| EKI Energy Services Limited | ||||
| 'CRISIL BBB/Stable' assigned to Bank Debt | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its 'CRISIL BBB/Stable' for bank loan facilities and corporate credit rating to EKI Energy Services Limited (EKI, part of EKI group).
The rating reflects EKI 's established market presence supported by extensive experience of the management with established network of projects, geographically diversified operations, moderate working capital cycle, and strong financial risk profile. These strengths are partially offset by its exposure to adverse changes in government regulations and vulnerability of operating margin to carbon credit prices and fluctuations in forex rates. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of EKI and all its subsidiary companies which are strategically important to and have a significant degree of operational integration with EKI. These subsidiaries are Glofix Advisory Services Private Limited (GASPL), GHG Reduction Technologies Private Limited (GRTPL), Amrut Nature Solutions Private Limited (ANSPL), and Enking International FZCO (EIF). CRISIL Ratings considers these entities, together referred to as EKI group, have common promoters and strong operational and financial linkages.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Established market position supported by extensive experience of the management The group has a strong market presence in the carbon credit trading and carbon advisory services, with an experience more than 10 years in the industry. The group has established 1000+ project network in its portfolio as of March 2022 and is focusing on further expanding its supplier base for carbon credits through exploring new projects such as nature based, community based and green hydrogen projects. The deep understanding of market dynamics and eligibility requirements, the group is also expanding into backward integration through setting up community and nature based projects which will provide stable availability of carbon credits.
Diversified operations with large customer base EKI has established relationships with a wide number of clients, which are well diversified across geographies. EKI group derives generates majority of its revenues (more than 95% of its revenue) from export markets including UK, Europe, US, Australia, etc. Diversity in geographic reach and clientele should continue to support the business risk profile.
Moderate working capital cycle The group maintains a moderate working capital cycle as reflected in gross current asset (GCA) of 103 days as on March 2022, supported by low debtors of 28 days and moderate inventory levels of 56 days. The GCA days are estimated to increase to around 155-170 days as on March 31, 2023 due to significant increase in inventory level.
EKI typically offers a moderate credit period of 10 to 30 days to its customers across geographies. Inventory levels are expected to remain high at 90-100 days over the medium term as per business requirements. Working capital requirements is expected to remain moderate over the medium term.
Strong financial risk profile EKI has a strong networth of Rs 406 crores as on March 31, 2022, and is expected to further improve to Rs 600-625 Crores as on March 31, 2023 with steady accretion to reserves. EKI’s capital structure is comfortable due to lower reliance on external funds yielding gearing and total outside liabilities to adj tangible networth (TOL/ANW) of below 1 times for year ending on 31st March 2022. EKI debt protection measures are also robust with interest coverage and net cash accrual to total debt (NCATD) ratio of above 100 times for fiscal 2022. The interest coverage is estimated at 37-38 times and NCATD at 1.75-1.9 times for the fiscal 2023 due to increase in working capital as well as term debt.
Weaknesses: Exposure to adverse changes in government regulations The carbon credit trading business is susceptible to government regulations (including the recent developments around Energy Conservation Act, 2022 passed in Indian parliament), and any unfavorable change in policy may impact EKI’s performance and profitability.
Vulnerability of operating margin to carbon credit prices and fluctuations in forex rates Operating margins have remained volatile in the range of 5% to 28% over the past four years ending fiscal 2022. The prices for carbon credits are market driven and tied to the global supply demand dynamics. Price realizations for EKI have increased more than 400% in fiscal 2022 as compared to fiscal 2021 which supported the profitability. In addition, with 99% of revenues exposed to export revenues the margins are further susceptible to fluctuations in forex rates. |
Liquidity: Adequate Cash accruals are expected to be over Rs 180 crore which are sufficient against negligible term debt obligation of Rs 15 to 17 crore over the medium term. Bank limit utilization is low at 26.7 percent for the past twelve months ended February 2023. Cash and cash equivalents was about Rs 13 crores with additional Rs 22 crores in mutual funds as of March 2022. Current ratio is healthy at 3.5 times on March 31, 2022 and estimated at 2.9 to 3.0 times on March 31, 2023. Low gearing and moderate net worth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business. |
Outlook: Stable CRISIL Ratings believe EKI will continue to benefit from the extensive experience of its promoter, and established relationships with clients. |
Rating Sensitivity factors Upward factor
Downward factor
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About the Group EKI, incorporated in March 2011, is promoted by Mr. Manish Kumar Dabkara. It is engaged in providing of carbon credit trading, carbon advisory services, climate change and sustainability solutions mainly buying of carbon credits from domestic market and selling into international market. The group is based in Indore and have established global footprint in 40+ countries including 2500 plus clients. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||
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This Annexure has been updated on 31-Mar-2023 in line with the lender-wise facility details as on 31-Mar-2023 received from the rated entity.
Criteria Details
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