With a market capitalisation of Rs. 1,876 crores, the shares of IRM Energy Ltd started Thursday’s trading session on a flatter note at Rs. 460.05 compared to its previous close of Rs. 461.95. The share hit a low of Rs. 455.25, making a loss of around 2 percent and closed the day at Rs. 456.95 apiece.
Having a look at the latest financial statements published by the company, the revenues have shown a positive movement.
The revenue zoomed by 93 percent from Rs. 507 crores in the June quarter to Rs. 980 crores in the September quarter. On a contrasting note, the net profit declined by 50 percent from Rs. 128 crores to Rs. 63 crores during the same timeframe.
Due to increasing expenditure, the profitability metrics of the company declined with the return on equity (RoE) decreasing from 62.86 percent during FY 21-22 to 19.13 percent in FY 22-23, and, the return on capital employed (RoCE) showed a downward movement from 47.97 percent to 17.75 percent during the same timeframe. Furthermore, the net profit margin decreased from 20.74 percent during FY 21-22 to 5.43 percent during FY 22-23.
HDFC Securities one of the well-known brokerage firms, has given a ‘Buy’ target on the company’s stock with a target of Rs. 580 indicating a potential upside movement of around 27 percent compared to its current market price.
The investment rationale for providing such a recommendation pertains to the company’s volume growth. The company has expanded its City Gas Distribution (CGD) network aggressively by investing in a capex spend of Rs. 2.9bn over the last three years. The brokerage firm expects the company to maintain its proactive CGD network expansion, which should support its projected 42 percent CAGR volume growth from FY24-26.
This growth would be fueled by an anticipated rise in the number of CNG vehicles due to favourable economics and rapid expansion of the CNG retail network and increased demand from industrial consumers in Mandi Gobindgarh in Fatehgarh Sahib and N&T in Tamil Nadu, where the company operations are high.
Furthermore, the brokerage firm expects the per-unit EBITDA margins to be improved to Rs.9 per scm by FY26 estimation, owing to a decline in Administered Pricing Mechanism (APM) gas prices and favourable and adequate gas sourcing agreements. Over that, the company mainly serves industrial and commercial demand through high-pressure high-temperature (HPHT) gas, the brokerage firm believes that the decline in HPHT gas prices will also enhance the company’s margin.
Furthermore, the brokerage firm mentioned the commencement of operations in N&T GA is poised to spearhead the company’s next leg of growth. To fulfil this growth IRM Energy has also planned a capex plan of Rs. 3.9bn for establishing 24,000 domestic connections, 62 commercial connections, 10 industrial connections, 65 CNG stations and 38.6 km of steel pipelines by Sep 2026.
Moreover, the brokerage firm remained optimistic about the company’s prospects despite facing headwinds in FY23 owing to elevated input gas costs. And mentioned that the stock possesses an attractive valuation as they are currently trading at 10.1x March 2025E EPS.
Headquartered in Ahmedabad, IRM Energy Ltd was incorporated in 2015. The company is involved in developing, operating, and expanding of local natural gas distribution network.
Written By Vaibhav Patil
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