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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to the Multi Commodity Exchange of India Limited, Q4 FY '22 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 D.G., Head, Investor Relations. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. P.S. Reddy; Managing Director and Chief Executive Officer. Thank you, and over to you, sir.
Good evening all the analysts and investors participating through this analyst call. Welcome to the FY '22 results. I'm happy to present -- you've seen the results. Thanks to the options contracts which are picked up substantially. And we have been able to recover substantially in terms of -- to operating income.
While the futures continued to do about INR 25,000 crores. And I can tell you this about FY '21-'22 we have INR 26,178 crores ADT and options. Average for the entire year is INR 7,860 crores. But for the Q4 it is INR 15,065 crores. So that is the kind of difference, so that is the pick-up that we have done. In any case, we started charging from the third quarter onwards. So the third quarter we had options turnover of INR 8,600 crores. And in the Q4 we have INR 15,000 crores, that's how we have got good mileage in these contracts. And we have also launched, probably you're aware that option on energy futures. So that is also doing fairly well and that has done very good volume. For example, it has a volume of INR 6,608 crores to INR 6,616 crores. No, I'm sorry, INR 1,168 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 on options -- notional turnover of INR 3,445 crores. So it's increasing. And we have got some more contracts approval, especially gold options on a -- monthly options expires on a bi-monthly 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 the [ 40 ] clients, we have marginally improved. Last year, we had 466,577 UCCs. This year, we had 471,000 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 achieved this year, both the options and futures together. But then many have moved to the 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 172,924 UCCs that we've done. That is a 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 1/3 of the options value -- 1/3 of the options' notional value is equivalent to the futures contract -- futures volume. So in fact it is now in terms of based on the past data, whatever revenues we have gone, 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 is 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 players -- 1 or 2 -- 2 members have joined, but 1 has been very active. Last year, somewhere in the middle of last year they joined, that is one good development. These are the trends and 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 development. So with these numbers, I think I will ask -- I will leave the floor open for question answers.
[Operator Instructions] The first question is from the line of Mohit Kumar from DAM Capital.
Congratulations on good set of numbers. Especially sir, can you just give us a break-up between the transactions that exists for options and futures and also the annual subscription fees for the quarter and for the year.
Mr. Bolar?
Yes. See, our -- for the annual, we have grown around INR 32 crores transaction charges from options. And around INR 3 crores as membership fees on an annual basis, so the rest is futures -- transaction charges on futures. So the main income that we have -- I'm audible to you?
Yes.
Yes. Our operational income consists of mainly transaction charges, which I said, INR 30 crores -- INR 32 crores were from options; around INR 3 crores came from membership fees. Also we have data fees. This year, we have earned around INR 5 crores on data fees. The balance is mainly of --
That's for the year?
Yes, for the whole year.
Is it possible to give the breakup for the quarter, sir?
Yes, I'll give. For the quarter, the options was INR 20 crores -- INR 22 crores to be precise. And then we also have memberships which is a bit less than INR 1 crore and data fees also, which is more than INR 1 crore.
Secondly, sir, what is the time line for introducing gold spot exchange and electricity derivatives in your opinion?
Yes. I think coming back to the electricity derivatives, I think we have been doing a lot of rounds of what we call discussions and et cetera. The -- now that the cap imposed on the -- in the spot market on the electricity prices are -- INR 12 has been imposed on -- for every kilowatt hour that is a big challenge at this point in time. But nonetheless, we are seeking the government, especially the regulators, both the regulators, CERC and SEBI to approve at the earliest. So this is -- they to approve the contract then only we can launch it. But as I said, we have submitted more than a year ago our contract specifications for approval. This is one part of it. On the gold spot exchange, probably the GST issues are 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 will be delivered. So 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.
Sir, one bookkeeping question, why depreciation is low in the quarter?
Yes. So we had -- when we -- as I mentioned earlier, that 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 there are 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 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 life and accordingly the depreciation for the quarter has been reduced marginally.
The next question is from the line of Devansh Nigotia from SIMPL.
Yes. My question has been answered.
The next question is from the line of [ Saket Kapoor from Kapoor & Company ].
Sir, if you could throw some more color on the software support charges and the product license fee. What is the fixed part and how much is the variable part in this, sir?
Which one you're talking about?
Line item 4 (b), software support charges and product license fees of INR 18 crores. We have seen an incremental INR 3 crores 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?
There are 2 components to this. One is what we pay to 63 Moons, right? So there's a fixed component as well as a variable component, right? So the fixed component is INR 1.2 crores, right? And the variable is INR 1.2 crores per month. Okay. And the variable is based on our turnover. So during the quarter, which includes transaction charges on futures and options, right? So obviously, since we had good volumes in options, we had to -- as per the agreement, we shared a part of it with 63 Moons.
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 INR 90 lakhs for the quarter, which would 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's anything that we have to pay in addition to the minimum commitment charges to CME.
So INR 1.25 crores is the monthly figure towards which is to be paid and INR 15 crores annually is the fixed part and others are variable?
No, no, INR 15 crores maybe for the 63 Moons Software. And there is another with the CME, okay? That is also up to a 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. That's what it is.
And sir, if you look at the other expense items, sir, what constitutes this INR 11.5 crores. What are the key components to it?
See, one is -- just hold on. I'll tell you. See one is we have our administrative expenses, right? We also have traveling, advertisement, all professional fees, all that.
Sir, now coming to this income part of the statement, sir. Sir, currently, sir, what are the current growth triggers for our line of business that we are pursuing and that may [ frutify ] going forward. And sir, you mentioned about this UCC part. It is a unique client code I think so that stands for UCC?
That's right.
So sir, how many -- what quantum are active UCC, sir? If you could give some more color.
What I said is active only who have traded in this year.
Okay. And about the growth trigger part, sir, what are the steps the organization is taking to improve the business volume and therefore the profitability? And I have a couple of -- 2 more questions and then I join the queue.
Okay. 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 are reduced in the case of options, it impacts less, as you're going to see, futures contract where there is a peak margin, et cetera, are there.
And when it comes to the -- this is one. The new product products that we proposed to introduce is the -- another growth driver that we are looking at it. As I said, we have received approval for gold options on 1-kilo bar, where the underlying futures is a bimonthly contract. In fact, as I'm speaking today, our gold -- on 100 grams, in fact, it has come -- it has -- the 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.
Sir just for an understanding coking coal prices have been haywire for the last couple of quarters, so do we have any products 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 speculative community?
See, 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, et cetera.
You must have seen recently, government has given license on PPP -- on public-private partnership basis about 20 coal mines, which are closed or abandoned because -- 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 lined, that's what recently the government has announced, which I was participating. So we are keen that 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 this contract because there are some challenges here. If it's a spot then that's a different ballgame altogether, so that's why we are not looking at cash settled contract, although that is the ideal.
Sir, a small point, what portion of the total turnover that has executed over the exchange are actually used by the hedging community? Meaning, do we have any breakup of what portion of the entire delivery settled is done through -- for the hedging mechanism by the producers?
See, 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 -- for example, base metals, cotton and mentha oil, and gold, these are the products where maximum participation is there. Even in MG 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, that's the way it is.
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. So do we have any presentation to the department -- income tax to get this anomaly also improved so that uniform participation can happen because people having income from the commodity, I think, so are not to be set off against the business process or vice versa. Has this anomaly still prevailing? Or has that just been corrected?
See, CPAI, that is Commodity Participants 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.
So there is such status quo only, there is no update on that.
That's right.
And a small point. Sir, the retail community, the HNI part are always looking for this -- the annuity type of income that is in the form of interest where they pursue the same through the bond market and other mutual funds. So sir, how could be a structured product being created so that the industry -- the industries can directly benefit from the retail money and the cost of fund goes down significantly? Meaning, earlier they used to be this cash carry forward system, the CFS, wherein people used to invest in contracts -- wherein the [ scam ] appeared for the National Stock Exchange, NSE -- sorry, 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 business?
See, 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 and you become -- you must have a GST, okay? Because when you offload the stock at the next settlement, because there is an arbitrage opportunity entails 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 needs 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. 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 us with this model also. Let us see what will happen. It is before the government.
And on the exceptional item part, could you explain the nature of the same? And is this now -- cash flow side, what is -- if you could explain this INR 20 crore exceptional item?
See, out of this -- yes, that's right. There is a dispute going on with a firm -- London-based firm on the software development for the spot [ grow ] project, okay? Probably you're 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 costs and effects of it. So we -- the code, whatever that has been developed, we have taken some pending what to call invoices or we have withheld some -- few invoices only so much has been paid. And then we have got out of that. Singapore arbitration tribunal is pending before that, and so we are out of that. Now this code has been analyzed by our specialist technical team. Now they realized that for any -- even for this code to be reassessed, I mean, some used case should be there. So okay -- okay, you want to launch a gold spot exchange, okay, then what are the requirements versus what is developed we can assess. Or you want a coal spot exchange, what are the requirements versus that we can analyze whether this application. But at this point in time, I don't have any project against which it can be assessed. 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 is developed and the cost benefit analysis we will do it. Then accordingly, if it used to be brought back, then we'll 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 INR 20.4 crores or whatever that we have spent, it's not the entire amount is paid to PESB. That is a very -- that's how some others are constructing. Actually, all put together is about INR 17.25 crores. And the rest of them is the expenses incurred on the project by MCX itself by hiring in testers and -- at that time of project implementation. So that's the way it is. Is that clear?
So this is -- this was all clubbed under the property, plant and equipment, and it has been reduced from the line item?
It was capital work under progress.
It was under intangible, under development, so it has moved from there.
The next question is from the line of Sanketh Godha from Spark Capital Advisors.
Sir, nickel as a contract has seen a significant fall in the current year. It's almost like a 100% fall, and it contributed almost 6 to 7 percentage of the total ADTO -- futures ADTO. Sir, just wondering any specific reason why nickel's futures contracts have seen a significant fall? That's the first question I have.
Yes. See, you are aware on March 7 and 8, there is a turmoil in the nickel market and the London Metal Exchange there too. Okay. There were some trades, et cetera, et cetera. You're 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's a lot of M2M has been collected, some clients have paid and not paid. But as far as MCX is concerned, these are delivery-based contracts. We have what we 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 -- some more time to bring back the participants to the counter.
So sir, it will take at least a couple of quarters for some revival in this particular product sir?
I think that's the way I look at it, unless some other again miracle happens to come back with the discount.
Sir, the 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 in 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, maybe gold or something can pick up and therefore, for options, sustainability will be there?
Well, see, I have not seen the counterbalancing effect even when the futures were active in crude oil. And the reason we -- and we didn't find so much of what we call correlation, okay? It's come down gradually, so it's not that as strong as it used to be maybe once upon a time, that's the way I look at it.
But while 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 negative pricing and the increase in margins in the futures contract, the people have moved away from the counter. Now having introduced options where you pay onetime premium and then keep playing that, so that's the way it is. So that's why we did not -- I mean the traction is seen.
So sir, in simple words, it's a structural shift from futures to options, especially with respect to energy contracts, that is the way should we think, and therefore, there should not be a reason to be worry?
That's right. That's right. Of course, always contributes, no doubt about it. But it's not that the moment volatility disappears, the contract will continue to north. My answer is no.
And second, 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 will collect will also come up, and therefore the option turnover might not increase even if the notional turnover doubles because premium will half -- almost closer to get half because of that figure.
So do you think this 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 -- I mean, just wanted to understand your thoughts.
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, you have bimonthly options, okay?
And so we are moving over to monthly options so that the 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 a bimonthly options anyway. That will continue parallelly. But we are introducing this new product. And there is -- since the premium is relatively less and people will not be able to take a view of bimonthly, probably they prefer this monthly.
[Operator Instructions] The next question is from the line of Ravin Kurwa from ICICI Securities.
Congratulations on a very good set of numbers. Sir, I had a question related to implied costs. Why it dipped quarter-on-quarter and then increased 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 FY '23 and '24 and the time line on TCS.
I mean on the employee cost, if you see the financials -- what exactly do you -- there's a slight increase because one is we have had senior-level recruitments in -- from November onwards, so they have come in. Also, there's -- 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 of 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. Yes. And I just -- and the second one was on the tax rate or...
Capital work in progress.
Capital work in progress, we have started the CDP project, so we have invested substantially in -- both intangible and tangibles, so that's why there's been an increase in capital work in progress, which...
So as we keep spending it on the project and keep releasing it, it goes under the capital work in progress.
So we will capitalize it once it goes live in October. The third thing is, is on the tax rate. I'm glad to tell you that we have fully utilized our max credit. We have also fully utilized all the long-term brought forward losses that we had, which are registered under long-term capital gains. So the balance that we -- the gains that we had after utilizing the total capital losses, we had to pay at the nominal rate. And going forward, we'll be able to use earlier rate -- the lower rate of 22%. So going forward, I think we'll use -- we'll be able to use 22% corporate rate.
And the guideline on TCS instrumentation -- the new software. Is it -- are we on the time line to implement it from the H2 of FY '23?
Yes. That's what we are targeting. And in fact, as I'm speaking yesterday, we had -- a part of the TCS been released for mock. And it's all the circulars in the public domain. So as we complete some more modules, we will be adding to the mock and doing the needful. We are hopeful that we'll be able to make it.
The next question is from the line of Prem Patel from DAM Capital Advisors.
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%?
Well, 5% to 6%, no way, because the initial margin, minimum prescribed by SEBI is itself is 10%, okay? So why -- can it come down to -- from 21% to 10%? It can come down. And as I said in the past, in the previous quarter also I have mentioned, SGFs coming in the way of -- it's become a constraint because we have already about INR 525 crores SGF we have it. And if you want to lower the margins based on these 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 copper. So some discussions are going on with SEBI with regard to the modalities of putting in money, taking out of -- 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 withdrawal also. So that in and out the freedom is what we are looking for. Then we will be able to do that.
The next question is from the line of [ Adithya Chheda ] from InCred AMC.
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.
So my question is on the option side. So as you see 90% is 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 are seeing in crude? So that is one. And also what is the time line for the introduction of the index option contract, because the index side because the index has been a big hurdle in terms of in terms of approvals from the SEBI that we have got. So like what is the time line for the index options launch? And in terms of contract specification as it will be like cash settled, can we see higher volumes in the index option contract? What's your view on that?
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 clocked -- options turnover of INR 3,400 crores and crude oil, INR 12,686 crores in the month of April, so which is almost 17%-18%.
And once we introduce the other option contracts also, gradually, the -- it will reduce the, what we 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 --
Yes, index options, times lines.
Index options. 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 26 percentage weightage. So it is disrupted that contract. Of course, now BULLDEX is only doing well. And in the case of ENRGDEX, obviously the margins and the other issues are affecting it. But the -- once we revive it, we will be looking at it because, first, you need a strong is underlying contract. If the 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.
And sir, on the shift of technology that we're planning by September. So what kind of risks that you are seeing, because still, we are very close to the time line 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 structured?
No. As I said, just yesterday, we have issued a circular and then people are started testing mock, okay, including your company. And I think we should be able to do well. And if we -- we will take a view what to do maybe sometime maybe in the month of June or something like that.
But immediately, I'm not going to guess or hazard a guess in this case. That's the way it is. We are doing -- we are moving towards making it live. That's the way our all energies are focused on.
The next question is from the line of Prayesh Jain from Motilal Oswal Financial Services.
Congratulations on great set of numbers. Firstly, on the balance sheet side, if I look at other current financial liabilities, they have gone up 50%. What would be the reason for that?
Yes. See if you recollect that we have -- we have parsed all our financial updates. 2 reasons for this. One is with the Schedule III coming in. So we had -- accordingly, the hedging has moved. Also, we had last year around INR 250 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. Yes. That's why the ratio has gone up.
I will take that off-line. 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 requirements? The question is more whether there is scope to improve or is there any regulation that is respecting 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?
See, at this point in time, the oil marketing companies don't participate. But most of them 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.
The next question is from the line of Pritesh Chheda from Lucky Investment Managers.
So I have 3 questions. One, what is the extent of institutional participation in the total volume? Second, in the cash that we have -- cash and investments, ex of broker deposits, what's the clear cash balance that we have? And my third question is the tech cost on the replacement of the tech, what will be the P&L impact? And when will it reflect?
Institutional numbers, I will not be able to completely inform who is doing what, as I told you mutual funds are --
I want just the institutional participation as a percentage of total volumes?
That's what. You 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 an open interest, which is important. And they are actually participating in gold, silver and crude I mean crude and some agri products, okay? This is what it is. And this is one part of it. The other one is...
I just mentioned that the margins that we collect from our members, as on March we have around INR 540 crores. Our own funds -- I mean, our own net worth is and what we have deployed in cash is around INR 1,000 crores -- INR 1040 crores to be precise. So that is how it is. Also, you have 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'll 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 AMCs on an annual basis to TCS. There will also be AMCs that we'd be paying on the hardware, which will start kicking in. There may also be some operating software that we take. I mean in the system, either you purchased 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.
We'll take the next question from the line of Ravin Kurwa from ICICI Securities.
I have one more question. So this was regarding the BSE part. So BSE is going to launch its gold spot exchange. So why are we getting some difficulty on that?
Okay. See, on the spot exchange the settlements are done using the electronic gold receipts, okay, EGR and deposits and receipts essentially or gold GDR, gold deposit receipts. Now, so far, it's okay, because it's a security. So there's no problem. But somebody has to take the gold and then convert into EDR and then the trading will kick in. But the guy who is the first one who is depositing it, he has to get his credit back. And if gold EDRs are treated as what we 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 converting 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?
Mr. Kurwa, may we request that you return to the question queue.
No, no, I think -- okay, we should continue, let him.
So sir, even BSE might see the problem of lower participation in this case?
Yes, that's why they have not launched it. They were to launch in maybe last year itself 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.
We'll take the next question from the line of Abhijit Vora from Sundaram Mutual Fund.
I have only one question. The employee cost in Q4 versus Q3 has come off. I could not catch the same response. It was hovering around INR 20 crores - INR 21 crores. In Q4, it is INR 18 crores. What is the reason?
Which one which cost?
Employee cost.
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, right? So the senior people.
But it has come off, sir? Q4, the number is lower compared to Q3, employee costs.
Okay. We have had -- while I said that in Q4, senior people have joined, also, there has been some attrition in our -- in the company. So numbers have also dropped.
So this INR 18 crores is the number we should look at, right, for Q4?
Yes.
The next question is from the line of Sameer Dalal from Natverlal & Sons Stockbrokers.
Yes. So partially, you answered the question that you start the -- for the new software from September onwards, you'll start -- I mean, for the first year of course, there's no fee and then after that you start.
If you can just give us a breakup, how much will be the savings that will come from what we'd being FT versus what will be the future payments? I want to get that differential. If there's some sort of indication on savings of cost on the software side you can give us?
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.
No, that I agree. We've discussed that, sir. So what I'm trying to say is if you can quantify, at least what would be -- so you said there are 3, 4 variable costs in the software support charges and all of that, which include certain fees to even different exchanges and things like that. So --
No, no, that is different. Please understand. Only 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 NG. That is linked to the volume subject to fixed pay. Now in the case of TCS contract, there is no fixed pay. There's no variable pay, variable component. So the only fixed pay, fixed component, no variable company.
I'd just clarify it. So on October 23, we pay a fixed AMC to TCS, and that has been fixed, the amount has been frozen for the next 5 years.
So 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 would pay TCS, I'm --
No, no, I understand. But see, presently, we pay, as I said, INR 1.3 crores, monthly to the present vendor also a variable. So on an annual basis we pay around INR 50 crores to INR 55 crores to the present vendor, okay, around INR 50 crores.
But going forward while we may not be paying this, we'll be paying -- after October 23, we'll be paying a single digit to TCS. There may also be other expenses that we'll incur. As I was mentioning, if depreciation would be substantial, because once we start capitalizing it and if it is around 8 to 10 years, there will be a substantial amount of depreciation. There'll also be some subscription costs on for operating systems that we'll incur, right? So those will start kicking in.
So again, I'm asking if there's any way you can quantify if there's any savings at all that is coming from this activity or exercise?
There will be some savings, no doubt about it.
And you cannot quantify that at this point of time?
Yes, that's right. That's right. Maybe once we go live, then probably there will be --
Better visibility.
Better visibility.
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?
No. It's still going on. There are some milestones and accordingly we will pay.
Sure. And this will be amortized over a period of time? Or this will be run through the P&L once the development is done?
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.
It will be amortized. So that is what you were saying, it will be the higher cost also that --
Yes, that's right. So we'll have a higher depreciation.
Correct. But the cash flow will be affected once you go live.
That's it.
The next question is from the line of [ Sidharth S ], individual investor.
Sir, my question is about the impairment of the software that we've taken of about INR 20 crores. I heard that you said that currently, while you have the quote available with you, but you don't have any used case to compare the same with it. Can you throw some right on it because I would assume that a used 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.
Yes. So you see when in 2017 and end of '17 and 2018, when it was shortly said, yes, RFP was floated, international competition was invited, and there were bids from [ Sinova ], [ PSB ] and NASDAQ, et cetera. Many, many have done that. So it is done through the RFP process. And in the RFP various criteria are there for your financial, what we call stability or kind of track record and every product or rather technical competency so different weights are given accordingly.
So it has -- so it was all based on that it was shortlisted. Now coming back to the first part of your question, the digital used case, at that time, when the gold spot exchange was announced, at that time, that was the reason why this entire process was initiated in 2017-'18. 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 in the process of execution. 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 PESB 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 future. No, I'm not saying that. At a further present time, we are not able to do anything about it.
Sir, just one follow-up on this. So are you saying that some portion of this code will be used by TCS to develop the spot exchange? Or that will be developed completely separately, and therefore, there will be no used case at least currently for any spot gold spot exchange?
No, no, gold spot exchange will be based on the CDP code that they've already developed -- they are developing it. So there's no link between the 2. Let's be very clear. But currently, I don't have any more visibility about any other project, that's the reason which we are. So it's a very conservative approach so that we have taken in that sense.
Sir, lastly, on the CDP project, you said you will evaluate the project in June. Sir, any context in terms of?
Not evaluate what we are seeing, whether to take up for any negotiation or 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 the -- once the -- 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.
Thank you. Ladies and gentlemen, due to time constraint, we will take that as a last question. I would now like to hand the conference over to Mr. P.S. Reddy for closing comments.
Thank you. Thanks to all of you. We will continue to work hard to meet all the expectations of all stakeholders as much as we can. And it is -- we sincerely hope that you will continue to encourage and support us in this endeavor. Thank you so much.
Thank you. Ladies and gentlemen, on behalf of Multi Commodity Exchange of India Limited, that concludes this conference for Q4 FY '22. Thank you for joining us. And you may now disconnect your lines.