access notification, what is the status now? Is it stuck because CERC has not started functioning?
No, that transmission charge change mechanism. You are talking about that?
Yes, sir.
That will be effective from 1st of November. The order was issued by CERC much earlier. It is NLDC which is working on the calculation of charges.
Okay
it will be effective from 1st of November. There is not going to be any change in that. It is all administrative activity now.
Okay. The notification is already out on this.
Yeah. Notification was issued much earlier.
Okay. My last question, sir, is on NTPC is participating, when we are looking at the constituent, they're participating in RTM, but they don't participate in DAM. Any specific reason why you think they have started in RTM but not in DAM?
In case of NTPC, entire power is allocated to the states. States have rights to bring that power. States have rights to resell that power during the day also, with one hour notice, one and a half hour notice. In case of Real-Time Market, as per the regulations which are issued, the unutilized power can be sold by them in the RT Market. That is the flexibility which they have in the Real-Time Market, and that is why they are able to sell power in the Real-Time Market.
On any regulation which is pending to get them to the DAM market also, I think there were some.
Yeah. We were doing a policy advocacy that all unutilized power on day-ahead basis should be allowed to be sold in the Day-Ahead Market. That will bring a lot of liquidity in the DAM market, but unfortunately, that has not been so far accepted by the regulator and the government.
Okay. Thanks a lot, sir, and all the very best.
Thank you. The next question is from the line of Suraj Nawandhar from Prithvi Finmart. Please go ahead.
Hi, sir. Good afternoon. My question is regarding the market coupling. Do you have any update on that draft paper that was issued two to three months back?
Market coupling was an enabling provision which was introduced in the draft market regulation. There was a public hearing on that. I'm sure you are aware about what was the view of different participants. We also presented our case, and what are the discussions we had during the presentation and subsequent to that. We understand this is an enabling provision, and maybe this has come mainly because of the MBED, where in 2018, when MBED discussion paper was issued, market data committee discussed paper. If you want to mandatorily do all transactions through the exchange of the 100% of the power generated in the country, then I think you need one price to settle that, and that is why you need market coupling. Therefore, as a concept, this concept was introduced, enabling provision was created in that discussion paper.
I don't think anything is going to happen in the near future, and I really don't know whether it will be there as a part of the final regulations or not.
Okay, sir. Thank you. That was my question. Thank you.
Thank you. The next question is from the line of Aniket Mittal from Motilal Oswal. Please go ahead.
Yes. Thank you for the opportunity. My first question is on the open access front. If you could just let me know what sort of volumes of your total volumes is coming through open access for 2Q and 1H. Just a note on that, typically what's happened is over the past one year, we've seen an uptick in open access volumes. Whenever such a situation has happened, states have increased the additional surcharges, especially given that the power demand situation is pretty low. Based on your assessment, how are states also reacting to this? Are they increasing the surcharges for open access?
Yeah, our open access volume, there has been significant increase in open access volume during this last six months, increase of almost about 30% in that. Hello, can you hear?
Yes, I can hear you.
Yeah. Mainly this happened because of the low clearing price. Our clearing price during this time was about INR 2.60 against INR 3.15 in the last year. Increase in open access was mainly account of the low clearing price. State, they are still not encouraging open access. The tariff barriers and non-tariff barriers are being created. We are working with the states, we are working with the state regulators, but the success is in a very limited manner. Open access volume today is about 23%-24% of the total volume.
Okay. This is for 1H or 2Q? I'm just trying to understand. This 23%, 24% number.
Sorry?
Sir, this 23%, 24% number, is this the number for 1H that you're giving?
Yes. First half is 26%.
Okay.
If you look at second quarter, it is about 36%, 32%, if we are on that. 32%.
Understood. Sir, my second question is probably just to harp a bit more on the DSM, RTM dynamics over here. Obviously, DSM still continues to have a 2% market share of the overall volume. Just trying to understand from just your medium-term perspective, what is required for IEX to get that shift from DSM to RTM? Is there a low amount of participation that we're still seeing on RTM? Is that the reason why? Is there a thinking now that the one-hour timeframe actually may not be sufficient? Maybe that one hour time needs to, over a period of time, come down for that shift to happen.
We are working on that. If you look at the DSM price, the DSM price are linked to the day-ahead price. With the reduction in the clearing price in the Day-Ahead Market, the DSM rate also has reduced. It becomes a penal rate only in the event there is an overdraw beyond the limit, beyond the specified limit. We are doing these calculations for state by state. What is the quantum of overdraw beyond the limit? What kind of rate penalties they have to pay under those overdraws? Whether there was the opportunity for them to optimize and how they could have done that. I think these kind of analyses and interactions with the state over the period of time, then only we will be able to get the volumes from the DSM to the Real-Time Market.
Sure. Still you can see increased participation coming from the competition, and that could probably explain.
Yes. Participation is there today. Almost every day, more than 400 participants participate in the Real-Time Market.
Okay. One last question, if I may, sir. Could you provide an update on how G-TAM is progressing? What sort of response are you seeing on that front, especially in terms of participants? Also with the REC in place, how does that dynamic work, sir?
When we started G-TAM on 21st of August, the volume was 0.2 MU. These days we are seeing almost about 9 to 10 MU per day. The participation has significantly increased. Almost every day, 40 participants participate in this market. We are seeing generator selling power. Good thing is the distribution companies like Andhra Pradesh, Karnataka, Telangana, which have larger renewable portfolio, power availability is more than the RPO obligation of the state. They sell that excess power on the exchange platform, that green power, and take advantage of that. Because the clearing rate in the green ahead market is almost about 70%-80% more than the rate cleared in the conventional market. They get that premium by selling power in the green market. Earlier, states were backing down the green generator when their demand was less.
Now they have a market to sell that power instead of backing down the generators. This is a very big development and very positive for the renewable generator also and for the state also.
Understood. That is very helpful. I'll get back into the queue. Thank you.
Thank you. The next question is from the line of Yashodhan Nerurkar from PPFAS Mutual Fund. Please go ahead.
Yeah. Thanks for the opportunity. The first question which I had was on REC. Like I heard in the call that you weren't able to trade and that REC, the volumes were low. Could you throw some light on this? That's my first question. Secondly, I just wanted to understand the difference between Green Term-Ahead Market and the REC market. What are the difference in which market, like what addresses which market? If you could just throw light on these two questions. Thank you.
Yeah. Green Term-Ahead Market, you are purchasing electricity and also the green attribute of electricity. You are meeting your energy demand and at the same time you are also meeting your RPO obligation. In the REC market, you are only buying the green attribute. Example, a industry which has got its own captive generation. There is a RPO obligation applicable for that industry. Since they have already met the energy requirement from the captive generation, they will have to buy REC from the market to meet the RPO obligation. If there is a state which is wanting to purchase power and also have to comply with the RPO obligation, they can purchase green power to meet both of them.
Okay. Sir, about the REC certificates, there is no volume. What exactly happened about the prices were lowered by the regulator?
No, the volume is not there because transactions are not happening because of the APTEL stay order.
Okay.
I am sure this month the order should come, and we should see transactions in the REC market also from 28th of October, which is the last Wednesday of the month. We should see transactions in the REC market on 28th October.
Okay, got it. Yeah, that's it from my side. Thank you.
Thank you. The next question is from the line of Sujit Jain from ASK Investment. Please go ahead.
Hi, good evening team. Sir, a few quick questions. Any update on CEO search? What were the admission and annual fees for Q2? MCX has tied up with Mjunction for coal exchange. In energy markets, IEX clearly has the lead and monopoly in spot transactions. Will it be too much to expect now that we've launched a gas exchange to also take on something like a coal exchange or IEX is going to have an answer in that segment as well? If you can quickly elaborate on the states that you just mentioned that is Maharashtra, et cetera, on the draft merit dispatch. What exactly that it is, and what impact it has on the power market. Thanks.
Yeah. First is CEO search. That is what you asked?
Yeah.
I think board is working on that. I will not be able to tell you anything beyond that. There is no uncertainties as far as the company is concerned. We have somebody who is looking after the company, who was with the company for a long time. Don't worry about that. There will be no vacuum as far as the CEO is concerned. Mjunction and M CX, i t is very difficult to say what kind of a coal exchange they are talking about, because what I understand about exchange is, the exchange which is doing price discovery and also physical and financial settlement. Physical and financial settlement can be done for a commodity, in which there is no issue regarding quality and quantity. If you look at electricity or the gas, these are measured by meters, automatic online measurement of the quality and quantity.
It's the same gas, which is flowing through the pipeline. In case of coal, I'm sure you are aware what kind of coal we have and what kind of issues we have in the coal market. Whether it is going to be a coal exchange or it is going to be a reverse auction mechanism, what we have on the DEEP platform. I'm not really aware what is their business model. Your third question is regarding annual fees. These fees as of quarter two is INR 4.46 crore. Anything else?
Yeah. Finally, the draft merit order dispatch, which you said UPERC issued and Maharashtra and Delhi, they already have that in place. What exactly in terms of doing progress in the power market and what impact it has?
Let me briefly explain to you what a merit order dispatch is. Normally, states are dispatching their power based on the long-term contract with their contractors. They try to meet the demand through the long-term contracts, and if there is a shortfall in demand, then they purchase power through the bilateral or the exchange. Regulator in case of Maharashtra and Delhi, they have said very clearly that when you are setting your merit order, you should also factor in the exchange clearing price. If exchange clearing price is lower than the variable cost of some of your plants under the long-term contract, you should back down the power from those costly plants and purchase power from the exchange. That is the true merit order, because you are replacing high cost variable power. Fixed cost is something, it's a sunk cost you will have to pay.
At least you compare exchange clearing price with respect to the variable cost of different plants. There are many plants in the country where the variable cost is much higher than the exchange clearing price. If everybody starts doing merit order dispatch, then in that case, you will find that the objective of MBED will be automatically met through this merit order dispatch process.
Sure. One quick question on MBED. In MBED, you'll first look at sources where you have the cheapest cost of power, cheapest variable cost. You'll exhaust them, then to the next source then to the next source. That is the way you'll build the entire architecture at a particular point in time under an MCO. In that pan-India level, there will be savings. You also have to honor the PPAs. Some of that saving will be passed on to the producers of power, but some of the savings will be retained at the national level. To that extent, if I have a PPA at a price that may not be the best price or remunerative price for the SPV, but I'll still get that price under that PPA, right?
Let me interrupt you. For discussion on MBED, we need one full good hour for that. I am willing to spend time with you.
Sure.
Let me only tell you in brief that with MBED, the intention is to dispatch entire power of the country to meet entire demand of the country based on the most efficient manner. It is a true merit order dispatch which will happen under the MBED. It is very simple to hear, but if you want to implement this process, there are many complications. All those complications will have to be addressed. You have to pay the capacity charges, you will have to pay for the energy charges on daily basis, and there is going to be a contract for difference. All those things will have to happen. I think it is as complicated as GST, what we are doing now. Very difficult to implement in the country. You also need the consent of the states. I think it will need time.
Not going to happen very soon.
Sure, sir. Thanks.
Thank you. The next question is from the line of Ankit Gupta from Alchemy Capital. Please go ahead.
Hi, sir. Sir, as per your volumes given, our pricing per unit compared to be relatively lesser than last quarter or even last year. Is there pricing pressure or is the pricing different in some RTM market or spot market?
No.
Sorry to interrupt, but your audio is breaking up, sir.
Yeah. Okay.
As far as the transaction fee is concerned, it is constant. It is same last year and this year. There is no change in that. There is no reduction or any incentive or discount in that.
Sir, our volume growth is 13%, but our revenue growth is only 5%. Why it is so?
It's because REC, REC volume has not happened. You are seeing only electricity volume growth. You are not seeing REC. REC has not happened.
Yeah. Okay. Second, sir, what are the gas volumes, which we did this quarter?
Pardon?
Gas volumes. Volumes of the IGX.
IGX volumes are very low, as I told you.
Yeah.
We are working with the government and regulators to put a mechanism in place.
Okay.
All those things have to happen. We are not really today worried about the volume. I think for the next couple of months, we'll have to work aggressively with the government to put this mechanism in place. Thereafter, I'm sure there is also opportunity.
Got it. Thank you, sir.
Thank you. The next question is from the line of Pavan Kumar from RatnaTraya Capital. Please go ahead.
Sir, REC volumes contribute what portion of our entire revenues?
REC volume constitute almost about 12%-13% of our revenue. I mean, our volume, you can say.
Okay. Regarding the other expenses part which fell down to 52%, is INR 8.5 crore other expenses, is it a sustainable kind of run rate?
I request Mr. Vineet Harlalka to respond to this question.
Hello.
Yes, sir.
Other expenses, if you look into it, there are significant fall, actually, if you see in the expenses in comparison to the Q1, mainly it is because of the CSR expenses, because of INR 5 crore contribution in the PM CARES which the company made during the Q1. That is a major differentiation. Secondly, because of the COVID restriction, a lot of the activities are on hold. When the opening up happens, some costs will definitely go up on this side, but not significantly.
Okay. Any idea what would be the sustainable run rate that we can take on this particular part?
Particularly if you look into the average other expenses will be in the range of INR 5 crore-INR 6 crore.
Okay, fine.
Thank you. The next question is from the line of Saloni Jindal from Envision Capital. Please go ahead.
Thanks for the opportunity, sir. I wanted to ask, would market coupling be a threat for the exchange in the future?
Can you repeat the question, please?
Could market coupling introduced be a threat for the company in the future?
Market coupling introduced, yes. The point is, when will market coupling get introduced? If you are introducing market coupling with the MBED, there is no threat, because with the MBED, today exchange volumes are 60 billion units. After MBED, this will multiply by 25 times to 1,400 billion units. Entire generation of the country will happen through exchange. I don't see any threat in that or any challenge in that. In the existing market of 5%, there is no case for introducing market coupling. Tell me, what advantage one is going to derive by doing the market coupling in existing market? Existing market is a voluntary market. MBED is going to be mandatory market. In a mandatory market, you need single price discovery. In a voluntary market, you don't need a single price discovery. We still have NSE and BSE.
There is a price difference between the stock price within these two exchanges. We still have MCX and NCDEX. These kind of variations will be there. I don't think regulators are thinking of coupling those markets. Existing voluntary markets, I don't think there's any case for coupling it. With IGX we have no issues. In fact, it is a big opportunity for us.
Okay. Thank you, sir. Thanks a lot.
Thank you. The next question is from the line of Utsav Adesira from Individual Investor. Please go ahead.
Hello, sir.
Hello.
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Thank you. The next question is from the line of Kunal Gandhi from Banyan Tree Advisors. Please go ahead.
Thanks for the opportunity, sir. Sorry I joined late. My question may be repetitive. Wanted to understand and have a sense on how should one read into the employee cost in this quarter? Is it a one-off increase or it is a more sustainable trend going ahead?
Yes, there are two components which are one-off, but otherwise, also there was an increase in employee cost because of launch of new products. We have taken additional manpower. I think going forward, it is going to remain in this range.
Okay. That is INR 12 crore going forward. Hello?
Yeah.
Sure. The second question was on Green TAM. When we look at the volumes, this would be classified under the TAM itself, right? If I were to track the daily or the monthly volumes, it would be classified under overall TAM, right? There would be in terms of classification-
Standardization of TAM has happened because of RTM. TAM volumes have shifted to RTM. Green Term- Ahead Market is a market for the green power, and then you can compare it with REC, but in the case of the green market, it is energy plus green attributes.
Okay, sure. No problem. Okay. Thank you.
Thank you. The next question is from the line of Swarnim Maheshwari from Edelweiss Securities. Please go ahead.
Yeah, sir. Good evening. Thanks for the opportunity. Sir, two set of questions. First anything on the derivatives platform that you have planned? Anything on the shape and the form of the derivatives platform?
Number one, derivatives in electricity can be introduced only after the issue is settled by the Supreme Court. Today, derivative is regulated by whom? That is an issue under that case. Once Supreme Court disposes of that case. In fact, SEBI, CERC, Ministry of Finance, Ministry of Power, they all decided these issues, minutes have been signed, and they have been filed with the Supreme Court that derivatives will be regulated by SEBI, and long duration delivery contracts will be regulated by CERC. Once that case is disposed of by Supreme Court, then SEBI will be able to introduce financial contracts in electricity also. These will be introduced on SEBI-regulated exchanges. The advantage of that will be that in electricity, if you see, there is a lot of volatility in the price.
User will be able to hedge his position in the derivative market and take delivery in the spot market. A part of the bilateral contracts will then get shifted on exchange platform.
Right. The hearing was supposed to take place on 8th of October, but we haven't heard anything on that.
Before 8th October itself, the hearing was shifted to December.
This is postponed to December now. Okay.
Yeah.
All right. Sir, that actually means that you were looking to launch LDC by December end, now that actually looks a bit possible.
Yes. You are right.
Understood, sir. This is actually on G-TAM. Now, sir, right now we are at about 1 GW. What according to you would be the changes required for the G-TAM market to go from 1 GW to something like 15 odd GWs? We need to understand that there are new policies that is actually getting discussed with respect to higher capacity or higher merchant capacity allocation, so something like 80/20 with respect to new capacity. Can the existing capacity, can you see a ramp-up? Is it possible that from 1 GW, which is 10 million units per day, can it go to something like 15 odd GWs over the next few years?
One is, in the Green Term-Ahead Market, our transactions are one gigawatt in the peak hours. The transactions are mainly happening during the daytime. Average, if you look on daily basis, the volume is about nine-10 million units. Today, there is no generator which has got merchant capacity. Entire renewable capacity is tied up under the long-term contract.
Okay.
The participation is more by the distribution companies. The distribution companies who have got surplus power generation, renewable power generation, beyond the RPO obligations, they are selling power on the exchange platform. If you look at the clearing price of the G-TAM market, this price is about INR 2.40. It is a very lucrative price considering that price discovered under the bidding route for the renewable generators, which is around INR 2.60. I am sure looking at this price, maybe in future, couple of IPPs will develop capacity under the merchant route, or they will keep 10%, 15% of their capacity for selling the market and try to take advantage of this market. This is how the market will get developed. Ramping up from 1,000 MWs today to maybe 10,000MWs or 15,000 MWs will take some time.
We have created a market, and people will now see what kind of value they can take out of this market and make investment for selling power in this market.
Yeah. Right.
It will take two years.
In G-TAM, right now we have more of buy flows rather than sell flows, is it?
Yes, you are right. On the sell side, we are seeing active participation of the state distribution companies with the surplus power. Today it is Karnataka and Telangana who are participating. In the near future, we are expecting even Andhra Pradesh or Gujarat or Rajasthan or Maharashtra, who have large renewable capacities in this market.
Got it, sir. Thank you so much, and wish you all the very best.
Thank you.
Thank you. The next question is from the line of Ankush Agarwal from Stallion Asset Management. Please go ahead.
Hello. Sir, just one clarification on my earlier question. The banking contract value, the volumes in the current short-term power market annually would be somewhere around INR 30 billion, INR 35 billion. Is that understanding correct?
Banking transactions?
Yeah.
No, banking transactions volume are, I believe, above 10 billion-12 billion units only.
Okay. Only 10 billion units-12 billion units.
Yeah. Rest of the volumes are in the bilateral contracts.
Okay. Got it.
You are welcome.
Thank you.
Mr. Ankush Agarwal, we are unable to hear you, sir.
Ma'am. My question is done.
Okay. Thank you so much. The next question is from the line of Manoj Kumar from IDFC Securities. Please go ahead.
Hi, sir. Thank you for the opportunity. My question is on the RTM market. You explained about how RTM is cannibalizing other segments. If you could throw more light quantitatively on what happened in this quarter, and moving forward, what is the outlook on this?
RTM is not on account of cannibalizing other markets' entire volume. What I told you is that term ahead market, a good part of those volumes are sitting on the RTM market. If you look at the total volume what we have done in the RTM market, that is significantly more than what we did in the TAM market. I think almost about 60% of the RTM market volume is additional volume which we have got. Quarter two RTM volume is how much, Sonu? We did about 2.35 billion units in the RTM market in the second quarter. RTM market is definitely going to give additional volume.
Oh, got it. This was my quantitative light into how much that is.
We are working with the distribution companies to shift their DSM volume to the RTM market. How can they take advantage of the real-time market to reduce their cost under the DSM? We are working with them. Let's see what kind of success we get and how we are able to provide value to our distribution companies.
Got it. Thank you so much.
Thank you. The next question is from the line of Rohit Balakrishnan from Vriddhi Capital. Please go ahead.
Hello. Yeah, hello. Hi, sir. Sir, I just had two questions. One was, while our share in the short-term market has increased over the last few years, but as an overall market, short-term market has been stagnant at about 10%. This has been the case since our listing in 2008. I just wanted your views, what is going to change that and what is going to increase? I know we are introducing products in the long-term market, et cetera. Just talking about short-term, what do you think can take this 10% to probably 15%, 20% and more, which is also seen in the advanced market. That was the first question, and probably I'll also ask my second question is, you mentioned earlier to some current participant's question that this market coupling is not a risk if MBED comes in.
If you can probably elaborate a bit more on that would be helpful.
Yeah. Short-term market is hovering around 10%, 11% from the last, I think, four, five years. Government is seriously working in creating more liquid in the short-term markets. There are a few things which are happening now. One is long-term PPAs are not happening. Whatever is the incremental demand, either it is met by the existing long-term contracts or it is going to come to the short-term market. That short-term market volume with the increase in the demand will definitely go up. It's unfortunate that last year the increase in demand happened only by 1%, and this year the demand increase is, in fact, there is a decline in the demand. We may end the whole year maybe at the level of the last year or maybe lower than that. That incremental demand has really not happened in these two years.
That is why the volume in the short-term market has not increased. Second is old plants are now getting phased out. Government has already decided that the old inefficient plants will be phased out because they are not complying with the environmental norms. When those plants are phased out, these plants are supplying power under the long-term contracts. A part of that demand also will come to the market. I think these two, then cross-border transactions, which should happen anytime. I mean, CERC has issued regulations. The procedure is to be issued by the CEA. I think I understand that there is also under the final stages . If that happens, that also will bring some volume to the short-term market. I think these are the drivers for increasing volume in the short-term market, t ake the stock market from 10% to 15% in the next two, three years.
Got it. Sir, on the other question on market coupling, you mentioned if MBED comes in, that's not a big issue. If you can just maybe explain it in more detail.
What I told is that in the present market model, which is a voluntary market, participants, there is no compulsion on them to purchase power from the market, from the exchanges. It depends on the demand and supply condition. They can contract their shortfall through the bilateral market also or through the exchange, they can purchase power from any of the exchange. It is a voluntary market, it is only 5% of the total generation happening through this market. IEX is already having 99% kind of market share in the day-ahead market and real-time market. The competitive price discovery is already happening. I don't think we are going to get any additional value by doing market coupling in the existing model. There is no need for doing market coupling in the existing model.
If you are going to implement MBED, in the MBED, entire power of the country is going to get dispatched through the exchanges. If that happens, then you need a common clearing price. You cannot have three clearing prices of that, three exchanges irrespective of the volume of those exchanges. Since you need a common clearing price, I think, and market coupling makes some sense if you want to implement MBED. If MBED is implemented, then the entire volume, which is 400 billion units in the country generation taking place, the entire generation will come to the market. Then there's no challenge. I mean, we are doing today 60 billion units, and even if it gets 50% of the market share, it will become 700 billion units. That is what my point is.
Got it. Sir, just one final thing on this REC, you said that probably, at the end of this month the trading should start but given the price has been so low. Would you think, I mean, it's now. Would the generators continue to? Is there an alternative that they can because the price is not remunerative, is what my understanding is. Would want your view on and what will happen post, even if APTEL comes out with an order?
The point is existing generators who are selling in the REC market, selling attribute in the REC market, what option they have? They have no other option. They have to sell the green attribute only in the REC market. Earlier also, when the REC volumes were higher, the sell volumes were higher, the clearing price used to be only INR 100 for one REC certificate.
Right.
At that time also, they were selling it. For new capacity, I mean, under the bidding route, these IPPs are selling renewable power at a rate of INR 2 .50. Solar and even in case of wind also, the rate is similar. Conventional power market clearing price itself is more than INR 2 .50. On top of it, you are getting a premium of another INR 0.60, INR 0.70. It makes a lot of sense for the green generator to set up some capacity for sale in the market also. I think in future, irrespective of the price, there is value which they have in the, either in the Green Term-Ahead Market or in the REC market.
Got it. Fine, sir. This was very helpful. Thank you very much. Thank you for answering my questions.
Thank you. The next question is from the line of Nikhil Upadhyay from Securities Investment Management. Please go ahead.
Hi. Good afternoon, sir. Thanks for the opportunity again. Appreciate you explaining each of the points in detail. I just have one question, which is based on the explanation you gave between the REC and the Green-TA M. Would it be possible that the generators who are selling on the REC, they can sell their generation and the REC both at the Green-TA M market? Whole of the REC volumes can shift to Green-TA M. Is it a possibility, or would you say the split could remain at 80/20?
It depends. Today, generators who have set up capacity under the REC market, they have contract with the state distribution companies for supply power to the DISCOMs at the average cost of power purchased by the distribution company. The green attribute they sell, they get REC for the green attribute and sell the REC. In future, it is left to the IPPs whether they want to sell power in the renewable market, in the Green Term-Ahead Market, or they still want to sell power to the distribution company and take REC for the green attribute. Looking at the market clearing price and the payment position of the distribution company, I'm sure generators will be inclined to sell power in the green market as energy and the green attribute, and thereby they will be getting better valuation and also the prompt payment.
Sir, just one last point which I want to understand. If we say a person is selling a green REC on the REC platform and is selling power to the distribution company, the combined price which he is getting, would that be higher than what he is getting on the Green-TAM as of now?
It depends.
that will define upon, Yeah, sorry.
It depends at what time the contract was signed. If the contract was signed five years back, at that time the rate for the renewable power itself was INR 5 per unit.
Yeah.
Today, a state generator, a state distribution company will not sign a contract to purchase power at a rate of INR 3 or INR 3.50.
Under the bidding route, the rate is INR 2.50.
Got it.
They would like to purchase green power, which has got both energy and the green attribute. I think capacity addition under the REC market is not expected in future. Capacity addition will happen under the green market now.
Okay. Thanks a lot, sir. Thanks for the deep explanation. Thanks a lot.
Thank you.
It is going to be 4:00.
Yes, sir.
Limit up, two questions now? Last question.
Sure, sir. That was the last question for today. You may give your closing remarks.
Thank you very much for participating in this earnings call. We have discussed, I have nothing more to say. I can only say one thing, that last two quarters were difficult time for us. For the whole country during this, because of the COVID, there was contraction of demand in the country, and on exchange also, initially, we were apprehending that the volumes will also decline. Because of the very competitive clearing price, we could achieve a volume growth of almost about 13%. We also ensured uninterrupted operation of the power exchange, ensuring safety of our employees by doing digital transformation of the operations. Going forward also, if you achieve 13% kind of growth under difficult times, unfavorable conditions, I think going forward when the economic activities are now improving, I am sure that our growth will be much better. That's all. Thank you.
Thank you. On behalf of Axis Capital Limited, this concludes this conference. Thank you all for joining. You may now disconnect your lines.