Introduction:

After a bit of dry spell in the first two weeks of October 2023, the Indian primary markets are buzzing again. Several companies have lined up to launch their Initial Public Offerings (IPOs) in the second half of the month. First in the line is IRM Energy Limited, one of India's leading city gas distribution (CGD) companies.

IRM Energy IPO will open for public subscription on Wednesday, 18 October 2023. At the upper end of the price band, the company plans to raise Rs. 545.5 crores from the public offer. Continue reading to learn more about the IRM Energy IPO, including price band, lot size, listing date, and the issuing company’s financials.

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About IRM Energy Limited

As mentioned, IRM Energy Ltd. is one of the leading players in the city gas distribution segment. The company is primarily involved in developing, maintaining, and expanding the local gas distribution network in three Indian states, including Gujarat (Banaskantha), Punjab (Fatehgarh Sahib), and Tamil Nadu (Namakkal and Tiruchirapalli), apart from the Union Territory of Daman and Diu.

The company mainly distributes gas for industrial, commercial, and domestic purposes. It is known for offering a reliable and environment-friendly framework for gas distribution in the respective geographical areas.

As of 30 June 2023, IRM Energy Ltd. had 184 industrial customers, 269 commercial customers, and 52,454 domestic customers. The distribution network comprised 216 gas stations across key geographical locations.

Strengths of IRM Energy Limited

Below are the company’s strengths as per the Red Herring Prospectus (RHP) filed with the Securities and Exchange Board of India (SEBI):

• It is an exclusive distributor of the Compressed Natural Gas (CNG) and the Piped Natural Gas (PNG) in the respective geographical locations
• Boasts a diverse customer portfolio along with an extensive distribution network, including 216 gas stations
• Optimum use of technology and digital initiatives for efficient business operations
• Ability to establish affordable gas sourcing and distribution network
• The company is a part of Cadila Pharmaceuticals Limited, one of the most renowned pharmaceutical companies in India

Exciting opportunities ahead: Don’t forget to apply for Upcoming IPOs!

Risks/Weaknesses Highlighted

Below are the risks or weaknesses associated with IRM Energy Limited:

• The company is highly dependent on third-party vendors for sourcing and distributing natural gas.
• Any breakdown or disruption in the distribution network can hurt the business.
• The business is subject to regulatory approvals from the government. Changing government policies may lead to a loss of revenue or business.
• Changes in gas pricing or competition increases may reduce the company’s profit margin.

Core Financials of IRM Energy Limited

You must analyse the issuing company’s financials thoroughly before deciding to invest in its IPO. The table below portrays the financials of IRM Energy Ltd. as mentioned in its RHP dated 9 October 2023 on the SEBI website:

*Amount in Crores

As you can see in the table above, the company’s revenue has grown robustly from Rs. 212 crores in FY21 to Rs. 1,039 crores in FY23, reflecting the potential in the CGD business. It also indicates the company’s ability to scale in the future.

But on the flip side, the company’s profit after tax (PAT) has dropped from Rs. 128 crores in FY22 to Rs. 63 crores in FY23. It reflects the risk that the changing gas prices can pose.

Both ROCE and ROE have remained largely impressive despite the decline in the profit figures. They justify the aggressive valuation of the IPO.

Details of the IPO

The IRM Energy IPO will open for public subscription on Wednesday, 18 October 2023 and closes on Friday, 20 October. The IPO will be a completely fresh issue of 10.8 million equity shares with a face value of Rs. 10 per share. As a retail investor, you can apply for a minimum of 29 shares (one lot) and in multiples thereof within the price band of Rs. 480 to Rs. 505 per share.

Refer to the table below for more IPO details:

The final word

With robust revenues and attractive valuation, the IRM Energy IPO paints a positive picture for investors. However, do back your investment decisions with adequate research and expert advice. For help, you can reach out to Motilal Oswal.

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