EKI Energy not to restate Q3FY23 results after auditor concerns over revenue recognition: CMD Manish Dabkara

EKI Energy not to restate Q3FY23 results after auditor concerns over revenue recognition, says CMD Manish Dabkara

EKI Energy would not restate results for the third quarter of financial year 2022-23 after auditors flagged concerns over revenue recognition by the company in the quarter, Manish Dabkara, Chairman & Managing Director, told Moneycontrol.

The head of the carbon credit sustainability solutions company said that it is working on revising the terms of customer contracts going ahead to avoid such discrepancies.

The company 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 had said in their report attached to the financial result for the third quarter and nine-month period ended December 2022 that the recognition of revenues and the corresponding cost were not consistent with accounting principles.

Commenting on the discrepancies highlighted by the auditors, Dabkara said the matter pertained to recognition of revenue for an engineering, procurement and construction (EPC) contract for manufacturing of energy-efficient cook stoves. The company had received money from the customer for the contract but according to the auditor revenue cannot be booked until the registration and verification process for the order was complete, he said.

Dabkara said to avoid a similar situation in the future the company has started issuing different contracts, one for manufacturing and distribution, and another for registration and verification.

The Indore-headquartered EKI Energy has not yet released the results of the fourth quarter of financial year 2022-23 due to audit delays. Dabkara told Moneycontrol that he expects the auditing process to complete soon.

He also said that EKI Energy has not received any communication from the capital market regulator Securities and Exchange Board of India (SEBI) on this matter. He added that concerns raised by auditors have not impacted the technical or business capability of the company.

The company, founded by Dabkara, listed its shares on the SME platform of the BSE in April 2021 at Rs 140 apiece. Shares of the company soared to highs of Rs 2,000 crore in July 2022 driven by investors’ interest in the carbon credit market. But following the auditors’ report, the stock witnessed a steep correction and declined to its 52-week low of Rs 355 a share on BSE on May 30. On July 13 at 1330 IST, it was trading at Rs 472.55.

Strong hopes for domestic carbon market

Dabkara believes the introduction of Carbon Credit Trading Scheme (CCTS) in India would open up opportunities for EKI Energy to expand its business.

EKI Energy would offer similar advisory services in the domestic markets as it does in international voluntary carbon markets such as a company’s carbon footprint and ways to reduce it, verification of projects and, buying and selling of carbon credits, he told Moneycontrol.

“CCTS is going to add another domain for a company like us to explore or to expand our business related to sustainability, carbon footprint determination, low carbon pathways that we will form for the emitters and ultimately supply carbon credit for the residual emissions,” Dabkara said.

The Indian 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.

Dabkara said the implementation of CCTS in India would not interfere with the selling of carbon credits by the company to the international market.

Dabkara is hopeful that the government would come up with specific and detailed guidelines in the next six months.

He also pointed out that the carbon market has been turbulent in the last two years amid the scrutiny of the market. Experts have argued that most of the carbon credits are not helping in reducing emissions and have therefore questioned the credibility of the issued credits.

New guidelines may bring stability

Dabkara, however, expects stability in the market by 2024 after receiving clear guidelines from ICVCM (Integrated Council for Voluntary Carbon Markets) and VCMI (Voluntary Carbon Market Initiative).

ICVCM and VCMI are governing bodies for the voluntary carbon market, which aim to set global benchmarks for carbon credit. He added that ICVCM and VCMI would issue guidelines by the end of 2023.

Dabkara pointed out that because of the scrutiny of the carbon market, buyers are confused regarding what they should buy, which has led to a decline in carbon trading, impacting EKI Energy as well. Buyers are looking for more trust, confidence and no criticism, he added.

Along with that, Dabkara expects that guidelines for Article 6.4 of Paris Agreement will be formulated at COP28—scheduled to be held in December 2023 in the United Arab Emirates (UAE). Article 6.4 of 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.