IRM Energy Limited coming up with Initial Public Offering (IPO), scheduled for subscription from September 18, 2023. Company had strong revenue growth, however, margins are on declining mode. In this article we would provide IRM Energy IPO details, Key IPO Dates, Size, Price Band, Positive Factors, Risk Factors and thorough review and analysis.
IRM Energy IPO – Key Details
| IPO Opening Date | 18-Oct-23 |
| IPO Closing Date | 20-Oct-23 |
| IPO Listing Date | 31-Oct-23 |
| Issue Type | Book Built Issue IPO |
| Face Value | Rs 10 per equity share |
| IPO Price band | Rs 480 to Rs 505 per equity share |
| Lot Size | 29 Shares |
| Listing at | BSE and NSE |
| Total Issue Size | Rs. 545.4 Crores |
| Employee Discount | Rs.48 Per Share |
IRM Energy IPO Dates and Timetable
| IPO Opens on | 18-Oct-23 |
| IPO Closes on | 20-Oct-23 |
| Basis of Allotment | 27-Oct-23 |
| Initiation of Refunds | 27-Oct-23 |
| Credit of Shares to Demat | 30-Oct-23 |
| Listing Date | 31-Oct-23 |
| Cut-off time for UPI mandate confirmation | 20-Oct-23 – 5 pm |
About IRM Energy Limited
This company in India is in the business of distributing natural gas in various regions. They build and operate networks for supplying natural gas to industrial, commercial, residential, and automobile customers. They have operations in different districts and supply natural gas to two main customer segments:
- CNG (Compressed Natural Gas): They provide CNG to public transport vehicles like taxis, auto-rickshaws, and private vehicles such as cars, buses, and trucks.
- PNG (Piped Natural Gas): Their PNG customers include industrial users, commercial establishments like hotels and restaurants, and households mainly using natural gas for cooking.
They generate revenue from these two segments, and the company’s operations are in several districts across India.
Financial Insights of IRM Energy
| Financial Year ending / Period ending (Amt in Crores) | ||||
| Particulars | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|
| Assets | 267.16 | 338.11 | 554.80 | 792.90 |
| Revenue | 166.13 | 212.54 | 549.19 | 1,045.10 |
| Profit After Tax | 21.07 | 34.89 | 128.03 | 63.14 |
| Net Worth | 74.74 | 117.60 | 243.72 | 346.42 |
| Reserves and Surplus | 30.31 | 67.57 | 193.30 | |
| Total Borrowing | 146.74 | 163.35 | 202.59 | 303.83 |
IPO Objectives
IRM Energy IPO Size is Rs 545.5 Crores and would be used for the following purpose.
- 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.
Valuation of IRM Energy IPO
- Its IPO price band is Rs 480 to 505 per share
- If we consider last year FY23 EPS of Rs 20.9, P/E ratio works out to be 24x
- If we consider last 3 years weighted EPS of Rs 27.16, P/E ratio works out to be 19x
- The listed peers like Adani Total Gas trading at P/E 125x (Highest) and Mahanagar Gas is trading at P/E of 19x (Lowest) and industry average P/E is 44x. If we exclude Adani Total gas which is trading at abnormal price, this company IPO Price band at P/E of 19x to 24x is fully priced.
IRM Energy IPO GMP
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Positive Aspects of IRM Energy IPO
Investors should also consider these positive aspects when evaluating this IPO:
- Exclusivity in CNG and PNG supply: The company has exclusive rights to supply CNG and PNG in the geographical areas awarded to them by PNGRB, providing a competitive advantage.
- Successful development and operation of CGD business: The company has a track record of successfully building and operating CNG and PNG distribution systems, meeting their minimum work permit commitments.
- Diverse customer portfolio and distribution network: They have a diverse customer base across industrial, commercial, and domestic segments, reducing dependence on any single industry or location and providing a hedge against market instability.
- Strong parentage and experienced leadership: Backed by Cadila Pharmaceuticals Limited, the company benefits from strong financial support and experienced leadership with expertise in the natural gas and petroleum industry.
- Technology adoption and digital initiatives: The company focuses on implementing the latest technology and digital solutions to improve efficiency and reduce operational costs. This includes SCADA systems, RFID technology, and AMR.
- Connectivity to gas pipelines: The company strategically acquires GAs with connectivity to cross-country natural gas pipelines, reducing transportation costs and enabling cost-effective gas sourcing.
- Strong financial performance: The company has a consistent track record of growth in volumes, revenues, and profits, supported by healthy operating efficiency and favorable regulations. This financial stability can support future expansion and growth.
Risk Factors in IRM Energy IPO
Investors should consider these negative of risk factors before investing in this IPO.
- While company shown good improvement in margins between FY20 to FY22, for FY23 the margins are declined compared to previous financial year.
- Company is dependent on third parties for sourcing and transportation of natural gas.
- Transporting natural gas is hazardous and could result in accidents, which could adversely affect its reputation, business, financial condition, results of operations and cash flows.
- Cadila Pharmaceuticals Limited, one of its Promoters, has provided corporate guarantees to third parties for the loans availed by the Company. In the event company defaults on any of the loans availed, its Promoters will be liable for the repayment obligations.
- Its CNG and industrial PNG supply operations account for 49.43 % and 46.86 % of its total operations (in terms of volume) for the three months ended June 30, 2023. They are heavily reliant on its CNG and industrial PNG supply operations and any decrease in the sales, may have an adverse effect on the business, operation, financial condition and cash flows of the Company.
- They would require various licenses and approvals for undertaking its businesses and the failure to obtain or retain such licenses or approvals in a timely manner, or at all, may adversely affect its operations.
- They typically require 15-18 months to generate revenue in its GAs. Any further delay in realizing revenue may affect its projections, results of operations and cash flows.
IRM Energy IPO Review – Should you invest or avoid?
In conclusion, investing in the IPO of this city gas distribution company in India has both its merits and risks.
On the positive side, the company benefits from exclusivity in CNG and PNG supply within its allocated geographical areas, providing a competitive advantage. Their successful track record in building and operating distribution systems and their diverse customer portfolio are strong points. Additionally, the company’s strong parentage and experienced leadership, along with their emphasis on technology adoption, bolster their growth potential. Furthermore, their strategic acquisition of GAs with connectivity to gas pipelines and a consistent financial performance offer a stable foundation for expansion.
On the flip side, there are significant risks to consider. The company’s dependence on third-party suppliers for natural gas and transportation exposes it to supply chain disruptions. Transporting natural gas is hazardous and could lead to accidents, potentially harming the company’s reputation and finances. The Promoter’s liability for the company’s loans is a financial risk. Heavy reliance on CNG and industrial PNG operations means that a downturn in these segments could adversely affect their overall business. Regulatory approvals and licenses pose potential obstacles, and the time required to generate revenue in GAs may impact financial projections.
Investors can go through the IRM Energy IPO RHP for all risk factors and can invest in this IPO.
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