IRM Energy Ltd. (IEL): Fueling India’s Future with Clean and Cost-Effective Gas

Introduction:

In the ever-evolving landscape of the city gas distribution industry in India, IRM Energy Ltd. (IEL) stands out as a prominent player, making significant strides in this sector. This article delves into IEL’s journey, its recent performance, and the reasons why it could be a lucrative investment opportunity for those considering the medium to long term.

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About IRM Energy Ltd.: A Game-Changer in CGD

IRM Energy Ltd. (IEL) operates in the city gas distribution (“CGD”) segment and has a notable presence in Banaskantha (Gujarat), Fatehgarh Sahib (Punjab), Diu & Gir Somnath (Union Territory of Daman and Diu/Gujarat), and Namakkal & Tiruchirappalli (Tamil Nadu). IEL specializes in building, operating, and expanding natural gas distribution networks for industrial, commercial, domestic, and automobile customers. This has made it a provider of safe, clean, and cost-effective fuels, recognized as the ‘City Gas Distribution – Growing Company of the Year 2020’ by the Federation of Indian Petroleum Industries.

Growth and Sustainability: A Competitive Advantage

IEL distributes both Compressed Natural Gas (CNG) for motor vehicles and Piped Natural Gas (PNG) for domestic households, commercial establishments, and industrial units. Competitive gas prices and optimized operational costs enable IEL to offer industrial PNG customers a compelling alternative to other fuels, such as coal and furnace oils. This competitive edge has allowed IEL to tap into various customer segments.

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Expansion and Authorization: Promising Signs

The company’s growth journey continues as it received authorization for the geographical area of Namakkal & Tiruchirappalli in 2022. This authorization includes the creation of essential infrastructure, such as a 1,450-inch-kilometer gas pipeline, domestic connections, and CNG stations. As of June 30, 2023, IEL had 184 Industrial customers, 269 Commercial customers, and 52,454 Domestic customers, operating through 66 CNG filling stations.

IRM Energy IPO Details and Capital History: A New Chapter Begins

IRM Energy is embarking on a new chapter with its maiden IPO, offering 10,800,000 equity shares via the book-building route. The IPO has a price band of Rs. 480 – Rs. 505 per share, with the potential to raise Rs. 545.40 crore at the upper cap. The issue opens for subscription on October 18, 2023, and closes on October 20, 2023. The company plans to utilize the funds for capital expenditure on CGD network expansion, debt repayment, and general corporate purposes.

Financial Performance: Overcoming Challenges

While IRM Energy experienced margin pressures in FY23 due to global factors like surging gas and petroleum prices, it demonstrated resilience. Q1-FY24 performance indicates a return to normalcy and growth prospects, hinting at brighter days ahead. Although the issue seems fully priced, it offers promising potential in the long run.

Dividend Policy: Rewarding Investors

IRM Energy has adopted a dividend policy based on its financial performance and future prospects, declaring 5% dividends for both FY23 and FY24.

Comparison with Peers: A Unique Proposition

Comparing IEL to listed peers, such as Gujarat Gas, Indraprastha Gas, Mahanagar Gas, and Adani Total Gas, reveals that they are not entirely comparable due to differences in their business models and market dynamics.

Merchant Banker’s Track Record: A Reliable Partner

The joint Book Running Lead Managers (BRLMs), HDFC Bank Ltd. and BOB Capital Markets Ltd., have a credible track record, instilling confidence in the IPO’s execution.

Conclusion: Investing in IRM Energy – A Promising Long-Term Venture

In summary, IRM Energy’s substantial presence in the CGD sector, coupled with its ability to overcome challenges, makes it an attractive investment option. While the IPO might appear fully priced, the company’s bright prospects in the medium to long term position it as a long race horse. Investors looking for sustainable rewards may find IEL to be a worthy contender in their portfolios.