Ladies and gentlemen, good day and welcome to the Indian Energy Exchange Q4 FY20 earnings 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 touch-tone 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.
Yes. Thank you, Janice. Good afternoon, ladies and gentlemen. I hope everyone is safe, working from home. On behalf of Axis Capital, I am pleased to welcome you all for the Indian Energy Exchange Q4 and FY20 earnings conference call. We have with us the top management team of IEX, represented by Mr. Rajiv Srivastava, Managing Director and Chief Executive Officer, Mr. Vineet Harlalka, the Chief Financial Officer, and the entire top management team and business heads of the company. We will begin with the opening remarks from Mr. Rajiv Srivastava, and followed by an interactive question and answer session. Over to you, Rajiv.
Hey, thanks, Abhishek, and I hope everybody can hear me clearly. Good afternoon, ladies and gentlemen. I know these are unprecedented times. People are working from home. I really want to thank you all for joining this call. Welcome you all to the Q4 and fiscal 2020 earnings call. Abhishek mentioned Vineet with me on the call, but there are a few other colleagues of mine which I'd like to introduce. We've got Rajesh Mediratta, who is the Director in the company, and he runs our strategy. Rohit Bajaj, who heads up Business Development. Samir Prakash, our Chief Human Resources Officer. Indranil Chatterjee, our new product initiatives and CRO. Amit Kumar, who runs our market operations and new initiatives, new products. Gautam Seth, who is our CTO, Shruti, who is our MarCom Lead, and Aparna, who is Investor Relations Lead.
All of them are on the call just like all of us right now, like I said earlier.
Participants, please stay online. We are just trying to connect the current speaker to the call. Requesting you all to please stay connected. We just lost the line for the current speaker. Requesting you all to please stay online. We're reconnecting the current speaker to the call.
Hi. Can you guys hear me? I'm back.
Yes, sir, we can hear you. Please go on.
All right. Thank you so much. I just wanted to say that I hope everybody in your family and your parents, your children, whoever, and your extended family, everybody is safe and healthy. From our perspective, from our side, we obviously want to make sure that every frontline worker, and we express our gratitude to every frontline worker and others who are providing selfless service, working tirelessly to provide relief and care to the people, and all the utilities. I think it's a great sense of gratitude that we want to express to them. Let me just move on and just give you a bit of a preamble. We all understand power is the lifeline of a country.
At IEX, we clearly recognize this more than anything else. We also have a huge responsibility to support and enable power on demand to facilitate a completely uninterrupted, seamless, 24 by 7 power supply to all the remotest corners of the country, especially to the stressed healthcare ecosystem, to the communication infrastructure, to all the public utilities, and related businesses, and to millions of employees who are working from home today. All the households who really deserve and need every single moment of power that they have to get. During the lockdown, the robust business continuity planning of IEX allowed us to make sure we are proactive and ensuring around-the-clock operations, completely seamless connectivity, and very high levels of security.
The network is secure, the information technology infrastructure is completely secure, and that allows you to deliver an absolutely seamless 24 by 7 experience to all the utilities and all the buying and the selling agencies on both sides. The end-to-end automation allowed us the flexibility and capability to manage our remote work and operations remotely. By virtue of that, by virtue of our very high level of technologically secure infrastructure that we've created in the company, we could pivot on employee safety as a first instance. We have been continuing to work completely remotely, even though we are under the essential services, but we can continue to work completely remotely just because our technology allows us to do that.
During the lockdown period, power procurement by distribution utilities from southern, western, northern states such as Andhra Pradesh, Telangana, Tamil Nadu, Maharashtra, Gujarat, UP, Bihar, Punjab, and a few others, has increased, just because there is ample power availability on the exchange with extremely attractive prices right now. This is helping the utilities make significant savings in their procurement cost, and several utilities have shared their success stories on how much they've been able to optimize on cost through exchange-led procurements in the media. That's been a good story so far, people trying to optimize in these disparate times. Recognizing our responsibility to support the COVID-19 relief efforts in times of this need, we did make a very small, very humble contribution of INR 5 crore to the PM CARES Fund. As a public entity, we are obligated to do that.
Otherwise, there's no reason for mentioning this point at all. Let me just give you an economic and industry update, and I'll share with you how it plays out for our business right now and what the progress looks like over the near term. The industrial activity, as captured by the Index of Industrial Production, did register a serious decline of around 3% during the quarter Q4 gone by. Breakout of the COVID pandemic led to deterioration of the overall economic activity, which started to display moderate green shoots in the month of February, March. Obviously, the COVID pushed it back now in the new year. The economy, in our estimate, should be thereabout in the region of 4.0% for the year FY 2020, depending upon the analytics you choose to end up, all the reports that are coming in.
Similarly, on the electricity front, Q4 registered a muted electricity demand. The demand growth was only 1.6. The Jan and Feb months saw an average demand growth of 7.7. March began very promising with a very positive growth. In the second half of March, when the lockdown was implemented, the whole of March shrank by 9.2 points YoY. A decline in demand of 9.2% in March. For a full year perspective, power sector was characterized by electricity demand growth of only 1.3% YoY. For the first time since FY 2014, we did face considerable headwinds on account of several unprecedented developments related to economic growth, industrial growth, and the comprehensive slowdown, and few weather-related changes as well.
All of them, both the industrial demand, industrial and commercial demand, and the agricultural demand, and the weather-related patterns contributed to the energy situation being the way it is there. The total installed capacity during the year increased by 4% and reached 370 gigawatts. In line with India's commitment to the Paris Agreement to increase the share of green energy in the overall mix, renewable grew faster. While the overall grew 4%, renewable energy grew 12%, and the thermal increased only by 2%. I think that's how the whole energy shift is going to take place in the future, as we will see more towards a more green, more sustainable mix. The much-awaited Discom relief package, the Finance Minister announced an INR 90,000 crore liquidity injection on 13th of May 2020. We believe this is a welcome step for financially stressed Discoms.
The Discoms will be in a position to pay back to the GenCos and the TransCos, which are stressed. The measures like PFC and REC loans, rebates, and reforms announced by the central government should create the much-needed short-term liquidity, financial liquidity in the power sector value chain. Our belief is there will have to be further structural reforms undertaken to make it a much holistic, much more long-term sustainable. Clearly, in the short run, it's an absolutely fantastic measure because it increases liquidity in the system. On the policy and regulatory front, let me just tell you that the Ministry of Power recently did issue a draft Electricity Bill 2020.
We have focused on a few things, abolishing cross-subsidy charges and cost reflective tariffs, sub-licensing franchise or distribution areas, creating a completely separate authority to adjudicate PPA-related disputes and obligations to augment the capacity of the appellate tribunal, promotion of renewable energy as a very sustainable way of going forward, allowance of cross-border trade of electricity, and payment security mechanism. We believe that these are great measures. When the Act gets implemented from a draft to an actual implementation, this will address several structural challenges being faced by the stakeholders today and probably also bring in the much-needed efficiency in the sector as a whole. Having said that, let me just move on and give you a sense of financial and business performance. Our business performance for the quarter.
In Q4, IEX reported a robust 40% YoY electricity volumes growth from 9.9 BUs in Q4 2019 to 13.84 BUs in FY 2020 Q4. On the price front, the day-ahead market did see an overall decline in prices by 14% in Q4 2020. Attractive prices did help the commercial and industrial customers to increase procurement and our open access buying went up by 41% during the same quarter. Including REC, the total volumes did increase by 29%. Volume growth did contribute to a very robust set of financials. On a standalone basis in Q4 2020, our PAT at INR 47.2 crores was up 25% as compared to INR 37.8 crores in Q4 2019. PAT up 25%, revenue for the quarter was up 17%.
PAT margin at 59% was up three points from 56% a year ago. Versus 56 of Q4 19, you are at 59% in Q4 20 at a PAT level. Starting Q3 20, the company started consolidating the results of its wholly owned subsidiary, the Indian Gas Exchange, and PAT with the inclusion of Indian Gas Exchange is INR 45.62 crore during the quarter versus INR 47.2, which is standalone. Let me also give you a full year picture. For a fiscal full year FY 2020, the electricity demand, like I said, was a muted 1.3% growth only. IEX reported a 3.2% growth in electricity volumes. The volumes increased from 52.2 BUs to 53.9 BUs during the year. REC volumes were impacted just because there was lack of sell-side inventory in the REC, that part of the business did decline.
For the full year FY 2020, on a consolidated basis, the company did record a revenue growth of 1%. Our PAT went up by 6% and the PAT margin stood at 59%. During the year, we continued to rigorously pursue technology-led innovations and made very significant investments in revamping our back-end infrastructure, our trading platform, adding new products, security, cyber security, and a whole range of those automations of the internal processes. A very significant investment went into technology and automation, including getting additional resources on the technology front. Our CTO has been a really busy man over the last one year. Further, we undertook various capacity building initiatives and invested in creating very robust practices and processes because we want to make sure that we are robust because Exchange demands us to be, and your processes have to be absolutely automated.
With a PAT of INR 175.7 crores on a consolidated basis for FY 2020, the company continues to be very strongly placed, with a very robust business model. More importantly, with absolute zero debt, which in times like these, you would understand that is such a huge boon. I'm pleased to announce that in March 2020, we paid out an interim dividend of 250% to our shareholders. We continue to progress and get close to launching new products, you've been hearing us talk about new products, working with the regulatory authorities and the Ministry of Power. Obviously, there have been some procedural delays because of the situation and times that we are in right now. CERC has approved the introduction of real-time markets effective 1st of June 2020, you will see that first product getting off the blocks on 1st June.
I just want to assure you that operationally, technologically, we are completely ready to launch exactly on the same day. We are absolutely prepared. Our state of readiness is very high. We are also ready to launch the gas exchange, Indian Gas Exchange. IGX commenced its membership drive in February of 2020. Manikaran Power Limited, which is already a trading member on IEX, became the first member for gas exchange, and subsequently, we've had many other member additions. We've had six more member additions, and more importantly, more than the members, we got more than 75 clients who have registered on IGX. We've got a ready pipeline of people who can offtake the volumes that we can put on the gas exchange.
The company has been proactively developing the gas market, including doing a whole range of reach-out activities to customers, including webinars, doing mock trading sessions to make sure our state of readiness is absolutely high, and understanding about the role of markets in building a gas-based economy. Having said that, let me also give you a bit of a way forward, and how we think this is going to evolve and change. We know that COVID-19 has thrown up a huge range of challenges, but more than that, we see ourselves as steering on a range of opportunities for the power sector. Clearly, life will not be the same. We will need to assess every single element of the electricity value chain. Generation, transmission, distribution, the structure around that, and the networks. We'll have to assess which business models deliver in the electricity business.
Clearly, an overemphasis on a 25-year long-term rigid contracts may or may not be the most useful way forward. There has to be a certain amount of work done on that topic as yet. Strategic involvement of financial institutions. How does the whole funding mechanism work between the bank, the financing institutions, the generating companies, the distribution companies, and the transmission companies? The whole regulatory environment which is working right now over time to make sure that things become streamlined. Operational efficiencies, which is reducing the losses in transmission and distribution. These are just a few, which will help us accomplish the objective of power for all on a 24/7 basis in a very sustainable way and in a very cost-effective way.
Collectively, we would need to find out a way out of these issues, and we are working very strongly with all the stakeholders in the Ministry of Power and the regulatory commissions, to play our part, very strong part. We have to bring in more efficiency and flexibility in terms of structure, operations, finance into the system, and that is a key priority. Cost of power needs to be optimized for industry as well as homes and efficiency. If you guys have been obviously following the Make in India big program that needs to really take shape for both getting self-reliance and also for generating a huge amount of employment into the country.
That will happen, and that will be facilitated on the back of power being optimized for industry as well as for homes. Then a huge amount of efficiency in the whole network and the value chain that I said. Because India has set itself on a path of rapid growth for the foreseeable future, in my opinion, I think this is the perfect time to make some real fundamental progressive shifts. Also, just because most of the world has solved for these issues, there's no reason for us to not solve them for ourselves in a very nice and a very progressive way. We at IEX believe the sector will require a lot more automation and solutions that enable all of these elements of transformation that I talked about.
We stand because we are such a high-tech sort of a company, we believe that we are standing at the forefront to deliver around these solutions that the industry requires right now. The technology-led energy markets will have a very key role to discharge to enable this transformation. Business growth will be further aided by our proactive and collaborative efforts with various stakeholders and partners, whether they are in the ministry or in the regulatory framework, or the partners that help us in selling, or our associates which help us in going and meeting and managing customers or our advocacy efforts. Business development initiatives, capacity building efforts, and new product launches. We also continue to rigorously pursue tech-led initiatives, like I said, tech-led innovations to ensure a best-in-class customer experience through a bunch of well-defined practices and processes.
Just the way it was unthinkable that an exchange like ours could be so automated to be working remotely in a very secure manner. That's what our technology innovation and technology implementations have helped us secure. I clearly look forward to working with all the stakeholders to draw a new energy order in this new normal. A new energy order, which is built around the pillars of sustainability, efficiency, affordability, and led by technology in all ways. Let me do this. Let me stop here and then open it up for questions or anything that's on your minds.
Can we open the call now, sir?
Yes, please. All right.
Sir, thank you very much. Ladies and gentlemen, 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 hands-free while asking a question. Ladies and gentlemen, we will wait for a moment while the questions queue is ending. We take the first question from the line of Sahil Desai from Hornbill Capital. Please go ahead. Mr. Sahil Desai, please go ahead with your question. As there is no response from the current participant, we take the next question from the line of Sanjeev Jain from ASK Investment. Please go ahead.
Good morning, Rajiv and team. Hope everybody is safe on your side. I just wanted to quickly check the volume quarter till date, that is from post-April till date, overall total volume including REC. Why? What is the growth or decline or how is the situation?
The volumes YTD, which is till 13th of May, which is the day before yesterday, are 8.1% growth YoY for the same period, including REC. The month of April when it started, it was a slow start. We expected because everything was absolutely shut down. The lockdown was very intense when it started. The lockdown started to get a little easier as we progressed towards the end of the month. All of April, I am sure you're following these numbers. The peak electricity demand in the month of April fell by 25%. The volumes on exchange in the month of April fell only by 6.6%. Okay. Come May, in the first 13 days of May, the peak electricity demand has recovered a bit from a negative 25% in April.
It is now negative 15, one five, and the volumes on Exchange have gone up by more than 50%, so YTD we are at a +8.1% or 8.2%, something like that.
When you introduce real-time market contract in June and eventually long-term contract as well, what kind of growth over a 3-5-year period you expect?
Let me pass this question to my bus dev leader, Rohit, to answer that. Rohit, can you take it on, please?
Yeah. Thanks, Rajiv.
Hi, Rohit.
Yes. In fact, your question is about two new segments. One is the Real-Time Market, second is longer duration contracts. Real-Time Market, we expect to start from 1st of June. In this particular segment, as we have maintained earlier also, the potential that we see is about we see immediate conversion happening from Deviation Settlement Mechanism volume, which is about 20 billion units. Annual volume is about 20 to 22 billion units that we see now. We expect that conversion will start to happen from this particular segment to begin with. Within couple of years, large part of that DSM will get converted into Real-Time Market. That's our estimate. Second thing that we see here is since more Distribution Companies have become very price sensitive now, cost sensitive. We see optimize also. They will use Real-Time Market also for the purpose of optimization.
DSM is not the only thing where we see volume coming into RM. There would be some additional volume which will come from optimization as well. That’s the sizing of RM. About LDC also, we have more than 50 billion units of banking and bilateral transactions happening in the country today. If you see the CERC report, you will find that more than 20 billion units of direct bilateral happens in the country and about 30 billion units of banking transactions happen. When we are going to launch this longer duration contract, this will provide us ways and means to capture this market as well. Of course, it is going to happen in a gradual way. Once we start to roll it out, gradually this conversion will happen, some part of it. That’s the total potential we see. I think I have answered your question.
You were talking about sizing only.
Yeah, sure. I’ll come back in the queue. Just one question. real-time market, the charges will be INR 0.04?
Yes. It is expected to be INR 0.04 because it is nothing but extension of our intra-day market. Today we have intra-day market, which is two and a half hour in advance, and real-time market is going to be just one hour in advance. It is very similar to it, and it will be INR 0.04 only.
Same for LDC?
Should be similar for LDC, but since it is little far, little away, we have not yet finalized the transaction fee.
Sure. Thanks.
Thank you. Before we take the next question, I’d like to remind participants, please limit your question to two per participant. You may come back in the question queue if you have a follow-up. Next question is from the line of Mohit Kumar from IDFC Securities. Please go ahead.
Yeah. Good afternoon, sir. My first question, sir: what is the state? Of course, this is the long-term trading we have been in discussion to withdraw the petition, but I think this is getting prolonged. I guess the next hearing is on eighth July. What is holding back the resolution, and what is the timeframe in which you see the withdrawal of the petition and there is a suitable resolution to our liking?
Look, this is the matter in the Supreme Court, from our point of view and from the point of view of the ministry and from the point of view of the regulator. All the people engaged in the litigants, they want the disposal of that petition as of yesterday. Everybody wants to get on with doing something more active and meaningful versus trying to chase a petition. Unfortunately, right now, you understand it as much as I do, there are a ton of very significant and very important litigations, which the Supreme Court is dealing with, very matters of great national importance Supreme Court is dealing with. Also they are taking cases only which are extremely priority cases. They’re not taking anything. Priority cases are very rarely priority. Okay.
The hearing, which was meant to happen on seventh of May, has been deferred to eighth of July. What the CERC, the regulator, and the Ministry of Power have done, they have sought the opinion of the Solicitor General of India, day before yesterday, whether they can move on this without Supreme Court disposing of the petition. You can just see the urgency in the ministry from all sides to make this happen. Our view is it'll happen very soon, as soon as it happens. There's nothing which is holding it up. It is just in line. It's a sequential, it's a procedural thing that is stuck, which is there with the Supreme Court.
Otherwise, every party engaged and involved wants to make this a reality because it will help not only the market, it’ll help a lot of customers as well, just because it optimizes for everyone.
Understood, sir. Second question, sir. Given the COVID situation, do you think any challenges in uptake in real-time markets in near term? Do the states have built the capacity? Are they equipped enough to do the trading and to contribute to the volume?
Yeah, look, we’ve been working. I’m going to defer this question to two other people as well. We’ve been working with all the state governments to make sure that they can come up. I don’t know if you participated on the webinar that we did on the real-time market. Very good participation. We’ve been working with NLDC, which is at the center level, and also with the states to make sure that they understand how to trade. We are providing them the software linkages for them to be able to trade very effectively and easily. All the user interfaces which allow people to trade on a very seamless and very easy user interface basis, we are doing all of that. For any further thing, let me also give it to Rohit to address this question if you have to.
Yeah, Mohit, we have been regularly in touch with all these distribution companies, and I won't say all of them, but yes, most of them are fully prepared. They are geared up for participation in real-time market, and we do not see any impact on account of COVID as of now. See, what is happening is, as Rajiv rightly said, we conducted one webinar very recently, and there was huge participation. Most of the states participated. We did mock also some time back. Today, all of them have installed our software on their platform, and they are doing it. That is one part. Second is, we are also helping them in creating capacity to ensure that they are in a position to optimally utilize this new platform. See, there are two part of it, as I earlier also explained. One is meeting your deficit.
Which is a very simple thing, because you are so near to real-time, you will immediately calculate what sort of deficit is there, and you can place your bid. That is not the total thing. No. Large part of volume we are expecting from optimization also. We have created a tool which we have shared with a couple of Discoms now, and in next one week time, we are reaching out to all of them, and we are in the process of sharing it with them. There is so much excitement in distribution companies. This is one of the game changer market model that they are looking at it.
Particularly all those states where there is high renewable, they are also very excited about it because this gives them another opportunity to address the variability in generation that they see, which is a great problem for them on account of high variable in their particular state. I won't say everybody is ready, but I think 80%, 85% of the states are directly dealing with us and creating capacity to participate on this platform immediately.
Your call has been put on hold.
Thank you. Will talk back with you.
Please stay on the line.
Thank you. We take the next question from the line of Bhavin Vithlani from SBI Mutual Fund. Please go ahead.
Yep. Thank you for the opportunity. If you can just help us with how was the mix in terms of the sellers and the buyers, different, I mean if you take the fourth quarter and the same year of fiscal year '20?
Okay. Rohit, you want to go ahead? Yeah, Rajiv. Q4 is a peculiar quarter when you do not have high demand in most part of the country. If you are following demand pattern, normally you see high demand coming in Q2, particularly in the later part of Q2 and early part of Q3. Q4, we see demand start to pick up only in the month of March. The pattern that we observed in Q4 was, if you have seen our results or this number may not be there. There was a very good participation coming from both distribution companies and also from open access consumers. Our volume growth in Q4 was about 40%, and in the open access side also, we saw 34% of that total volume came from open access side, and there was tremendous growth in the open access buy as well.
There are a couple of things which happened. On the sell side, there was participation from distribution companies wherever, because of diversity in demand and supply across the country, there are many states who were surplus during those three months. They were selling very aggressively. Prices were low. Since the prices were low, there was huge participation coming from open access side also. I would say on the buyer side, it is state participation and also open access. State was little limited because there are very few states where they have good demand in Q4. On the sell side, mix was very healthy. There was IPP participation close to about 40%-45%, and states were also selling, and their overall sell was little above 50%. That is how mix was.
How would it compare on a year-on-year basis? Because I assume given the low prices that you mentioned, there was a strong growth from the open access consumers.
Year-on-year basis, the open access, when we started last year in the month of April, open access contribution was just 20% of the total buy. Gradually it started to build up. There were some favorable regulatory orders which came, a couple of them from, particularly one from Gujarat. Also there was so much consumer addition happened from Tamil Nadu. It started to change from start of Q2, and up to end of Q4, it was almost 35% of our total buy. That is about open access. Distribution Company buyer pattern is again dependent on their procurement cycle, their agriculture season, largely. We see participation coming from northern states in Q2 and Q3. In Q4, there are very few states where you have high demand states like Telangana, AP, then you have some demand coming from Rajasthan.
MP also has good demand during those times. It keeps on changing. It varies from time to time. On an average basis, for the last year, that was about 30% from open access and 70% from distribution companies.
Just one follow-up. Historically, it has been observed that as the share of open access rises, some of the states actually take actions to curb that because that's one of their highest paying customers. Incrementally, if you could answer more qualitatively, have there been any states who actually changed their open access charges or maybe not giving permission on the bid side? Or was it more or less constant and actually that resulted in the strong growth?
Yes. Throughout the last year, we have seen many favorable orders, and in fact, as I said, 20% increase to 34%, and overall volume was also very good in Q4. Many orders came, and most of them were favorable. You are right, every year in the month of March and April, we get to see new tariff orders. In new tariff order, you have new tariff, new cross-subsidy surcharge, new additional surcharge. All these elements which are important for any open access consumer to source power from exchange, there is some change in that. We are in middle of May. We have seen many of these orders, and none of these orders which came in the month of March and April, except for one, there has been any increase in open access charges. In fact, before the lockdown, our mix was very healthy.
The open access. It is ever-increasing. What started from last year Q1, it attained a very good high at Q4, and when we started this year, it was low because of lockdown, but we have not seen any adverse order so far. Perfect. Yeah. Thank you so much, sir. Okay.
Thank you. We take the next question from the line of Varun Goenka from Nippon Mutual Fund. Please go ahead.
Actually, my questions related to RTM and open access is answered. Thank you so much, sir. Maybe if you can also address the gas side, I think we are starting it very soon. What could be the challenges in adoption? Just like you explained in real-time market, with what intensity or what success do you feel this adoption will be done over the next one, two years, in terms of volumes coming to the exchange?
Okay. Thanks for asking that question, Varun. Now, the country is very rapidly moving towards everything possible to do with the clean sources of energy, and gas actually falls in that bracket. The stated objective of the government has been, shift the adoption of gas in the overall energy mix from a six percentage point of today to 15 percentage points over the next couple of years. That's at two and a half times the shift of today in a growing market. Because gas economy is growing because you're aware with the city gas distribution and such similar initiatives, there's a huge amount of gas which is building up there.
Gas is going to be finding a lot more favor as part of the whole shift of energy mix and the clean energy desire of the government. That's one. Gas is traded at multiple locations in the country right now, whether it is Western India or it is Southeastern India and Southern India, in those zones. We would be trying to play in all of those areas. Just to get you a flavor on numbers, because we will be a spot exchange to begin with, the spot market of gas already is about 30% today. Of all the gas that is traded, it's about 30% today. We will aspire to be a couple of percentage points of that spot market. I'm not sure if RTM, you on the call?
No, Rajiv, he's not.
Okay. RTM is the one who's leading our gas initiative. That's the reason I wanted to get his perspectives also.
Yeah.
The 30% is the spot market, and we will aspire to gain a couple of percentage points of that in year one of our operations.
Okay. Just another high-level thing is, are we also to move towards derivatives or any intent towards that or government policy towards that?
Not on the gas side to begin with.
No. On the electricity side. Yes.
Of course. Derivatives has become a reality. Somebody asked a question, I think Mohit asked a question about, or one or two other questions about the long-duration contracts. The long-duration contracts which are waiting the clearance of the Supreme Court will facilitate trading in forwards and futures on the thing, because the spot contract, which is up to 11 days, will still get delivered out of the exchange. The longer than that period, which are hedged futures and forwards will be under the purview of SEBI. Once the long-duration contracts are allowed, they will make it possible to do future and forwards and derivative contracts in electricity.
Right. Sure. Thank you, sir.
Thank you. Next question is from the line of Avinash Chandra from Spark Capital. Please go ahead.
Thank you for taking my call. Sir, my first question is on amendment of this Electricity Act recently announced. There is a direct subsidy transfer for consumers. What will be the impact? We understand that this might reduce the industrial tariff in future. Open access volumes, are we looking at any drop?
Rohit, you want to take that one? Yeah. See, it is talking about direct subsidy transfer, right? this is different from-
Yeah
cross-subsidy. cross-subsidy is something where you are increasing tariff of one category and then using this extra money for subsidizing it for some other category, right? When you are talking about direct subsidy, I can give you one example. Like in most of the states, we supply electricity to farmers at a INR 0.50 or INR 1 tariff. Now, the real tariff for them is, as per the government policy, you cannot have tariff less than -20% of less than 20% of your cost of procurement. Which means that if your INR 4 is cost of procurement, you cannot offer any tariff less than INR 3.20. We give subsidies for supply to farmers and give them tariff of INR 1, which means that there is INR 2.20 being shelled out by government for giving subsidy to that particular segment. This is called subsidy, direct subsidy.
When we say that it is direct subsidy transfer, by that they meant that whatever subsidy government is giving, that will be directly transferred to end consumer. We do not see any impact of this on industrial tariff, because none of these industries are getting any subsidy from government. In fact, they are cross-subsidizing it. Their tariff is more to facilitate the subsidy of some other category.
Understood. Thank you. Another question is on, of this INR 20 crores of other expense in FY 2020, software development and maintenance.
Can you repeat, please?
We have these other expenses on standalone of INR 20 crores in FY 2020. How much of this cost is development and maintenance?
May you want to answer that?
Yeah. Out of this, if you look into the total INR 20 crore, because the majority of the software team, now we have an in-house software. The majority of the cost is the combination of all, because technology, we are not depending on the external agency. The INR 20 crore doesn't have the substantial portion of the cost in it. If you look into the overall side, then you can see the cost is overall coming to around INR 3 crore in the operating side. Because mainly the cost of the manpower is because we are building a robust technology team, so that cost is going into the manpower cost.
Okay. Any one-off changes?
One-off change is the reduction because last year we did the buyback and all. These two, three things were the impact, which were the one-time cost in the last year, which are not there. Secondly, because of the lease system which came, so the cost moved to the depreciation and finance side. That will also lead to a bit reduction on the cost. If you look into the depreciation cost, that's a bit increase, almost INR 4.5 crores and manpower. We are spending on the tech arm, but it is mainly to build an in-house team to have more robust tech team to do the internal developments and all the things, so we are not dependent on our external agencies. The major reduction is of the shifting of the rent and other cost, that depreciation and the few one-time costs we faced the last year.
Understood. Sir, my last question, if I may. On this DSM dependency, this 25% that can be assumed on the conservative side from the real-time, and what states that we can expect this to be converted towards RTM market?
I won't want you to assume anything. I don't want to comment on numbers. What we shared is a total potential which is available. To answer your second question, which is about who all states can be initially we can see participation from them. Generally, we are seeing major inquiries coming from all the states who are rich in renewable. States like Tamil Nadu, Gujarat, Maharashtra, for that matter, AP, Telangana. These are some of the states. Yes, there are some more states who are heavily overdrawing from grid, where their DSM bill is very, very high, deviation bill is very, very high. These states are Odisha and UP, Bihar also in some of the months it is very high.
These are seven, eight big states, and they also contribute to almost 60%, 70% of the total consumption in the country. All big states, we expect them to come to our platform to make use of this new platform.
Thank you. Before we take the next question, I'd like to remind participants, please limit your question to one per participant. You may come back in the question queue if you have a follow. We take the next question from the line of Harshit Toshniwal from Premji Invest. Please go ahead.
Hi, sir. A couple of questions. One, when we look at the open access business itself, can you throw some light on the mix in the purchase side, and two, the states from which they come. We have a lot of Maharashtra and Gujarat as one of our primary sellers to the exchange. Is it more open access heavy in those states, or are those DISCOMs who are purchasing more from that end? The second question is more on the outlook on the FY 2021 volume. The reason I'm asking is that the recent May month was a great number, obviously once demand again picks up, then how do you see the FY 2021 volumes to pan out? Thank you.
Let me give you the answer to the second question first, Harshit, and then Rohit can take on the first one. Is that all right with you?
Sure, sir.
Okay. Look, it is really tough to give a guidance at the moment, and we will continue to calibrate ourselves with the evolving situation. We have to really wait and watch when the industrial activity will get back to normal. May, like I said, is a little better than April, but has a long way to go. Long way to go. The 15% dip in the peak demand in May also is a long way to go. You know that as much as I do, that unlocking the lockdown completely
Requires the whole supply chain to become as oiled as before, if not more.
To my opinion, that becoming oiled of the supply chain across industry types, whether it is auto industry or it is consumer durables, or it is FMCG, or it is logistics, whichever one you take, that oiling of the entire end-to-end supply chain is, in my opinion, quite some distance away. It's not happening in a hurry. We've seen the migrant laborers going back. Everybody has a point that it will take a while for them to get back. Even if they get back, then all the new norms. The manufacturing system, in my opinion, will go through a huge amount of change management. Because manufacturing in a factory, and I'm sure you've been to many factories like I have, manufacturing in a factory is a station by station by station activity. Okay? That's how the work methods in the industry work.
With the new norms of social distances and all the new norms of staying away from each other a bit, those will have to undergo change. I think all of that activity, we have to wait for the industrial activity to get back to normal. That's the reason we are choosing to be a little cautious and calibrating all the time with the evolving situation. I already told you, look, if April is a good one to go by, and May 1st to 10-12 days is a good one to go by, our volumes in these 43-44 days are up by the amount I mentioned to you. That's where it is.
I think it's important for us to stay focused on doing what we do best, which is making sure every single customer of ours is covered, making sure that our exchange technology runs absolutely the best, and making sure that we are reaching out in a very nice and good and very positive way to all our customers, consumers, partners, whoever it is, to be of any kind of assistance to them. I think that's what we are trying to do, to make sure all of that we're doing. Let me just defer back to Rohit to answer your first question.
Yeah, Rajeev. Thanks. To answer first one, which was essentially around two big states, Maharashtra and Gujarat. As we know, Maharashtra is the biggest consumer in the country today, and Gujarat is also number 3 or number 4. What we are seeing is, Gujarat, your question was about balance between open access and Discom buy. This is undoubtedly a state where there is absolutely no deficit. In fact, if I recall correctly, Gujarat was one state which declared it as a surplus state about five, six years back. If you see their participation at exchange, in terms of Distribution Company buy, they are in top 3 most of these years. In terms of open access buy also they are in top 3. This is one state where people, industries, as well as Distribution Company themselves, they are super commercial sensitive.
They do not want to leave any opportunity of doing optimization on cost. This is precisely the reason that in Gujarat, you have all the three, four distribution company, they are positive. They are making money by selling power, which is not the case with most of the distribution companies in the country. In terms of overall balance, open access and Discom, on both sides, they are doing tremendous. Their participation is very high. On the other hand, Maharashtra, their participation at Exchange is extremely high. In fact, if you ask me, in last two months, they were most proactive and they, in fact, do lot of replacement and saved hundreds of hundreds crore of INR by doing that. Open access side, they are not so active.
The charges in the state, open access charges, which is additional surcharge and facility surcharge, are little on the higher side. They have given subsidies also in some part of the state, Vidarbha and all. We do not see participation coming from there as well. Open access, it is little limited, but as a state, they have been very proactive in doing replacement and coming to Exchange as and when there is some opportunity to save on the cost.
Okay. Sir, broadly mix of open access and Discom purchase for FY 2020?
You are asking about share in the total buy?
Yes. Or on the total spend, sorry.
Yeah. It is on the buy side. On the total buy side, about 30% was done by open access consumers and 70% was by distribution company.
Okay. Sir, on the sell side?
Sir, I'm so sorry to interrupt. May I please request you to rejoin the queue for your follow-up? Before we take the next question, a reminder to the participants again, please limit your question to one per participant only. Next question is from the line of Lavina from Jefferies. Please go ahead.
Hi, sir. I might have missed this. I just wanted to check what was your annual fees that you have booked in the quarter?
Annual fee for the clients?
Yes. Please.
Yes. Total annual fee for the quarter is almost INR 5.5 crores.
Sorry, sir. Missed that.
INR 5 and a half crores.
five and a half crores. Okay, got it. Sir, last thing, just in terms of your investment plans with your cash on books, I understand the Gas Exchange that's been done. Any other plans over the next 12, 18 months that you foresee? Any other areas that you might think of?
Look, as a company, we'll continue to obviously assess opportunities in the market. There's nothing on the anvil right now, but we will continue to be on the lookout for things that align with our approach, which is in the energy field or in the field of technology.
Okay. Thank you.
Thank you. Next question is from the line of Apurva Sinha from PhillipCapital. Please go ahead. Excuse me, sir. I'm so sorry to interrupt. Your audio is not clear, sir. We are unable to hear your question. If you can hear us, requesting you to please redial in and come back in the question queue. Thank you. Next question is from the line of Shaleen Kumar from UBS. Please go ahead.
Yeah. Thanks for the opportunity. My first question is on gas exchange. Is it possible for you to share about where you are taking the technology over here?
On the Gas Exchange?
What kind of commercial terms are there? Also, most of the cost related to the employee, as well as other business development costs, are reflected in Q4 with respect to Indian Exchange or should we expect it to increase gradually?
Are all your questions related to Indian Gas Exchange?
Yeah, these are related to Indian Gas Exchange. These two.
I missed something in between, so I don't know whether I got it all or not. The technology.
I can repeat.
Okay.
I'm talking about the first was the digital technology, is it in-house or we have licensed it from some other gas exchange? What you can share broad commercial terms like earlier for IEX, it was 10% of the revenue. That's the kind of commercial term is there. Also related to the cost. From your cost, I'm presuming that some of the cost has already been reflected in Q4, but given you will be doing a lot of business development exercise in this case, what kind of cost should we expect to come in subsequent quarters?
Shaleen, look, the technology on that has been in collaboration with a company in U.K. The gas exchange technology comes from a company in U.K. called GMEX Technologies. They are one of the leading pioneers in gas technology business across the world, and they are helping us develop. It's not a revenue share. We are buying it outright. It's not a revenue share, it will not have an impact in the subsequent years on that. It's a huge amount of development work which they are helping us with, and that's what I said, it's completely ready right now. On the manpower cost. Look, we are building the business, we'll obviously keep adding headcount to the gas business as we go forward.
Right now, the headcount was very small headcount, and it was just a startup, so there wasn't too much needed because we had to get the rest of the operational infrastructure in place, which is what we've got now, and we've got a few business people. That's the place where we will hire the most to make sure we are getting more business development people, we are getting more strategic people, and we are getting more operations people in the business.
If I can also ask a question on real-time. I understand, DSM is the obvious move or obvious shift we should expect. Don't you think that we need some kind of stringent guidelines again for Discoms to move away from DSM? My understanding is since RTM was not available
Hello?
Sir, we proceed to the next question. It's from the line of Abhishek Puri from Axis Capital. Please go ahead.
Thanks for the opportunity. Sir, just wanted to check in terms of renewables, the green market that you talked about as well as on the cross-border, what are the updates on those plans? Secondly, in terms of any change in strategy post COVID crisis that we have seen. Obviously, open access volumes will take a hit and some of the products that we are launching may take more time to stabilize or reach the targets or budgets that we had estimated. Any change in strategy to that effect?
Okay. You got two questions. For the green market, Abhishek, we expect the launch to happen sometime in Q2. We are just waiting on the issue of the regulations from CERC order. We are getting extremely positive feedback on the whole requirement of the green market. Very keen interest from participants who have surplus high energy available. States like Tamil Nadu, for instance. Also the recent change in the transmission regulation which puts exchange on par with the interstate transmission. I think that's the other thing which is helping us. From a sizing perspective, early to provide the guidance, but I think the whole green trading should become a reality over the course of Q2 in our opinion. That's a very positive thing from a green perspective. Your second question was on cross-border, is it?
Yes, sir.
Yeah. Look, cross-border is waiting final regulations from the Ministry of Power. A huge amount of work. The regulations were drafted, then there was a bit of a back and forth because we wanted some clarifications. because it is cross-border, Abhishek.
Right
It needs a bit of a vetting by the Ministry of Commerce as well. Between Ministry of Power and Ministry of Commerce, in my opinion, I think they are dotting the I's and crossing the T's. It is almost at the last leg, and we should hear of it very, very soon.
Just in terms of any change in strategy due to the COVID disruption that we have?
A lot. Look, COVID is just the way it is going to force a lot of companies to change. You will see us also getting a huge amount of change on account of COVID. A few things. Let me just give you a few things. One is, I think the way in which you engage and interact with the customers are going to change. The customers were used to coming to your office and dealing, or you were used to going to your office and dealing with the customers and telling them and showing them a few things. I think that needs to change. That has a very profound impact on what we do.
If the customers are not going to be engaging with you physically in their premises or in our premises, then your tech has to have a step up to make sure that you are able to handle the customers remotely in an extremely seamless way and in a very user-friendly manner. That's one big change. I talked to you about how IEX is taking this whole point up. We are doing whatever is possible to make sure that our infrastructure is absolutely pretty much the best in class in the world. From a tech perspective, we never count India alone, because tech has no boundaries. We want to make sure that your infrastructure of technology is the best in the world. That is one thing that we are very keen in terms of doing. There is one external aspect, the second is the internal aspect.
Internal aspect, 1, technology. Second internal aspect is about our own employees. We got to make sure that the safety and security and the safety and health of our employees is absolutely managed. We also realize that when you do a huge amount of work from home, there is a need to engage with your employees in a very different manner. The social aspect is missing in our lives right now, we got to make sure that whatever we can do to engage with the employees is done absolutely in a good way. We are carrying out many such activities, including trainings of people, including just fun and games with them, including all kinds of regular webinars and engagement outreach, so that our employees are motivated and employees are taken care of, and we continue to do with the regular engagement with them.
The third piece, which is beyond tech and beyond employee engagement, is a huge range of new products that we need to enhance here. Post-COVID world will make it almost imperative for customers who will start to come back and demand different kinds of features and functionalities, which we believe will be absolutely the right thing to do from their perspective, but it makes sense for us to make sure that we are providing that. That will be the other thing, that our investment in product development people and new product initiatives has to go that much notch higher. There has got to be a very strong pillar in the company now of innovation. Innovation around creating new products, developing new products, which make sense for the customer. Earlier, we were typecast to do a broad-based release of new product.
You do a product release which really makes sense for a range of customers. Right? For a whole range of customers. I think that strategy has got to change. Instead of trying to typecast yourself across a broad range of customers, even if one or a few require a new feature, functionality of the product, I think we have to be alive and agile enough and sharp enough to make sure we're providing that. There's a bit of innovation angle which is coming in. There is an external angle of customer user interface and customer sensitivity of making sure that you can deal with them remotely in a very secure manner, very user-friendly manner. There is an element of internal technology readiness. There's an element of new product innovation and new product development.
The fourth element is the element of employee engagement. We are very focused across these four dimensions to make sure that our company is reorienting itself to make the best of this post-COVID scenario. There are other things. We know that in the industry, there will be a liquidity challenge and there will be a liquidity crunch. How can we help to step up that? That is part of my regular business, because what we do is we provide energy at the cheapest cost. Right? In the most flexible manner. People who want to buy through us at the shortest duration of time, today, tomorrow, whenever they have to over the course of next 11 days. That's one. We provide them the flexibility, and we provide them the cheapest cost.
Their financial distress can be relieved by buying through the thing right now, through the exchange right now, because a lot of customers or a lot of states are doing replacement buying right now. They're retiring or they are putting to sleep their costly generation, and they're coming to the exchange, and by virtue of that, they're saving money. I can tell you, one Discom in south saved INR 60 crores by doing such a thing with the exchange for the month of April. I think that's a great story. Those are the things in which the operational excellence, the financial liquidity is the other thing that we are helping with. Our communication. The last piece maybe I should have emphasized a little bit more. Our communication has stepped up.
We are engaging a lot more from a communication perspective, written communication besides verbal, with our customers and our partners to let them know what's happening with exchange on a daily basis. Exposing them to liquidity availability, exposing them to savings that they can get through buying through the exchange and the price front, because prices are at an all-time low. Just assuring them that, "Don't worry. Whatever and whenever you require, IEX is standing behind you absolutely solidly to give you anything that you can ever need." Okay? Long answer, but there's about five or six dimensions on which we believe our post-COVID survival very hindered.
Thank you. That provides us a great perspective in terms of understanding how you're taking it forward. Being a finance professional, I'll just follow up. Sorry, just understanding on the numbers, whether your budget has gone up or gone down versus your internal assessment after COVID.
That's not a follow-on question though right now, right? It's later.
No. For this, I think we're just trying to understand as a finance person, would your budget have gone up or gone down in terms of internal assessment of how the market would shape up?
Look, Abhishek, I answered that question earlier as well, because there was a question on how do we assess the market and how we are trying to see the market, and are we willing to give a prognosis for the future. We said, look, providing a guidance is tough right now, at the moment, because the situation is evolving. If things go the way first 12 days of May have gone, surely, most certainly, there will be an absolutely huge increment in what we will take on as a task for the year. We are not certain. This is an uncertain situation, and so we need to calibrate ourselves almost weekly, if not daily. May is better than April. The industrial activity has to start to show up. Like I said, the oiling of the supply chain, in my opinion, is some distance away.
We've got to calibrate ourselves on many dimensions before we come back and let you know how it goes. We are very closely working. Look, we can do what we can do. We can't really control the way in which the external situation will continue to evolve, or how the industry will come back on track from a completely well-oiled supply chain. We can do what we can do. What we can do is exactly what I told you. Focus on technology, focus on new product development, focus on employee engagement, focus on customer user experience. All of those elements, if you do, I can tell one thing, Abhishek, you will be maximizing the situation more than anybody else can ever think of. That's our state of readiness. That's what we want to play ourselves to.
Thank you, and all the very best. I think we've overshot on the time. Thanks for taking time for this call. Apologies, there are a few questions which are pending in the pipeline, but due to time possibly, I think we'll have to cut this short.
Hey, look, thanks so much. I really want to appreciate everybody's time. There's a huge number of people joined on this call. My apologies that we will make some of you a little dissatisfied because we'll not be able to answer and handle all the questions. We can go on forever. If you have specific questions, Aparna is our investor relations lady. You can reach out to us, send your questions to us, and we can make sure that you will get all the answers that you want. Nothing will be left unanswered, whatever the question might be. Reach out to us. Thanks so much for taking the time to join on this call. Thank you so much. Have a great time. Stay safe and stay healthy.
Thank you very much. On behalf of Axis Capital Limited, we conclude today's conference. Thank you for joining. You may now disconnect your lines.