Indian Energy Exchange Ltd

NSE:IEX

Earnings Call Analysis

IEX Reports Strong Growth and Profitability in Q2 FY'24

IEX witnessed a robust performance in Q2 FY'24, with a 15% year-on-year increase in traded volume, crossing 26.5 billion units. Electricity segment growth was notably higher at over 17%. Revenue soared by 15.9% to INR 133 crores, while profit after tax (PAT) surged by 21.5% to INR 86.5 crores. The impressive 262% surge in volume and 224% increase in profitability were primarily driven by higher domestic gas volume and lower gas prices compared to spot prices. With improving conditions in coal production and easing coal prices, the company anticipates further rationalization of power prices on the exchange and improving volumes. Moreover, the projected annual increase of over 100 billion units in power consumption until 2030 shows a promising opportunity for growth.

Positive Business Performance with Electrification on the Horizon

Investors examining the growth trajectories of energy companies would note the positive performance of IEX, which saw a 15% increase in traded volume across all segments in Q2 FY '24, equivalent to 26.5 billion units. The electricity segment experienced a significant 17% growth. Total volume skyrocketed by 262% compared to the same quarter last fiscal, largely due to increased domestic gas volume and reduced gas prices. Profitability surged by 224%, with a consolidated PAT jump of 21.5% year-on-year. With India's power consumption expected to ascend by over 100 billion units annually until 2030, IEX is positioning itself as a pivotal player in this electrification epoch. New product introductions and market segment expansions are underway, anchoring IEX's strategy to harness this potential through innovative offerings and longer market contracts.

Commitment to Market Dominance and Sustainable Energy

IEX's command over the long duration contract (LDC) market is robust, handling 3.6 billion units in the first half, a significant jump from the previous year's 1.4 billion. Market share, hovering around 55%, suggests strong positioning despite competition. The management's narrative focuses on a future where short-term market volatility is considered temporary. Anticipated power capacity additions and a more stabilized supply scenario are expected to lure buyers back to the price-efficient exchange markets. Although exact figures weren't provided, IEX is confident in maintaining an impressive 85%-86% market share and foresees growth owing to their deep-seated industry relationships and value-added services to customers.

Strategic Initiatives and Financial Prudence

Investors would be prudent to note IEX's strategic initiatives such as the enhancement of liquidity for green products and conservative steps in introducing power derivatives attributed to current market volatility. Financially, with a substantial cash reserve of about INR 1,400 crores, IEX indicates potential shareholder rewards continuity either through buybacks or dividends, a practice deeply ingrained in its policy, underscoring a commitment to returning value to investors.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Indian Energy Exchange Q2 FY '24 Results Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Sumit Kishore. Thank you, and over to you, sir.

[Sumit Kishore, analyst]

Good afternoon, everyone. On behalf of Axis Capital, I'm pleased to welcome you all for the IEX Q2 FY '24 Earnings Conference Call. We have with us the management team of IEX represented by Mr. S.N. Goel, Chairman and Managing Director; Mr. Vineet Harlalka, Chief Financial Officer; Mr. Rohit Bajaj, Executive Director; Business Development Strategy and Regulatory Affairs; and Ms. Aparna Garg, Head Investor Relations and Corporate Communications.

We will begin with the opening remarks from Mr. Goel followed by an interactive Q&A session. Over to you, sir.

[Satyanarayan Goel, executive]

Good afternoon, friends. I welcome you all to the IEX earnings call For quarter 2 of FY '24. With me today on this call are Mr. Rohit Bajaj, our Executive Director of Business Development, Strategy and Regulatory Affairs; Mr. Vineet Harlalka, our CFO and Company Secretary; Mr. Amit Kumar, Head of Market Operations and New Product Development; Ms. Aparna Garg, Head of Investor Relations and Communications; and Mr. Aditya Wali.

Friends, the Indian economy continues to be the world's fastest-growing major economy. The recent success of India's G20 Presidency and the G20 New Delhi leaders [indiscernible] has further raised India outstanding as a global leader.

Some more important achievements during the India's G20 Presidency included the creation of a global biofuel alliance, which aims to share knowledge, technology and finance to develop and introduce cleaner fuels and the finalization of India, Middle East Europe economic corridor agreement. The summit demonstrated to the world that India is not only emerging as a world leader but also becoming a voice of the global south to achieve the goal of inclusive development and tackle challenges of climate change for global cooperation.

Moving on. The Indian economy is sustaining its growth momentum together over the past 2 years. In the face of global headwinds, India GDP for first quarter FY '24 grew at a rate of 7.8%, the highest among major economies. This growth momentum has been backed of by expanding service sector, private [indiscernible] and increased capital expenditure.

At 57.5% in September 2023, India's manufacturing PMI remains at centenary for the 27th straight month. The quarter 2 FY '24 [indiscernible] came in at 57.9% compared with 55.9% in quarter 2 of last fiscal, reflecting the country's healthy demand environment. The service PMI cooled off slightly from a 13-year high of 62.3% in July to 61.0% in September.

Printing at quarter 2 FY '24 number of 67.1% compared with 55.7% same period last year. In this backdrop, the World Bank estimate of India's economic activity for the current financial year is on track to grow at a rate of 6.3%. Turning to power sector update. On the power sector front, in electricity consumption in India for quarter 2 FY '24 stood at $35.8 billion, a growth of 13% on a year-on-year basis.

Our demand was higher than anticipated quarter months and months with peak power demand touching nearly 240 gigawatts in September first week. States like Maharastra, Uttar Pradesh, Gujrat, Madhya Pradesh, Karnataka and Tamil Nadu witnessed [indiscernible] demand this quarter. In the previous quarter, we temperatures had kept demand for power sectors and our sector lower than anticipated.

By the end of quarter 2 of FY 2024 India's total installed capacity stood at 425 gigawatts, out of which 179 gigawatt of contributed by renewables. India remains on track to attend its target of achieving 50% of energy from non-carbon fuel source by 2030.

On the fuel side, India's coal production increased by a robust 16.2% on a year-on-year basis to reach 205 billion tonnes in quarter 2 of FY '24. For the period April to September, coal production was up by 12% on a year-on-year basis to 428 million tonnes. Coal through the power sector increased by nearly 11% year-on-year basis during quarter 2 FY '24 to 181 million tonnes. option coal premium has also continued to decline since the beginning of this financial year. That premium declined to about 100% in September '23 from 276% in September '22, and a peak of 425% in May '22.

The average imported full price of 4,200 GAR coal also continue to be that USD 56 per tonne, lower by 35% the same quarter of last fiscal. Imported gas price has reduced by nearly 60% year-on-year basis to USD 16 per MMBtu average -- average coal inventory stood at nearly 13 days during quarter 2 FY '24, higher than 11 days, which was there are in the last -- quarter 2 of last fiscal.

The improved supply side resulted in increased liquidity, but unexpected surge in power demand has kept the prices higher in that sense. Average market clearing price in the DAM market during quarter 2 of this year was INR 5.88 per unit compared with INR 5.4 per unit in the same quarter last year, higher by near 9% over the last year and 9% over the first quarter of this year.

With supply side volumes continuing to improve and robust power demand volume and are expected to grow going forward as we [indiscernible] Regulatory and policy initiatives. Let us now talk about that, not for the regulatory updates and policy initiatives introduced by the government in quarter 2 FY '24. The DRC has notified Indian Electricity Green Code, the sharing of interstate transmission charges regulation and long-awaited GNA regulations.

The salient features of these regulations are: the long-standing anomaly in transmission charge between bilateral transactions has been corrected, which will facilitate movement of building from BSE market back to DAN market. Since sellers will no longer be required to pay interstate transmission charges.

Under IGC, generators with long-term PPAs would also be able to sell their surplus power, which is not recognition by the discounts in that they had market without consent of buyers. To improve availability of sell in the market on 5th September '23, government has director generators with PPA to offer in exchange the URS power under the market also.

Generators would now be allowed to meet their commitment in case of unit shutdown or by purchasing power to that sense. Buyers will be able to use their GNA optimally as transmission charges in collective transactions will be applicable only for the biquantum in access of GNA, which will facilitate buy on that exchange as the working capital requirement will be reduced for participation Interstate transmission charges and losses will only be applicable on buyers, which will provide for all the inspector of their location and will facilitate competitive completion on the exchange platform.

The overall philosophy of transmission planning has changed effect our mid-table adequate transmission capacity addition, which is secured at transmission system and reduced volume loads through the -- due to congestion. These regulations will also facilitate energy transition in a big way by providing flexibility to thermal generators to replace their brown power with green power.

Introduction of RE aggregators and an activity to aggregate 50-megawatt RE capacity, all this will be In other update, India has issued the first amendment to the procedure for cross-border trade in electricity. The amendment allows for cross-border trading -- trade of power through the real-time market operated by the power exchanges, which is expected to increase cross border volume from the exchange.

In addition, final guidelines for resource adequacy planning were issued by Ministry of Power in consultation with authorities to enable adequate capacity to meet projected demand in the country. The source adequacy creates the basis for capacity contracting and can lead to opportunity for IEX to introduce capacity contracts such a market will also help in saving sell-side liquidity.

The Ministry of Power issued guidelines for tariff-based competitive bidding process for procurement of power bidding developers have been provided flexibility to supply through 5% of the contracted power by purchasing from the exchange. Guidelines from discussable RE power storage -- these guidelines now allow generators to supply excess power from the plant to any third party or a power exchange without requirement of NOC from the buyer.

In June this financial year, the Ministry of Power shares, a letter with CRC to look into the market suffering for the Indian power sector. The GRP subsequently started really the staff member on market suffering and others. A detailed reading of the advantages, disadvantages and execution of market compalints. The commission has yet to take any view on this -- view on implementation of market coupling.

We have also submitted our position, explaining why market should not be implemented. We do believe that current market operations of IEX will continue on this In a strategic move to promote a circular economy and 1 that aligns with IEX commitment to sustainability and organization and in harmony with India's net 0 commitments. IEX acquired a 20% stake in [indiscernible] India Private Limited.

This deal will augment the value offerings of IPL's material platform, which brings together all stakeholder delivery center. platform holds significant potential to enhance the scientific processing of across India and establish a circular economic for a wide range of materials.

I'm happy to inform that we had introduced -- we had launched the IEX economy this year in June to create a pool of skilled professionals for capacity building in the power market. In a span of less than 3 months, we have seen nearly 250 enrollment across programs. In line with our aim to provide seamless experience to our customers the last quarter witnessed onboarding of numbers -- onboarding of members setting platform and to the automated bidding API for DAM and RTL.

Recently, we also launched high-priced market with this, we will be able to facilitate imported coal-based and gas-based power plants to be able to offer high cost power for up to 90 days. This will ensure there is enough sell-side liquidity available during period. The product would also provide sell revenues to product systems, power plant connections.

In terms of business performance, IEX achieved 26.5 billion units of traded volume across all segments during quarter 2 of FY '24, registering 15% on a year-on-year basis growth. So in electricity segment, particularly, the growth was above 17%. IEX generated total volume of INR 195 lakh during quarter 2 of FY '24, a jump of 262% over the same quarter last fiscal.

The volumes jump was largely on the back of increased domestic gas volume and decreased gas prices compared with spot prices. The profitability of IEX for quarter 2 FY '24 increased to [ INR 7.5 crores ] from INR 2.42 crores in the same period last fiscal, an increase of about 224%. Let me now summarize the financial performance of the company in this quarter.

On a consolidated basis, revenue for quarter 2 of FY '24 increased 15.9% on year-on-year basis to INR 133 crores from INR 113.8 crore in last year. Consolidated PAT during the quarter came at INR 86.5 crores, higher by 21.5% on year-on-year basis from INR 71.2 crores in quarter 2 of FY '23. With improving coal production, inventory and easing coal prices, we expect rationalization of power prices on the exchange and volumes to improve in the coming Based on staff plan, power consumption in the country should increase by more than 100 billion units annually until 2030.

And this presents an opportunity for IEX to tap into incremental annually. IEX will continue to introduce innovative products and market segments to strengthen its existing product portfolio. We have been exploring options to extend the market contract up to 90 days -- from 90 days to 1 year to provide set optimization opportunity for these We will continue to work with ministries, regulators, system operators and our partners and clients and all of the stakeholders to accelerate India's sustainable energy transition. We can now have question-and-answer.

[Operator]

[Operator Instructions] The first question is from the line of Damodharan from Equitas Capital Advisors.

[Unknown Analyst]

Three questions from my side. So you spoke about getting implemented in October, if I look at the share of the day ahead continue market has already come down sharply in September. So -- what is the reason for that?

I mean given that GM has been implemented now, where do you the share stabilizing? So -- on a substernal basis. So that was one. Then if you look at the mix of volumes. Term ahead market has seen a really sharp growth. So what is the reason for that in the last quarter. So that is 1 question. If you look at, I mean, CERC had given a deadline for October 15 to give all the financial services by market participants.

So what are the next steps that the CERC will take to whatever the decision on market cap. So that's 1 question. And the last 1 was, I mean, if I look at the share of bilateral trade in overall volumes, that has also gone up over the -- over the last 3 or 4 months, I mean, the data we on the -- if you can throw some light as to what's the reason behind that? So these are my questions.

[Satyanarayan Goel, executive]

Yes. First thing, you asked about the GNA. Yes, GNA has been implemented from 1st of October. And in the first 2, 3 days, we saw very positive developement after implementation of GNA. The DSP volume has reduced -- but subsequently, in the month of October, you can say right from 5th of October to 15th of October, the demand was very high in the country.

And exchange clearing price was almost INR 10 throughout the day. And when you know you have this kind of price, then buyers -- they tried to get into bilateral market to ensure ability on power so the contract in the bilateral market or the BSE market. So that shifting of -- I mean, the impact of GNA was not really positive during those days. But then subsequently, and the prices started going down, the supply improved, we are again not seeing that good volume is happening in that market of exchanges.

And our overall volume growth for the month of October because of GNA implications has been almost the clean electricity has been almost about 20% now. So that's a positive development. And I'm sure in the coming months, the growth will be better.

Your second question was that our market share in the second quarter was lower. See, the reason was basically the second quarter, as I told you, the demand has increased -- demand increased by almost 13%. And because of the high demand increase, many of the distribution companies, they contracted the power to the bilateral contracts.

And in fact, bilateral contract volume increased by almost about 25% during this quarter. So substantial volumes are shifted to the bilateral contracts because of which the DAM volumes reduced and our market shares was lower. But I'm sure in the coming quarters, you will see good increase in the market share.

Coupling. Yes, had issued a discussion paper. It was issued on 21st of August. And I'm sure you must have gone for the rest paper and the radio of the discussant prefer indicates that CRG has not taken any view. They are mutual in the paper. They have listed out advantages, whatever it enacted. But the advantages and the challenges of intimidation of coupling are more than -- and they have highlighted all those things.

What we understand is that participants have submitted the comments on that and CERC is just compiling the comment. We have not taken any view on that. bilateral volumes, yes, they have increased, as I told you, because demand for power was very high, and many distribution companies got into a bilateral contracts.

So now I think demand has reduced slightly -- it is not 5,200 million units per day. Merit has come down to almost about 4,300, 4,400 million units per day. So our clearing price is also down to almost about INR 5. So we should see good volume in had in RTM market.

[Unknown Analyst]

So any update on, I mean how long will it take for that to happen?

[Satyanarayan Goel, executive]

There is a lot of echo -- can you repeat the question?

[Unknown Analyst]

Sorry. Sorry. Am I audible now?

[Satyanarayan Goel, executive]

Yes.

[Unknown Analyst]

Yes. So any update on how long will it take in this process of CERC and compelling comments and...

[Satyanarayan Goel, executive]

See, I can tell you the process part of it. Based on amendment they will have to compile that and take a decision -- commission will have to take a decision based on comments. They also do consultation, there eternity of the commissions, they will consolidate and in that also. And based on all the inputs, commission will take a view on that. .

If the view of the commission is that we should go ahead with the supplies, then draft regulations will have to be prepared. And then the drop regulations, they will also indicate why they are going -- why they intend to go ahead with cable. The statement of regions also will be there. And then they will invite comment on that. After the comment on that they will then, again, see whether they want to go the coin if they want to do the open, they will issue the final regulations.

And then the activity for implementation of coupling will start -- so the process of finalization of regulation itself may take 1 year time. And after that, implementation of coupling is getting a software, customizing the software for the Indian conditions, putting in place at the clearing and settlement mechanism. So all those things -- I mean, it might take anything between 1.5 to 2 years' time for implementing coupling after that.

[Operator]

The next question is from the line of Mr. Sumit Kishore from Axis Capital Limited.

[Sumit Kishore, analyst]

My first question is in relation to the long-duration contracts. What is the total volume handled by IEX and NDC in the second quarter -- in the first half of the year. And what is the market share confirmation in NBC and how much does IEX expect?

[Satyanarayan Goel, executive]

So in first half, total volume done in LPC is 3.6 billion units. But if we talk about specific months, it was more in September where we did more than 1 billion units. And October, it is more than -- it is about 1.1 billion. So it started on a smaller node. And if you look back, last year, total volume done in LTC was 1.4 billion. So as compared to 1.4 billion we have done in the first half is well 3.6 billion and a lot of traction is there.

These distribution companies are finding it very attractive to source power through LPG contracts, and we are seeing a lot of transactions are happening. Where are we have obliged more than 300 options in this particular segment. And wherever rates were suitable distribution company went ahead and sourced this power.

So started on a little store, but not picking up very fast.

[Sumit Kishore, analyst]

Okay. And -- so what would be IEX share. So in first half, you've done 3.6 billion units? How much was the total LDC-treated?

[Satyanarayan Goel, executive]

Total number is not readily handy with me, but our share was close to 60% in case of contracts. I'd say, close to 7 billion units was all done in the IDC contracts.

[Sumit Kishore, analyst]

My next question is that you have been seeing a high demand environment, although there has been leading a surprising strains since the high discovery has been INR 6. So -- and the exchange have not been able to gain market share.

Market share hasn't moved towards bilateral. So would like to comment on how the medium-term situation will evolve because India seems to be headed into a situation where we could have tight liquidity continue? Or is that around the pursuit.

[Satyanarayan Goel, executive]

So see, our reading is the situation that we are seeing where there is a huge supply side constraint with is temporary. What we have seen is in the last 3, 4 months, there is a lot of softening in the prices, particularly coal as well as gas. And because of that, improve there is some improvement in the liquidity.

Demand increased in a couple -- some months was more than expected. So that has taken away whatever additional supply was brought in the market. But going forward, we expect that some more capacity is going to get commissioned. There are projections -- it says that 9,000 megawatt capacity will come in next 5 to 6 months.

So this will give us a lot of support and reasonable capacity as the allo continues to getting added in the -- so whatever shortages we are seeing now, specific are we are seeing now will get covered eventually in coming months. And with that situation will only improve, and we expect prices to be in a decent level. So this is our reading of the situation.

And as this will happen, we expect more liquidity or more buyers will start to come on the head and market, which is the most preferred option for any state because we have the price recovery is more efficient. It is the most competitive market share that are available. And we have seen historically prices are lowest at this particular segment.

[Sumit Kishore, analyst]

Sure. And finally, how do you see the share of overall short-term markets moving over the past couple of years. And has it been as per your original assessment changes within the mix have been falling short because of bilateral markets going faster. How do you think that the next couple of years are actually the short-term markets overall and it changes within the short-term market?

[Satyanarayan Goel, executive]

So if you see last 5 years' data, you will find that short-term market is growing very fast. In fact, CAGR growth has been more than 20%. And within the short-term market, exchanges are the ones which have been growing at the fastest pace. So this has been the historical trend. .

There are some aberrations, the point Mr. Goel explained the point that I was sharing because of some uncertainty in availability some increase in the prices, there was a small shift that happens within from exchange to bilateral market. We have seen that in quarter 1, this ship was there -- but as the stability will come as the situation will stabilize, which it has already started with the increase in gold production with increase in more generation getting on board.

We expect, again, the things would be aligned bank exchange would be the fastest-growing segment within the market. But 1 more point here is, since no long-term PPAs are being signed today, not only distribution companies are not taking now many generators are also not interested to lock their power under long-term PPAs.

So which means that going forward, there would be this merchant capacity, which is selling now will not go away and more capacity will come in terms of distribution companies getting more power under the long-term PPA, which are the plants which are going to get commissioned together, this will create more liquidity on the sell-side, which will help exchange market to grow.

[Operator]

The next question is from the line of Vikas Jain from Financial Quotient.

[Vikas Jain, analyst]

And many thanks for the detailed summarization of what we have done at IEX. My first question was on market coupling, but I think that has been answered very fair by the management team. So just wanted to know about the PAT level figures for IGX and IGX for the Q2, if any?

[Satyanarayan Goel, executive]

Yes. For IGX, our profit has been around INR 7.8 crores in second quarter, which is almost about 260% of what we did in the second quarter of last year. The volume growth in case of IGX in the second quarter was significant. ICX, we have not lot. So IPX, we are only doing the development activities at the moment. As of now, there is no revenue, except for the income, which is...

[Vikas Jain, analyst]

Operations might we expect it to get commenced.

[Satyanarayan Goel, executive]

ICX, I think will need some more time because government is also coming out with their trading scheme and there are some changes what we are expecting with respect to and compliant market. So we are analyzing all that, and then we'll launch it after analyzing all these things.

[Vikas Jain, analyst]

Just 1 more clarification, sir. So IEX would have voluntary and involuntary both the credit market bring some to 1 side.

[Satyanarayan Goel, executive]

Voluntary compliance market will be operated by IEX. Basically, that will be a regulated market regulated by CERC. So all CERC regulated exchanges will be able to offer the compliance market of carbon credit. As far as voluntary market is concerned, there is no clarity about that. Our intention is to launch the ICH International Canam exchange for the voluntary market so that we are able to get that voluntary market share. But whether that market also will be regulated or not still the clarity is just to come on that.

[Operator]

The next question is from the line of Arun Selvan from Independent Advisors Private Limited.

[Unknown Analyst]

Can you hear me? Am I audible?

[Satyanarayan Goel, executive]

Yes. Go ahead.

[Unknown Analyst]

I just have a few questions. The first question here is regarding the market share of IEX in the different segments. I believe the slide in the pain presentation which had all these market shares was not given this time. So could you please help with that?

[Satyanarayan Goel, executive]

Okay. What else?

[Unknown Analyst]

Okay. The next question here is -- just 1 question about this relationship between the high-priced power and bilateral trades. So could you please help me understand what is the incentive for the parties to transact in the bilateral market when prices go to double digits on the exchange. Yes, those are my 2 questions.

[Satyanarayan Goel, executive]

Anything else?

[Unknown Analyst]

No, not as of now.

[Satyanarayan Goel, executive]

Okay. So let me tell you about the market share. And in the collective transactions, which is our Day Ahead market and the market our market share continues to be almost about 99.9%. Long duration contracts, which are daily, weeky and monthly contracts, our market share is almost about 55%.

And in the contingency market, the market share is close to 40%. And within the implementation of GNA, the BSE volumes, we are expected to go down. So overall market share will improve.

[Unknown Analyst]

And have they gone down in the month of October? The volumes of traded on the BSE versus...

[Satyanarayan Goel, executive]

You are right. You are right that the volumes traded in the month of October have significantly gone down with respect to September. I believe in the month of September, the average daily volume was close to 50, and it was close to 25 in the month of October. And in the month of November, I'm sure what is happening is hardly in the single-digit volumes are happening in the market.

Now the second question was bilateral transactions at market.

[Unknown Analyst]

Right.

[Satyanarayan Goel, executive]

SPAM market transactions will happen mainly when the crisis is there and the coal power plants are not able to meet the demand. So you have to get the power from the gas lift power plants and the cost of general spending something around INR 13, INR 14, INR 15. So we are not seeing much transactions in that market because distribution companies are not willing to buy power at that high price.

But when there is crisis, very high demand there is a tendency on the part of distribution companies to purchase power in the bilateral market, even by paying slightly more premium so that they are assured of power supply. Because on the exchange platform, if they are purchasing power in the Day Ahead market, then they are not very sure whether on that particular deal, they will get the power amount.

So that is why we have seen in the past also, whenever the demand is very high, the bilateral undertones increase. And now for the month of, you can say, November, December, January, February, when the volumes are demand is slightly lower with respect to the summer months, the bullet of financing down.

[Unknown Analyst]

You're saying that when the prices are high, the consumers are not -- the discoms are not willing to purchase on the exchange because there's not certainty that they will receive the electricity. Is that the key?

[Satyanarayan Goel, executive]

See, when the price is high, it means that the demand is high and supply is not commensurate with the demand. So that is a high demand read. And during the high demand year, some of the discoms who are -- who wants to ensure 27*7 supply and who wants purchase power at any cost they would pay a premium or market price and purchase power in that bilateral transaction.

[Unknown Analyst]

So the only question, 1 thing there is, is there a material difference between the high power, the high-price segment which we've launched recently and the bilateral market, is there a difference in terms of the availability of power versus the ease of convenience, the transaction charges I'm just trying to understand in what way is the bilateral market better than the exchange market? .

[Satyanarayan Goel, executive]

See the poing is -- let me clarify 1 thing. That on the exchange platform, we have also beta contracts. These contracts are for weekly, monthly basis for delivery of power up to 3 months. But in all these contracts, the selling prices can If somebody wants to buy power. It is not able to get power within that. If we want to buy gas based power, then we will have to go to the market.

Whereas in the bilateral transactions. Even the coal power plant domestic voltage power plants also supply power and the rate would be INR 7, INR 8, INR 9. So bilateral transactions, there is no segregation of actually a DAN market high-price market on the normal market.

[Operator]

The next question is from the line of Viraj Mithani from Jupiter Financial.

[Unknown Analyst]

I have 3 questions. My first question is on carbon exchange. When you talk about the international trading on the carbon exchange. What will the benchmark we'd be using? Would it be a credit-based benchmark or the U.S. based? Any thoughts on that?

And can you give more color in terms of the volumes we can attract in days to come since we have signed this and world is going green. That is my first question. My second question is suppose in the is implemented, then what are our plans to mitigate that, how are we getting prepared for that? And my third question is, how do we place against the competition? That's it from my side.

[Satyanarayan Goel, executive]

I'll request my colleague, Mr. Amit Kumar, to respond to this question.

[Amit Kumar, executive]

So that's on the in terms of carbon exchange, as we mentioned that we intend to operate it in the voluntary carbon market. And the way in the voluntary carbon market to trade happens in that there are global registries, which are available, like Vera gold standard, which basically registered projects and with 35 projects for sensor carbon credits.

And those carbon credits, which get issued by these global logistics there are gold standard and there are a few other industries as well. They are basically then eligible for trading in the voluntary carbon market. So basically, once we commence our operations, we will have integration with these registries so that the project developers whose projects are registered for trade issuance they will be able to list those credits for our platform and the buyers who want to buy these carbon credits to do offset they will come and buy these credits from our exchange platform. So that is how we basically the voluntary carbon market of pace, and that is what we intend to tap in from an international perspective.

[Unknown Analyst]

What is the benchmark -- that would be based on certain benchmark, right, either by for the U.S. or India or something?

[Amit Kumar, executive]

The registries for different projects they have the methodologies defined. So like for projects where are we as a methodologies defined, the project projects that meets the requirements of the methodologies that are defined within RERA, those projects, once they apply for registrations, RERA will approve this project. So each registry for the different because carbon commodity -- so there are different factors like you have nature-based carbon credit, coock there is a set of technology that we ministry will define. Now project for it to be accepted for approval of credit issues, they have to be aligned with the metrology that risk is defined. So that is how basically we take instruments and the project appliable work in the carbon market.

[Unknown Analyst]

There 2 questions are.

[Amit Kumar, executive]

Can you speak the question, please?

[Unknown Analyst]

My next question is in the coupling is in bad, how are we prepared to mitigate that issue?

[Satyanarayan Goel, executive]

Yes. First of all, implementation of coupling itself is no view has been taken by the CERC so far. And we don't think, based on our interactions that coupling is going to get implemented. In native -- and then I respect your question, is couple is implemented. We are already working on the different strategies to create a strong customer connect. And you must have seen that in the last 2, 3 years, we have done a lot of development on our technology platform also.

We have a strong integration with our customers through the API system and we are also providing value-added services to our customers. The data dynamics which we are providing. I think all these things are giving a lot of value to the customers. And relationship which we have built with the customers over the last 15 years. I'm sure with all that, we should be able to maintain our market share.

[Unknown Analyst]

And sir, how would we place against the competition? I guess we are the largest exchange so far, right? .

[Satyanarayan Goel, executive]

Yes.

[Unknown Analyst]

Okay. And how are we pleased we are the competitor gaining more ground again. So we are still performing better than them. If you can give some light on that call.

[Satyanarayan Goel, executive]

As the collective transactions are concerned, which are the collective transactions in any exchange platform, which is the Day Ahead Market and real-time market in these 2 segments, our market share is 99.9%.

And if you look at the volume in these 2 segments is almost about 75% of the total volume accepting of exchange platform. So this 75% volume, our market share is 100%, if I'm a -- so rest of the 25%, which is consisting of DSP market, SAM market, specificate markets, all these things, our market share is close to 40%, 45%. So you can say, as of now, our market share is about 85%, 86%. But going forward, it should improve further.

[Operator]

The next question is from the line of Devesh Agarwal from IIFL Securities.

[Devesh Agarwal, analyst]

my question is around the supply side. You did mention that the supply is going ahead. So I just wanted to understand business in terms of what is giving you the comfort. And secondly, given that we will be entering the election in the election won't SCD wanting to sign short-term dilating contracts to ensure that the supply is impact during this election period.

[Satyanarayan Goel, executive]

Yes. I mean, liquidity as of now in the market is very good. We are getting every day close to 300-plus an on the sell side, whereas demand is only for about [indiscernible] And so there is no sale available than that by requirement. And I'm sure this situation is going to continue for the next 3, 4 months.

From March onwards when the election fever catch up some of the discounts may get into a little more who are politically because this is a very politically sensitive issue. So it's very difficult to make any comment on that. But yes, some of the discounts may get into contract also.

[Amit Kumar, executive]

Again as 1 to buy power for up to 3 months now. And going forward, we will launch up to 11 months also since GNA has been implemented and short term contracts can be -- are allowed to be -- can be done up to 11 months, so we will get approval, and we will launch also.

So we are also gearing up for this. We also understand there would be some tendency among some of the distribution companies to source power under bilateral. And since we have offering now earlier days, we had only TAM, which was up to 11 days. So situation is a little different, and we are getting up to operate with other bilateral contracts.

[Devesh Agarwal, analyst]

Right. you did mention that in the market in the first half you did 3.6 billion units. So if you were to divide this in 1 month or 3-month contact, where have you seen most of the here is the concentration of volume? Is it in like a 10-day, 15-day contacts or 1 month or 3 months?

[Rohit Bajaj, executive]

So today, the concentration is up to 1 month. But recently or lately, I would say we have started seeing some activity in the second month also. So if I talk about H1, it was majorly first month -- but now some transactions are happening for December, January also, which means that it has extended to second also. And going forward, it can be -- we will add some more months. It would be third fourth and hence...

[Devesh Agarwal, analyst]

And by when do you intend to increase the now?

[Amit Kumar, executive]

Sorry, again?

[Satyanarayan Goel, executive]

When we file our tradition CERC in the next 10, 15 days for offering long duration contracts for delivery up to 11 months. And CERC normally takes about 2 months' time to approve that. So hopefully, by end of December, we should have approval and from 1st of January, this will be able to launch this contract for delivery up to 11 months.

[Devesh Agarwal, analyst]

Understood. And sir, any recent bilateral agreement that are being signed, if you can do some sense in terms of what is the price that is being discovered in the bilateral market versus the price that we see on the exchange platform.

[Satyanarayan Goel, executive]

So 1 thing is prices in the bilateral contracts are definitely more than the prices on our DAM market, DAM or RTM market. So that is why people only go to the bilateral contract when there is a price and they want to ensure availability of our any costs.

There are many instances where distribution companies purchase power in the volatile market at a higher price. And on a real-time basis, because of the seasonal variations, the demand in that particular case of lower and they ended up selling power on the exchange platform at a lower price. Bought at a higher price in the bilateral and sold at a lower price in the Day Ahead market or market.

So distribution companies are also realizing it now that too much of reliance on the bilateral market is not desirable. And they are contracting maybe certain medium content based on their demand and supply product terms.

[Devesh Agarwal, analyst]

Right. And the final question from my taste dollar has tended the action level until June 2024 does this scenario in any way help or hurt us in terms of volume.

[Satyanarayan Goel, executive]

See, Section 11 extension up to June 2024 will definitely ensure the increased availability of power in the market. And if there is an increased availability of power in the market and the desperate situation will not be there.

[Rohit Bajaj, executive]

It is good for the sector. It is good for exchanges because overall liquidity on the sell-side would improve and we would be able -- together all of us would be able to meet the demand.

[Operator]

The next question is from the line of Mr. Nikhil Abhyankar from ICICI Securities.

[Nikhil Abhyankar, analyst]

Sir, can you brief us on what product additions are we looking at in the next 6 to 12 months?

[Satyanarayan Goel, executive]

In the last 2 years, we have added many products and we did RTM market, and we launched green market, green term, green dam, now and TAM set also was introduced in the month of October. And now we are going for the long resin contract for delivery of 11 months, that is our safety in the next 2, 3 months' time.

So I don't think we can add new products every 2 months. There is a limit to that. Only thing is whatever the new products were introduced, we have to bring more liquidity in those products -- so we are working in the market to bring like green market. Green products, green diamond, green TAM markets, there, the volumes are still not significant.

I mean I think combined volume in a year is almost about 8 to 9 So we have to bring more liquidity in the green market. A lot of activities are happening in that. So we are working with the generators. We are working with the state also how to bring more liquidity in this.

The government also, we are doing the policy with the government has allowed that generators can -- I mean, you can purchase up to 5% of the power in a contract to meet your commitment from the grain market. all this and they are also working on the CFD contracts for the green market. Virtual power purchase agreements are also now becoming popular. So all these initiatives are being taken to bring more to put in these markets.

[Nikhil Abhyankar, analyst]

Okay. Anything around power derivatives?

[Satyanarayan Goel, executive]

Pardon?

[Nikhil Abhyankar, analyst]

Power derivatives, electricity derivatives.

[Satyanarayan Goel, executive]

Power deliveries will be launched on the exchanges, which are regulated by SEBI. That in NSE or BSE. So there is a committee which is working on this. And I think they are still not come to a conclusion of launching derivatives at this stage because volatility in the market is too high at the moment.

[Nikhil Abhyankar, analyst]

And sir, you mentioned that LDC volumes are higher in the past 3, 4 months. And once we get the approval NBC for 11 months. Can we expect a large part of the bilateral contracts will soft us? .

[Satyanarayan Goel, executive]

Sure. That is our efforts. That is the intent which we are going to offer these contracts and our interactions with will start impacting the distribution companies and generating companies to -- and ensure their participation in those contracts.

[Nikhil Abhyankar, analyst]

Okay. And sir, final question, we have around INR 1,400 crores of cash on our balance sheet, investments and cash -- so can we expect more buybacks going out?

[Satyanarayan Goel, executive]

We will take a call on that whether a buyback or dividend when we have a policy of rewarding our shareholders, and we gave almost more than 50% of the profit in the form of dividend or buyback. So we'll continue to do that.

[Operator]

[Operator Instructions] The next question is from the line of Jateen Doshi from Axis Capital.

[Jateen Doshi, analyst]

My first question is on E-certificates. So the cycle 2 is it over in October because we are seeing volumes coming off significantly. So we expect this cycle over for this year then we expect...

[Satyanarayan Goel, executive]

Cycle 2 is over now. And we have to now wait for cycle 3.

[Jateen Doshi, analyst]

And that will be in the next 3 years, right?

[Satyanarayan Goel, executive]

Depends on when notifies that. Yes, we are expecting next year.

[Jateen Doshi, analyst]

Next year, okay. And sir, on the figure on to You said volumes in October is almost 1.7 billion.

[Satyanarayan Goel, executive]

Yes, yes.

[Operator]

the next question is from the line of Amey Kulkarni from Candor Investing.

[Amey Kulkarni, analyst]

I had a couple of questions. We have the proportion for gross bidding, and we are also committed. We have seen sometimes able to total. Is there any rethinking update on this issue? And what is the progress with the system operator on the back -- and a couple of -- just 1 or 2 more questions. Is there any update on the renewable contract by using the site price, which we call a contract for the.

[Satyanarayan Goel, executive]

The upfront is on the gross bidding Gross bidding is basically optimization by distribution company. And this concept is more relevant when the prices are competitive in the range of maybe INR 3.5 to INR 4. But since for the last 2 years, our prices have been around INR 5 there is not a significant opportunity for gross bidding at the moment.

In any case, the new G&A regulations and transmission started, which have been issued by the CERC now. Under both regulations -- now gross bidding, it can be implemented. You don't hear any separate approval of the cost setting. It can be implemented by the distribution company very effectively and many of the distribution companies are already doing it.

See, there is no extra payment to be made by a distribution company for the sale of power So a distribution company has got a PPA with a generating company -- and under the PPA, they have power available, they don't need the power. They can schedule that power and -- schedule the power in the morning hours, submit bid on the exchange platform based on the variable cost of that.

If the power is cleared, they can continue with the title. And if the power is not cleared, they can revise the silent on the lower price. So all these flexibilities are there. There are no transmission charges to be paid for sale of power and no losses are accounted for that. So that flexibility that we were looking for in under the gross billing petition that has been already provided by CRC in the G&A and trade code, all these new regulations, which have been implemented now.

And we find there are states like Punjab, MP, Haryana, Maharashtra many of these states are submitting bids for power and sellout power both. And that is basically with the intent of optimization on in their power costs. So we are working with the states now that how can they use the G&A provisions effectively implement -- I mean, not in gross bidding you can optimize your cost now which was the intent of the gross bidding.

Second question was on the gas system operator. Yes. I mean, government, in fact, had mentioned in many of the forms that they are going to create gas system operators. But as of now, nothing has happened much on that. And your third question was about Q3? Yes. PSB contracts, yes, I mean, this issue is under discussion, which is, in fact, I will say that final case of approval -- but only they are looking at taking a view that if at all there is a gap in the contracted side and the marketplace price, how to fund that -- so once they decide about that, they will approve that contract. Otherwise, our modalities are already discussed and finalized.

[Amey Kulkarni, analyst]

So just 1 last point. The distribution companies went buy under the ABC contract, the long duration contracts. Suppose the 11 months, do the distribution company needs approval from the regulator for the price discovered in these contracts? Because they are putting extreme regulatory approval is not required.

[Satyanarayan Goel, executive]

Yes. For the LDC contracts, they normally take approval from their respective state regulatory commissions.

[Amey Kulkarni, analyst]

Before bidding.

[Satyanarayan Goel, executive]

In many of the states, they have given a certain limit up to this price like a distribution company can purchase the power. But if the price is more than that they can take the approval and do such approvals to take much time. Regulators are also aware about the market connection.

[Operator]

The next question is from the line of Dhruv Muchhal from HDFC Asset Management Company.

[Dhruv Muchhal, analyst]

Just 1 question. Somebody buyer is buying from the hearing exchange grain products. Does he have to pay transmission charges or that is also way for you...

[Satyanarayan Goel, executive]

As per the new GNA admissions, sellers, whether they are from green plant or whether they are from the coal-based power plant, no seller is required to pay any transmission charges.

[Dhruv Muchhal, analyst]

And sir buyer?

[Satyanarayan Goel, executive]

Transmission charges are to be paid by the buyer only. In case of green power product projects commissioned up to 2025, given the caption general for the buy also paid by buyer.

[Dhruv Muchhal, analyst]

For projects, but -- okay, sorry. But the buyer is only say, for example, some third-party somebody I'm trying to understand if somebody is selling in the merchant market then. So green market would be merchant market that way?

[Satyanarayan Goel, executive]

No, I think it is for that projects which are on the PPA move.

[Dhruv Muchhal, analyst]

Okay. So for the product for the green products that we have, the buyer has to pay transmission for that. The transmissions are exempted for the volumes that you do on exchanges.

[Satyanarayan Goel, executive]

So for exchanges also, it is exempted, but the problem is it is not yet implemented. We expect going forward, very soon, this will be implemented and then it will be raised off. To begin with, it is easier to implement that for bilateral contracts through exchanges also a little difficult for collection, but eventually entice months to come, it should get implemented.

[Dhruv Muchhal, analyst]

So it's a clarification which probably or some modification that we're seeking and what that happens with.

[Satyanarayan Goel, executive]

Absolutely.

[Operator]

We would take that as our last question. I would now like to hand the conference over to the management for closing comments.

[Satyanarayan Goel, executive]

Thank you, friends. I would like to thank each 1 of you for being part of today's call. During the quarter, we have witnessed a lot of initiatives sign-off by the government and the regulators towards creating a favorable policy and regulatory environment to transform the energy sectors.

We remain committed in doing our bit towards building a sustainable and efficient energy futures. Have a great evening. Thank you very much, and happy Diwali.

[Operator]

On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.