Multi Commodity Exchange of India Limited (MCX) Q4 FY22 Earnings Concall Transcript

Multi Commodity Exchange of India Limited (NSE: MCX) Q4 FY22 Earnings Concall dated May. 17, 2022

Corporate Participants:

P.S. Reddy — Managing Director and Chief Executive Officer

Satyajeet Bolar — Chief Financial Officer

Analysts:

Mohit Kumar — DAM Capital — Analyst

Devansh Nigotia — SIMPL — Analyst

Saket Kapoor — Kapoor and Company — Analyst

Sanketh Godha — Spark Capital Advisors — Analyst

Ravin Kurwa — ICICI Securities — Analyst

Prem Patel — DAM Capital Advisors — Analyst

Aditya Chheda — InCred AMC — Analyst

Amit Chandra — HDFC Securities — Analyst

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Pritesh Chheda — Lucky Investment Managers — Analyst

Abhijeet Vora — Sundaram Mutual Fund — Analyst

Sameer Dalal — Natverlal & Sons Stockbrokers — Analyst

Siddarth S — — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Multi Commodity Exchange of India Limited Q4 FY22 Earnings Conference Call. We have with us on the call Mr. P.S. Reddy, Managing Director and Chief Executive Officer; Mr. Manoj Jain, Chief Operating Officer; Mr. Satyajeet Bolar, Chief Financial Officer; Mr. Praveen DG, Head, Investor Relations.

[Operator Instructions] I now hand the conference over to Mr. P.S. Reddy, Managing Director and Chief Executive Officer. Thank you, and over to you, sir.

P.S. Reddy — Managing Director and Chief Executive Officer

Yeah, good evening all the analysts and investors participating through this analyst call. Welcome to the FY22 results. I’m happy to present and you’ve seen the results, thanks to the options contracts which have picked up substantially and we have been able to to recover substantially in terms of the operating income. While the futures continue to do about INR25,000 crores and I can tell you this about FY21-22, we have 26,178 crores ADT and options average is — average for the entire year is INR7,860 crores, but for the Q4, it is INR15,065 crores. So that is the kind of difference, so that is the pickup for that we have done. In any case, we started charging from the third quarter onwards. So the third quarter we had options turnover of INR8,600 crores and in the Q4 we have INR15,000 crores, that’s how we have got a good mileage in these contracts.

And we have also launched, probably you are aware that option on energy futures. So that is also doing fairly well and that has done very good volume. For example, it has done a volume of INR6,608 — INR6,616 crores a day — no, I’m sorry, INR1,168 crores; INR1,168 crores. So it’s still doing well. And as we are speaking, in fact in the month of April, it has done an average daily turnover in — on options notional turnover of INR3,445 crores. So it’s increasing and we have got some more contracts approval especially gold options on a — monthly options expires on a bimonthly underlying futures, so that the premium value can be brought down because the tenure of the options contract is brought down. So we will be introducing such contracts also.

This is by and large about the turnover. When it comes to be total clients, we have marginally improved. Last year we had 4,66,577 UCCs. This year we had 4,70,000 or 4,71,000 UCCs. That is the kind of a marginal improvement. I’m not saying it’s a major improvement. So that is something which we have issued this year, both options and futures together. But the many have moved to be options contract. There is a huge jump in the sense it is — earlier it was 42,500 in options UCCs, last year and the year ’21-’22, we had 1,72,924 UCCs that have done. That is a very good — very good traction that we have seen. Consequently, even the volumes also have improved.

Another important thing is that we used to tell that the option potential — revenue potential is equivalent to one-third of the options value — one-third of the options notional value is equal to the futures contract — futures volume. So in fact it is now in terms of — based on the past data whatever revenues we’ve done, it’s about 40%, not 33%. So that is another — it has improved also our revenues to that extent far better than what we anticipated.

In terms of concentration of members, I think it remained by and large the same, top 10 accounts for about 62.65 and in terms of algo, we have about 48% algo. Of course, last year it was 41%. Now it is 48%, some international play, one — two members have joined but one has been very active last year, somewhere in the middle of last year they joined. That is one good development. These are the trends in our business and mobile trading, of course it got reduced because the COVID is subsided and, as I said last year ’21-’22 — I’m sorry, ’20-’21 it was 27% mobile trading and whereas in ’21-’22 it is 21%. So that is the — that is the development.

So with these numbers, I think I will ask — I will leave the floor open for question-answers.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Mohit Kumar from DAM Capital. Please go ahead.

Mohit Kumar — DAM Capital — Analyst

Yeah, good afternoon, sir. Congratulations on good set of numbers. Especially, sir, can you just give us the breakup within [Indecipherable] for options and futures, and also the annual [Indecipherable] fees for the quarter and for the year?

P.S. Reddy — Managing Director and Chief Executive Officer

Yeah, Mr. Bolar?

Satyajeet Bolar — Chief Financial Officer

See, our sort of annual — we are going around INR32 crores as transaction charges from options. But — and around INR3 crores as membership fees on an annual basis. The rest is futures — transaction charges on futures. So the main income that we have — am I audible please?

Mohit Kumar — DAM Capital — Analyst

Yes.

Satyajeet Bolar — Chief Financial Officer

The — our operational income consists of mainly transaction charges which I said INR30 crores — INR32 crores was from options, around INR3 crores has come from membership fees. Also we have data fees. This year we have gone around INR5 crores on data fees. Balance is mainly of —

Mohit Kumar — DAM Capital — Analyst

For the year?

Satyajeet Bolar — Chief Financial Officer

Yeah, for the whole year.

Mohit Kumar — DAM Capital — Analyst

Is it possible to give the breakup for the quarter, sir?

Satyajeet Bolar — Chief Financial Officer

Yeah, I will give. For the quarter, the options was INR20 crores — INR22 crores to be precise. And then we also have membership which is a bit less than INR1 crore and data fees also, which is a more than INR1 crore.

Mohit Kumar — DAM Capital — Analyst

Understood, sir. Secondly, sir, what is the timeline for introducing gold spot exchange and electricity derivatives in your opinion?

P.S. Reddy — Managing Director and Chief Executive Officer

Yeah, I think coming back to the electricity derivatives, I think we have been doing a lot of rounds of what to call discussions and etc. The — now that there is a cap imposed on the spot — in the spot market on the electricity prices where INR12 has been imposed on — for every kilowatt hour and that is a big challenge at this point in time. But nonetheless we are — we are seeking the government especially the regulators, both the regulators, CERC and SEBI, to approve it at the earliest. So this is — they have to approve the contract, then only we can launch it. But as I said, we have submitted and more than in the year ago our contract specifications for approval. This is one part of it.

On the gold spot exchange, probably the GST issues have to be resolved. So that’s why even other exchanges have not moved forward. But as far as MCX is concerned, this gold spot exchange contract, it will be delivered maybe little later in terms of technology platform, a little later than our CDP project goes live sometime in late August or early September. So that is the status at this point in time, but without GST issue being resolved I don’t think it will take off at this point in time.

Mohit Kumar — DAM Capital — Analyst

Sir, one bookkeeping question, why depreciation is low in the quarter?

Satyajeet Bolar — Chief Financial Officer

Yeah. So we had a — when we, as I mentioned earlier that you know there are certain assets that we — when we started the year, we thought that we would not be able to use it post September ’22. So we had a relook at this because a lot of high-end servers that we had procured over a period of time, which still have a useful life, so we revalued — I mean, we reexamined it and we realized that usage could — we could still use it post September ’22 for other purposes, for other activities. Therefore we reworked the useful lives and accordingly the depreciation for the quarter has been — has reduced marginally.

Mohit Kumar — DAM Capital — Analyst

Understood, sir. Thank you and best of luck, sir. Thank you.

Satyajeet Bolar — Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Devansh Nigotia from SIMPL. Please go ahead.

Devansh Nigotia — SIMPL — Analyst

Yeah, my question has been answered. Thank you.

Operator

Thank you. The next question is from the line of Saket Kapoor from Kapoor and Company. Please go ahead.

Saket Kapoor — Kapoor and Company — Analyst

Yeah, [Foreign Speech] sir, and thank you for this opportunity. Sir, if you could throw some more color on the software support charges and the product license fees, what is the fixed part and how much is the variable part in this year?

P.S. Reddy — Managing Director and Chief Executive Officer

Which one you’re talking about?

Saket Kapoor — Kapoor and Company — Analyst

Line item 4b, software support charges and product license fees of INR18 crore. We have seen an incremental INR3 crore increase quarter-on-quarter and also year-on-year. So if you could explain the breakup of the same and what is the fixed part on a quarterly basis and how much is variable?

Satyajeet Bolar — Chief Financial Officer

There are two components to this, one is what we pay to 63 Moon, right? So there is a fixed component as well a variable component, right? So the fixed component is INR1.2 crores and the variable is —

Saket Kapoor — Kapoor and Company — Analyst

INR1.2 crores per month?

Satyajeet Bolar — Chief Financial Officer

Per month, yeah, per month, okay? And the variable is on — based on our turnover. So during the quarter, it includes transaction charges on futures and options. So obviously since we had good volumes in options, we had to — as per the agreement we shared a part of it with 63 Moon. Also, we — also have in the product license, we also pay — we have an agreement with CME, which is a calendar year agreement. So, from — okay? And for the quarter ended March, there were — we had good volumes in energy products. So we had to make a provision of around INR90 lakhs for the quarter, which will be payable. This is only a provision. So as we go along for the entire calendar year, we will get an idea in December whether there is anything that we have to pay in addition to the minimum commitment charges to CME.

Saket Kapoor — Kapoor and Company — Analyst

So, INR1.25 crore is the monthly figure towards — which is to be paid, I mean, INR15 crore annually is the fixed part and others are variable?

Satyajeet Bolar — Chief Financial Officer

No, this INR15 crores may be for the 63 Moon software.

Saket Kapoor — Kapoor and Company — Analyst

63 Moon software, yes.

Satyajeet Bolar — Chief Financial Officer

Yeah. And there is another with the CME, okay? That is also up to certain amount, it is a fixed and beyond that, based on the revenue we earn on these contracts, you have to pay. Now the third component is the variable pay to 63 Moons. So — because the last quarter was good, so we had to pay extra.

Saket Kapoor — Kapoor and Company — Analyst

Okay. And sir, if we look at the other expense items, sir, what constitute this INR11.5 crore. What are the key components to it?

Satyajeet Bolar — Chief Financial Officer

Yeah. See, one is — just hold on, I’ll tell you. One is we have our administrative expenses. We also have traveling, advertisement, all professional fees, all that.

Saket Kapoor — Kapoor and Company — Analyst

Right. Sir, now coming to this income part of these statements, sir, currently, sir, what are the current growth trigger for the — for our line of business that we are pursuing and that may fruitify going forward. And sir, you mentioned about this UCC part. It is a unique client code I think so that stands for UCC.

P.S. Reddy — Managing Director and Chief Executive Officer

That’s right.

Saket Kapoor — Kapoor and Company — Analyst

So, sir, how many — what quantum are active UCC, sir, if if you could give some more —

P.S. Reddy — Managing Director and Chief Executive Officer

What I said is active only, who have traded in this year.

Saket Kapoor — Kapoor and Company — Analyst

Okay, sir. And about the growth trigger part, sir, what are the steps the organization is taking to improve the business volume and thereby the profitability? And I have a couple of two more questions and then I’ll join the queue.

P.S. Reddy — Managing Director and Chief Executive Officer

One is that the option contracts we are aggressively pursuing it and that is one thing. We would like the market to support us, which they have been doing it, especially the margins have reduced in the case of options. It impacts less as against the futures contract where there is a peak margin etc. there. And when it comes to be — this is one. The new products that we propose to introduce is the another growth driver that we are looking at. As I said, we have received approval for gold options, one, on one kilo bar where the underlying futures is there, bimonthly contract. In fact as I’m speaking today, our gold on 100 grams, in fact it has come — it has — options has hit the highest ever turnover, which was launched recently, not long ago. So, the contracts are doing well and we hope we will be able to get good traction on the new contracts as well as we go forward and launch.

Saket Kapoor — Kapoor and Company — Analyst

Right. Sir, just for an understanding, coking coal prices have been haywire for the last couple of quarters. So do we have any product related to the coking coal futures or are we contemplating anything to replicate the same in terms of actual buyers also hedging and also for the pet litter community?

P.S. Reddy — Managing Director and Chief Executive Officer

We have no products on coal at this point in time. We have a coal spot exchange proposal and we are actively considering that at this point in time. No further steps have been taken, but we are engaging with the industry, government etc. You must have seen recently government has given license on PP — public-private partnership basis, about coal — 20 coal mines, which are closed or abandoned because — and I mean with the condition that they can sell — they can exploit the coal and then sell it in the open market and a part of the revenue sharing, based on the revenue-sharing. So there are opportunities coming up and there are about 110 coal mines are still lying.

That’s what recently the government has announced which I was participating. So we are keen that is one space we should attend. But as far as SEBI is concerned, they are not keen to introduce any cash-settled contracts. So coal being coal, I mean we cannot introduce — I mean the delivery of this contract because there are some challenges here. If it is a spot, then that’s a different ballgame altogether. So that’s why we are not looking at cash-settled contract although that is ideal.

Saket Kapoor — Kapoor and Company — Analyst

Sir, a small point, what portion of the total turnover that has executed over the exchange are actually used by the hedging community, do we have any breakup of what portion of the entire delivery settled is done through — for the hedging mechanism by the producers?

P.S. Reddy — Managing Director and Chief Executive Officer

It is — in fact we display on the website, for different products, different percentages are there kind of thing. Okay? So you will have for example base metals, cotton and mentha oil, there will be — and gold, these are the products where maximum participation is there. Even in energy and crude, crude is a proxy for some of the glass manufacturing companies, for furnace oil or some of the airline industries, in fact they were using it, airline industry. So, I mean it all varies from product to product.

Saket Kapoor — Kapoor and Company — Analyst

A small one more point, sir. Currently, sir, the offset of income and losses from commodity trading. I think that the offset is not allowed for other investments. And so do we have any presentation to the department of income tax to get this anomaly also improve so that uniform participation can happen because people having income from the commodity I think are not to be set off against the business losses or vice versa. Has this anomaly still prevailing or has that’s been corrected?

P.S. Reddy — Managing Director and Chief Executive Officer

See, CPA, that is Commodity Participant Association of India has been taking up this issue with the government. Under the different sections, they wanted the benefit to be given. And I’m not too sure exactly, I will not be able to comment on that part of it.

Saket Kapoor — Kapoor and Company — Analyst

Okay. So as such it’s status quo only. There is no update on this?

P.S. Reddy — Managing Director and Chief Executive Officer

That’s right.

Saket Kapoor — Kapoor and Company — Analyst

And a small point, sir, the retail community, the H&I part are always looking for this — there is annuity-type of income that is in the form of interest, there they pursue the same through the bond market and other mutual funds. How would be a structured product be created so that the industry — the industries can directly benefit from the — from the retail money and the cost of fund goes down significantly? Earlier there used to be this cash carry forward system, the CFS wherein people used to invest in contract wherein the scam appeared for the National Stock Exchange — NSE, sorry to — I get corrected. So can this — are we contemplating any kind of product wherein the retail savings can be channelized through the electronic medium in creating interest income in the form of the total contract —

P.S. Reddy — Managing Director and Chief Executive Officer

Currently also — currently also, there is a cash and carry arbitrage opportunities are happening, but the problem is here most of these products being delivery-based contracts and the moment you participate in, you become a — you must have a GST, okay? Because when you offload the stock at the next settlement, because there is a arbitrage opportunity, it earns some 12%, 13% return. There are mutual funds participating by the way in the cash and carry arbitrage opportunities, but the problem is for individuals GST registration is a cumbersome thing.

So that is the reason why we have been taking up with the SEBI and government that there should be an alternative mechanism through which these people are not required to go to GST, but then we collect it and then pay and then adjust it both ways, you know, we collect it at the same time, we will also give them the credit through what you call a designated entity kind of model. So when we are trusting us to collect the stamp duty, STT, CTT, whatnot, exchanges are doing all that. So they should trust with this model also. Let us see what will happen, it is before the government.

Saket Kapoor — Kapoor and Company — Analyst

And on the exceptional item part, could you explain the nature of the same. And is — cash flow side, what is — if you could explain this INR20 crore exceptional item?

P.S. Reddy — Managing Director and Chief Executive Officer

See, out of this — yeah, that’s right. There is a dispute going on with a firm, London-based firm on the software development for the spot project, okay? Probably you are all aware because it is there in the notes to accounts, all along. And the party has been very weak financially, okay? Pursuing arbitration is like throwing good money after a bad cost kind of thing. So we have to weigh both cause and effects of it. So we — the code whatever that has been developed would have taken some pending what you call invoices, or we have detailed some few invoices, only so much has been paid and then we have got out of that Singapore arbitration tribunal, it’s pending before that, and so we are out of that.

Now with code has been analyzed by our especially technical team, now they realize that for any even for this code to be reassessed, some use case should be there. So you want to launch a gold spot exchange, okay, then what are the requirements versus what is developed we can assess. Or you want to coal spot exchange, what are the requirement versus that we can analyze whether this application. But at this point in time I don’t have any project agonist, which it can be accessed. So the most conservative approach is to write it off or treat this as an impaired asset. So we treated that as impaired asset.

Now, maybe I don’t know when, it will be in future when there is any usage, then we will see what is the relevant technology, what technology this particular platform has developed and the cost benefit analysis we will do it, then accordingly if it is to be brought back, then we will use the code and then bring it back on records. So that is the way — I mean it’s a conservative approach rather than keep showing on the records that so much is there. And another important thing is the INR20.4 crores or whatever that we have spent, it’s not the entire amount is paid to PESB, that is a very — that is that’s how there is some others are constructing. Actually all put together it’s about INR17.25 crores and the rest of the — is the expenses incurred on the project by MCX itself by engaging — hiring in testers and at the time of — at the time of project implementation. So that’s the way it is. Is it clear?

Saket Kapoor — Kapoor and Company — Analyst

So this is before all clubbed under the property, plant and equipment and therefore it has been reduced from the line item?

P.S. Reddy — Managing Director and Chief Executive Officer

It as capital work under progress.

Satyajeet Bolar — Chief Financial Officer

Under intangible, under development. So it has moved from there.

Operator

Thank you, Mr. Kapoor. May we request that you return to the question queue for follow-up questions. The next question is from the line of Sanketh Godha from Spark Capital Advisors. Please go ahead.

Sanketh Godha — Spark Capital Advisors — Analyst

Yeah, thank you for the opportunity. Sir, nickel and nickel as a contract has been a significant fall in the current year. It’s almost like a 100% fall and it contributed almost 6% to 7% of the total ADTO, futures ADTO. Sir, just wondering any specific reason why nickel’s futures contract have seen a significant fall? That is the first question I had.

P.S. Reddy — Managing Director and Chief Executive Officer

You are aware, on March 7th and 8th, there is a turmoil in the nickel market and the London Metal Exchange had to reverse some trades etc. You are all aware of it. So that has impacted many member brokers on our exchange also, not that they have a position there, but the price hit. And then it went up maybe 1 lakh plus and then it came down subsequently, so there is lot of M2M are been collected, some clients have paid and not paid. But as far as MCX is concerned, these are delivery-based contracts.

We have, what to call, we are not settling our contracts on the LME prices since 2019. So we have not attempted any such kind of arbitrary actions, taken any arbitrary action. So again, we are recouping the member brokers again, trying to bring them back to the counter. So it will take some time. These are all financial matters in that sense and I think we need some more time to bring the — bring back the participants to the counter.

Sanketh Godha — Spark Capital Advisors — Analyst

Okay, sir. So it will take at least couple of quarters for some revival in this particular product, sir?

P.S. Reddy — Managing Director and Chief Executive Officer

I think that’s the way I look at it, unless some other again miracle happens to come back to the counter.

Sanketh Godha — Spark Capital Advisors — Analyst

Got it, sir. Sir, second question was, when I look at the options volumes, though they have picked up sharply and also contributed to the top line, we see that large part of the traction has been only energy contracts, almost 90 — closer to 90% of the total ADTO is coming from energy and especially from crude. So just wondering if volatility in the crude subsides hypothetically, you see the options volumes to struggle or do you think you have counterbalancing effects and maybe gold or something can pick up and therefore options sustainability will be there?

P.S. Reddy — Managing Director and Chief Executive Officer

Well, I have not seen the counterbalancing effect even when the futures were active in crude oil. Okay? And the reason being — and we didn’t find so much of what you call correlation. Okay? It’s come down gradually. Some — it’s not that as strong as it used to be once upon a time, that’s the way I get it. But why the people have moved to the crude oil? There is a natural interest in that product, crude oil. Even earlier also we had in the — futures, we had a great interest. Thanks to the new pricing and the increase in margins in contract, the people have moved away from the counter. Now having the introduced options where you pay one time premium and then keep playing that. So that’s the way it is. So that’s why we did not — the traction is seen.

Sanketh Godha — Spark Capital Advisors — Analyst

So, sir, in simple words it is the structural shift from futures to options, especially with respect to energy contract, that’s the way should we think and therefore there should not be a reason to be worried?

P.S. Reddy — Managing Director and Chief Executive Officer

That’s right, that’s right. Of course, [Indecipherable] always contributes, no doubt about it, but it’s not that the moment volatility disappears, the contract will come to a naught. My answer is no.

Sanketh Godha — Spark Capital Advisors — Analyst

Got it, sir; got it. And second, sir, you said bimonthly expiries will be introduced, it could improve the ADTOs in the options market, but honestly sir that given the time period will be reduced, so the premium amount what you’ll collect will also come off. And therefore, the option turnover might not increase even if the notional turnovers doubles because premium will half — almost closer to get halved because of that figure. Do you think it is introduction of bimonthly expiries will improve volumes especially in gold, which has not picked up and therefore revenue can accrete or it is more not a revenue accretion exercise, basically just wanted to understand your —

P.S. Reddy — Managing Director and Chief Executive Officer

I understand. In fact the more the number of expiries in options, the more the liquidity gets created. That’s why weekly options are better than monthly options, monthly options are better than bimonthly options. At this point in time we have bimonthly options. Okay? And so, we are moving over to monthly options so that volumes will increase, although option premium will come down, but the volume will see a big rise, that’s the way it is and we are not discontinuing bimonthly options anyway, that will continue parallelly, but we are introducing this new product. And there the — since the premium is relatively less and people will not be able to take a view of bimonthly, probably they prefer this monthly.

Operator

Thank you. Mr. Godha, may we request that you return to the question queue for follow-up questions. [Operator Instructions] The next question is from the line of Ravin Kurwa from ICICI Securities, please go ahead.

Ravin Kurwa — ICICI Securities — Analyst

Hi, sir, congratulations on a very good set of numbers. Sir, I had a question related to employee costs. Why it dipped quarter-on-quarter and then increase in the capital work-in-progress? And apart from that, if you can just guide us for the tax rate which will be applicable for FY23 and ’24 and the timeline on TCS?

Satyajeet Bolar — Chief Financial Officer

On the employee cost, if you see the financials, what exactly do you — is it.

Ravin Kurwa — ICICI Securities — Analyst

There is an increase.

Satyajeet Bolar — Chief Financial Officer

Yeah, there is a slight increase because one is we have had senior level recruitment in the past — in — from November onwards. So they have come in. Also there is — so that and if you recollect in April when you compare it with last financial year, we had given an — in 2021, we did not give increments to senior employees while we did give increments to senior employees in ’21-’22. So that is the impact. One is the increment, as well as the senior recruits in ’21-’22. And I just — and the second one was on the tax rate or —

P.S. Reddy — Managing Director and Chief Executive Officer

Yeah. Related to tax.

Ravin Kurwa — ICICI Securities — Analyst

Capital work-in-progress.

Satyajeet Bolar — Chief Financial Officer

Capital work-in-progress, as you are aware, we have started the CDP project. So we have invested substantially in — it would be both intangibles and tangibles, so that’s why there has been an increase in capital work-in-progress, which —

P.S. Reddy — Managing Director and Chief Executive Officer

So as we keep spending it on the project and keep releasing it, it needs — goes under the capital work-in-progress.

Satyajeet Bolar — Chief Financial Officer

We will capitalize it once it goes live in October. The third thing is on the tax rate. I’m glad to tell you that we have fully utilized our MAT credits. We have also fully utilized all the long-term brought forward losses that we had which are registered our long-term capital gain. So the balance that we — the gain that we had after utilizing the total capital losses, we have to be at the nominal rate and going forward we’ll be able to use earlier rate — lower rate of 22%. So going forward, I think we will use — we will be able to use 22% corporately.

Ravin Kurwa — ICICI Securities — Analyst

Okay. And the guideline on [Indecipherable] implementation, the new software, I mean, is it — are we on the timeline to implement it from the H2 of FY23?

P.S. Reddy — Managing Director and Chief Executive Officer

Yeah, that’s what we are targeting and in fact as I’m speaking, yesterday we had a part of the application has been released for mock. And it’s all — the circular is in the public domain. So as we complete some more models, we will be adding to the mock and doing the needful. We are hopeful that we’ll be able to make it.

Ravin Kurwa — ICICI Securities — Analyst

Thank you, sir.

Operator

Thank you. The next question is from the line of Prem Patel from DAM Capital Advisors. Please go ahead.

Prem Patel — DAM Capital Advisors — Analyst

Yeah, thank you for the opportunity. So my question to you is, why is the crude margin still hovering at around 20% to 25%? And do you think that it will come down to the previous levels of like around 5% to 6%?

P.S. Reddy — Managing Director and Chief Executive Officer

Well, 5% to 6%, no way because the initial margin minimum prescribed by SEBI itself is 10%. Okay? So why — can it come down to — from 27% to 10%? It can come down. And as I said in the past, in the previous quarter also I mentioned, SGF is coming in the way of — it’s become a constraint because we have already about INR525 crores SGF we have it. And if you want to lower the margins based on this stress test results, we need to have a higher SGF cover which we don’t have at this point.

Otherwise, we have to contribute from our [Indecipherable]. So some discussions are going on with SEBI with regard to the mortalities for putting in money, taking out of it from the SGF fund. If those things are approved, probably we will be able to contribute to SGF and once the requirement comes down, we’ll be able to withdraw also. So that in and out freedom is what we are looking for. Then we will be able to do that.

Prem Patel — DAM Capital Advisors — Analyst

Okay, thank you. Thanks a lot.

Operator

Thank you. The next question is from the line of Aditya Chheda from InCred AMC. Please go ahead.

Aditya Chheda — InCred AMC — Analyst

Yeah, hi. Ten days ago —

Operator

The line for the current participant has got disconnected. We’ll move on to the next question from the line of Amit Chandra from HDFC Securities, please go ahead.

Amit Chandra — HDFC Securities — Analyst

Yeah, hello? Yes, hi sir. Thanks for the opportunity. Sir, my question is on the options side. So when as you see 90% are still crude and we have introduced like newer contracts in gold, so introduction of newer contracts can actually boost the volumes and can we see similar volumes in gold that we have seen in crude? So that is one. And also what is the timeline for the introduction of the index option contract because index side because index has been a bigger hurdle in terms of approval from the SEBI that we have got. So like what is the timeline for the index options launch and in terms of contract specification as it will be like as subtle, can we see higher volumes in the index option contract? What’s your view on that?

P.S. Reddy — Managing Director and Chief Executive Officer

Sure. In fact we have introduced the energy options sometime in the middle of January, okay? Now with energy options we introduced just this year, I mean this calendar year, January and now as I’m speaking, in the month of April it blocked the options turnover of INR3,400 crores and crude oil INR12,686 crores in the month of April. So, which is almost from 17%, 18%. So — and once we introduce the other option contracts also, gradually it will reduce the what you call the preponderance of crude oil contract, I mean options in this. So we expect this to grow only and we have no problem on that and let us see how the other contracts will do when we introduce it.

Coming back to the — hello?

Amit Chandra — HDFC Securities — Analyst

Yeah, index options timeline.

P.S. Reddy — Managing Director and Chief Executive Officer

Index options, that’s what. Index options, the — with the introduction of — I mean with the debacle in nickel contract, our metal index is not doing at all well because it is — it carries almost a 26% weightage. So it is disrupted that contract. Of course now Bulldex is only doing well and in the case of EnergyDex, obviously the margins and other issues are affecting it, but the — once we revive it, we will be looking at it because first you need a strong underlying contract. If underlying contract is good, then the rest will fly. So I’m not going to — we are not going to launch in a hurry the options on index futures.

Amit Chandra — HDFC Securities — Analyst

Okay. And sir, on the shift of technology that we’re planning by September, so what kind of risks that we are seeing because still we are very close to the timeline now. So if the transfer doesn’t happen or if some more time is required, so is the existing vendor ready to extend say for 3 months, 6 months or it’s a hard stop in September and we have to shift to TCS? So how it is postured?

P.S. Reddy — Managing Director and Chief Executive Officer

As I said, just yesterday we have issued a circular and then people started testing mock, including your company and I think we should be able to do well and it — if we — we will take a view of what to do maybe sometime, maybe in the month of June or something like that, but immediately I’m not going to guess our hazard I guess in this case. That’s the way it is. And we are doing — we are doing — we are moving towards making it live, that’s the way our all energies are focused on.

Operator

Thank you, Mr. Chandra, may we request that you return to the question queue for follow-up questions. Thank you. The next question is from the line of Prayesh Jain from Motilal Oswal Financial Services. Please go ahead.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Yeah, good evening, sir. Congratulations on great set of numbers. Firstly, on the balance sheet side, if I look at other current financial liabilities, they’ve gone up 50%. What would be the reason for that?

Satyajeet Bolar — Chief Financial Officer

See, if you recollect that we have parked all our funds. There are two reasons for this, one is with the Schedule III coming in, so we had accordingly the aging has moved it. Also we had last year around INR250 crores of our funds in tax free bonds, which we have liquidated and we have put it in ultra-short term as well as arbitrage funds which are — in the classification. So that’s why there is some movement in the classification. That’s why the ratio has gone up.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Okay. I will take that offline. But the second question would be on the futures or options which the oil companies are trading today with you guys. Are they — what extent are they hedging their requirement. The question is more whether there is a scope to improve our — is there any regulation that is restricting them to increase their hedging mechanism? Is there any scope to improve that? And extending that point, is there any plans to launch futures or products on spread — product spreads on gasoline or diesel crack spreads?

P.S. Reddy — Managing Director and Chief Executive Officer

At this point in time, the oil marketing companies don’t participate, but most of the — on the consumer side, they look at this contract. That’s the way it is. Okay? Now, when it comes to the spread contracts, at this point in time we are not looking at it because some of them are not permitted in the SEBI list of permitted contracts — I mean, products. And again these are all cash-settled contracts. As I said, SEBI is not keen, regulatory is not keen to permit cash-settled contract.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Okay. Got that. Thank you so much, sir.

Operator

Thank you. The next question is from the line of Pritesh Chheda from Lucky Investment Managers. Please go ahead.

Pritesh Chheda — Lucky Investment Managers — Analyst

Sir, I have three questions. One, what is the extent of institutional partner participation in the total volume? Second, in the cash that we have, cash and investments, ex of broker deposits, what is clear cash balance that we have? And my third question is the tech cost on the replacement of the tech, now what will be your P&L impact and when will it reflect?

P.S. Reddy — Managing Director and Chief Executive Officer

Institutional numbers, I will not be able to completely inform who is doing what. As I told you, the mutual funds are —

Pritesh Chheda — Lucky Investment Managers — Analyst

I want just the institutional participation as a percentage of total volumes.

P.S. Reddy — Managing Director and Chief Executive Officer

That’s what. See, institutions do not contribute to the daily trading. They will contribute to the open interest. They take a position, maintain it and then liquidate it later. So it is a open interest which is important and they are actively participating in gold, silver and crude and some agri products. Okay? This is what it is. And this is one part of it. The other one —

Satyajeet Bolar — Chief Financial Officer

Yes, so I just mentioned, you know the margin that we collect from our members as on March we have around INR540 crores, our own funds I mean, our own net worth is in what we have deployed in cash is around 1000 — INR1040 crores to be precise, okay? So, that is is how it is. Also you had one more on the technology. So as we said, we have mentioned in an earlier call, that once we go live, for the first year we will be under warranty, so we won’t be — there won’t be any charge for our P&L from October ’22 till September ’23, that is the first thing. Okay?

But post that we’d be paying AMC on an annual basis to TCS. There would also be AMCs that we’d be paying on the hardware, which has started kicking in. There may also be some operating software that we take, I mean, in the system, either you purchase a perpetual license or a subscription based license. So, those costs will start kicking in if you’re going in for a subscription based licenses, so post go live, those costs will kick in.

Operator

Thank you. We’ll take the next question from the line of Ravin Kurwa from ICICI Securities, please go ahead.

Ravin Kurwa — ICICI Securities — Analyst

Hi, sir. I had one more question. Sir, there is little work regarding the GST part. So, BSE is going to launch its gold spot exchange. So why are we facing some difficulty on it?

P.S. Reddy — Managing Director and Chief Executive Officer

Okay. See, the — on the spot exchange, the settlements are done using the electronic gold receipts, EGR, and deposits receipts essentially, or gold GDR, gold deposit receipts. Now so far it’s okay because it’s a security. So there is no problem. But somebody has to take the gold and then convert into EDR and then that trading will kick in. But the guy who is the first one depositing it, he has to get his credit back and if gold EDRs are treated as what to call securities and no GST is applicable, when will the first guy get his refund? Maybe when the last guy when he takes out the gold EDR, converts in them into gold and then takes out the metal, at that time he will pay the GST. Till then the first guy cannot wait. Have I made myself clear?

Ravin Kurwa — ICICI Securities — Analyst

Yes, sir. So —

Operator

Thank you. Mr. Kurwa, may we request that you return to the question queue.

P.S. Reddy — Managing Director and Chief Executive Officer

No, no. I think — okay. We should continue, let him —

Ravin Kurwa — ICICI Securities — Analyst

So, sir, even BSEs might see the problem of lower participation in this case?

P.S. Reddy — Managing Director and Chief Executive Officer

Yes, that’s why they have not launched it. There were to launch in maybe last year itself, the — at the time of akshaya tritiya. So, one more akshaya tritiya has gone. So we are — we will not be able to launch unless that problem continues.

Ravin Kurwa — ICICI Securities — Analyst

Got it, sir. Thanks a lot. That was really helpful.

Operator

Thank you. We’ll take the next question from the line of Abhijeet Vora from Sundaram Mutual Fund. Please go ahead.

Abhijeet Vora — Sundaram Mutual Fund — Analyst

Thanks for taking my question. Sir, I have only one question. The employee cost in Q4 versus Q3 has come off. I could not catch the full response, it was hovering around INR21 crores, in Q4 it is INR18 crores, what is the reason?

Satyajeet Bolar — Chief Financial Officer

Which one — which cost?

Abhijeet Vora — Sundaram Mutual Fund — Analyst

Employee cost.

Satyajeet Bolar — Chief Financial Officer

The employee cost, as I said that in during Q3 we have recruited senior officials, part of them have joined during Q3, right? So the main impact has come in Q4, the senior people.

Abhijeet Vora — Sundaram Mutual Fund — Analyst

So — but it has come off, sir, Q4, the number is lower compared to Q3, employee cost.

Satyajeet Bolar — Chief Financial Officer

Okay. We have had — while I said that in Q4 senior people have joined, also there’s been some attrition in our — in the company. So numbers have also dropped.

Abhijeet Vora — Sundaram Mutual Fund — Analyst

Okay. So this INR18 crores is the number we should look at for Q4?

Satyajeet Bolar — Chief Financial Officer

Yes.

Abhijeet Vora — Sundaram Mutual Fund — Analyst

Sure, sir, thank you. That was my only question.

Operator

Thank you. The next question is from the line of Sameer Dalal from Natverlal & Sons Stockbrokers. Please go ahead.

Sameer Dalal — Natverlal & Sons Stockbrokers — Analyst

Yeah, partially you answered the question that you will start the — for the new software from September onwards, you will start — I mean, for the first year, of course there is no fee and then after that you will start. If you can just give us a breakup, how much will be the savings that will come from what we being FT versus what will be the future payments. I want to get the differential, if there is some sort of indication on savings of cost on the software side you can give us?

P.S. Reddy — Managing Director and Chief Executive Officer

See, as I have been saying, we will not be able to disclose as to what is the AMC cost. As I said, it will be a single-digit figure is something which I have been saying it. And in terms of —

Sameer Dalal — Natverlal & Sons Stockbrokers — Analyst

No, no, that — we’ve discussed that. So what I’m trying to say is if you can quantify at least what would be — so you said there are three, four variable costs in the software support charges and all of that, which include certain fees to even a different exchanges and things like that. So —

P.S. Reddy — Managing Director and Chief Executive Officer

No, that’s different; that’s different. Please understand, one is the software is different, product license is different. What we told you is that we have an agreement with Chicago Mercantile Exchange for the purpose of crude oil and the energy. So that is we linked to the volume, subject to fixed pay. Now in the case of TCS contract, there is no fixed pay. There is no variable pay, variable component. So the only — fixed component, no variable company.

Satyajeet Bolar — Chief Financial Officer

I’ll just clarify, from October ’23 we pay a fixed AMC to TCS and that has been fixed, the amount has been frozen for the next five years, right?

Sameer Dalal — Natverlal & Sons Stockbrokers — Analyst

Correct. Sir, I’m just asking what will be the differential, what will be the savings to the company, I’m not asking you how much you will pay TCS. I’m just trying to —

Satyajeet Bolar — Chief Financial Officer

No, I understand, but see presently we pay as I said INR1.3 crore monthly to the present vendor, also a variable. So on an annual basis we pay around INR50 crores to INR55 crores to the present vendor. Okay? Around INR55 crores. But going forward, while we may not be paying this, we will be paying — after October ’23 we will be paying a single-digit to TCS. There may also be other expenses that we will. incur. As I was mentioning, depreciation would be substantial because once you start capitalizing it and if it is around 8 to 10 years, there will be a substantial amount of depreciation. There will also be some subscription costs on for operating systems that we will incur, right? So those will start kicking in.

Sameer Dalal — Natverlal & Sons Stockbrokers — Analyst

So again, I am asking, if there is anyway you can quantify, if there is any savings at all that is coming from this activity or exercise?

P.S. Reddy — Managing Director and Chief Executive Officer

There will be some saving, no doubt about it.

Sameer Dalal — Natverlal & Sons Stockbrokers — Analyst

In the end you cannot quantify that at this point of time?

P.S. Reddy — Managing Director and Chief Executive Officer

Yeah, that’s right, that’s right.

Sameer Dalal — Natverlal & Sons Stockbrokers — Analyst

Okay. Now I guess —

P.S. Reddy — Managing Director and Chief Executive Officer

Maybe once we go live, then probably wherein —

Satyajeet Bolar — Chief Financial Officer

Better visibility.

P.S. Reddy — Managing Director and Chief Executive Officer

Yeah, better visibility.

Sameer Dalal — Natverlal & Sons Stockbrokers — Analyst

Okay. Now you said there was a software development cost upfront fee that you’ll had paid TCS. Has that full amount been paid to TCS yet?

P.S. Reddy — Managing Director and Chief Executive Officer

No, it’s still going on. There are some milestones and accordingly we will pay.

Sameer Dalal — Natverlal & Sons Stockbrokers — Analyst

Sure. And this will be amortized over a period of time or this will be run through the P&L once that development is done?

Satyajeet Bolar — Chief Financial Officer

This is going to be part of the intangible software, the platform that is being developed. So it will be amortized over a period of time.

Sameer Dalal — Natverlal & Sons Stockbrokers — Analyst

It will be amortized, so that is what you were saying it will be the higher cost, also that will be amortized.

Satyajeet Bolar — Chief Financial Officer

Yeah, that’s right. So, we wll have a higher depreciation.

Sameer Dalal — Natverlal & Sons Stockbrokers — Analyst

Correct. But the cash flow will be affected once you go live?

Satyajeet Bolar — Chief Financial Officer

That’s right.

Sameer Dalal — Natverlal & Sons Stockbrokers — Analyst

Okay, thank you very much for the answer.

Operator

Thank you. The next question is from the line of Siddarth S, Individual Investor. Please go ahead.

Siddarth S — — Analyst

Sir, my question is about the impairment of the software that we’ve taken of about INR20 crores. I heard it, you said that currently while you have the code available with you, but you don’t have any use case to compare the same with it. Can you throw some light on it because I would assume that a use case would be developed before developing the software in the first place. That is the first one. And I also wanted to understand how — what was the basis of selecting the software vendor, given that you said that there was not much scope in pursuing the arbitration. Thanks.

P.S. Reddy — Managing Director and Chief Executive Officer

Yeah, sure. When in 2017 and end of ’17 and 2018 when it was shortlisted, RFP was plotted, international competition was invited and there were bids from [Indecipherable], PSB, and NASDAQ, etc. Many have done that. So it is done through the RFP process. And in the RFP various criterias are there, for you financial what to call stability or a kind of track record and every product — technical competency, so different weights are given accordingly. So it has — so it is all based on that, it was shortlisted. Now coming back to the first part of your question, the — there is no use case. At the time when the gold spot exchange was announced, at that time that was the reason why this entire process was initiated in 2017-2018.

Now — but then the gold spot exchange was not launched and the government didn’t do it until now, until recently, until last year. And — but then that was hanging, that proposal. So they went on developing it based on that. So somewhere down the line, the process of execution, the — maybe it was a poor execution and so it didn’t happen as we expected. So today, although we have a gold spot exchange regulations are in place, at the time of TCS RFP when we floated, we said we want additional products spot and currency kind of things we have asked the vendors to submit also. So TCS has been — also been given the gold spot exchange contract. Okay?

So — because it is — we have already developed, we are developing in the CDP project and the substantial piece can be used, so the other project will be in good shape. Of course, we did not have the visibility of this PSB issue because obviously they were disputing and all that. So we do not know what will happen. Of course we did reassess it at that point in time, we checked it and it was coming out to be substantially higher. And — but this is the way the committee has assessed at that point in time. What we — at this point in time other than gold spot exchange, I don’t have any other exchange to launch. So that is the reason why we have taken it. That doesn’t mean it cannot be used in futures. No, I’m not saying that. For the present we are not able to do anything about it.

Siddarth S — — Analyst

Sir, just one follow-up on this. So are you saying that some portion of this could — will be used by TCS to develop the spot exchange or that will be developed completely separately and therefore there will be no use case at least currently for any spot — gold spot exchange?

P.S. Reddy — Managing Director and Chief Executive Officer

No, gold spot exchange will be based on the CDP code that they have already developed or they are developing it. So there is no link between the two. Let’s be very clear, but currently I don’t have any more visibility about any other product. That’s the reason which are, so it’s a very conservative approach so that we have taken in that sense.

Siddarth S — — Analyst

Okay, sir. Sir, lastly on the CDP project, you said you will evaluate the project in June. Sir, any context in terms of —

P.S. Reddy — Managing Director and Chief Executive Officer

Not evaluate, what we are saying whether to take up for any negotiation for any extra AMC, that kind of thing is what they were — somebody was asking the question. So in that context, is what I said. But at this point in time we have already launched what you call mock trading yesterday and we keep adding some more modules to be — once these stabilize in UAT, so it’s — the work is in full swing and our ideal and desired position is to go ahead with TCS platform and launch the product, that’s the way it is.

Operator

Thank you. Ladies and gentlemen, due to time constraint, we will take that as our last question. I would now like to hand the conference over to Mr. P.S. Reddy for closing comments.

P.S. Reddy — Managing Director and Chief Executive Officer

Thank you. Thanks to all of you. We will continue to work hard to meet all the expectations of all stakeholder as much as we can. And it is we sincerely hope that you will continue to encourage us and support us in this endeavor. Thank you so much.

Operator

[Operator Closing Remarks]