IRM Energy IPO – Issue Details and Review

IRM Energy Limited is planning an initial public offering (IPO) and plans to begin offering on September 18, 2023. Although the company has experienced significant revenue growth, profit margins are trending downward. In this article: IRM Energy IPO Details, key IPO dates, size, price range, positive factors, risk factors, thorough review and analysis.

IRM Energy IPO – Key details

IRM Energy IPO Date and Schedule

About IRM Energy Limited

This Indian company is in the business of supplying natural gas to various regions. The company builds and operates networks that supply natural gas to industrial, commercial, residential, and automotive customers. The company operates in different districts and supplies natural gas to his two main customer segments:

• CNG (compressed natural gas): The company supplies CNG to public transport such as taxis and autorickshaws, as well as private vehicles such as cars, buses and trucks.
• PNG (pipe natural gas): PNG’s customers include industrial users, commercial establishments such as hotels and restaurants, and households that primarily use natural gas for cooking.

It generates revenue from these two segments and has operations in several districts across India.

IRM Energy Financial Insights

Purpose of IPO

IRM Energy’s IPO size is Rs 545.5 million and will be used for:

• Fund the capital expenditure required for the development of city gas distribution network in Namakkal and Tiruchirappalli (Tamil Nadu) geographical areas in FY2024, FY2025 and FY2026.
• the prepayment or repayment of all or part of certain outstanding borrowings utilized by us;and
• General corporate purposes.

IRM Energy IPO valuation

• The IPO price range is between Rs 480 and Rs 505 per share.
• Considering last year’s FY23 EPS was 20.9 rupees, the P/E ratio is 24 times.
• Considering the last three years’ weighted EPS of Rs 27.16, the P/E ratio is 19x.
• Listed peers such as Adani Total Gas are trading at a P/E ratio of 125 times (highest) and Mahanagar Gas is trading at a P/E ratio of 19 times (lowest), while the industry average P/E ratio is 44 times. Excluding Adani Total Gas, which is trading at an abnormal price, the company’s IPO price range of 19 times to 24 times P/E is sufficient.

IRM Energy IPO GMP

There is currently no active trading in the offline market.

Positive aspects of IRM Energy IPO

Investors should also consider the following 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 area granted to it by the PNGRB, giving it a competitive advantage.
• Successfully developing and operating a CGD business: The company has a track record of successfully building and operating CNG and PNG delivery systems and meeting minimum work permit commitments.
• Diverse customer portfolio and sales network: The company has a diverse customer base across industrial, commercial and residential sectors, reducing dependence on a single industry or location and providing a hedge against market volatility.
• Strong pedigree 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 oil industries.
• 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.
• Connection to gas pipeline: The company has strategically acquired GAs that can connect to natural gas pipelines in various countries, reducing transportation costs and enabling cost-effective gas procurement.
• Strong financial performance: The company has a consistent track record of volume, revenue and profit growth, supported by sound operational efficiency and favorable regulations. This financial stability can support future expansion and growth.

IRM Energy IPO risk factors

Investors should consider these negative risk factors before investing in this IPO.

• The company saw significant improvement in profit margins from FY20 to FY22, but profit margins in FY23 declined compared to the previous financial year.
• The Company relies on third parties to procure and transport natural gas.
• The transportation of natural gas is dangerous and can result in accidents, which could adversely affect our reputation, business, financial condition, results of operations and cash flows.
• One of its promoters, Cadila Pharmaceuticals Limited, provides corporate guarantees to third parties for loans taken out by us. If a company defaults on any of its available loans, its promoters will be liable for repayment.
• The company’s CNG and industrial PNG supply business accounted for 49.43% and 46.86% of its total business for the three months ended June 30, 2023. These are highly dependent on his CNG and industrial PNG supply businesses, and any increase in sales could have an adverse effect on our business, operations, financial condition and cash flows.
• We require various licenses and approvals to operate our business, and if we do not obtain or maintain such licenses or approvals on a timely basis, or at all, our operations could be adversely affected.
• It typically takes 15-18 months to generate revenue with GA. Further delays in revenue realization could affect our forecasts, results of operations and cash flows.

IRM Energy IPO Review – Should you invest or avoid?

In conclusion, investing in this Indian city gas supply company’s IPO has both benefits and risks.

On the positive side, the company has the advantage of exclusive supply of CNG and PNG within its allocated geographical area, giving it a competitive advantage. Our strengths are our track record in building and operating logistics systems and our diverse customer portfolio. Additionally, the company’s strong family pedigree, experienced leadership, and focus on technology adoption enhance its growth potential. Additionally, GA’s strategic acquisition, with its gas pipeline connectivity and consistent financial performance, provides a stable base for expansion.

However, there are also significant risks to consider. The company relies on third-party suppliers for natural gas and transportation, which exposes it to supply chain disruptions. Transporting natural gas is dangerous, can lead to accidents, and can have a negative impact on a company’s reputation and finances. The promoter’s liability for the company’s loan is a financial risk. Our high dependence on our CNG and industrial PNG operations means that weakness in these sectors could have an adverse impact on our overall business. There are potential hurdles with regulatory approvals and licenses, and the time required for GA to generate revenue can impact financial projections.

Investors can take the following steps: IRM Energy IPO RHP We have considered all the risk factors and you can invest in this IPO.

Suresh KP is the founder of Myinvestmentideas. He is a NISM Certified Investment Advisor and he is a NISM Certified Research Analyst. He has been analyzing financial markets for the past 20 years. He can be reached at suresh@myinvestmentideas.com.

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