EKI Energy Services - EnKing
International - ( EKI ) is a company listed in BSE ( Scrip Code-543284) just three days back. I am
aware about the fact that there is many
additional risks in buying a stock just after IPO and listing . So please take
this note only as an introduction to a company that is operating in a niche
sector which I feel there is very big opportunity existing in the years to come
. Enking claiming that they are the ‘ World largest Carbon Credit Developer and
Supplier’ . I have no statistics with me
to verify and ascertain this claim but it is a fact that company generating more than 90%
of its income from overseas markets.
The Sector
and Scope
Global warming
is a threat in these days and all countries around the globe realized the
seriousness of the same and necessity to fight against it. It is widely
accepted that Green House Gases ( GHG)
is the major reason for global warming . Kyoto Protocol was a landmark development in
the history of world for the fight against global warming. The Kyoto Protocol is
an international treaty which
extends the 1992 United Nations Framework Convention on Climate Change (UNFCCC) that commits state parties
to reduce greenhouse gas emissions, based on the scientific consensus that global warming is occurring and human-made CO2 emissions are driving it. The Kyoto Protocol
implemented the objective of the UNFCCC to reduce the onset of global warming
by reducing greenhouse gas concentrations in the atmosphere to 'a level
that would prevent dangerous anthropogenic interference with the climate
system'. The Protocol's first commitment period started in 2008 and ended in
2012. All 36 countries that fully participated in the first commitment period
complied with the Protocol. However, nine countries had to resort to the
flexibility mechanisms by funding emission reductions in other countries
because their national emissions were greater than their targets. A
second commitment period was agreed in 2012, known as the Doha Amendment to the
Kyoto Protocol, in which 37 countries have binding targets. Negotiations were held in the framework of the
yearly UNFCCC Climate Change Conferences on measures to be taken after the
second commitment period ends in 2020. The Protocol defines three "flexibility mechanisms" that can be used by Parties in meeting
their emission limitation commitments. The flexibility mechanisms are
International Emissions Trading (IET), the Clean Development Mechanism (CDM), and Joint Implementation (JI). IET allows Parties to
"trade" their emissions that held in digital form (Assigned Amount Units, AAUs, or "allowances").
Next to Kyoto Protocol,
another important event in the same direction was ‘The Paris Agreement’ which is an agreement within the UNFCCC on climate change
mitigation, adaptation, and finance, signed in 2016.
As of March 2021, 191 members of the UNFCCC are parties to the agreement. The
Paris Agreement's long-term temperature goal is to keep the rise in global
average temperature to well below 2 °C (3.6 °F) above pre-industrial
levels; and to pursue efforts to limit the increase to 1.5 °C (2.7 °F),
recognizing that this would substantially reduce the risks and impacts of climate
change. This should be done by reducing emissions as
soon as possible, in order to 'achieve a balance between anthropogenic
emissions by sources and removals by sinks of greenhouse gases' in the second half of the 21st century.
The concept of carbon credit and its trading.
A carbon credit is a generic term for any
tradable certificate or permit representing the right to emit one tonne of carbon dioxide or the equivalent amount of a different greenhouse gas. ( Courtesy : Wikipedia)
Let me explain the concept in
layman’s language , as per the agreements approved by the participant countries in UNFCCC a fixed level of GHC emission is permitted for each countries, that in turn divided among the industries/companies operating in that country. Suppose you own a polluting industry that generates 100
units of greenhouse gases beyond the
level permitted to you . On the other side , suppose one of your friend own a
large area of plantation or a large solar farm
that generating pollutants 100 units less than the permitted level to
him. If you have no option left to reduce pollution( gas emission) below the permitted level or it is
uneconomical for you, you can buy your friend’s 100 units available with him to
offset your excess generation and comply with the rule . Ultimately this
resulted in transfer of some money from your pockets ( assume the seller is
someone you don’t know and sitting somewhere in the world ) to the seller .
Such an earning will help and encourage the seller to plant more trees or
establish another power plant using non fossil fuel unit . This is the basic concept of carbon credit
trading .The tradable carbon credits are held in digital form.
There are two types of Carbon credit
market , one is mandatory by law of each countries and the other is voluntary . The voluntary market is driven by
companies and individuals that take responsibility for offsetting their own
emissions, and entities that purchase offsets before emissions reductions are
required by regulation. Buyers are driven by corporate social responsibility,
ethics, a desire to enhance their reputation and so on.
As per reports by 'Reuters' , based on 2020 statistics ,The
turnover in global emissions trading hit a record high last year of $214
billion as prices rose on current or expected stricter regulation. The
turnover was up 34% from previous year and marked a third consecutive year of
growth. It is a fact that ,not even 25% of countries in the world started carbon credit trading and we can imagine the potential opportunity size from this statistics.
Role of Company
EKI - acting as an advisor, facilitator and
solution provider in environment protection initiatives of corporates ,NGO.s
,individuals..etc. . They
are providing end to end solution to
achieve carbon neutrality. Their business activities can be broadly classified
into :
* Carbon Credits management.
* Climate Change Advisory Services.
* Business
Excellence Advisory & Training Services.
* Electrical
Safety Audits.
They are assisting in completing all
formalities for earning carbon credits that involved various inspections,
certification ..etc. and helping the
buyers and sellers of the same to find their genuine counter parties and smooth
completion of transaction. Though they are operating in these four verticals,
more than 90% of income coming from carbon credit trading and that itself from
overseas customers. Company’s client list includes various firms from countries
like Australia, USA, Germany,
Europe ..etc. and its Indian client list includes Airport Authority of India,
World Bank, Azure Power, National Thermal Power
Corporation (NTPC), GAIL, GMR Energy Limited, NHPC, Indian Railways, etc.
Financial Performance.
Company reported a topline of Rs.
66.02 cr and a bottom line of Rs. 4.47 cr in FY 2019-20. For the first half
of FY2020 -21 ended in September 30.
2020, it reported a turnover of Rs. 59.96 Cr. and a net profit of Rs. 5.39 cr.
Post IPO company’s equity will be Rs. 6.87 Cr ( FV.10) and promoter holding will be close to 73%
| Particulars | For the year/period ended (₹ in lakh) |
|---|
| 30-Sep-20
(Six Months) | 31-Mar-20 | 31-Mar-19 | 31-Mar-18 |
| Total Assets | 2,186.19 | 1,609.68 | 412.31 | 276.60 |
| Total Revenue | 5,996.34 | 6,601.90 | 1,988.13 | 701.01 |
| Profit After Tax | 538.58 | 447.45 | 68.04 | 26.91 |
Conclusion
Having said, at present company generating more than 90% of income from overseas .It is not a surprise ,considering
the fact that still the rules prevailing in India is not strict in case of
environment protection and Greenhouse Gas ( GHG) emissions. . If we consider only the
local opportunities at present, this company may termed as one 'came ahead of its time ' as it started in 2011 but at present they concentrating in developed countries where rules are stricter. Nowadays we are in an effort to make
our country a manufacturing hub . When the percentage of agriculture reduces
and that of Industry increases, we have no other choice but implementing
stricter rules to stay within global standards .We can’t unilaterally
move without adhering global treaties and other norms in future and this
situation will open up exciting opportunities for companies like EKI .Even in
the present situation, many Indian firms who are eligible to get carbon credit
not utilizing the opportunity due to their ignorance about it. Company is
planning to utilize majority of the IPO proceeds for working capital
requirements including strengthening the sales force both in India and abroad.
I believe this will surely bring better business going forward provided the
promoters are capable to execute. Company expecting market
for carbon offsets is set to boom, especially once a solution arrived in the
issue of rulemaking for the operation of international carbon markets sorted
out among the countries that have signed the Paris Agreement. This is expected
to happen at the upcoming conference of Parties scheduled to occur in November
2021. The meeting should have happened in November 2020, but postponed by a
year due to pandemic. If there is no consensus in this meeting mainly about the
trading of carbon credits earned during Kyoto Protocol regime ,that may affect the entire reliability of
this mechanism. The question to be answered is whether the carbon credits earned between
Kyoto Protocol and Paris agreement is valid or not for trading. Whether it is valid or not, an early ultimate decision on it will end the uncertainty on this subject that is expected to bring new direction for carbon credit trading worldwide.
It is a niche company in this sector and a pioneer in the industry that
started operations more than ten years back. The only (somewhat) similar pure
play company I could find in India is Emergent
Ventures India that is an unlisted firm . If my understanding is correct this
is the first listed company from carbon trading space not only in India but in the entire world. Current price Rs.162
Company Website link HERE
Points to Note
:
Company is a
newly listed one and came to my attention only recently , so I have no clear
idea about its promoter’s credentials
and their attitude towards minority share holders. In few IPO’s ,companies' shown sharply improved financial performance in just
previous year of IPO through window dressing to attract potential IPO investors
, only time will tell what the case here in these above points. Since it is listed in BSE SME with a
market lot of 1200 shares , liquidity may be less compared with main board
listed stocks. Prepared this short notes on EKI purely to introduce a niche
company listed in a futuristic space , no need to take it as a recommendation
to BUY or SELL the stock.
The above note prepared
based on the information taken from publicly available documents like
Wikipedia, Company IPO prospectus and other sources, few
sentences reproduced without editing.
You can refer the below links for more info :
https://carbon-pulse.com/90631/
https://www.indiancarbon.org/the-carbon-credit-market/
https://www.thehindubusinessline.com/news/in-a-world-first-indian-carbon-trader-to-come-out-with-ipo/article33109195.ece
Discl: Holding tracking qty shares
