IRM Energy IPO Review: IRM Energy is coming up with the IPO which is set to be listed on the NSE and  BSE. The IPO will be open for subscription on 18th October 2023 and closes on 20th October 2023.

This article will provide a comprehensive review of the IPO, including an in-depth analysis of the company’s financials and the strengths and weaknesses of IRM Energy. Keep reading for more details!

IRM Energy IPO Review – About The Company

Incorporated in 2015, IRM Energy specializes in city gas distribution across various geographical regions in India. These regions include Banaskantha in Gujarat, Fatehgarh Sahib in Punjab, Diu & Gir Somnath in the Union Territory of Daman and Diu/Gujarat, and Namakkal & Tiruchirappalli in Tamil Nadu. The company’s operations involve the construction, process, and expansion of local natural gas distribution networks.

 IMR Energy supplies natural gas to two primary customer segments:

 CNG (Compressed Natural Gas): This segment, which contributes to 42.3% of the company’s revenue, customers includes public transport vehicles such as taxis and auto-rickshaws, as well as private vehicles like cars, buses, light goods vehicles, and heavy goods vehicles. In the fiscal year 2023, the volume of gas supplied was 83.69 MMSCM.

 PNG (Piped Natural Gas): This segment accounts for 57.6% of the company’s revenue. The PNG customers are categorized into three segments: industrial PNG (for small, medium and large-sized enterprises), commercial PNG (for hotels, restaurants, bakeries, hostels and community halls), and domestic PNG (mainly used as cooking gas). The volume of gas supplied in this segment was 112.74 MMSCM in FY23.

IRM Energy IPO – Industry Overview

According to the International Energy Agency (IEA), the Indian gas market is expected to be one of the fastest-growing in the world over the next two decades. Between 2016 and 2020, India’s natural gas consumption grew at a compound annual growth rate (CAGR) of 3.8%, reaching approximately 176 MMSCMD in 2020.

The demand for natural gas from the City Gas Distribution (CGD) sector is projected to grow at a CAGR of 19-20% between 2023 and 2030.

In fiscal year 2023, end-user industries such as fertiliser, CGD, and power sectors accounted for about 67% of the total gas consumption of approximately 164 mmscmd. Notably, India is the third-largest energy consumer in the world, following China and the US, and is also one of the fastest-growing energy consumers among its peers.

India has been annually reaffirming its commitment to reducing carbon emissions as pledged in the Paris Agreement. Consequently, the share of natural gas in India’s primary energy mix has risen from 6.3% in 2020 to 6.5% currently.

The Indian government has been actively working to develop natural gas infrastructure across the country. As of June 30, 2023, India had about 23,478 km of operational natural gas pipelines. The government also plans to expand the National Gas Grid (NGG) by adding another 12,037 km of pipelines.

The development of the NGG will connect all major demand and supply centres in India. Additionally, the government is promoting the use and distribution of liquified natural gas (LNG) through capacity enhancements of LNG terminals and regasification.

The Indian government aims to create a regasification capacity of 70 mmtpa (million metric ton per annum) by 2030 and increase it to 100 mmtpa by 2040.

IRM Energy IPO Review – Financial Highlights

IRM Energy has showcased a strong financial performance. The company’s operational revenue has seen a significant surge, escalating from ₹185.9 crore in March 2021 to a whopping ₹980 crore in March 2023.

Alongside, the Profit After Tax (PAT) has nearly doubled, soaring from ₹34.8 crore in March 2021 to ₹63.1 crore in March 2023. Reflecting this positive trend, the company’s net worth has also risen sharply, climbing from ₹117.6 crore in 2021 to ₹346.2 crore in 2023.

However, the company’s borrowings have also seen an increase, moving up from ₹163.3 crore in March 2021 to ₹303.8 crore in March 2023. Despite this, IRM Energy has managed to maintain a healthy Return on Equity (ROE) of 18.23% and a Return on Capital Employed (ROCE) of 14.19%, indicating efficient utilization of its capital resources.

 Financial Metrics 

 (Source: RHP of the company)

Competitors of the company

The listed peers of IMR Energy are Gujarat Gas Limited, Indraprastha Gas Limited, Mahanagar Gas Limited and Adani Total Gas Limited. 

Strengths of the company

• The company sources gas at reasonable costs from government entities such as GAIL and RIL. This procurement strategy mitigates the effects of volatility in gas availability and pricing.

• IMR Energy has been granted exclusive rights for 25 years to create infrastructure in all its Geographical Areas (GAs). This includes pipelines and CNG distribution networks in the Diu & Gir Somnath area until 2030, and the Namakkal & Tiruchirappalli area.

•  The company has established strong relationships with a diverse customer base, including industrial, commercial, and domestic customers, through its extensive CNG and PNG distribution network.

•  IMR Energy has developed strong in-house project management capabilities, complemented by robust operation and maintenance processes.

•   The company’s solid relationships with vendors, suppliers, and contractors enable timely and cost-efficient network expansion.

Weaknesses of the company

•  The company relies heavily on third parties, with the top seven suppliers accounting for 100% of total purchases. Any disruption in the supply chain could lead to a failure in the supply of natural gas

•  The company’s network of pipelines is crucial for distributing natural gas. Any breakdown in this infrastructure could disrupt business operations.

•  The allocation and cost of natural gas for CNG and domestic PNG customers are subject to government policies. Any changes in these policies could adversely affect the business.

• IRM Energy’s vulnerability lies in the 15-18 month delay from obtaining PNGRB authorization to revenue generation. Any further delays could negatively affect our financial forecasts and cash flows.

• The company’s operations are confined to specific geographical areas authorized by PNGRB. Any external factors affecting the natural gas requirements in these regions could negatively impact business operations and profitability.

IRM Energy IPO Review – GMP 

As of October 12th 2023, The IPO for IRM Energy is set at a price band of ₹505 per share. The latest grey market price stands at ₹90. The IPO is projected to list at a premium of 17.82%, with an estimated listing price of ₹595. 

IRM Energy IPO Review – Key IPO Information

Promoters: Dr. Rajiv Indravadan Modi, Cadila Pharmaceuticals Limited and IRM Trust are the promoters of the company. 

 Book Running Lead Manager: HDFC Bank Limited, BOB capital markets limited 

 Registrar to the Offer: Link Intime India private limited 

The Objective of the Issue: 

The Company proposes to utilize the Net Proceeds from the Issue towards funding the following objects:

• Funding capital expenditure requirements for the development of the City Gas Distribution network in the Geographical Areas of Namakkal and Tiruchirappalli (Tamil Nadu) in Fiscal 2024, Fiscal 2025 and Fiscal 2026;
• Prepayment or repayment of all or a portion of certain outstanding borrowings availed by the Company; and
• General corporate purposes.

In Closing

As a premier City Gas Distribution (CGD) company, IRM Energy has effectively served a broad spectrum of industrial customers. The company is dedicated to integrating cutting-edge engineering practices into its operations. With a growing trend of industries transitioning from coal to natural gas, IRM Energy is poised to reap substantial benefits from this shift.

What do think the future holds for the company? Are you applying for the IPO? Let us know in the comments below.

Written By Niharika Jadhav

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