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EKI Energy Services

• EKI Energy Services is coming out with a 100% book building; initial public offering (IPO) of 18,24,000 shares of Rs 10 each in a price band Rs 100-102 per equity share.

• The issue will open on March 24, 2021 and will close on March 26, 2021.

• The shares will be listed on SME Platform of BSE.

• The face value of the share is Rs 10 and is priced 10 times of its face value on the lower side and 10.20 times on the higher side.

• Book running lead manager to the issue is Hem Securities.

• Compliance Officer for the issue is Itisha Sahu.

Profile of the company

The company, was originally incorporated as EKI Energy Services on May 03, 2011 under the provisions of Companies Act, 1956. The company has been in the business of Climate Change Advisory Services, Carbon Credits Trading, Business Excellence Advisory and Electrical Safety Audits. It is offering its services to various clients in the government and private sectors like power generation, waste management, clean development mechanism, airports and many more industries.

In the year 2011 the company started the business of climate change advisory services involving consultancy for validation, registration, monitoring, verification, issuance and trading of eligible Carbon Credits Projects as from CDM (Clean Development Mechanism) /VCS (Verified Carbon Standard) Project. With the response from the market, the company further expanded it services in the year 2015 into carbon credits trading and also started various other services like Business Excellence Advisory Services & Training Services. Today with increasing awareness among the community with regards to the environment safety and energy conservation the company has also entered in to Electrical Safety Audits.

The company is an ISO 9001:2015 certified provider of different types of services relating to carbon offsets generation projects and National/International management standards implementation, management consulting, audit, training while considering the context of the organization and to meeting the needs and expectations of all interested parties stakeholders, statutory and regulatory requirements.

Proceed is being used for:

• Meeting working capital requirements.

• General corporate purpose.

• Meeting issue expenses.

Industry overview

India is the world’s third-largest greenhouse gas (GHG) emitter and second most populous country. India’s total emissions in 2019 were 132 million tonnes of carbon dioxide equivalent and emissions have been on the decline for the first time in forty years. The country’s per capita emissions remain low, at 1.94 tCO2 /capita - less than half the global average of 4.2 tCO2 /capita. India has grown into an economic powerhouse with an average growth rate of 6.7% GDP over the last decade. With the COVID-19 economic slowdown, India’s GDP is expected to contract by 4.5% to10% in 2020 but is expected to recover by 2025. Renewable energy (solar, wind, and biomass power) accounted for over 24% of India’s total installed electricity capacity as of July 2020. Factoring in large hydro and nuclear, India’s non-fossil fuels totalled 38% of the country’s installed capacity.

Renewables are growing faster than fossil fuels with the share of renewable energy capacity increasing from 13% to 24% (36 GW in July 2015 to 88 GW in July 2020). While thermal power still accounts for the majority of India’s power supply, the share of thermal capacity declined by 8%, from 70% to 62% (192 GW thermal capacity of 276 GW total installed capacity in July 2015 as compared to 231 GW thermal capacity of 372 GW total installed capacity in July 2020). While the Indian government recognizes the need to expand efforts for creating an “additional carbon sink” of 2.5 to 3 billion tonnes of carbon dioxide equivalent, India’s forest and tree cover has increased by only 5,188 km2, yielding a 42.6 million tonne carbon sink increase.

Pros and strengths

Quality assurance, timely payment and delivery: Delivering quality services is one of company’s prime beliefs. It dedicates resources for quality assurance to ensure that quality norms are continually met. Further all its services are aimed at delivery on time and satisfaction of its customers. To meet the assurance standards its team makes consistent efforts to keep itself updated with latest standards of the industry and developing latest systems and SOPs for faster and efficient services. Moreover, in the business of carbon credit trading, it as a company gives its attention and utmost priority to the clients’ payment and reliability for the purchased carbon credits on time as per the contracts.

Multiple business verticals under one roof: The company is engaged into various types of businesses like Carbon Credits Trading and Climate Change Advisory Services, Business Excellence Advisory and Electrical Safety Audits. It would continue to add risk adjusted profit making business verticals. Being a multi business verticals company it would provide benefits of diversification to its stakeholders.

Qualified management team and employee base: The company has a qualified and professional employee base which looks after various business verticals, either on the marketing front, technical knowhow, business operations and or in other avenues. Human capital is one of the most valuable assets of the company as their technical know-how and skill sets position it at with a competitive advantage over its competitors in providing some of its services. The company’s human resource policies are aimed at recruiting talented, qualified, and youth young professionals and integrating them in to the company. It also imparts training to for the new recruits and conduct skill set development programmes for its employees. All its KMPs are well qualified and contribute to essential growth of the company. The combination of its Board and its skilled staff members has been key to its growth and will enable it to capitalize on further growth opportunities.

Risks and concerns

Dependent on carbon credit trading business for substantial portion of revenue: The company’s total revenue from operations for carbon credit trading business for the period ending September 30, 2020 was Rs 5909.23 lakh and for the year ending March 31, 2020 the same was Rs 6239.85 lakh comprising 98.26% and 94.68% of its total revenue from operations respectively. The company’s income increased during this period primarily as a result of the expansion of its team and securing new contracts. It anticipates that going forward, it will be substantially dependent on the income it generates from these services. Its operation involves a high degree of risk which, even with a combination of experience, knowledge, and careful evaluation, it may not be able to address. In the event that there is any loss of clients or that it is trapped in any type of fraud in the industry as a result of any of the eventualities indicated above, its business, financial condition and results of operations may be adversely affected.

Operate in very niche industry: Some of the company’s competitors may have greater industry experience and substantial financial, technical and other resources which enables them to undertake larger projects or contracts. Although there are numerous factors that could affect its business operations, pricing plays an important role in most tender awards or other contracts or work orders. While it has, in the past, been awarded many contracts, it cannot assure you that it will continue to be awarded such contracts. Some of the new entrants may also bid at lower margins to get a contract. As a result, the nature of the bidding process may cause it and its competitors to accept lower margins to get a contract. It may also decide not to participate in some projects as accepting such lower margins may not be financially viable and this may adversely affect its competitiveness to bid for and win future contracts. Its inability to effectively manage such competitive pressures and manage its costs efficiently, could have a material adverse effect on its operating margins, business growth and prospects, financial condition and results of operations.

Requires significant amount of working capital: The company’s business requires significant amount of working capital and major portion of its working capital is utilized towards trade receivables. It has been sanctioned Overdraft facility of Rs 500 lakh from ICICI Bank. Its growing scales of operation and expansion, if any, may result in increase in the quantum of current assets. Its inability to maintain sufficient cash flow, credit facility and other sourcing of funding, in a timely manner, or at all, to meet the requirement of working capital or pay out debts, could adversely affect its financial condition and result of its operations. Further, it has high outstanding amount due from its debtors which may result in a high risk in case of non-payment by these debtors. In case of any such defaults from its debtors, may affect its business operations and financials.

Outlook

Incorporated in 2011, EKI Energy Services is a well-recognized brand in the realm of ‘climate change, carbon credit, and sustainability solutions’ across the globe. Initially, the company started its business as a climate change advisory services such as consultancy services for registration, validation, monitoring, verification, insurance, and trading of eligible Carbon Credits Projects but over the period, it has expanded its services into carbon credits trading, Business excellence advisory services & training services, and Electrical Safety Audits. The company offers its services to various government and private sector clients in waste management, power generation, clean development mechanism, airports, and others.  It has a strong and widespread clientele located overseas and in many cities across the country. It has a stable and esteemed core client base representing some large Indian industrial groups, Indian Power Producers, banks and other financial institutions, central public sector undertakings, SMEs and government bodies, among others. On the concern side, operating the company’s business involves many risks, which, if not insured, could adversely affect its business and results of operations. The extent of its insurance coverage is consistent with industry practice. The company’s business and financial performance could be adversely affected by changes in law or interpretations of existing, or the promulgation of new, laws, rules and regulations in India applicable to it and its business. 

The issue has been offered in a price band of Rs 100-102 per equity share. The aggregate size of the offer is around Rs 18.24 crore to Rs 18.60 crore based on lower and upper price band respectively. On performance front, total income for the financial year 2019-20 stood at Rs 6,601.90 lakh whereas in Financial Year 2018-19 the same stood at Rs 1,988.13 lakh representing an increase of 232.07%. The company reported Restated profit after tax for the financial year 2019-20 of Rs 447.45 lakh in comparison to Rs 68.64 lakh in the financial year 2018-19. The company intends to continue its focus on consultancy business, which provides further growth opportunities through the retention of existing clients and acquisition of new clients. It shall continue to provide high quality service and improve its brand visibility and penetration through wider marketing initiatives. The company plans to grow its business primarily by increasing the number of customers, as that increased customer relationships will add stability to its business. It seeks to build on existing relationships and also focus on bringing into its portfolio more customers.