Why EKI Energy Share Price is Falling

Once the darling of investors, EKI Energy Services share price has hit a rough patch. After a year of impressive returns, a sharp drop in the share price has left many wondering what went wrong.

In April 2021, EKI Energy was listed at a price of Rs 35 (ex-bonus price). The company went on to touch a high of Rs 2,482.1 on 31 December 2021. That's a massive gain of 6,654%!

In fact, in January 2022, the company's share price went as high as Rs 3,114.1.

As investors scramble to understand the reasons behind the recent fall, it's worth taking a closer look at the events leading up to this unexpected turn of events.

#1 Weak quarterly results

For the quarter ended December 2022, EKI Energy Services reported total sales of Rs 4,212 million (m). Sequentially, sales were down 9%. However, on a YoY basis, sales were sharply down by 39%.

The company's net profit came in at Rs 452 m, which is surprisingly low because investors were pinning high hopes on this renewable energy player.

Sequentially, net profit declined by 57% and on a YoY basis, it was down 72%.

The net profit margin stood at 10.9% for the quarter ending 31 December 2022. Sequentially profit margin fell by 12.5%.

That's not all.

The company's quarterly results were on a decline for quite some time now.

EKI Energy Quarterly Results

Quarter ending	Dec-21	Mar-22	Jun-22	Sep-22	Dec-22
Turnover (Rs in m)	6,885	4,756	5,102	4,612	4,212
Profit after tax (Rs in m)	1,610	1,052	1,089	1,061	452
Gross profit margin (%)	31	30.7	28.5	31.1	14
Net profit margin (%)	23.4	22.1	21.4	23.1	10.9

Data Source: Ace Equity

Co-head of research at Equitymaster, Tanushree Banerjee raised her concerns about EKI Energy Services' well in advance.

Here's what she wrote in one of her editorials of 2022:

• Now, the company's stupendous growth numbers and margins may be real. But they certainly are too good to be sustainable.
  
  For a business that is so dependent on regulations, geopolitics, and voluntary purchases the climate change megatrend is but a misnomer.
  
  EKI expects to triple the trading of carbon credits in 2022, against that of last year. And when the carbon trading market opens up, the management believes the throughput will be at least 5x..."aaraam se".
  
  While the stock reminds me of Vakrangee, investors would do well to stay sceptical.

#2 Auditor's remarks

To add insult to injury, the auditors of EKI Energy Services issued a qualified audit report.

A qualified audit report is issued when the auditor believes that a certain portion of the financial statements is materially misstated. However, these misstatements do not impact the whole of the financial statements. Thus, misstatement is material but not pervasive.

The company's new auditor, Walker Chandiok & Co, highlighted likely non-compliance with specific accounting standards and revenue recognition norms.

Walker Chandiok said recognition of revenues and the corresponding cost from certain customers in the quarters ended December 2022, September 2022, and nine months ended December 2022 to fulfil the underlying performance obligations is not consistent with accounting principles in Ind-AS 115.

An auditor's report typically indicates that the auditor has identified significant deficiencies or material weaknesses in the company's financial reporting, which could potentially lead to misstatements or errors in the financial statements. This can result in a loss of confidence in the company's financial performance and stability.

In addition, an auditor's report can also lead to increased scrutiny from regulatory bodies.

It can also harm a company's reputation.

How shares of EKI Energy Services have performed recently

EKI Energy Services share price is down 51% in 2023 so far. In the past one year, it has fallen by 73%.

EKI Energy Services touched its 52-week high of Rs 2,964 on 06 July 2022. Its 52-week low was Rs 568.8 touched today on 16 February 2022.

About EKI Energy Services

EKI Energy Services is a premier carbon credit developer and supplier across the globe.

It offers services in climate change advisory, carbon credits trading, business excellence advisory, and electrical safety audits.

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

To know more about the company, check out EKI ENERGY SERVICES company fact sheet and quarterly results.

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