IRM Energy Ltd. IPO
Published by Sharekhan Education | October 18, 2023
IRM Energy Ltd IPO has an issue size: ₹544 Cr and price band: ₹480-505.The issue opens on Wednesday, 18th Oct 2023 and closes on Friday, 20th Oct 2023.
Company Overview:
IRM Energy is a city gas distribution company operating in Banaskantha (Gujarat), Fatehgarh Sahib (Punjab), Diu & Gir Somnath (U T of Daman and Diu/Gujarat), and Namakkal & Tiruchirappalli (Tamil Nadu), developing natural gas distribution projects for various customers. It distributes CNG for use in motor vehicles and PNG for use by domestic households.
Cadila Pharmaceuticals Ltd., with a legacy of over three decades in the domestic pharmaceutical industry, strongly backs the company and holds 49.5% of its equity shares.
Objects of Issue:
IRM Energy Ltd IPO consists of a fresh issue of equity shares aggregating to Rs 544 crores. Furthermore, proceeds from the fresh issue will fund capital expenditure for developing the City Gas Distribution network in Namakkal & Tiruchirappalli (Tamil Nadu) and repay borrowings. Additionally, investors need to apply for a minimum of 29 shares and in multiples thereafter. After allotment, both NSE and BSE will list the shares.
Industry Overview :
Favorable government policies for the CGD sector, a moderation in the natural gas price, and an expected increase in the production of domestic natural gas are anticipated to drive a 12-13% rebound in natural gas demand in FY24. CRISIL MI&A Consulting expects natural gas demand from the CGD sector to log 19-20% CAGR over FY 23-30, growing to 1117-120 mmscmd. Major factors that would drive growth in CGD volumes are expanding geographical coverage and improving cost competitiveness of gas. Assured domestic gas supply would aid competitiveness and drive gas demand for CNG and domestic PNG. Growing awareness of cleaner fuel and regulatory restrictions are expected to aid fuel conversion in the industrial segment.
Competitive Strengths :
The company is the sole distributor of CNG and PNG in the GAs awarded to them for the period of exclusivity granted pursuant to the PNGRB authorizations. They have developed strong in-house project management capabilities, complemented by robust operation and maintenance processes. Moreover, they provide competitive offerings while maintaining a customer-centric approach. Additionally, they make continuous efforts to upgrade their services by leveraging technology across all their customer operations. The company aims to reduce their operational costs through setting up an independent captive solar power plant.
Business Strategy :
Moreover, the company intends to establish the key infrastructure for expediting the development of the CGD network in the newly awarded GA of Namakkal & Tiruchirappalli districts in Tamil Nadu. Furthermore, it intends to pursue a strategy of vertical integration to diversify and achieve higher business growth. Additionally, they plan to explore gas sourcing opportunities from ShizGas for sourcing gas from outside of India. Additionally, for the PNG domestic segment, they intend to install pre-paid meters, allowing customers to pay for their consumption in advance.
Key Concerns :
Moreover, the company is dependent on third parties for sourcing and transportation of natural gas. Additionally, transporting natural gas is hazardous and could result in accidents, adversely affecting the company’s reputation, business, and cash flows. Furthermore, the company requires various licenses and approvals for undertaking their business. Notably, its failure to obtain or retain such licenses or approvals in a timely manner may adversely affect their operations. Additionally, it is dependent on Government policies for the allocation of natural gas and the cost of gas supplied for their CNG and domestic PNG customers.
Financials :
The company has delivered revenue growth of 121.4% CAGR over FY21-23. EBITDA has increased by 27.6% CAGR over the same time period. PAT has increased by 34.5% CAGR. EBITDA margin has contracted from 38.4% to 12.1%. As a result, RoE has decreased from 29.6% to 18.2%. At the upper end of the price band (₹480-505), the issue seems reasonably priced at 33x post-issue of equity shares.
Source: IPO Red Herring Prospectus
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