IRM Energy Limited IPO

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IRM is a city gas distribution (“CGD”) company in India, with operations at Banaskantha (Gujarat), Fatehgarh Sahib (Punjab), Diu & Gir Somnath (Union Territory of Daman and Diu/Gujarat), and Namakkal & Tiruchirappalli (Tamil Nadu), engaged in the business of laying, building, operating and expanding the city or local natural gas distribution network.

They focus on meeting the energy needs of customers in geographical areas “GAs” through it’s pipelines and CNG station network at a competitive price, while maintaining high safety standards.

They have positioned themselves as the provider of one of the safest, cleanest and most cost-effective fuels for households, commercial establishments and industrial units as well as for fuel requirements in the transport segment.

Due to their competitive gas price and optimised operational expenditure, They can offer gas to PNG industrial customers at a viable price in the market and enable the PNG industrial customers to switch from other alternate fuels (coal and furnace oils) to natural gas.

They have authorizations for the GAs awarded for Banaskantha and Fatehgarh Sahib, in the sixth round of bidding conducted by the Petroleum and Natural Gas Regulatory Board (“PNGRB”) in July 2016.

They have also entered into certain gas transportation agreements (“GTAs”) for transportation of natural gas from suppliers pursuant to their GSPAs.

Natural gas demand from the CGD sector to log at 15-16% CAGR between Fiscal 2022 and Fiscal 2030, to 103-107 MMSCMD. (Source: CRISIL Report).

They have signed a memorandum of understanding (“MoU”) with Mindra EV Private Limited on August 24, 2022 for setting up an electric vehicle (“EV”) charging infrastructure at DODO Stations and COCO Stations for a period of five years and believe this will enable the creation of an efficient ecosystem for EV charging.


Objects of the IRM Energy Limited IPO:

The Offer comprises the Fresh Issue of Up to 10,100,000 Equity Shares :- (i) Funding capital expenditure requirements for 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. (ii) Prepayment or repayment of all or a portion of certain outstanding borrowings availed by IRM Energy. (iii) General corporate purposes.

IRM Energy Limited IPO Details:

Open Date: Oct 18 2023
Close Date: Oct 20 2023
Total Shares: 10,800,000
Face Value: ₹ 10 Per Equity Share
Issue Type: Book Building
Issue Size: 545.40 Cr.
Lot Size: 29 Shares
Issue Price: ₹ 480 to ₹505 Per Equity Share
Listing At: NSE,BSE
Listing Date: Oct 30 2023

Promoters And Management:

(i) Dr. Rajiv Indravadan Modi is one of the promoters of the company. He is the Chairman and Managing Director of the company. He holds a Bachelor of Technology in chemical engineering from Indian Institute of Technology, Bombay. He also holds a diploma in Biochemical Engineering from University College London and a degree of a Doctor of Philosophy (Biological Sciences) from University of Michigan. He is a fellow member at Indian National Academy of Engineering. He also serves as the Chairman of Board of Governors of IIT Guwahati and Chairperson of the Board of Governors of IIT Gandhinagar, Gujarat. (ii) Maheswar Sahu is a Non-Executive Director of our Company and the Chairman of the Board of Directors of our Company. He holds a Bachelor of Science degree in electrical engineering from Regional Engineering College, Rourkela. He also holds a Master of Social Science degree from the University of Birmingham. He joined Indian Administrative Service (IAS) in 1980.

Financials of IRM Energy Limited IPO:

A. Balance Sheet
Particular (In Million) Mar-21 Mar-22 Mar-23
Equity Share Capital 289.99 293.70 302.60
Reserves 886 2,144 3,162
Borrowings 1,634 2,026 3,038
Trade Payables 101 251 312
Other Liabilities 471 834 1,115
Total Liabilities 2,205 3,111 4,465
Net Block 2,308 2,848 3,610
Capital Work in Progress 197 523 911
Investments 61 257 324
Other Assets 238 506 829
Total NC Assets 2,805 4,134 5,674
Receivables 112 227 386
Inventory 8 17 19
Cash & Bank 414 997 985
Other Assets 42 173 865
Face value 10 10 10
B. Profit & Loss Statement
Particular (In Million) Mar-21 Mar-22 Mar-23
Sales 2,118 5,461 10,391
Purchases of Stock In Trade 771 2,492 7,795
Change in Inventory -0.2 -10 3
Employee Cost 41 72 91
Selling and admin 222 390 590
Other Expenses 352 653 790
Other Income 7 31 60
EBITDA 739 1,895 1,182
EBITDA Margin 34.91% 34.69% 11.38%
Depreciation 120 150 209
Interest 159 221 229
Profit before tax 461 1,524 744
Tax 110 388 180
Net profit 351 1,136 564
NPM (%) 16.53% 20.68% 5.40%
C. Cash Flow Statement
Particular (In Million) Mar-21 Mar-22 Mar-23
Cash From Operating Activity
Profit From Operation 735 1,913 1,301
Receivable -63 -115 -159
Inventory -1 -9 -2
Payable -89 14 339
Other WC Items -37 -298 -732
Working Capital Changes -189 -408 -554
Direct Taxes -91 -218 -280
Net Cash Inflow from Operating Activity 454 1286 467
Cash from Investing Activity
Fixed assets purchased -351 -905 -1625
Investments purchased -76 -139 -730
Investment sold 0 0 290
Other investing items 6 -60 49
Net cash inflow from investing activities -420 -1103 -2016
Cash from Financing Activity
Proceeds from shares 44 16 413
Proceeds from borrowings 172 437 1153
Repayment of borrowings 0 -61 -159
Intrest paid fin -137 -194 -192
Dividends paid 0 -35 -15
Other financing items 24 -12 -23
Net Cash Flow 137 334 -373

Comparison With Peers:

Name of the Company Revenue (In Crore) PAT (In Crore) EPS ( in Rs) P/E CMP Mcap (In Crore)
IRM Energy Limited 1039 56 13.74 36.7 505 2,074
Gujarat Gas Limited 16759 1,528 22.20 21.5 426 29,332
Indraprastha Gas Limited 14,146 1,445 20.6 22.9 478 33,449
Mahanagar Gas Limited 6,299 790 79.98 11.4 1,122 11,088
Adani Total Gas Limited 4,378 546 4.97 120 608 66,973
* All the data is as per FY23.

Recommendation on IRM Energy Limited IPO:

Review and Recommendation of IRM Energy IPO by IZ team is 4/10

A) Business Overview

IRM Energy is an Indian City Gas Distribution (CGD) company with operations in multiple geographical areas (GAs) including Banaskantha (Gujarat), Fatehgarh Sahib (Punjab), Diu & Gir Somnath, and Namakkal & Tiruchirappalli (Tamil Nadu). The company is focused on providing natural gas at competitive prices, maintaining high safety standards.

Key Highlights

a) Diverse Operations: Presence in multiple states and Union Territories. b) Cost-Effective: Competitive gas prices to attract PNG industrial customers. c) Safety: High safety standards to ensure reliable supply. d) Regulatory Approvals: Authorization for GAs in Banaskantha and Fatehgarh Sahib. e) EV Infrastructure: MoU with Mindra EV Private Limited for setting up EV charging stations.

B) Objectives of the IPO

1. Capital Expenditure: To fund the development of the CGD network in Namakkal and Tiruchirappalli. 2. Debt Repayment: To prepay or repay certain outstanding borrowings. 3. General Corporate Purposes: For other operational needs.

C) Management Team

1. Dr. Rajiv Indravadan Modi: Chairman and MD, highly educated with significant industry experience. 2. Maheswar Sahu: Non-Executive Director, brings administrative experience as an IAS officer.

D) Financials

A) Balance Sheet 1. Equity Share Capital: Increased from ₹28.99 Crore in Mar-21 to ₹30.26 Crore in Mar-23. 2. Reserves: Significant jump from ₹88.6 Crore to ₹316.2 Crore. 3. Borrowings: Increased to ₹303.8 Crore in Mar-23. B) Profit &Loss 1. Sales: Grew significantly from ₹211.8 Crore to ₹1,039.1 Crore. 2. Net Profit: Increased to ₹56.4 Crore in Mar-23, but the Net Profit Margin decreased to 5.40%. C) Cash Flow 1. Operating Cash Flow: Positive but reduced to ₹46.7 Crore in Mar-23. 2. Investing Cash Flow: Negative, mainly due to significant investments in fixed assets, amounting to -₹201.6 Crore. 3. Financing Cash Flow: Varied, due to proceeds from borrowings and share issuance, net cash flow was -₹37.3 Crore.

E) Peer Comparison

1. Valuation: IRM Energy is trading at a P/E of 36.7, which is higher than its peers. 2. EPS: Has an EPS of 13.74, lower than peers like Gujarat Gas and Indraprastha Gas. 3. Market Cap: Significantly smaller compared to peers like Gujarat Gas and Indraprastha Gas.

F) Conclusion and Recommendations

IRM Energy has shown robust growth in sales and has a diversified presence across India. The IPO objectives align with the company's growth strategy. However, there are some concerns: 1. Valuation: The company is priced higher compared to its peers. 3. Profit Margin: The declining profit margin needs to be closely monitored. Investors looking for long-term growth may consider this IPO but should be cautious of the valuation and the decreasing profit margins.

Lead Manager of IRM Energy Limited IPO:

  1. BOB Capital Markets Limited
  2. HDFC Bank Limited

Registrar of IRM Energy Limited IPO:

  1. Link Intime India Private Limited

Discussion on IRM Energy Limited IPO:

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