Ladies and gentlemen, good day and welcome to the Indian Energy Exchange Q3 FY 2020 earnings conference call hosted by Axis Capital Limited. As a reminder, all participant lines will be in 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 now hand the conference over to Abhishek Puri from Axis Capital. Thank you, and over to you.
Yeah. Thank you, Steven. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I am pleased to welcome you all for the Indian Energy Exchange Q3 and nine-month FY 2020 earnings conference call. Today 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 of the company. The call will be initiated with a brief management overview and discussion of the earnings performance, followed by an interactive Q&A session. Over to you, Rajiv.
All right. Thanks so much. Good afternoon, everyone. Let me welcome you to the earnings call for Q3 2020. I've got with me right now, Rajesh Mediratta, who leads our strategy function and is a Director in the company. Vineet Harlalka, who is our CFO. We got Rohit Bajaj, who leads our business efforts. We got Shruti, who leads our marcom and Investor Relations. We got Aparna, who leads our Investor Relations, and Sanjottam, who's our CTO. Let me do this. Let me just take you through a brief economic industry update, our financial performance, and then open it up for interaction for everyone. Let me begin by just reinforcing the fundamental unique proposition of Indian Energy Exchange, which is to bring 24x7 electricity to India to every consumer across the length and breadth of the country in a most competitive, transparent, flexible, reliable, user-friendly manner.
IEX continues to be committed to the pursuit of transforming India's energy landscape by bringing in competition, by bringing availability, improving availability and accessibility and efficiency, just by leveraging technology and markets across as the two key dimensions. I'm happy to share that IEX stayed on course in this pursuit in Q3 fiscal 2020. The average market clearing price, discovered in Q3 2020 at INR 2.83, was 34% below the prices in the same period last year. That's a huge reduction in the market clearing price, making the market increasingly competitive and attractive for buyers, all kinds of buyers, whether these are distribution companies or these are open access consumers all across all kinds of buyers. Let me also give you a brief update on the sector per se. It is our belief that the energy sector is up for significant transformation.
It is estimated that the per capita consumption of electricity will increase from a current of 1,181 units to almost 1,620 units in the next five years. This is a huge 40% growth over the next five years. To support this, the government has made an investment commitment of INR 11.75 lakh crores to the power sector, and this is within the overall vision to boost the infrastructure spends by INR 100 lakh crores by 2025. This investment will go to increase the power sector installed capacity from a current of 370 odd GW- 620 odd GW over the next five years, just to make sure that the demand increase is supported. There have been in the budget that got announced yesterday or day before yesterday, some nice good provisions for the power sector.
One very critical one is the distribution reforms, which mention that they want to replace conventional energy meters by prepaid smart meters over the next three years. That's a very significant measure because this allows consumers to really choose the provider that they wish to go with. It brings in transparency, it brings in efficiency, operational discipline, and fiscal discipline as well. This is a very important efficiency measure for the sector as a whole. Also in the budget, there have been also other announcements around our commitment to green energy, our commitment to shifting energy mix to make it more sustainable, and we'll talk about those as well as we go forward.
There's also been further alignments in the National Tariff Policy through the constitution of a high-level group of ministers led by the Home Minister, which should ultimately pave the way towards rationalization of power tariffs and bring benefit to the industry as a whole. By rationalizing the power tariffs, the economy and consumers and customers and C&I, everybody will get benefit in broadly here. At a broad economic and industry level, India's economic growth in Q3 2020 was subdued. The GDP for FY 2020 is expected to be in the range of five percentage points. IIP continued to shrink in October and fell to negative four. It did rebound in November to a + 1.8 Y-o-Y.
The core sector was negative in October, but recovered to a 1.3 percentage points in December, after remaining negative in last four previous months prior to December. There's been a high emphasis on revival of the economy with initiation of reforms and stimulus measures like how do you rationalize the taxation, corporate taxation structure, and other policy measures in various sectors over time. Hopefully, all this will see acceleration to the growth of the country, both GDP and the core sectors growing faster. Q3 for the fiscal 2020 was a bit of mixed developments on the electricity front. The energy demand for the sector as a whole across the quarter declined 6.2 points. This was most severe in the initial one, which is October. October was a decline of 13 percentage points, which is very unprecedented in the electricity sector. It was the highest decline in 12 years.
It recovered a bit in November. November registered a 4-point decline. December was even better, just a -0.4% decline. I think over the course of the quarter, we saw the electricity consumption going up and becoming better. One good thing happened in the month of December, the peak energy electricity demand went up by 4.8 percentage points. This is significant, in part contributed to a 50 points of growth in electricity trade volumes on the exchange in the month of December alone. Just so you know, that momentum has sustained in the month of January as well. We see a recovery in the consumption patterns across the country and across sectors in the month of January. Just from an installed capacity perspective, during the quarter, the total installed capacity increased 6 percentage points, to reach 369 GW.
In line with, and you guys are familiar with the fact that India has a huge commitment to the Paris Climate Control Agreement to ensure we are progressively shifting towards a much more cleaner, greener energy. In line with commitment to that Agreement, our renewable energy capacity increased 16 percentage points, and it went up from 74- 83 GW within the year. I think we are moving in the right direction as a commitment towards a more sustainable ecosystem. During the quarter, Ministry of Power also finalized the methodology of allocation of coal for the sale of power in the short-term market and power exchange. The proposed methodology will enable coal linkages to power plants not having PPAs.
Guys, the industry or the generation units that don't have a PPA will now be able to get coal under this methodology and lead to further available increase in generation, which leads to then availability of more liquidity on the exchange, therefore, leads to a stabilization or a decline in the prices. I think all of it, in a way, has been extremely positive. Let me just move and give you a sense of financial and business performance. On a standalone basis, our revenue for the quarter, you've seen the way the electricity was such a huge drop. On a standalone basis, we saw that our profit after tax was almost flat at INR 42.3 crore year-on-year with a revenue drop of 9.8 percentage points. The PAT margin was up at 61%.
The EBITDA was at 83%, the PAT margin was up at 61%. The PAT margin went up from 56% same time last year, reflecting a very strong discipline in the way we are managing our operating expenses, knowing fully well the C&I industry. Now, starting Q3, you would also know that we have started to consolidate our results of our wholly owned subsidiary, the Indian Gas Exchange. The overall consolidated revenue for the quarter was down 9.7 percentage points to INR 69.4 crores in Q3. Our EBITDA decreased to INR 56.7 crores. The margin, EBITDA margin stays in the consolidated balance sheet. The EBITDA margin stays at 82 percentage points, and PAT is at INR 41.7 crores, which is a 2.2 percentage points drop because of the consolidation. The PAT margin stays at 60 points versus 56 of last year. Let me focus on the business performance.
Similar to the trends in the overall power demand in the industry in the country, business performance during the quarter also is across those three months. The first two months, like I said, were extremely down from an overall consumption pattern. We also saw a reduction in electricity purchases created on the exchange in the month of October. It went down hugely to a -42% in the month of October alone. When the demand started to recover in the month of November, we saw a 6 points growth in November, and December, like I said, was a 53 points growth in December. That's so much from a Day-Ahead Market business perspective. The company continued to report robust Term-Ahead Market performance. The volumes increased 48 percentage points during the quarter, led by an increase in daily contracts initiated by some states.
Southern states were more active than the others in the TAM business. REC volumes continue to be impacted because of lack of inventory on the sell side. We did 1,138 MUs in Q3 versus 1,197 MU in Q3. It's just a small decline. Owing to an overall decline in prices by 31%, procurement of power by commercial and industrial consumers, that has increased significantly. We've seen that the open access consumers, that part of the business has seen a very strong growth of 64%. That's significant, and this plays to the fundamental value proposition of the exchange that lower the prices, it finds far more number of buyers across the country in the commercial and industrial segment. Also, I just wanted to take a moment to update you that some of our new product launches are on the anvil.
We continue to progress and get close to launching cross-border long-duration contracts, real-time products. There again, what we've done is we've strengthened our sales coverage around for these products in anticipation of these products, and our sales team continue to reach out to customers across the country. Very positive sentiment from multiple market participants and stakeholders about the new product launches and the new schemes that we are trying to come up with. Let me also give you a bit of a way forward. You would understand that the competitively discovered prices on our platform, they continue to be attractive to both distribution utilities as well as open-access consumers. Now, that is the single biggest gain that has happened over the last couple of quarters, that the prices continue to be stable and extremely attractive to all kinds of consumers.
With prices remaining low during the fiscal year because of ample liquidity on the sell side and increase in electricity demand, volumes on IEX should continue to increase just the way we've seen a rebound, like I said, in the month of December and January 2020. Also, our proactive efforts and collaborative work with our stakeholders and alliance partners, marketing capacity building initiatives, hopefully will aid to our volume growth. We continue to very strongly pursue tech-based innovation. We have made a very strong commitment to revamping our technology and making sure that whatever we do has got a very strong foundational technology backbone to it, so that we can make sure that our user experience to our consumers, customers, DISCOMs, and open-access consumers continues to be really the best in class through robust strategies and processes. Now, that in a nutshell is all that I wanted to communicate.
Given you a story on the way we see the industry moving, some of the government initiatives that are happening right now, and the way in which the power sector has been transforming, and the way our volumes have moved and our business performance has been moving. Let me stop here and open it up for any questions that are there on your mind, and we'll be happy to take them.
Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question, you may press star and one on the touch-tone 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. A reminder to the participants, anyone who wishes to ask a question, you may press star and one. The first question is from the line of Mohit Kumar from IDFC Securities. Please go ahead.
Good afternoon, sir, and congratulations on good set of numbers. The first question I have is regarding the launch of new products. We are supposed to launch three products. One is RTM, second is cross-border, and third is long-term duration. Is it possible for you to share the time when you are supposed to launch these three new products?
Yes, I can give you a more definitive answer for one of the three, and that one is RTM. The Real-Time Market product should begin trading from April 1st onwards. The regulatory body, which is CERC, along with POSOCO will go in for testing of or trial run of that product in the month of February and March, and so to be ready for launch on April 1st . I think that's an absolutely definitive one. The other two, you're familiar with the case that is going on the long-duration contract. Final hearing of that case is on March 2nd, and we hope to get a clearance by then so that we can start trading immediately after that or get into the business immediately after that. The third one is cross-border.
In my personal opinion, we are in the final leg, last leg of that to get the regulations out, and so that even should see the light of the day very soon. If you recall in my last call, I had mentioned that by end of Q1 or current Q1 this year, which is fiscal Q4, we should be in a position to see through all of these, and that's where it stands right now.
Sir, on clarification on long-term duration contract, you had mentioned in one of the calls that we were supposed to withdraw petition, and that means the chapter would have been closed. Now you're saying the case is still ongoing?
That is a misnomer. The petition withdrawal, because it has to be withdrawn from the Supreme Court. Technically it's a legal filing of the case, and that has to be withdrawn on March 2nd. That hearing has now been fixed for March 2nd.
Understood, sir. Secondly, on gas, has something happened on the gas trading side? Is there something which you can throw some light?
Yeah. Look, I can't share with you the gas launch date. That's still on the rocks.
No, I'm just saying a broader environmental, is there something incremental which happened during the quarter?
Yeah. Look, you would have seen that we have consolidated the gas functioning into our gas financials into our balance sheet for the quarter. Obviously we've made some expenses, we've made some investments. These are investments, early investments in technology, in people, in office space, in some of the administrative things like setting up the company and all that. We are revving ourselves up to launch gas as soon as we can.
The last question, sir. How do you see the REC volume panning out in FY 2021, given the fact that the inventory is quite weak?
Rohit, do you want to take that?
Yeah. Inventory, rightly said, it's not there, and hence volume is also down this time. In fact, every quarter we are seeing lower numbers. Good news here is, we are expecting some new issuance in the months to come. Some of the distribution companies, some of the state utilities, there they have some surpluses that can get issued. That is one thing. It is down in volume terms, but in revenue terms, it is not so much down because our realization has increased. The incentives which we used to give earlier, that we have withdrawn. Yes, it will continue to be under pressure as far as volume is concerned, but we are expecting a little bit improvement in the volume in coming few months.
My broader question is that, do we expect a decline in volume in FY 2021 over FY 2020, or do you think it will be flat Y-o-Y?
Going forward, in FY 2020, it can be little better because with more renewable capacity with the state distribution companies, the issuance will increase. One is the projects which are registered under REC mechanism, where eligible entities, they are getting these RECs, and the other portion is state utility who are meeting their RPO and doing surplus, they are also entitled to get this. On the second front, we are expecting more issuance, and we hope that inventory should improve going forward in FY 2021.
Okay, understood. Thank you.
Thank you. A reminder to the participants, please submit your questions through participant. Should you have any follow-up, request to rejoin the queue, please. The next question is from the line of Ankush Agarwal from Stallion Asset. Please go ahead.
Thank you for taking my question, sir. Just two questions. Firstly, once the Real-Time Market starts, how do you think the current product of intraday market that would exist parallel to the Real-Time Market? If so, how it would be different from the Real-Time Market? Secondly, in case of, if I see we have more than 99% market share in case of a Day-Ahead Market. If I see the term market, our share compared to PXIL, I hear is around 60%. Why is there such a difference in term market share and Day-Ahead Market share?
Your first question is, how Real-Time Market is different from intraday?
Yeah.
What will happen to the volume?
Yeah.
Intraday is today done about three hours in advance. You should have minimum three hours window, then only if you buy it now, after three hours delivery will start.
Yeah.
Real-Time Market is going to be more closer to the Real-Time Market. This will happen just one hour in advance, trading will be done for every 30 minutes between those two time blocks. Another big difference here is, Real-Time Market will operate on the principle of collective transactions, which is double-sided closed auction. Now, this is exactly same as what we are doing for our Day-Ahead Market. Intraday, it is more of a matching. It's a matching concept where you can place your best bid and then the matching is done on the multiple bids. This is how it is going to be different.
Okay.
The second question is, in the TAM side, our share is about 65% today. It is little excess of 65% today. This is as high as it is in the case of Day-Ahead Market. Here it is more of a one-to-one transactions, bilateral transactions. They are also active there and both the participants are trying their best. We are maintaining here as well, it is not as high as in case of Day-Ahead Market.
I think, Ankush, here is that the way the day-ahead market works, that really plays to the efficiency of the whole trading platform, right? Because that plays to the center of the exchange. The exchange survives through discovery on a multilateral basis and then discovery and settlement on a multilateral basis, whereas TAM survives on one-to-one. Even in a base Sir.
Thank you. The next question is from the line of Ravi Narreddy from Narreddy Investments. Please go ahead.
This is Vineet Harlalka.
Great.
If you look into the YTD business for the nine months, the treasury income has improved significantly. The two critical factors which impacted this quarter, one was that, if you recall the previous year, the first two quarters were not good for the treasury. These two quarters for the Q1 and Q2 were quite good. Secondly, because of some inflation concerns, there was some hardening of the yield happened during December. These were some uncertain impact were there, but not very significant if you look on the YTD numbers.
Okay. Sir, how was the business in January 2020?
On the treasury side or on the overall side?
No, just electricity trading side.
It has been very nice. Like I said, I think electricity trading in the month of January is almost a 45, close to 50 plus percentage points growth year-on-year.
50% growth. Sir, how many exchanges allow electricity trade in India other than us?
Look, you can set up as many as you want, but right now there are just two.
Okay. MCX also planning to come in this?
I have no idea. Maybe you guys might be better informed. Are they?
Okay. Thank you.
Thank you. The next question is from the line of Abhishek Puri from Axis Capital . Please go ahead.
Yeah, thank you. Just wanted to confirm one small data point on the grid code regulations which came in after the intraday norms were approved by CERC. When I'm looking at one of the provisions, it says that the allocation of transmission corridor between the power exchanges for real time consumptions will be in the ratio of their shares in the DAM market. Would that mean that you will get the lion's share, even in the intraday market?
Yeah, for Real-Time Market, this is the provision, and we will get lion's share of the transmission capacity as per the grid code.
We can expect the market shares to remain similar to DAM in intraday as well, right?
The model of price discovery is also same, so liquidity will play important role in RTM market. Second is the transmission capacity allocation is in favor of those who are already having a share in the DAM market.
Right. Okay. My second question is on competition. I think PXIL has launched similar platforms. I still don't see any volumes going to them at this point in time. Any comments on that side?
Look, Abhishek, I think one thing is good that they've launched it. You've heard me talk about our views on competition in, as you still recall, over the last three quarters since I've been here, that we really need more competition in our space. Because more competition allows companies to work to develop the market, which is always going to be healthy for all of us here. I really want PXIL to ramp up and whoever else wants to should ramp up and get there. That's one thing. The other thing, and to your point, whether they're getting more volumes or not, I think that really depends upon a couple of other things. One, on the fundamental design of the whole engine and the mechanism of trading is helpful.
The user experience that customers get out of us versus anybody else, the manner in which our teams are engaged with the customers across the country, the familiarity, the way in which we trade, and we do an end-to-end settlement. There are goodness to our whole end-to-end sort of mechanism right now, which is helping. I really wish, and the fact that PXIL is launching it tells us one very good thing, that they see the market from a very buoyant perspective, just as we believe it is over the course of next couple of years. In that buoyant market, more people coming in is an absolutely great thing to happen. Like I said, you have to play to the fundamentals of the exchanges.
Right. Thanks a lot, Rajiv.
Yeah.
Join back in.
Thank you. The next question is from the line of Dipan Mehta from Elixir Equities. Please go ahead.
Go ahead.
Yes, sir. This is Dipan Mehta.
Sir, I want to understand what exactly has gone wrong in this quarter, because on one hand, if you said electricity consumption is down by 6%, but then we are down 9% in terms of volume. In your press release, you have said that there are certain states which have got double-digit growth. Somewhere you have said that the industrial customers have got a 64% increase. What exactly went wrong for us to have such a dismal performance on the volume side?
Look, I think, first of all, if you've been tracking us and you were tracking the electricity market per se, there is bound to be a very close sort of a relationship and almost disproportionate relationship between drop and recovery, both sides. When the electricity market hasn't recovered in the month of December and it's down about 0.4 points year-on-year. The electricity peak demand goes up 4.8, you see the exchange performing 53 points better. When the electricity market is down 12 points in the month of October, that was a significant drop year-on-year. October 2018 was an all-time high for electricity consumption. That month was a very high month. This year in October, and you would have heard us say over the last call as well that in the month of October, a couple of things happened.
Across those two big types of customers that we got. We got an agricultural, and we got commercial and industrial customers. The industrial activity in October was really down. You've seen the IIP numbers for the month of October being extremely low. The core sector per se, whether it is coal or fertilizers or refinery or electricity or steel, everybody was down in the month of October significantly. The industrial activity was one part of the whole story. The other thing that happened in October was that we had a very serious change in the weather pattern. Climate activity in the month of October, monsoon activity in the month of October was very high, and this year was a delayed withdrawal of the monsoon.
When you have a delayed withdrawal of the monsoon, then the agricultural consumers do not buy enough electricity they generate, and hydro is very active there. Both our two most potential segments, C&I as well as the agricultural customers, had a much-reduced dependence and much-reduced requirement of electricity. Now you're seeing the recovery bounce back much faster in the month of December and January. That is also because hydro is no longer an option right now because it's gone down. The industrial activity happens to be coming back on track. The IIP is positive in December, or it's positive in January now. Some of the core sectors are becoming much positive. That's the reason you are seeing the electricity demand go up across, specifically in the month of January, electricity has gone up by 2.5 Percentage points.
There are some factors which are in the larger alignment with the economy, the GDP and the IIP, and some factors which are in the domain of the climate control or climate change that has happened. The way we're trying to buffer ourselves is on two fronts here. One is clearly this is like a strategy question. You might have a question as to what is the exchange doing. One thing we're doing is we are spanning ourselves out to more customers and more consumers to make sure that whenever there is a demand, we are there to fulfill that demand. That's something that is important. The fact that there is liquidity on the exchange allows for the prices to be lower. The government has announced two other things.
One, all plants that are beyond the emission control norms will have to be phased out and shut down. That will require more electricity provided through some other sources, and that demand gets fulfilled through the exchange. The second thing that has also happened is the bringing of coal to merchant power plants, which are not linked to PPAs. That liquidity also comes to the exchange. When the liquidity comes on the exchange, you will find that the price on the exchange will continue to be lower. That attracts, that appeals to the open access consumers across the country. One activity is very clearly go across to as many distribution companies and as many open access consumers through our sales efforts and convert those customers for buying on the exchange. That's one thing.
The second thing which is our effort again is making sure that the new products that we are launching, some of them you heard earlier, cross-border or real-time market or long-duration contracts, those ones should get launched. Also we are tweaking new products and we are engaging with our distribution customers and to our open access customers to customize products from their requirement perspective. Those are the products that if you go to our website, you will find that we've launched a couple of products very recently. We are expanding our portfolio. Expansion of portfolio allows us to serve the same customers in a deeper way and allows us to find new customers. Those are the two things that we are doing. It's a longish thing. Electricity per se is subject to a huge shift in vagaries.
That's what has happened over the course of this last quarter. That's the reason I said fiscal Q3 or calendar Q4 was a tale of three different months for us.
Okay. One quick question, I think you already answered. The other expenses have come up for what reason? I did not get it. After a quarter, INR 827 lakhs to INR 473 lakhs.
It came down significantly because of the two factors. First of all, there were a lot of expenses we'd earned during the last year for the purpose of the gas exchange, and we were looking to hire the management team.
Okay.
The calibration, 10-year calibration. A lot of one-time expenditures were there. As Rajiv has said, because of the low volumes, we had also been control on our expenses. That was also one factor we reduced from the cost side.
Okay. Thank you.
We had some large consultancies assignments last year, which we haven't repeated now because those are one-time expenditures.
Okay. All the best and thank you very much.
Thank you.
Thank you.
The next question is from the line of Sri Karthik Velamakanni from Investec. Please go ahead.
Hi, sir. A few questions from my end. One is, what is the current proportion of open access on your buy side? What is the market share of open access within that? What is the limiting factor that you see for this to actually continuously increase?
Okay. The open access right now is 38% in our overall mix. Okay. If you see last year, it was 22%, it has gone up to about 38% right now. The open access is the one which has grown significantly. It grew 64 percentage points in Q3 versus the same period last year. I think open access is a good story. Our belief is, here's the proposition that I think we've been taking very strongly to the government is, open access allows customers across industries which are more than 1 MW of installed capacity to buy cheaper power from the exchange. That's a great thing because it allows their input cost to reduce.
What has happened is, and if you're following the sector, what has happened is a lot of states do impose conditional access charges and some other cost subsidies on open access consumers, and that deters them from buying. That makes the whole value proposition uncompetitive. The reason open access, despite all of those charges, spiked in Q4 was because the prices were very stable and low.
As long as we continue to see such kind of prices on the exchange, you will find that the open access consumers will continue to find favor for the exchange. The good thing is a lot of our engagement with the ministry and with the Ministry of Power and the regulatory authority suggests that we are focused on this problem. We are focused on making sure that the industry becomes competitive. One of the factors which leads to the industry becoming competitive is reduction of open access cross-subsidies so that the power becomes cheaper, which is, again, in a way, going to be really helpful for the exchange.
In a way, what you are suggesting is the conflict of interest from an SEB perspective to actually lose their most profitable customer is probably the limiting aspect even now.
What you say is the way it is understood right now.
Let me give you a proposition. What happens is, assuming in power is about 20 points of input cost to any product manufactured there. Okay? It is more in cases of some industries. Like a metals industry, it is more. It is less in case of some other industries which are knowledge or service industries. Right? On an average, it is about in that range of 15± , thereabouts. Right? Now, assuming the power cost can be reduced by 30 percentage points or 20 percentage points, at least.
Okay? What they pay today versus full removal of open access subsidy is what they can pay. In this manner, the combination of input cost of power and the consumption of power per se can add about 4 percentage points to the bottom line if you do the math right. Okay?
Now, that four percentage points really adds at least at a 25% of corporate tax, it adds 1% to the bottom line to the corporate tax here.
That's such a wonderful proposition, and that's how we are trying to approach this topic, that there are different ways, and I think the country has to step up to find very different solutions to the whole DISCOM deficit problem. This is, to our opinion, is one of the more brilliant solutions that the industry can go to, industry can get. In this game, everybody gains, there's not a single loser. 1 percentage point you add to the bottom line, and you use that for corporate tax again, which is equal to much more than the DISCOM deficit that industries are carrying today. The balance 3 points that you gain of the 4 points gain at the bottom line, you use for capacity expansion, you use for job creation. Every single problem that we are going through and trying to solve for today.
There are various means in which we can solve for this. That's the reason I said, at one level, your question is a straightforward question, but the solutions are unique and different. I think all of us need to step up and find those unique solutions, make sure those unique solutions find favor with the power distributors.
Sure, sir.
Sorry to interrupt, sir. For any follow-up requests, would you re-join the queue, please?
All right.
Thank you. The next question is from the line of Dhruv Muchhal from HDFC. Please go ahead.
Hi, sir. Thanks. The 38% for open access mentioned, is this for 3Q or for the nine months?
Q3.
Can you share a similar number for January, if you have?
January.
January
For nine months, it is 30. Nine months
For nine months, it's?
30.
Okay. Just to understand, the longer duration contract which we will have, will the design be similar to the TAM contracts? I mean, not similar to the day-ahead and one-to-one matching kind of contracts, or it will be similar to day-ahead design?
Yeah. What happens is, in little longer duration contract, you cannot have a matching contract. In fact, if you see our weekly contract that we have today, there also it is itself close to an open auction, which happens.
We are looking at it from every direction. In fact, we are thinking of RFQ basis contract also, which would be in similar lines to bid tender that is there today. We are also working towards creating standardized contract, which would be similar to our weekly contract. In none of the cases, it would be matching, it would be auction, or it could be reverse auction, or it could be open auction. Both ways it will be done.
Okay. Just two small quick questions. One is on the TAM market. We don't see any industrial consumers coming there in the TAM market, in the weekly markets. Given the prices are so low, and you freeze in a price for 10 days at least, the people who are buying in the day-ahead market, why don't they come in the TAM market? Is there some issue there?
Normally, if you see, TAM market prices are higher than day-ahead market. That's a given thing. Whether it is a weekly trade or it is a daily trade, normally the prices are on the higher side. Secondly, we have seen some participation of open access consumer in the past. All those consumers who are availing 100% open access, which means that they do not have a fallback option of distribution companies, they are coming in participating in the TAM market. If the consumer is availing partial open access, which means that whenever there is increase in demand, he is eligible to buy from distribution company, they are not participating here.
Okay. can you indicate how the prices are in the TAM market? I mean, versus the DAM market. Say, DAM is around 3 INR. What would be the DAM market?
There would be some premium. If you are going for weekly trade, people will take reference of day-ahead market and then there would be some INR 0.10, INR 0.15, INR 0.20 premium over that in the weekly market. Similarly, in daily also, again, they would command some premium depending on the day of delivery, whether it's a weekday or weekend. Considering all those sectors, normally there is some premium available in the market.
Okay, got it. This last quick one.
Mr. Muchhal?
Sure.
Sorry to interrupt. Thank you. The next question is from the line of Pawan Kumar from RatnaTraya Capital. Please go ahead.
Sir, first of all, on the volume, since we did a de-growth of around 9% this year. On a normalized basis, what are the kind of volume growth or what is the kind of momentum we are expecting going forward in the next year and over the medium- term?
I think this year you're right. Q3 was a 9% drop on the volumes. They have picked up in December, they picked up in January. Hopefully in these couple of months which are left for the rest of the year, we continue to see a similar momentum as we are right now. We are going to be calibrating our next year very soon. Let me explain to you why I say this. Because of so many of the new contracts that we are trying to launch now, which can have a very significant impact on either side. That's a new market that we are trying to create. We are in the process of assessing the sizing there and our capability to how much of capture that we can do.
That's the reason we are a little cagey in trying to tell you right now about how much the next year can look like. Give us a couple of weeks, and we'll let you know what our next year plans look like. Those are the new products which we are extremely enthused and encouraged by the fact that that will open up new markets for us. How much is something that is being calibrated, and we'll let you know.
This particular uncertainty is because of the new products that you are going to be launching?
That's right. Because we are sizing it up and we are sizing it up across the country in every DISCOM, it's a very complicated size. We are sizing up our business plan for next year. We will get back to you shortly.
Okay. On last month volume and this month January volume pick up, what has changed since October, November, these two months, and how sustainable is it?
I think, look, like I said, a couple of things changed, clearly. One linked to the climate, like I said, the hydro generation has gone down very clearly. Second, the fact that the liquidity on the exchange is better because coal allocation is better. The prices of coal have gone down, both domestic as well as imported. When the coal prices go down, which is the input price has gone down, the output electricity cost is lower. Whenever the cost is lower, then the exchange is the first beneficiary. Because then people can see the discovered price on the exchange being too low and all the open access as well as DISCOM can come and buy. DISCOMs can literally replace their more costly generating stations through the cheaper power on the exchange. You are seeing all of that play out.
The other thing which has happened is also that there is a pickup in industrial activity in December and January. In January, we've seen some of the core sectors come back. Like I said, fertilizer, refineries, steel, coal. All these four core IIP sectors have come back to a reasonable level of activity in the month of January. Both of them, the climate which is helping us and the prices of coal and the liquidity, the prices being low on the exchange, that allows people to buy more on the exchange and the demand going up. Both of those are actually helping us, yeah.
Another thing, peak demand. How does peak demand actually affect you? What has actually generated this particular higher peak demand that you are talking about that has actually helped you in December?
Look, the peak demand is a demand at a particular point in time, when you aggregate across the country and that demand happens to be the highest demand, that's the peak demand. Now, when a peak demand happens, then there is an imbalance between generation and demand. There's an imbalance between what is being generated and in that particular location. Look, the electricity market runs highly localized. Even though it is a national market, national grid, it runs highly localized. If you maintain the demand which is highest upon in time in Tamil Nadu and the generation is not in Tamil Nadu, they're going to buy from somewhere. Exchange becomes a more logical place. The more the mismatch, the better you will find that the exchange fundamentals will play out and exchange gets the highest benefit of those demands.
This.
Mr. Kumar? sorry to interrupt, but-
I just want extension to this.
Sorry for any follow-up you need to reach on the queue, please.
Okay.
Pawan, you can come back to us later also. Don't worry, we can explain to you. No worries.
Thank you. The next question is from the line of Aniket Mittal from Motilal Oswal Securities Limited. Please go ahead.
Yes. Thank you for the opportunity. Sir, my question is actually with respect to the longer duration contract. If you could help us understand some of the contract specifications in terms of what sort of upfront margin would you be looking for and how would the payment cycle go? Have you nailed that down? Could you help us on that?
Yeah, Aniket, as far as payment cycle goes, we are going to create a product where we are going to give comfort to both buyer as well as sellers. This is what Exchange is known for. When we are doing long duration contract through Exchange, we would be absorbing counterparty risk, which means that as a seller, you will get paid. What we are doing in case of our weekly transactions, where settlement is done on daily basis, similar thing we are going to adopt for longer duration contract, where we will have some BGs and LCs in place, which will take care of liabilities, every day, the power that is being traded will be settled on daily basis. This is what we are thinking. To answer your second question about transaction margins, that again is still under consideration.
We will be taking call in due course of time.
Okay. Sir, my second question is, so believe you got an approval for some new block bids, which is the minimum quantity in the profile one. If you could just throw some light on that and how does that help customers in the direct market?
Yeah. What happens is, today we have a block bidding mechanism where either all is selected or none is selected. It is complete selection or 100% rejection. What we are saying is, now with the new bid size approved, if you want to buy a 50 MW and you can place minimum bid quantity as 5 MW, which means if minimum 5 MW is getting selected, it will be cleared. This is what this first thing is all about. Second is considering the requirement of RE market and also conventional market, where they want to bid for complete profile. Which means that, let's take example of solar. Right from nine- five, every hour generation would be different. You can create one block where the quantity in every time block would be different, and then this would be considered as one block.
This at present it is not there, and now the approval has come. We are going to introduce in the pending time.
This will help increase the volume selection.
Yeah.
We haven't introduced this yet.
This is going to help us increasing the cleared volume. Some certain quantity gets rejected today, that rejection quantity will come down.
Okay. Got it. Thank you.
The next question is from the line of Dhruv Muchhal from HDFC. Please go ahead.
Yes, sir. Thank you. Sir, a small quick one. The tax rate is 21% in this quarter. The normal should be 25% or this will be the rate now?
It will be the overall should be 25 because we fall under 22% category. Because of our treasury income, so the overall tax comes lower.
Okay. The treasury includes mark- to- market on which you are not probably have to pay tax, and that is why the current quarter's tax is low.
Sir, no. The mark- to- market also we need to create a defer tax liability accordingly. Because of some longer term products where we can get the tax benefits of the lower rate, so that's why the overall taxes come down.
Oh, okay. Normally it will be 25 around.
It will be in between 22- 25.
Oh, okay. Got it. Thanks.
Thank you. The next question is from the line of Mohit Kumar from IDFC Securities. Please go ahead.
Yes sir, one clarification. This RTM market, all the regulation is applicable from April 1st, 2020. Am I right?
Yeah.
The second question is that, the Power Exchange India Limited which have launched a platform, is it working right now or it is just in pilot mode till the time? Because this can't function till the final regulation comes in place. Am I right?
Power exchange is working right now.
What they have launched.
No.
I talk about RTM market.
No. They have not launched RTM market. They have launched day ahead market. New platform they have created, which they launched around 10, 12 days back.
That's operational.
It is replacement of earlier platform. Yeah.
Okay. Understood. It's not the RTM market. Okay.
No. You can't launch RTM right now till April 1st.
Sure. Okay, understood. Thank you, sir.
Thank you. The next question is from the line of Sri Karthik from Investec. Please go ahead.
Hi, sir. Thanks again. I had my second question with regards to the DEEP versus IEX price parity. That seems to be narrowing over the last few quarters, and you in fact presented some data with regards to how there is some gap and why it's beneficial for executing the contracts on IEX. Apart from the usual counterparty benefits that we get, is there any other reason why a participant would use IEX over DEEP?
The counterparty benefit is a huge benefit.
If you are following DEEP market, you will find that the price varies with the state DISCOM. Some DISCOM in southern region, when they are going for bidding, the price discovered is INR 25.20. For some other DISCOM, same generators are willing to supply at INR 3.60. That difference is there because they are not confident that they would be able to recover money from the DISCOM. Of the past trend is there, this payment is getting delayed for over a year also in certain case. We feel that the value that we are bringing to the table, there are going to be many takers. In fact, we already have discussions with most of these distribution company. We have shared our contracts with them, and people are waiting keenly for that.
Hello.
Yeah. Have I answered your question?
Essentially, your view is the counterparty risk is the primary reason why people use IEX?
That is one of the major reasons, yes. Major reason.
Okay, sir. Purely from an infrastructure perspective, that is the integration of the grids and the connectivity, is everything in place in the country currently for a wider open access utilization?
If you have seen, with the more transmission line coming in, we have got, in fact, huge network today, more than 80 GW of inter-regional capacity is there, and congestion is virtually zero. 99.5% of the time, we have one nation, one grid, one price. Which means that wherever there is a customer, this power can be generated somewhere else and can be transported to that particular place. This infrastructure was not there three, four years back, but last two, three years we have seen that we are very comfortable as far as the transmission infrastructure is concerned, and it is helping in taking the market forward.
Thanks, sir.
Thank you. Ladies and gentlemen, due to time constraint, we take the last question from the line of Govind Saboo from India News. Please go ahead.
Sir, just one data point regarding the breakup of transaction charges and membership fees.
For the Q3 or for the nine months?
Q3 and Q2 would be good. Okay. Q3, segment-wise, the total transaction fee was INR 55.38 crore in the Q3.
Okay.
Annual fees was INR 4.6 crore. The total operating revenue was INR 59.68 crore.
Okay. The same number Q2? Q2.
For the Q2, the total transaction fee was INR 62.89 crore and annual fees of INR 4.55 crore. Total operating revenue was INR 67.44 crore.
Sorry, INR 64.89 crore, right?
INR 4.4 crore. INR 62.89 crore was the transaction fee. INR 4.55 crore was the annual fee. Okay. The total operating revenue was INR 67.44 crore.
Okay. Thank you, sir. Thank you.
Thank you. I now hand the conference over to the management for closing comments.
All right. Hey, look, thanks everyone. Thanks so much for participating and for your insightful questions. If there is anything that you all want to know more on lines of whatever we discussed or anything else that you want to know about the company, more than happy to connect. Please connect with Aparna, and she will make sure you get the responses that you need. Otherwise, we stay the course. Like I said earlier, we stay the course on our forward path. The market continues to be extremely supportive right now, and we see a very solid way forward. A good recovery in the month of December, January. All our efforts in terms of market expansion, new products, and new customer acquisitions is something that is going to be helpful to us over the course of next couple of years.
Appreciate your time, and thank you so much.
Thank you. Ladies and gentlemen, on behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.