Ladies and gentlemen, good day and welcome to the Indian Energy Exchange Limited Q1 FY21 results 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. Abhishek Puri from Axis Capital Limited. Thank you, and over to you, sir.
Yep. Thank you, Faizan. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I am pleased to welcome you all for the Indian Energy Exchange Q1 FY21 earnings conference call. We have with us the top management team represented by Mr. Rajiv Srivastava, Managing Director and Chief Executive Officer, Mr. Vineet Harlalka, the Chief Financial Officer, and the entire management team of IEX. We will begin with an opening remark from Mr. Rajiv Srivastava, followed by an interactive Q&A session. Over to you, Rajiv.
All right. Thanks, Abhishek. I hope I am audible.
Yes, you're audible.
All right. Thanks so much. Okay. Good afternoon, everyone, and I extend a very warm welcome to all of you for our Q1 FY21 earnings call. Present with me today on the call is the entire leadership team of IEX, Vineet Harlalka, the CFO, Rajesh Mediratta, our Strategy and Regulatory Leader Director in the company, Rohit Bajaj, our Business Country Leader, Samir Prakash, our CHRO, Indranil Chatterjee, our Chief Risk Officer, Amit Kumar, our Market Operations and New Products Introduction Leader, Gautam Sangh, our CTO, Deepak Mehta, our Business Leader for Indian Gas Exchange, Shruti Bhatia, Leader for Marcom, and Aparna Garg, she's the Investor Relations Leader. Just as a quick one, I hope everyone, you and your teams and your families continue to be safe and healthy. We clearly are living in unprecedented times right now.
The first quarter of this fiscal has been pretty tough for the industry and the economy and for all of us in many ways. On our part, from a business perspective, we continue to support the distribution utilities, industries, critical healthcare facilities, communication infrastructure of the country, millions and millions of employees who are working from home today, consumers at large, just by facilitating an uninterrupted 24 by seven power supply. I also want to let you know, on June 27th, during the last quarter, we celebrated our 12th anniversary. The complete unstinted support, belief, and partnership with our members, our clients, stakeholders, employees over these years has played a key role in building IEX, as well as building a very vibrant power market in the country.
I express my gratitude to everyone for partnering with us in this journey. I really look forward to an even closer collaboration going forward. In line with our vision to architect the next generation solutions for sustainable energy economy, ensuring a competitive, transparent, reliable access, we are committed to leveraging technology and innovation, and lead the energy sector transformation towards Energy-as-a-Service, which we see as a real paradigm shift in its true sense. I would also like to thank all our members, clients, employees and the entire energy ecosystem for a real, very solid quarter gone by. I must tell you, it has been a real busy period for us. We launched a few new products and markets, and we also launched our new company, Indian Gas Exchange.
During the quarter, just because of the nature of the times we are living in, we had to revamp our customer engagement and business development strategy completely to be in its virtual form. During the quarter, we took several significant initiatives to reach out to our customers proactively through webinars, through events, through e-meetings. It was almost like a communication overdrive for us during the quarter. On top of that, we made significant investments in technology and process innovations, leading to a better user experience for our participants. All in all, a very fulfilling quarter, and I'll talk more about it as we go forward. Let me give you an economic and industry update as well. The overall economic and industry update played out in a very different way for different industries. The quarter began with a serious slump.
In the first month of the quarter, the IIP contracted, which is April, the IIP contracted by almost 58%. Manufacturing and services sector continued to struggle during the period in April and May, gradually opening up as the economy opened up in the latter part of the quarter in the month of June. There was a significant improvement in manufacturing and services PMI in June at 47.2 for the manufacturing PMI and 33.7 for the services PMI. Both still in the contraction zone, much better than the way the quarter started in the month of April, for both services and manufacturing PMI. On electricity front, all India consumption of energy fell by 16% during the quarter, in the first quarter.
Starting June, with the easing of lockdown restrictions in most parts of the country, and also the fact that summers peak in the month of June across the country, the peak demand did return to 90% of pre-COVID levels. All in all, over the quarter, the electricity demand fell by 16% over the previous year. I will also give you statistics on installed capacity. India's total installed capacity of power is 371 GW as of June 30th, 2020. In line with India's commitment to Paris Agreement to really increase the share of green energy in the overall energy mix, the renewable capacity grew faster. It grew by 10 percentage points during the period and reached 88 GW during the period. Thermal generation was a drastic drop from last year. It dropped by 23% in the same period versus same period last year.
The regulatory developments during the quarter, they included amendments to the CERC Interstate Transmission Charges and Losses, which are likely to be implemented by September 2020, as well as the REC regulations on floor and forbearance prices implemented on 1st July 2020. We believe both these regulatory developments will possibly benefit the exchange market, trading on the power markets. Specifically, the amendments to transmission charge regulations will place transactions which are done on the exchange at par with intrastate transactions and will incentivize Distribution Companies to further optimize their power purchase through exchange, just because the cost will go down to that extent, and increase the viability for the sellers. To create a market framework that is robust, efficient, transparent, on 18 July 2020, the CERC issued draft Power Market Regulations for 2020.
We are optimistic that these developments will, over time, lead to enlarging the role of markets in the Indian power segment. On the policy front, just to give you an update, the Ministry of Power also amended the methodology of coal allocation under the SHAKTI Scheme, which allows generators to participate in the coal linkage auction even if they sell power on the Day-Ahead Market on the power exchanges as well as on the DEEP platform. This scheme should really boost sell side on the exchange because the Independent Power Producers will get coal, and this coal at the auctions will be as competitive as you can get. They will get coal to generate, and they can then come and sell and boost the sell side liquidity on the exchange from the merchant capacity.
They will be eligible to participate in the coal auction and thereby leading to the full supply chain. They will keep a check on the prices in the spot market, just because the liquidity will increase and they will be allowed to produce more power. Much for the regulatory and the policy. Let me just give you a financial and business performance update as well. Our revenue for the quarter has been up 15.6% on a standalone basis year-on-year. This is primarily on account of increase in the overall volumes traded on the exchange. On a standalone basis, our Q1 profit after tax was INR 42.88 crores, which is up 8.3 percentage points as compared to INR 39.59 crores in Q1 2019. I just want to caution you, there are two non-recurring items over here.
We did make a contribution towards COVID care, an INR 5 crore contribution towards COVID care. We had also an INR 2.6 crore of tax liability which was differential from last year. Because of which, if you take these into account, without these two non-recurring elements, our profit after tax would have been INR 47.89 crore, which would be a growth of 18% YoY and 6% QoQ. Couple this with the revenue growth of 15.6% and non-recurring itemized profit growth of 18% YoY or 6% QoQ, these are really strong numbers at any moment, and more so during these times. The company continues to be very strongly placed with a robust business model and absolutely zero debt. Just to give you a sense of electricity volumes, our volumes increased from 12.9 billion units in Q1 FY 2020 to 14.9 billion units in Q1 FY 2021.
This was a 14.5% growth in volumes. With an increase in economic activity, which started towards the end of the quarter, our open access volumes did jump up in the month of June, and we witnessed a 30% month-on-month increase, which means from May to June, there was a 30% increase in our open access volumes. Including REC, if I were to include REC as well, which didn't do as much just because of the new regulation on the floor pricing and forbearance pricing, the total volumes grew 9.8%.
Please to inform you that on July 10th of this month, just earlier this month, the Ministry of Power also released an office memorandum, which indicates a resolution of the decade-old jurisdictional conflict between CERC and SEBI, ably led by the government, in order to facilitate introduction of yet another new product in the market, the long duration power contracts, which will include forwards and derivatives. It's a really welcome step. Much needed, much awaited, a very positive step which has been in the works for a long time, and it will facilitate power markets to leapfrog the next level of growth.
The longer duration delivery-based forward contracts and derivative contracts will potentially alter the way power is procured in our country, because you get to hedge over the long period of time. The order will pave way for introduction of these delivery-based contracts on the power exchanges under the jurisdiction of CERC. The derivatives powers would be under the jurisdiction of SEBI. We at IEX will be able to design long-duration contracts, move forward with the approval process in CERC. The contracts from us is already done. We'll move forward with the approval process. We hope to launch long-duration contracts pretty soon, surely in Q3 of this year. This should be another step towards the commitment of development of the power markets and achieving our business aspirations. Let me just give you a sense of Q1 initiatives, and there's been a few.
Like I said, it's been a really busy quarter. A few very significant Q1 initiatives for the year. At a technology level, for the year, the company committed to invest INR 15 crores in technology and tech innovation and process innovations. This should lead to a better user experience, ease of trade for our partners and all our stakeholders. We are launching new functionalities for all our participants, a faster time to market for our new products, and a better engine overall for the trading engine. That's on the tech front. On the business front, like I mentioned, we conducted more than 30 events with our participants as part of our customer outreach efforts. As regards new market segments, we introduced the real-time electricity market recently, which has received, I think, an absolutely excellent and fabulous response from our customers.
It did a volume of 515 million units in the first month, which is in the month of June itself. The market was launched on the 1st of June, and in 30 days, we did more than half a billion units of trade, which is absolutely excellent, and it comprised 10% of total volume traded on IEX. Additionally, the Indian Gas Exchange, which is India's first automated natural gas trading platform, it commenced operations on 15th of June 2020. Quite a few of you would have attended our virtual launch event, where the Honorable Minister of Petroleum and Natural Gas and Minister of Steel, Shri Dharmendra Pradhan Ji, inaugurated the IGX, and the first trade was executed in his presence on the same day. Now, IGX has traded 9,600 MMBtu of gas within the first 15 days of launch.
A very positive development, I think early part of July, the regulator PNGRB, which is the gas regulator, has issued draft gas exchange regulations inviting comments from all stakeholders. IGX is in the process of compiling its feedback and will share it with the regulators soon. It will give a huge amount of structure to the whole gas trading market. Let me also give you a sense of way forward. Because like I said, these are unprecedented times. COVID-19 has clearly unfolded a multitude of challenges, and in our opinion, has a huge number of opportunities for the power sector. Like I mentioned earlier to you, I think it is pretty much the most opportune time you can think of to really rethink the electricity sector design.
Rethink the complete value chain, rethink the financial models which are operating in the electricity sector, the regulatory framework, all of these towards building a more efficient and sustainable energy economy. At IEX, we really stand at the forefront to deliver the solution necessary to enable the transformation of the sector. Good thing really is that the transformation will be technology led and enabled by technology. If you think of it, that is really who we are at the core of what we do as a business. We are focused towards a very high increase in engagement with the regulator, with the ministry, to lead the market transformation and the initiatives which are working in the works right now. Work with pretty much every stakeholder across the country to draw a new energy order to lead this transformation to the new normal.
This will be, in our opinion, underpinned by efficiency, competitiveness, flexibility, and a serious gain for every consumer across the country. Like I said, energy as a service and a true consumerization of the power sector is on the anvil right now, and we seem to be in a very good position to be thinking and leading that transformation. With this, let me just stop here and open it up for question and answers. I've got my whole team with me, so I'll make sure that your questions are given the right level of expertise to be answered.
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 their 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. Reminder to the participants, anyone who wishes to ask a question may press star and one at this time. The first question is from the line of Varun Goenka from Nippon India Mutual Fund. Please go ahead.
Yes. Good afternoon, Rajiv and team. First of all, congratulations for 12 years and I think a very good growth now. For a great quarter, and your RTM launch has been Till date, very successful. My compliments for that. I have two broad questions. One, around our stance on the derivative side. If you could help us understand, are we really looking to launch electricity derivatives when allowed? Having derivatives on the same platform or not having the advantages and disadvantages of that. We could have it in a separate company if that's a regulatory overlay, that's fine. Within the IEX company. My second question is regarding IGX or any such initiative. The equity ownership in the company, as we understand now, will not be 100% and has to be gradually brought down, if we could understand that part clearly, please.
Okay. Let me do that. For your first question, Varun, thanks so much for asking. Thanks for your compliments. Let me hand over for the first question on derivatives and how we envisage that product. Let me hand it over to Rohit, who's our BD Business Head, to answer that question. For the second question on IGX equity and how we see that progressing over the next foreseeable future, I will have Rohit Bajaj to handle that. Rohit, over to you.
Thanks, Rajiv. Thanks, Varun. The first one is about derivatives, and let me just quickly tell you a few things about that, because we are clearly seeing need of derivative at this stage, because the dependence of DISCOMs on spot market is increasing. They are exploring all the options, and they are looking for product whereby they can hedge their spot market purchase. Is the case with industrial consumers who are looking for such things. As you are aware, the financial market would be there, which would be participating in such derivative market. Going forward, we do have plans. As mentioned by Rajiv, the OM which has been issued by Power Market of the Ministry of Power, that clearly paves way for launch of derivatives and also forward markets. We are working on both the things.
The first part of it is power market, where we are going to launch in our present IEX only because there is no issue as far as regulatory framework is concerned, because that would be delivery-based contract and will fall under the purview of CERC. On the second part, which is purely financial product, we are exploring various options. You rightly said, we probably have to create a new company for that, and those things are being explored by us. Not yet finalized, but we are actively working on that front as well. Going forward, you will hear from us on that.
Any particular disadvantage in case we do not land up having derivatives?
See, in all the mature market, if you see, they play a very important role, right? Derivative is something which gives a price signal to the market, and it has got its own role. When the dependence on spot will increase. You need some financial product to support that, because when you are transacting more and more volume in spot, you cannot keep all your positions open, right? There are industrial consumers, there are distribution company, they look for one support price or reference price, I would say, for the year, and this purpose will be served when we have derivative in place. There are definitely advantages of derivatives. In all the global market, the derivative volume is 10x or even more in certain cases of the spot delivery volume that we see.
It has got its own place, and as we will progress, as the volume will increase, it will have even more significant role to play in times to come.
Any bifurcation between forwards and futures of the size of the market? Any assessment of that?
Yeah. Forward sizing we have already done. I mean, in fact, in the past, some of the such interaction we have shared. There is an existing market in place. Which is about 20 billion unit in a year, presently being done by some of the different OTC platform, DEEP being one of that platform. There are some more intrastate transactions going on, which are also forward in nature, which is not part of this 20 BU. 20 BU is something which is a potential size that we are eyeing as of now.
Right. About IGX?
Yeah.
Varun, I will just try to answer the second part of your query. We are now currently 100% owned by IEX, but we definitely are interested that more strategic investors should join so that we can develop the market working along with them. You may be aware that GAIL had issued an expression of interest seeking exchanges for them to invest 26% equity. We had sent our proposal. We are waiting for their final outcome of that proposal. Also, there are many big gas players who have shown interest in taking equity. Those proposals are already there with us. We are talking to them, and we are doing some internal formalities, and some part of formalities are being done with the other players.
We will shortly, maybe in a month or so, a month or two, probably will be able to share more details on who are the final investors on board on IEX.
My question is, how do we retain maximum equity in this company given the size of the opportunity or given how attractive it is for us, rather than remain a minority controller?
We will definitely like to remain a majority holder. 51% at least we would like to hold, and balance only we will seek for this investment. We also don't want to be a minority shareholder as IEX, because one is that IEX is a neutral platform, so I think that should not be problem for anyone. We would like to remain identified as a neutral player in the sector. Though we may have big players coming on board, but their stake will not be really high. Our interest is that we should remain neutral in the market. Only thing is that there are some few strategic investors on board that will help us create a better marketplace.
Okay. Sorry, just to clarify this, does regulator allow you to keep majority equity or is it in dialogue so that you're able to bring it down to 15% over the next few years? What is the thought around that?
Come again?
My question was the new regulations that may not allow you to own majority stake in the company. Are you in dialogue with the regulator towards that?
Yeah, definitely. See, having operated our IEX for 12 years, we understand what should be the right mix for investment on any delivery-based markets. We are in touch with the regulator. We are in the process of finalizing our comments on that draft regulation, and we will be filing our comments. We are still firming up our comments over that. Of course, there is a guideline available in the sense that we have a Power Market regulation which allows you to hold 26% if you are a neutral player in the market. If you are a member, then you are not allowed to go beyond 5%. We will again review it with respect to whatever we have done so far in 12 years with our experience. If there is some modification required, that we are finalizing our comments, and we are sharing with the regulator.
Thank you so much. I will come back in the queue.
Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the question queue. The next question is from the line of Mohit Kumar from IDFC Securities. Please go ahead.
Yes. Good afternoon, sir. Congratulations on good set of numbers and completing your 12 years and successful launch of RTM market. Sir, there's two questions primarily. The first is on the new Power Market Regulations. There's an enabling provision of price coupling. Sir, any thought around that? Secondly, on the transaction margin, do you need to take approval, and what is the kind of dialogue you are having with regulators? Just see, have you got any clarity on those two?
Okay. All right, thanks, Mohit. Let me answer both the questions, and let me also give you a bit of a broad thing on PMR, because I think the PMR has just come out, and we all expect it to be responding to the PMR shortly. I think in more ways than one. The reason I'm choosing to do it is because coupling will form a part of the whole PMR regulation. The way it has been thought through is to create, I think CERC is now in the process of creating, along with the Ministry of Power, a very robust and a very transparent and regulated power market.
What should be regulated, what should not be regulated, how should the new product introductions work, what should the new markets and certain operational topics look like on clearance and all of that, and the OTC platform, the governance structure, all of it is being discussed right now with a view to streamlining operations in preparation, in our opinion, for a good exponential growth. If you were to have an exponential growth today, I think the market could have challenges because certain operational structures need to be put in place to get growth. PMR is a very significant step in the direction of trying to get all of that.
The regulation draft, which introduced certain introductions of new bid types without the approval of the regulator, amendment to the business rules are all positive, and they are all in the direction of trying to set up a very nicely streamlined market. To answer your question on market coupling.
I think it's a provision w hich has been included in the draft of PMR 2020 as an enabling provision to support future growth of the Power Market. Exactly the same sort of a logic. I think there is a discussion going on between the regulator and the ministry and a huge amount of other people involved, which is consultants, allies, states, all of them, on what should the right and the most effective design of the Power Market look like, which is best suited to the country from a long-term perspective. All the right ingredients. There has to be vision to it, what's the right technology for it, what is the right innovation of products to come across with, processes, all of that is required to be done.
We are very closely engaged and involved in a lot of these discussions, we are absolutely confident that the regulator and the ministry will come out with most right, most correct enabling framework even from a company perspective, like I said, as the growth happens, there needs to be a certain amount of streamlining. The other point about the point you mentioned about transaction margin. Look, I think transaction margin is always unrelated. In October 2018, the CERC approved our transaction fee by way of order. Okay. If you have to increase the margin or decrease the margin, you need to still go to CERC. I think there's no change. They are just regularizing what the practice has been and what they've already said earlier, by way of a regulatory order in October 2018. There's no change to the practice. Look at it this way.
I think what the market is going to have now is a plethora of products. Many, many, many new products. So far, we had only two. We had DAM and TAM, and then we brought in RTM, and then now over the course of next couple of months, we would find that long duration contract, the way the question was from Varun about derivatives and futures and delivery-based contracts with the long duration. That will happen, cross-border products will happen. The green market, which is Green TAM and Green DAM will happen. There are different reactions in this fiscal year or in the near term. All these market segments, Mohit, have a very different requirement from an operational perspective, from a technology perspective, from a development perspective. Just the intensity is very different.
Some products trade at a very short duration during a very short period of time, which is DAM trade between 10 and 12, for instance. RTM trades throughout the day. There are so many more differences. The operational intensity of each one of them, the technology requirement, the people requirement, everything is different. I think it is only fair for the regulator to evolve a framework which is fair, which recognizes the fact that all of these are different and they need to be treated differently, and will make sure that we are provisioning for payouts absolutely commensurate with what it is. I think we feel comfortable with the way in which the whole thing is moving.
Like I said, we are very deeply engaged and involved with the Ministry to make sure that we come up with the best regulation, which is really the [audio distortion] of all the whole world, because we are doing at a time when, like I said, it's a huge amount of transformation going on in the market, and we can really lead this whole setting up of the new regulations as well as the new governance mechanisms.
Okay. My second question is, since you plan to launch derivative contract, I think we will be allowed to hold only 15% in case we launch this new company for the derivative contract. Am I right?
I missed the question.
Sir, in case launch derivative contract a new company under the SEBI regulation for launching the commodity future exchanges, I don't think we can hold more than 15%. Am I right?
Look, I think Rohit answered that question about whether we're looking for a new company or we look for partnership and all that. There are different ways of addressing the derivatives market. The long duration derivatives contracts will be under the guidance of SEBI, so you continue to work with that, and there are many other exchanges in the country with whom you can partner. There will be different mechanisms which we will have to evolve and think through over the course of the next two or three weeks to make sure that we do the right thing from our derivative goods perspective. It doesn't need to be and in that perspective, we're not constrained from a holding company perspective, or neither we are constrained from doing the right sort of a level of partnership to make sure we maximize that.
There are different routes to go to the market for the derivatives. Whenever these are to be delivered, the delivery happens on IEX. There's a very, very good framework that we are evolving right now, which can make sure that we maximize delivery-based contracts, we maximize the derivatives, we maximize the futures, and we maximize the delivery around all those products as well. I think we'll be in a good stead. Wait for a couple weeks for us to come back to you on that topic.
My last question, sir. What is the timeline?
Mr. Kumar, this is the operator. Sorry to interrupt you. May we request that you return to the question queue for follow-up questions, as there are several participants waiting for their turn. Thank you. The next question is from the line of Sudhir Jain from ASK Investment Managers. Please go ahead.
Hi, Rajiv and team. The electricity future, will it be in an index form? A. B, will it be cash settled when it happens? What your understanding would be. For the gas exchange, the PNGRB draft regulations, are they looking at capping of equity holding at 26%? MCX has tied up with mjunction for a coal exchange, which is a spot exchange. What exchanges have been data where we have been frontrunner and they have taken the space actually in futures transactions, derivatives transactions. In fact, they already have a natural gas futures contract trading there. What is our game plan if another energy segment like coal exchange opens up? NCDEX has also spoken about taking quotes from you and launching electricity futures when it is ready from SEBI's side. You are dealing with the end users, we are dealing with the financial investors as well.
How do you ensure that electricity futures remain in your turf? Thanks.
Okay. Let me give on the first question of yours to Rohit to answer on the derivatives and electricity futures and what we're doing. Just to give you a sense on the coal and what new lines of diversification can IEX think of. Literally, look, our aspirations are to play in the energy basket of the country. Before this space, we were an electricity-only player till now, then we became, middle June, we started a gas exchange, so we added one portfolio company. We started a new company for Indian Energy Exchange to launch our gas. There could be many such similar lines of business in coming forward. I cannot disclose to you on this call right now what those lines of business would be, but there could be many other lines of business.
Like I said, energy basket of the country is very robust and could be widespread. We can take a look at various options from expanding our portfolio in energy basket. With that, let me hand it over to Rohit. Rohit will answer the question on derivatives. I think there is a question on gas related to the same thing from Sudhir. After him, you can take it up.
Yes, Rajiv. Sudhir, you are talking about futures, and as I said earlier also, we are going to play a very big role there because as you know, all these financial transactions which are converted into delivery will come to our platform because we are the ones who are doing almost 100% of the spot transactions in the country. Coming to your question about index side. These are early days. We are exploring all these options, how the settlement could be done, and yes, in all such cases, index plays a very important role. We are exploring whether it should be a day index, peak index. In fact, we have different categories in our spot market that we do have time of transactions. We are exploring on those fronts. As I said, little early days, don't want to comment on it at this stage.
Yes, in future, you will surely hear from us on these accounts.
Those will be cash settled, right? Electricity futures.
Absolutely, yeah. Those will be cash settled, and then those will come to spot, those who are converted into delivery. Those options will be there.
How do you fend off the competition? They are ahead in terms of the derivatives game. We are a spot exchange, broadly.
Yeah.
They'll also launch electricity futures, we'll also launch.
Yeah. As Rajiv said, we are exploring all the options. There is a limitation on holding also, as you are aware. There are some players who are doing very good in that particular segment. We are doing excellent in this segment. There could be some partnerships in future. Again, I would repeat, little early to comment on that. We are still working on it.
Yeah, about the Gas Exchange?
Yeah, Sudhir, I'll just answer the gas part. Actually, the cap proposed by PNGRB is 15%, not 26%.
Okay.
We are making our final comments on that. As we have seen in case of electricity, 26% is good for anyone who is not a member of the exchange. That's, I think, a right thing to do for non-members. We also feel that exchanges should be allowed beyond that even 26%, because exchanges are very neutral entities. This can be allowed more than 26%. Non-member, but a neutral entity from the market, they can be allowed up to 26%. Maybe those who are participating on the exchange as members, they can be allowed maybe, say, 5%, or maybe if they are also promoters, we can have a different limit. We are just analyzing different scenarios, and we will be finalizing our comments and share with the regulator.
Diluting at this stage, would it not lead to?
Mr. Sudhir, sorry to interrupt you. This is the operator. May we request that you return to the question queue for follow-up questions?
This is just a corollary, then I get back in the queue. Diluting at this stage, would it not lead to lesser realization for the dilution in the gas exchange? Thanks.
No. One is that we are making our own comments, so our suggestion would be not limit to 26% for the exchange. That is one. If they do it, then they can allow some time for coming to 26%. Still there is a final regulation to come out. We don't see this as a final thing. Let us give comments and see what is final decision of PNGRB.
Thank you.
Thank you. The next question is from the line of Balaji Srikumar from Spark Capital. Please go ahead.
Good afternoon, sir. My first question is on the forward potential that you just first spoke about.
Mr. Srikumar, sorry to interrupt you. Please use the handset mode.
Yes, sir. Yeah, is it better now?
Yes, sir.
Yeah. What I want to find out is the potential 20 billion units in the forwards delivery-based market that you spoke about. Right now, is it being traded in the bilateral market, if I'm not wrong?
Yes.
This would be traded in the trading licensees, and also it will be part of the direct bilateral contract between the DISCOMs. It will be part of that.
Yeah. So far, all these transactions, as I mentioned, is being done through the platform. Some of these trading licensees are participating on behalf of distribution companies and IPPs. They are representing both buy as well as sell in most of the occasions. Going forward, when we are going to launch this, it would be done on our longer duration contract platform, which would be extension of the present TAM market. The present TAM market is about weekly contract. Here we would have monthly contract, quarterly contract, and annual contract also. You rightly said, the 20 BU is the transactions that are happening today in the bilateral contracts, forward contracts.
When it is an extension of the current TAM market, these trades would be on a continuous basis, not on a closed double-sided collective basis.
It would not be on the closed double-sided collective basis because that is more to do with spot and day-ahead and RTM thing. It would be either continuous or there could be open auction sort of arrangements which would be there. We are also exploring option of introducing reverse auction for forward contracts. For sure it would not be closed double-sided auction. It won't be that.
Because why I'm asking is, it is in the double-sided closed auction where the price discovery is better because of the liquidity. In this case, do you still think the price would still be attractive?
Yeah. What happens is, double-sided closed auction is used where the liquidity is very high, when number of participants are very high, right?
Correct.
In case of longer duration contract, there would be two, three buyers and 10, 12, 15 sellers. If you adopt similar thing in those contracts, there would be many occasions where there would not be any price discovery at all, right? This particular thing will not work. Open auction is something where you have option of revising your price. You can see other party bids as well. Those are a more efficient way of price discovery in this particular thing, and those are also real efficient way, right? Similarly, the present system that is being followed by the platform, it is about reverse auction. We are also exploring those things. There would be combination of all these things, and we would be using all of them.
Sure. My second question is on the real-time market, and its impact on the current DAM market. If I see the buy bids in the month of June and July in the DAM market, of course it is year-over-year down. In the same period, we have seen good response in the real-time market. Is the real-time market in any way impacting the DAM market?
Yeah. You're saying TAM, right?
DAM. D-A. Not TAM.
As you are aware, RTM is one market where trading happens just one hour in advance, and the other market, the nearest market that we had earlier was intraday market, where trading still happen 2.5 hours in advance. There is a definitive immediate impact on our intraday market. Our intraday market volume has gone down. 80%, 90% of that volume has been cannibalized into real-time market. That is a very clear thing which has happened. That similar thing we have not observed in DAM. In fact, the DAM, we are not ruling out any cannibalization. Some cannibalization is there, because when you are trying to buy a 100%, sometimes you feel that last 5% may not be required. Since now you have more vibrant market, more liquid market, so you are shifting some of your quantum in the real-time market.
Five to 10 here and there, that too by very few states, is what we have observed so far. It is early days to comment on that, but intraday market cannibalization is very evident. It has come out very clearly in last two months. That is for sure happening.
Sure. Thank you.
Thank you.
Thank you. The next question is from the line of Apoorva Bahadur from Jefferies. Please go ahead.
Hi, sir. Thank you so much for the opportunity. Sir, wanted to understand on this derivative side, have we decided on any margin structure for these contracts, or is it too early to say?
I would say too early. Those things are not yet finalized.
Okay. Fine, sir. Couple of bookkeeping questions, if you could just help us with the annual fee which was earned during the quarter, and also the breakups between DAM and TAM volumes for the quarter?
You're talking about annual fee, the client fee or transaction amount?
The client fee.
Client fee, there is no differentiation between DAM and TAM. If you are registered as a client, you are free to participate in any market, including RTM.
I wanted to know the amount of REC fee earned during the quarter, total amount.
Vineet, you can get the number. Vineet, do we have the number? Hello?
Sorry, I was on mute. During this quarter, we had around INR 4.35 crores to our channel fee.
2.35 crores? Okay.
Yes, 4.3.
4.3.
4.3.
Okay, got it. The volume breakup between DAM and TAM?
TAM is normally very less, in fact. If I add all TAM volume put together, it is about 1 billion units. Less than 5% of our total volume.
Okay. For reference, total includes RTM as well, which is for one month.
No. When I'm talking about TAM, it is only intraday contingency, daily and weekly. Which is about exactly 900 million units that we have done in Q1. In the month of June, when we introduced real-time market, we did 550 million units in one month itself, which is a RTM volume. Then the day ahead volume, which you are aware. Put together, TAM volume is less than 5% of the total volume.
Okay. Got it, sir. Sir, just one more question.
Bahadur, sorry to interrupt you.
No problem.
Can we request that you return to the question queue for follow-up questions? Thank you. The next question is from the line of Bharti Sawant from Mirae Asset. Please go ahead.
Thank you for taking the question. Just couple of clarifications. First of all, on the MBED market, any updates thereafter? Would like to link it with market coupling question also. You mentioned that you do not see a risk because of market coupling on the existing volumes or for IEX. Is it that market coupling and MBED will come together and that should result into overall market expansion, volume expansion in the market?
I think directionally, if you ask us, that probably is the route which is probably going to get adopted. If market coupling comes with MBED, then you can see that the volumes of exchange will be just skyrocketing. The stated direction would be couple all the volumes and then get them to the exchange to make sure you are doing the most efficient discovery and most efficient dispatch. That's the way it can be the most effective route. Like I said, I think what the ministry is doing, and what we are also helping with, is to make sure that we understand what is the best route for India, what is the best way in which you can make this happen, which country has done what kind of a mechanism, and what have been the gains and the losses thereof.
The gives and gets, the updates, all of this is being done right now, and on the basis of which they would come out with the most efficient sort of mechanism. Whichever way you come out with the mechanism, you would find that the provision inherently supports a huge growth for this sort of a business model, which will be exchange-driven business model. Coupling for just doing 4% of the trade, which is happening in pretty much all through us, coupling that has got little relevance because that is already coupled. All the thing that is happening right now through the exchanges is in a way already coupled because almost all of it happening through us. That's not the reason for coupling.
You would streamline the whole operations, you would launch new products, you would make the whole system far more robust, and then if MBED comes on top of that, then you get to a volume which is unprecedented. I think that would be the way in which the ministry would want to go forward plan, which is what I mentioned to that there's a huge amount of work going on in defining the contours of that.
Got it. The second question was on the short-term market or the LDC market we emphasized. We are targeting currently 20 BU markets, which is more currently addressed by the bilateral space. What is the kind of growth that we would have witnessed in the bilateral space over the last five years? Do we anticipate a significantly higher growth on the bilateral side or see less than a one-year market?
Look, we haven't been doing bilaterals. We don't know the growth of bilaterals on the Exchange at all because Exchange was not doing bilaterals. We weren't allowed to do bilaterals. We didn't have a product. LDC is a product which will allow us to do bilaterals now.
I'm talking about the overall bilateral market over the last five years, not on the exchanges.
Yeah.
The market that we are trying to address.
Maybe Rohit, you might have an answer to this. Yeah. I can only let you know, Bharti, one thing, that with so many products which are coming in now, and like I mentioned in my opening comments that there is a product of DAM and TAM and long duration contracts, and then there is green market and there is RTM and there could be ancillary markets coming in. There's a huge range of product which is coming in. To take the past as a reference for the future growth of these markets
Maybe a starting point, but may not be the real sort of, it doesn't give you enough analytics there to get you that, because over time, every buyer would want to play in the whole basket to figure out what is the most optimum, most optimized procurement program for themselves. Each one of them will do that. That would be the way in which the whole buying patterns will evolve across the market with each of the some, not only one, because right now we are also seeing the same thing happen the moment DAM or the RTM has been launched, we are seeing people making trade-off choices between DAM, TAM and RTM, which is what is happening. They'll come to an optimized model, procurement model. Same thing will happen with many, many more. Think of it, there's three, four more products getting launched.
People will start to figure out what is the best procurement optimized, most optimum procurement. That's the way it'll happen. Let me hand it over to Rohit to answer the first part of the question.
Rajesh, I'll just add just two points. All these markets are required, right? There are, for the delivery of energy in one particular 15-minute time block, the trading happens in various time frames. There is a requirement of Real-Time Market to balance your buy and sell surpluses and shortages. There is a requirement of Day-Ahead Market to do forecasting on day-ahead basis and then procure. Similarly, LDC is serving different purpose, which is more of a seasonal deficit. We know that there is different seasons and across these seasons, because of the diversity that we have in the country, somewhere demand is high and they do not have 100% long-term arrangement for that. Every such transaction will have its own place.
To your larger question of how this market is evolving or how it has fared in last five years, so growth of longer-duration contracts have been lower than exchange. Within the short-term market, exchange is the one who has been growing at the fastest pace. After that, we had the short-term bilateral contracts, and third one is deviation, which is shrinking. That way it is not growing that fast, but we foresee that in the times to come, there would be requirement of longer-duration contract and it will stay. The growth may be little less, but requirement will definitely be there. Hope I answered your query.
Yes. That was helpful.
Miss Sawant, this is the operator. May we request that you return to the question queue for follow-up questions?
Okay. I just had one clarification on the IGX one. Can I just chip in?
Please go ahead.
Just wanted to check, as per the current draft on the gas regulation, no party is allowed to hold more than 15%, right? Hello?
Yeah, exactly. Current draft says that you can't hold, anyone, no one can hold more than 15%. Right.
When we said that we will be looking to hold more than controlling stake, we are in discussions with the gas regulator to change on the holding front. Otherwise, if that gets approved, the existing draft gets approved, then we cannot hold more than 15% in the gas exchange.
You are very right. Actually, I told earlier also that we are very much in contact with the regulator. We will make our final comment. Before that also we will apprise of our comment to them. We are in touch with them.
Okay. Awesome. That was my question. Thank you.
Thank you. Next question is from the line of Abhishek Puri from Axis Capital Limited. Please go ahead.
Thank you. Just quickly, Rajesh, dwelling on your previous comments on this price coupling thing which is already existing in the market, how do you protect yourself now given that some of the feedback that we received, they did mention that price discovery has been crushed given that liquidity is entirely with IEX, especially in the DAM and RTM market. Can the other players now enter if the uniform pricing mechanism comes in going forward? Secondly, on the transaction margins, again, the draft regulations speak about separating the three functions, which is price coupling operator, the exchanges, and then a clearing and settlement mechanism. These three functions are being separated out. Can we still continue to defend the INR 0.02 margin and the other functions will get higher like the European exchanges have?
Just wanted to check your thoughts on the same.
Look, I think, let me take the second question first, then I come to the first one. On the separation of the clearing settlement and functions from the exchange function, we would think that, look, first of all, it's a common practice. It's done that way across many exchanges in India as well as globally. There the unbundling will be linked to facilitating this sort of a growth. From an IEX perspective, we clearly see this as a very strong, great business opportunity. We run a most perfect clearing and settlement for ourselves right now. It works flawlessly. If we were to separate it out as a 100% owned subsidiary of IEX, we could easily do that. It's just a functional separation. What it does, Abhishek, is, that's a great point.
What it does is it allows you to do many other things with the clearing and settlement function, including the OTC for which there is a provision, which is coming in the PMR. It allows you to explore pretty much other potential business opportunities to set up a clearing and settlement function for anybody else who is setting up an exchange. There will be many such opportunities possible because the commodity trade business in India is at an early nascent stage, and it is only going to grow. I think we see that as a tremendous opportunity for IEX to step up and capitalize on such a brilliant provision that the regulator is trying to think of and create. We see that as, like I said, an absolutely positive. On the market coupling front.
The reason I said that it is a coupled market right now is just because we have such an overwhelming market share. The electricity market is currently 4%. We have pretty much all of it, give or take a percentage point here and there. Your objective of coupling in terms of getting a uniform price doesn't make sense because you can't get more uniform than that. Your element of getting any more welfare maximization done. Again, it's all of it. You're getting a complete social welfare maximization that you can get in this.
Going forward, if the design and the way we are trying to work on the design, if the design allows a huge amount of volume to be flushed through the exchanges, which is what the overall design of the-- If you read the underlying currents within the PMRs and the fact that over time there would be a top-up element as well. If you get all that ramp, there is bound to be a tremendous increase, a tremendous escalation in the volumes that have to flow through this mechanism of trade, through this business model. In that sense, there will be more exchanges. There should be more exchanges. There should be more places because you are wanting more efficiency to come in into the whole system.
You are wanting people to go around and do much more work at a business development level, sell different kinds of products, even though innovation might be a compromised thing, but you sell different kinds of products. You go and extend on the fundamental element of your user experiences, all of that stuff. There's a ton of innovation which is possible in this whole thing, and there will be a huge amount of growth, like I said, which is being envisaged, and in which case it is a tremendous benefit for everyone all across in the new model which is coming up. Like I said, I think there's a huge amount of work to be done to dot the i's, cross the t's, and come up with the most right sort of a business model framework which will really deliver for a country like India.
There are no models like that across the world right now where price coupling has been done and volume coupling is a different thing. Price coupling is a completely different thing. I think we have to make sure that we arrive at the best possible model.
Thanks a lot, and all the best.
Yeah. Thanks so much.
Thank you. Ladies and gentlemen, due to time constraint, we will take that as a last question. I would now like to hand the conference over to the management for closing comments.
Okay. Look, thanks so much. I think very engaging. Very engaging conference, very engaging set of questions. We sense the excitement of a lot of people on three things. Clearly on the way the derivatives and futures and forwards market will come up with the long duration sometime coming year. The second thing is on the way the gas exchange is going to evolve, the ownership patterns there. We are seized of that, and we know exactly what to do to make sure that we stay in command and control.
The third piece is about the way in which the PMR is coming up as a precursor to really huge amount of growth that we can foresee in the market now for this sort of a business model, which is really efficient, which is transparent, which allows so much more money to be retained by the DISCOMs for themselves than spending money on costly generation and costly power. I think across all of these, and there were other questions too. I'm not covering each of them, but I think all of them are very engaging questions. Very welcome. I hope you got the answer you wanted to hear. I hope if you have any further questions, please reach out to us. We'll make sure that we get every single thing answered and every question taken care of, and every query of yours addressed very well.
Thanks so much for joining us today, and stay healthy, stay safe, and have a good time.
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.
Thank you.