This stock is up over 5,000% in 2021! are you kidding with me?

Crazy, isn’t it?

If you’re wondering whether it’s a penny stock, you couldn’t be more wrong!

What makes this rally even more unbelievable is that the gains are not there for the entire duration of 2021. They are only from April 2021 until now!

So, which stock am I talking about and why has it gained momentum over the past few months?

Established in 2011, EKI Energy is one of the leading companies in the carbon credit industry in India.

The company is listed on the exchanges 147 A share with the intention of raising a little more in April 2021 180m through Initial Public Offering (IPO).

Since then, the stock has risen more than 5%, hitting an upper circuit of 5% almost every day.

The positive sentiment driving this stock is the growth of net-zero commitments as the world focuses on reducing its carbon footprint.

Stock currently. trades on 7,779.

EKI Energy Services share price as of April 2021

Data Source: BSE

What does EKI Energy Services do?

EKI Energy Services provides services in Climate Change Advisory, Carbon Credit Trading, Business Excellence Advisory and Electrical Safety Audits.

However, its main business is to facilitate trading of carbon credits.

What is a Carbon Credit?

A carbon credit is a certificate indicating that one ton of carbon dioxide emissions from the atmosphere have been reduced.

This is often achieved by carrying out activities such as planting trees, or for industrial applications such as using carbon-reducing agents at emission points.

Carbon credits can be traded on the carbon market.

Companies or industries for which saving one ton of carbon emissions is expensive, buy these carbon credits from companies for which it is cheaper to save one ton of carbon.

It helps in mitigating environmental hazards, reducing greenhouse gas emissions and creating new market opportunities.

EKI Energy has been in this business for over 12 years, operating under the Brand ‘Enking International’.

It has over 2,000 customers which include NTPC, NHPC, Indian Oil Corporation, Indian Railways, SB Energy, The World Bank and Fortum.

The company has said that it facilitates trading of one million carbon offsets (tradable carbon credits) every month.

financial snapshot

The ever-increasing share price of EKI Energy Services is supported by the strong financial position of the Company.

In the last three years, the company’s revenue has seen a growth of nearly 200 percent every year. Its net profit growth also stands at over 100%.

In FY 2021, the company’s revenue grew by 189% year-on-year (YoY) 1.9 billion while net profit grew by 316% YoY 187 m

EKI Energy Financial (2018 – 2021)

Data Source: Ace Equity

This momentum has been carried forward in the current financial year also.

For the first half of Fiscal Year 2022, EKI Energy’s revenue has already seen a sharp growth 6.4 billion, compared to full year turnover 1.9 billion in 2021.

Similarly, its net profit has increased to 1.2 billion, against net profit Reported 187m in 2021.

The strong numbers were driven by increased market awareness for net-zero emissions, rising demand from key markets, particularly the US and Europe, and better pricing of carbon credits.

EKI Energy Financial (June 2021- September-2021)

	June-21	Sept-21
total revenue ( in m)	1,935	4,437
Revenue Growth (in %)		129%
Net Profit	357	813
Profit Growth (in %)		128%
net profit margin	18.5	18.3

Data Source: Ace Equity

company is debt free till March 2021. Moreover, its return ratio is strong with Return on Equity (ROE) at 75.1 and Return on Capital Employed (ROCE) at 98.2.

Promoters hold 73.5% of the company and have not pledged any shares.

The road ahead for EKI Energy Services

EKI Energy Services tracking turnover 15 billion in the current fiscal and is expected to grow by 50% in 2022-23.

EKI Chairman and Managing Director and CEO Manish Dabkara has said that he expects to facilitate trading of 150m of carbon credits this year, compared to 55m last year.

To increase its revenue, the company has acquired a 51% stake in SustainPlus Rise, a multi-disciplinary advisory and consulting firm that specializes in climate resilience services.

It has also added an offshore wholly owned subsidiary named Enking International FZCO in the Dubai Free Zone (IFAZA) to expand its presence in the global carbon market.

In addition, it has recently announced a joint venture with Shell Overseas Investments, a unit of Royal Dutch Shell, to focus on developing nature-based solutions (NBS) for carbon capture in India.

The joint venture will work on conservation, promotion and restoration of natural ecosystems such as forests, agriculture, grasslands, wetlands and blue carbon.

This will prevent or lower concentrations of greenhouse gases in the atmosphere.

Currently, there is no highly viable commercial technology available in the carbon removal space. Therefore nature based solutions are the best way to remove carbon dioxide from the atmosphere.

The carbon credits arising from these NBS projects will be shared in proportion to the investments made by Shell or EKI.

If Shell invests 80% of the capital in a project, it will receive 80% of the carbon credits it generates.

Both companies have also signed an exclusivity clause in the contract.

Why might the stock rally some more?

Earlier companies used to get ‘Certified Emission Reduction’ or CER for their projects. They were issued under a framework that climate negotiators called the ‘Kyoto Protocol’.

However, it was later replaced by the Paris Agreement.

In December 2015, 196 countries signed an international treaty called the Paris Agreement to reduce carbon emissions in Paris.

While all the terms of the treaty were in place, the unfinished agenda was making rules for carbon markets (Article 6).

Then in November 2021, the Twenty-sixth Conference of the Parties (COP 26) of the UNFCCC in Glasgow saw a breakthrough in finalizing the rules and opening up carbon markets.

With regulations now in place, governments of most developed countries are expected to start buying credit. In the Paris Agreement this is called the ‘International Trade Mitigation Outcome’ (ITMO).

Carbon credit (or offset) prices are already going through the roof. Today, some types of carbon credits sell for up to 60 euros.

To finish…

India’s carbon market is one of the fastest growing in the world and has already generated millions of carbon credits.

Carbon is now also being traded on MCX (Multi Commodity Exchange). The platform is the first exchange in Asia to trade carbon credits.

As India leads a seismic shift where conventional energy sources are replaced by green energy like solar, wind, and green hydrogen, has a wide scope.

Billionaires like Ambanis and Adanis have already announced plans to invest in renewable energy to ensure that India moves towards its net-zero goal.

Disclaimer: This article is for informational purposes only. This is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com