EKI Energy CMD says no need for regulatory intervention after Shankar Sharma’s comments

EKI Energy witnessed a sharp decline in its stock price in February 2023 after its auditor raised concerns over the company's financial statements.

EKI Energy head Manish Dabkara has said there was no need for regulatory intervention after well known investor Shankar Sharma raised questions about why the Indore based company was not being investigated following concerns raised by its auditors.

The Chairman & Managing Director of the carbon credit sustainability solutions company told Moneycontrol that the firm has not received notice from any of the regulatory bodies including the Securities and Exchange Board of India or the Ministry of Commerce Affairs after Sharma’s comments.

Sharma had hinted towards the lack of attention being given to EKI Energy Services by regulating bodies while Brighcom Group, where he is an investor, has been under a regulatory crackdown by market regulators. In a post on the social media platform X.com, Sharma shared screenshots of financials and stock prices of an “Indore-based company” without mentioning its name.

While EKI Energy had been under scrutiny by its former auditors, Sharma questioned why no one was currently investigating it.

“Anyone can come up and say why this company is getting scrutinised and not the other one. We are not aware of the Brightcom Group’s case and neither have we received notice from regulating bodies,” said Dabkara.

The issue

EKI Energy witnessed a sharp decline in its stock price in February 2023 after its auditor, Walker Chandiok & Co, raised concerns over the company's financial statements. The auditors in their report attached to the financial result for the third quarter and nine-month period ended December 2022 had said that the recognition of revenues and the corresponding cost were not consistent with accounting principles.

EKI shares listed at Rs 140 a piece in April 2021 and soared to all-time highs of 2,000 in July 2022, riding high on carbon market related announcements in the country. The shares have been hit since the auditors made their concerns over revenue recognition public and closed at Rs 465.75 on December 7.

Following a delay of several months, EKI Energy released results for the fourth quarter of the financial year 2022-23 (FY23) and the first quarter of FY24 on September 23. The results of the quarter ended September 30 were announced on November 11.

Dabkara said that the company has also paid a penalty of around Rs 10 lakh to SEBI for delays in announcing quarterly results. He added that EKI Energy has also filed for a refund of the penalty as the company has disclosed all the pending results, he added.

The EKI Energy head stressed that the company would now be announcing results without any delay as the issue with the auditors has been resolved.

On July 15, the company informed the BSE that its board had approved the removal of Walker Chandiok & Co as statutory auditors. The move came after the auditor flagged concerns over the company’s financial statements. EKI Energy appointed M/s Dassani & Associates as statutory auditors on August 11.

Dull performance

EKI Energy reported huge losses in the last three quarters amid the crisis in the company and the scrutiny in the international carbon market.

Dabkara said buyers for carbon credits have significantly reduced due to criticism of carbon credits in other countries, affecting the bottom line of EKI Energy. He said that buyers are sceptical of the credibility of carbon credits, which has led to lower demand for credits.

“Weak demand in the carbon credits market led to a crash in prices of credits. The company had already bought the credits at higher rates, but had to sell at lower costs due to weak demand, affecting profits,” he said.

The Russia-Ukraine war paralysing the capability of companies to spend on buying credits leading to high energy prices, he said.

In Q4FY23, EKI Energy reported a loss of Rs 38.30 crore as against a profit of Rs 31.95 crore in the same period last year. In the first and second quarters of the current financial year, the company reported losses of Rs 31.76 crore and Rs 41.72 crore, respectively.

Dabkara, however, expects EKI Energy to bounce back to profits after six months following stability in the market when ICVCM (Integrated Council for Voluntary Carbon Markets) and VCMI (Voluntary Carbon Market Initiative) issue clear guidelines.

“We anticipate that after six months or the second quarter of the next financial year, things should come in place for us as the industry would also have gotten back on track by then,” he said.

ICVCM and VCMI are governing bodies for the voluntary carbon market, which aim to set global carbon credit benchmarks. He added VCMI had already issued guidelines while ICVCM is expected to announce guidelines in the next four months.

COP28 hopes

Dabkara expects the United Nations Climate Change Conference or COP28, being held in Dubai, to provide regulations through Article 6.4 of the Paris Agreement boosting the carbon credit market.

“Article 6.4 would provide details of how to get the project registered, how to get the issuances done and by the end of 2024 we would also have Article 6.4 enabled credits available in the market as well,” he added.

Article 6.4 of the Paris Agreement establishes a market for carbon trading between countries under UN supervision. Project developers would require the approval of both the UN and the country where it is implemented.

Dabkara also believes that the company would benefit from the introduction of the Carbon Credit Trading Scheme (CCTS) in India. The central government on June 30 notified a draft of the long-awaited Carbon Credit Trading Scheme (CCTS), 2023. The notification does not provide regulations, procedures and guidelines for the functioning of the carbon market as of now. According to the notification, a ‘National Steering Committee' would be constituted with the Secretary of Power Ministry as the ex-officio chairperson.