About the Company

Incorporated in 2015, IRM Energy Limited is a city gas distribution (CGD) company in India, with operations in Gujarat, Punjab, Union Territory of Daman and Diu, and Tamil Nadu. The company is engaged in the business of laying, building, operating, and expanding the city or local natural gas distribution network. It develops natural gas distribution projects in the geographical areas (GAs) allotted to it for industrial, commercial, domestic, and automobile customers.

The company supplies natural gas to two primary set of customer segments, set out below:

1. CNG (Compressed Natural Gas) Customers include operators of public transport vehicles such as taxis, auto-rickshaws, and private vehicles such as cars, buses, light goods vehicles, and heavy goods vehicles.

2. PNG (Piped Natural Gas): PNG customers are broadly classified into three segments, which are, industrial PNG (small, medium, and large-sized enterprises), commercial PNG (such as hotels, restaurants, bakeries, hostels, and community halls) and domestic PNG (predominantly using PNG as cooking gas).

For FY 2022-23, 42.33% of the revenue was generated from CNG and 57.67% of the revenue was generated from PNG.

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

Industry Overview

Global gross domestic product (GDP) growth is projected to be at 2.2% in 2023. S&P Global has lowered its growth forecasts for period 2023 and 2024 and raised forecasts for inflation.

India is expected to grow at a faster rate than its peers, driven by stronger domestic demand. For fiscal 2023, real GDP growth is expected to be 7.0% in FY23, according to the second estimates released by the National Statistical Office (NSO).

Natural gas consumption in India clocked a CAGR of 3.8% between fiscals 2016 and 2020, rising to ~176 MMSCMD (million metric standard cubic meter per day) in fiscal 2020. However, it dipped 5% in fiscal 2021 due to Covid-19 related challenges such as constrained transportation and industrial activities.

Demand rose again ~4.8% in fiscal 2022. Growth was driven by higher offtake from end-use industries as economic and industrial activity and personal mobility gained traction.

The gas demand in fiscal 2024 is expected to rebound by 12-13% due to a mix of factors such as a favourable government policy for the CGD sector, a moderation in the natural gas price, and an expected increase in the production of domestic natural gas.

The Indian government has been consistently taking steps to develop natural gas infrastructure across the country. As of June 30, 2023, the country had 23,478 km of natural gas pipelines in operation. It also plans to develop a vibrant gas market across the country through 12,037 km of additional pipelines, to complete the National Gas Grid (NGG). Development of the NGG would connect all the major demand and supply centres in India.

In addition, the government is taking various measures to promote use and distributorship of liquified natural gas (LNG) through establishment/capacity enhancements of LNG terminals and regasification. It aims to create regasification capacity of 70 MMTPA (million metric ton per annum) by 2030 and 100 MMTPA by 2040.

IPO Objectives

1. Funding capital expenditure requirements for development of the City Gas Distribution network in the Geographical Areas of Namakkal and Tiruchirappali (Tamil Nadu).

2. Prepayment or repayment of all or a portion of certain outstanding borrowings availed by the Company.

3. General corporate purposes.

Financials

The company's revenue increased from Rs.189.57 Crores in the FY 2020-21 to Rs.980.09 Crores in the FY 2022-23, with a CAGR of 127.38%. In contrast, the EBITDA saw a more modest CAGR of 27.67%, rising from Rs.72.97 Crores in FY 2020-21 to Rs.118.94 Crores in FY 2022-23. This slower EBITDA growth was primarily due to challenges like rising raw material costs and increased excise duties that hindered its expansion.

Conversely, the Net Profit expanded from Rs.34.89 Crores in FY 2020-21 to Rs.63.15 Crores in FY 2022-23, with a CAGR of 34.53%. Unfortunately, the company's ROCE decreased from 19.98% in FY 2020-21 to 14.19% in FY 2022-23, and the ROE also declined, dropping from 29.67% in FY 2020-21 to 18.23% in FY 2022-23.

Valuation

The company's PE ratio stands at 24.13, while the industry's PE ratio is 43.88, suggesting that the company is undervalued. Similarly, the company's PB ratio is 4.41, whereas the industry's PB ratio is 8.43, also indicating undervaluation.

Peer Comparison

IRM Energy Limited is the smallest company by revenue among its peers, with Gujarat Gas Limited leading in terms of revenue and Mahanagar Gas Limited leading in terms of profitability.

Key Risks

1. The contingent liabilities for the three months ended June 30, 2023 amount to Rs. 239.68 Crores. The contingent liabilities, if materialized could materially and adversely affect the business, results of operations and financial condition of the company.

2. Any breakdown in the network infrastructure through which the company sources and supplies natural gas could adversely affect the business, reputation, results of operations and cash flows of the company.

3. There are 2 criminal litigations, 29 regulatory actions and 12 material tax litigations as per the Materiality Policy of the Company, involving its Promoters. In the event of any adverse outcome, the Company’s and its Promoter’s business operations and reputation may be affected.

4. The company is dependent on Government policies for allocation of natural gas and cost of gas supplied for the CNG and domestic PNG customers. Any reduction in allocation of natural gas or any increase in the cost of gas could adversely affect the business, reputation, operations, and cash flows of the company.

5. The city gas distribution network can only be set up in areas where the company receives authorization to operate from the PNGRB, accordingly, the company’s operations are restricted to defined geographical boundaries, which may adversely affect the business operations, profitability, and cash flows of the company.

IPO Details