EKI Energy BSE SME IPO review (Apply)

•    EKI is in the climate change advisory service segment with a niche play.
•    Its 95% revenue comes from global markets.
•    The company has reported growth in top and bottom lines.
•    The issue is reasonably priced and worth long term investment.

ABOUT COMPANY:
EKI Energy Services Ltd. (EKI) is in the business of Climate Change Advisory Services, Carbon Credits Trading, Business Excellence Advisory and Electrical Safety Audits. It is offering services to various clients in the government and private sectors like power generation, waste management, clean development mechanism, airports and many more industries.

EKI's climate change advisory services involve 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 its 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 environment safety and energy conservation the company has also entered into Electrical Safety Audits.

The government's thrust on clean and green India and the development of renewable sources of energy has created awareness among the business community and paved the way for the continuous growth and expansion of the company's operations. EKI focuses on client-centric services particularly in the field of energy conservation, climate change advisory & business excellence sector domain, where the clients can get services like consultancy, advisory, compliance, audits, trading & training services to become more profitable and sustainable.

EKI's client list included Airport Authority of India, GAIL, World Bank, NTPC, GMR Energy, Indian Oil, RBI, NHPC, Indian Railway to name a few.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 14.00 cr.), general corpus funds, the company is coming out with a maiden IPO of 1824000 equity shares of Rs. 10 each with a price band of Rs. 100 - Rs. 102 per share to mobilize Rs. 18.61 cr. (at the upper price band). The issue opens for subscription on March 24, 2021, and will close on March 26, 2021. Minimum application is to be made for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on the BSE SME platform.

 It constitutes 26.53% of the post issue paid-up equity capital of the company.  

The issue is solely lead managed by Hem Securities Ltd. and Bigshare Services Pvt. Ltd. Is the registrar to the issue. Hem Finlease Pvt. Ltd., is the market maker for this issue. EKI will be spending Rs. 0.15 cr. For this IPO process.

Having issued initial equity at par, the company has issued bonus shares in the ratio of 100 for 1 in November 2020. The average cost of acquisition of shares by the promoters is Rs. 0.10 per share.

Post the issue, EKI's current paid-up equity capital of Rs. 5.05 cr., will stand enhanced to Rs. 6.87 cr. At the upper price band of the issue, the company is looking for a market cap of Rs. 70.12 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, EKI has posted a turnover/net profit of Rs. 7.01 cr. / Rs. 0.27 cr. (FY18), Rs. 19.88 cr./ Rs. 0.68 cr. (FY19) and Rs. 66.02 cr. / Rs. 4.47 cr. (FY20). For the first half of the current FY21 ended on September 30, 2020, it has earned a net profit of  Rs. 5.39 cr., on a turnover of Rs. 59.96 cr. Thus, the company has posted growth in its top and bottom lines for all these periods.

EKI is generating 95% revenue from global markets for the carbon credit business and is having a niche play in environmental services.

For the last three fiscals, EKI has posted an average EPS of Rs. 4.97 and an average RoNW of 54.98%. The issue is priced at a P/BV of 4.48 based on its NAV of Rs. 22.78 as of September 30, 2020, and at a P/BV of 2.84 based on its post-issue NAV of Rs. 35.97.

If we annualize the latest earnings and attribute it to fully diluted equity post issue, then the asking price is at a P/E of around 6.5, making this IPO reasonably priced.

COMPARISION WITH LISTED PEERS:
As per offer documents, EKI has shown Mitcon Consultancy as its listed peer that is currently trading at a P/E of 13.45 (as of March 2021). However, it is not truly comparable on an apple-to-apple basis.

DIVIDEND POLICY:
The company has not paid any dividend so far but will be following a prudent dividend policy based on its performance and future prospects.

MERCHANT BANKER'S TRACK RECORDS:
This is the 29th mandate from its stable in the last four fiscals (including the ongoing one). Out of the last 10 listings, 4 opened at par and the rest opened with premiums ranging from 0.38% to 6.56% on the day of listings.