EKI Energy Services: With the world taking on the imminent threat of climate change, many countries and organizations have been taking steps to reduce carbon emissions and, at the same time, shift towards other cleaner sources of energy.
In the past couple of years, one company has done something so unique and relevant to the current scenario it has become impossible for us to ignore it. Indore-based EKI energy services are one of the emerging companies in India in the domain of the carbon credit market.
In this article, we are going to cover the reasons for the meteoric rise of this carbon credit developer and supplier. Founded back in 2008 it is involved with sustainability advisory services, consulting on carbon credits, registration, and verification of carbon credits. We will look at each of them below but first what are carbon credits?
Table of Contents
Carbon credits Market
Carbon credits are the tradable certificate or permit for the emission of carbon dioxide and other greenhouse gases in the atmosphere. The carbon credit market is immensely growing now being recorded at $6.7 billion.
Carbon credits have been in the demand for quite some time and that has led to an upsurge in the price of these credits. As these carbon credits are limited and are to be assigned to a certain organization. So, the question arises from where do companies buy these credits?
Under the cap-and-trade program, the government allows a certain number of credits every year and beyond which companies cannot pollute.
In the free-market economy, things do not work as intended and a lot of big organizations are blamed for hoarding these carbon credits which has caused the asymmetry in supply.
Company Profile
Initially, in 2011, the company started as an advisory for climate change and as a consultancy for the registration and verification of carbon credits. But today it has broadened its scope.
EKI energy services, or EnKing International, is an Indore-based company that provides end-to-end solutions in training, consulting, energy conservation, clean development mechanisms, carbon footprint measurement, and many more in the sustainability space.
Source: enkingint.org
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Horizon
EKI Energy Services caters to both government and private entities in the domains of waste management, power generation, and clean development mechanism at airports.
It has a global presence serving Australia, the USA, Germany, Europe, and over 20 nations, etc. The company earns a majority of its revenue i.e. 95% from carbon credits. Let us look at what the company offers
Business Overview
EKI Energy Services offers its services in multiple domains all coming under green energy and advisory on curbing carbon emissions. Let us look at some of their services briefly.
- Carbon offset standards
The company is involved in registration and verifying the greenhouse gases programs which are meant to account for the carbon credits and a contribution to the sustainable development
These programs are based upon the Kyoto protocol:
- Voluntary Carbon Standards (VCS): criteria for measuring and monitoring carbon offsets.
- The Clean Development Mechanism: provides emission reduction projects which generate certified emission reduction units.
- registration and implementation of emission reduction policies.
- Renewable energy
EKI Energy Services offers advisory services in renewable energy domains. With compliance with the regulations and certification standards. It provides end-to-end management of renewable energy certificates from eligible RE projects.
- Nature-based solution
EKI provides nature-based solutions that are profitable for the clients and sustainable as well.
Process of carbon credit issuance
Apart from the above the company also helps its clients to sell these tradable credits in the market. EKI provides all-around research and provides end to end support for transforming their clients to adopt green or renewable energy.
EKI Energy Services liaises with third-party companies for project design documents (PDD) and designated operational entities (DOE). These companies are accredited by carbon standards.
Financials and assessment of the rise
On 7 April 2021, EKI Energy Services IPO had a muted debut as it opened at Rs.101.5 per share over the issue price of Rs.102.
EKI Energy Services was closed at a price of Rs.140 and on January 2022 it was trading at the record level of Rs.13000. That’s more than 85x return in less than a year!!
Let us try to decode the financials for a better understanding
| In Crores | ||||||
| Company | 2018 | 2019 | 2020 | 2021 2022 | ||
| Revenue | ₹ 0.68 | ₹ 19.7 | ₹ 65 | ₹ 190 ₹ 1,800 | ||
| Profits | ₹ 0.31 | ₹ 0.68 | ₹ 4 | ₹ 18 ₹383 |
- The company has shown a continuous increase in revenue and profits with the emergence of businesses for carbon subsidies and renewable energy.
- EKI Energy Services is involved with providing carbon credit services to their clients for buying the credits and selling the credits in the markets. The company works on the revenue sharing model and they have the sharing in the final carbon credits that they processed on the mutual agreement with their clients.
- As mentioned earlier company provides consulting and advisory services but the major revenue comes from the trading of carbon credits. Where a company buys the carbon credits at a low or fixed price and later sells them in the voluntary market at higher prices depending upon the agreement made with the client. Therefore, from the graph below, we can see the uptrend in the prices of the carbon credits from April 2021 to February 2022 which can be correlated with the revenue as they are proportional to each other.
The Rise Of EKI Energy Services
- The Paris agreement sets the stage for voluntary carbon markets.
- The USA showed commitment towards the Paris agreement and accepted to achieve the carbon emission targets.
- This triggered large corporations and led to explosive demand for carbon credits.
- Due to the lack of competitors in this facilitating carbon credit trading and consulting EKI was able to emerge for providing a comprehensive end-to-end solution to the dealers in the carbon market.
- EKI Energy Services had a windfall gain and they capitalized on this opportunity.
Latest financials
| Face value (₹): 10 | Net profit margin: 21.3 |
| Market cap (Cr.): ₹ 5,596 | Current ratio: 3.50 |
| Promoter’s Holdings (%) 73.47 | Debt to equity: 0.00 |
| Stock P/E: 14.6 | ROE (%): 176 |
| EPS (₹): 139 | Dividend yield (%) 0.24 |
Source: Trade Brains Portal
- In Q4 of FY2021-22, the company posted a profit of Rs. 146 Cr. and a revenue of Rs. 475 Cr. The company saw a tremendous increase in ROE and PE, making EKI Energy Services the highest amongst its peers.
- The company delivers strong growth and performance, assisted by the higher demand in the carbon credit market as carbon credit prices continue to surge due to GHG emission reduction awareness, changes made in the regulations for climate control, carbon neutrality pledge, etc.
- EKI Energy Services is expanding its global presence with Enking International FZCO, the new arm that will be responsible for the market for climate change, sustainability, and supply of offsets. This will expand the scope to new markets, brand recognition, and global expansion.
- EKI Energy Services is setting up a joint venture with Royal Dutch Shell. Under this joint venture, Royal Dutch Shell will invest $1.6 billion over five years to provide nature-based solutions in India.
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Growth prospects
- Soaring demand for carbon credits
Demand for carbon credits is at its peak and the companies involved in this market have greatly benefited from the recent rises. These are anticipated to rise further in the future.
As per the reports, more than 1 billion carbon credits were traded in 2021 which is three times that in 2020. These statistics represent the scope of the market in the future and provide credibility and acceptance to the carbon trading market.
- Global Awareness
Countries around the world are on the mission to meet their carbon target of 1.5 degrees temperature to reduce the emission by 50%. This provides a boost for the significance of carbon credits and by 2050 these markets are expected to grow by 50 times.
Companies like EKI Energy play a major part in facilitating net-zero targets.
- Increasing voluntary carbon markets in India
All the major economies of the world are on the center stage of trading carbon credit. India has also proposed increasing the number of voluntary carbon credit markets.
This will enable the domestic companies to trade these credits and this will provide a boost for the companies facilitating carbon markets in India.
- Paris Agreement
Article 6 of the Paris agreement amplified the relevance of the voluntary carbon market and carbon trading. This was approved by the government at the COP26 climate summit in Glasgow.
In closing
This was the complete case study of the evolution of EKI Energy Services and the reason for its humongous rise in share price. Will this continue? Looking at growth prospects and the emergence of the voluntary carbon markets around the world, this sector may really hold a key to the future. Let us know what you think in the comments below. Happy Investing!!
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