Saturday, April 10, 2021

EKI - A NICHE PLAY ON ENVIRONMENT PROTECTION

 

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 mitigationadaptation, 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%

ParticularsFor the year/period ended (₹ in lakh)
30-Sep-20
(Six Months)
31-Mar-2031-Mar-1931-Mar-18
Total Assets2,186.191,609.68412.31276.60
Total Revenue5,996.346,601.901,988.13701.01
Profit After Tax538.58447.4568.0426.91

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.

 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

 


Saturday, February 6, 2021

JAY KAY ENTERPRISES - MOVING INTO 3D PRINTING SPACE

 Many investors are ready to take higher level of risk for multi bagger return. It is not only a game of risk taking but testing our patience and conviction too. Though we are always looking for such opportunities, it came rarely in a market like India due to various reasons. Advanced technology is one sector many such multi baggers may born in future. But unlike US market, number of listed companies operating in upcoming futuristic sectors like Robotic Process Automation ,3D Printing, Genomics ..etc. are rare in India in listed space  .In this background let us look into a listed company which seems seriously venturing into 3D printing space . 3D printing is supposed to be the disruptive technology which will revolutionize ‘how the world manufacture’ in the future. In every bull market many companies change their line of business and attach the tag of hot sectors with their name  to lure investors for higher market cap . But why I look into this company is – It belongs to a business group with more than 100 years of tradition and their other listed company trading at a market cap of more than Rs.17000 Cr. 

The JK Group

The JK group founded by Singhania family in 1918. The family is currently divided into three main groups headed by Dr. Gaur Hari Singhania based in Kanpur, Shri Hari Shankar Singhania based in Delhi and Shri Vijaypat Singhania based in Mumbai .  The three men are cousins who now run independent businesses, which are technically and legally separate entities and have no cross-holdings or common directors and employees, sharing only the family history .( Courtesy : Wikipedia) .The company we are discussing belongs to  Gaur Hari Singhania group  and this group’s only other listed company is JK Cement which currently trading  with a Mcap of over Rs.17000 Cr. There are two other unlisted companies namely JK Technosoft and JK Cotton also belongs to this management.

Recent Developments in JAY KAY Enterprises .

 JK Enterprises ( FV.Rs.1)  may termed as a penny stock till the company announce its new plans  and its 52 week low price is less than Rs.3 with promoter stake of 32 %. Now management decided to hike their stake from 32 % to 52 % by subscribing additional shares and warrants through a preferential offer @ Rs.10. This fund infusion is for the purpose of setting up a 70:30 joint venture with EOS Singapore Pte ( Ultimate holding company is ElectroOptical Systems (EOS) GmbH – Germany.) EOS is one of the world leaders in 3D printing technology especially in metal and polymers. They are well known for Metal additive manufacturing, that is used in 3D printers to produce metal based products. The newly formed joint venture (70% stake with Jay Kay Enterprises and 30% with EOS) will be  named as NuMesh Labs and it is aiming to enter the business of 3D metal design, design optimization, 3D Consulting services, product prototyping and design for bulk printing.  In addition to this ,Jay Kay Enterprises also decided to invest in a print farm and the assets and infrastructure of this print farm will be directly under Jay Kay Enterprises itself .As per company press release “   With this new venture, Jaykay Enterprises will become an integrated player in the 3D Metal Printing market through its cutting-edge manufacturing technology.”

As per study and analysis done by E&Y for the company, In India,  metal 3D printing market is growing at  a CAGR of 33% to reach around Rs.1200 Cr by 2025, and sectors like Defence ,Aviation,Medical equipments ..etc which need high precision will contribute maximum to the growth of this Industry going forward. I believe this is the first listed company in India that took a bold and serious  move to serve 3D printing technology in India .

Points to Remember

Industry is at nascent stage in the world or at least in India .Though there is great hope about 3 D printing, technology is fast changing around the world and disruptions may happen even beyond our imagination. How our businesses adapt this technology for production  is a point to wait and watch , but I feel increasing wages and government’s aim to make India as a manufacturing hub for the world will aid faster adaptation of such technologies here. JK group not jumped into 3D printing technology overnight, in 2018 they acquired 27% stake in Nebula 3D services which is operating in 3D design , scanning and modelling services. I feel ,they studied the potential of this industry during past few years and now this  decision  for forward integration is a well thought one seeing the future potential . Promoters hiking stake substantially and the joint venture partner’s credibility and experience in this field are added positive points . Considering the huge potential of business (once more are more companies turn to  3D printing route in India) , support of well known JK group, personally I prefer to take some risk on Jay Kay corporation. With long business experience  of promoters, I believe , after gaining sufficient experience in component manufacturing using 3D printing technology , the print farm under the direct control of company may utilized for supplying parts for end user industries in future.

Whether this is worth at Rs.70 Cr market cap is upto you .Personally I believe  this stock is not for faint hearts or those checking the results on a quarterly basis (at least for next few quarters/years)  or taking investment decisions based on past performance , but only for those willing to forget even  the entire capital invested and with lot of patience for a potential multi bagger in an emerging industry in India. 

You can read recent company announcements in the following links :

Link 1 ( 4 Pages) 

Link 2

Since 3D printing is relatively a new technology , at least few of you may think  it is printing something on paper but it is a new production technology for manufacturing different things in a different way . Lot of articles and videos available in web about this and I am attaching link of few below.

Link 3

Link 4

Link 5

This is my personal thoughts on this company and not at all a buy recommendation. Do own due diligence /consult a SEBI registered advisor before any action.

Discl: Holding few shares , hence my views may be biased. All information (otherwise specified as personal views) taken from publicly available documents and company filing to stock exchange .



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