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Review By Dilip Davda on October 12, 2023
• IEL is one of the leading players in city gas distribution segment in three states.
• The company has posed consistent growth in its top lines for the reported periods.
• It suffered a pressure on margins for FY23 following surge in petroleum product prices on account of Ukraine-Russia imbroglio.
• Q1-FY24 performance indicates return of normalcy and growth prospects ahead.
• The issue appears fully priced, but is poised for bright prospects in coming years.
• Investors may park funds for medium to long-term rewards.
ABOUT COMPANY:
IRM Energy Ltd. (IEL) 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. IEL develops natural gas distribution projects in the geographical areas ("GAs") allotted to us for industrial, commercial, domestic and automobile customers.
It has positioned itself 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 transport segment. (Source: CRISIL Report). The company is recognized as the 'City Gas Distribution - Growing Company of the Year 2020' by Federation of Indian Petroleum Industries ("FIPI"). It distributes CNG for use in motor vehicles and PNG for use by domestic households as well as for commercial and industrial units. Due to competitive gas price and optimized operational expenditure, the company is in a position to offer gas to industrial PNG customers at a viable price in the market and enable the industrial PNG customers to switch from other alternate fuels (coal and furnace oils) to natural gas. (Source: CRISIL Report).
Compared with competitive fuels, IEL provides a more reliable and environment-friendly alternative fuel to all customer segments, and hence have been able to tap potential customer segments in the respective GAs. (Source: CRISIL Report). It has received the authorization for the GA of Namakkal & Tiruchirappalli in the eleventh round of bidding conducted by PNGRB in January 2022 for creating the infrastructure of 1,450 inch kms gas pipeline (consisting of steel pipelines), 17,74,000 PNG domestic connections and 290 CNG stations in Namakkal & Tiruchirappalli.
As of June 30, 2023, IEL had 184 Industrial customers, 269 Commercial customers, and 52454 Domestic customers. On the said date, IEL had 66 CNG filling stations in its GAs. As of June 30, 2023, it had 226 employees on its payroll.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 10800000 equity shares of Rs. 10 each via book building route. It has announced a price band of Rs. 480 - Rs. 505 per share and mulls mobilizing Rs. 545.40 cr. at the upper cap. The issue opens for subscription on October 18, 2023, and will close on October 20, 2023. The minimum application to be made is for 29 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 26.30 % of the post-IPO paid-up capital of the company. From the net proceeds, it will utilize Rs. 307.26 cr. for capex on CGD network in Namakkal and Tiruchirappalli in Tamil Nadu, Rs. 135.00 cr. for repayment/prepayment of certain borrowings, and the rest for general corporate purposes.
The company has reserved 216000 shares for its eligible employees and is offering them a discount of Rs. 48 per share. From the rest, it has allocated not more than 50% for QIBs, not less than 15% for HNIs, and not less than 35% for Retail investors.
HDFC Bank Ltd. and BOB Capital Markets Ltd. are the joint Book Running Lead Managers (BRLMs) and Link Intime India Pvt. Ltd. is the registrar of the issue.
Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 20 - Rs. 550 between October 2019 and December 2022. Shizuoka Gas Co. Ltd. of Japan acquired equity shares in two tranches at a price of Rs. 425 and Rs. 550 per share. The average cost of acquisition of shares by the promoters is Rs. 11.77 per share and Shizuoka at Rs. 463.62 per share.
Post-IPO, IEL's current paid-up equity capital of Rs. 30.26 cr. (30259677 shares) will stand enhanced to Rs. 41.06 cr. (41059677 shares). Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 2073.51 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 212.54 cr. / Rs. 35.13 cr. (FY21), Rs. 549.19 cr. / Rs. 113.56 cr. (FY22), and Rs. 1045.10 cr. / Rs. 56.45 cr. (FY23). For Q1 of FY24 ended on June 30, 2023, it earned a net profit of Rs. 27.84 cr. on a total income of Rs. 248.63 cr.
According to the management, for FY23 it suffered pressure on margins due to spiraling gas and other petroleum product prices on account of disturbed global markets due to Ukraine-Russia war. Now as the markets have stabilized, it is likely to be back on track in coming years.
The issue is priced at a P/BV of 4.09 based on its NAV of Rs. 123.38 as of June 30, 2023, and at a P/BV of 2.33 based on its NAV of Rs. 216.95 per share (at the upper cap).
If we annualize FY24 earnings and attribute it to post-IPO fully diluted paid-up capital of the company, then the asking price is at a P/E of 18.62. Thus the issue appears fully priced. It has bright prospects ahead and is a long race horse.
For the last three fiscals, IEL posted RoCE margins of 19.98% (FY21), 39.01% (FY22), and 14.19% (FY23).
DIVIDEND POLICY:
The company declared 5% dividend for FY23 and 5% for FY24 so far. It has already adopted a dividend policy in September 2022 based on its financial performance and future prospects.
COMPARISON WITH LISTED PEERS:
As per offer document, IEL has shown Gujarat Gas, Indraprastha Gas, Mahanagar Gas, and Adani Total Gas as their listed peers. They are trading at a P/E of 21.36, 31.34, 11.29, and 124.50 (as of October 11, 2023). However, they are not comparable on an apple-to-apple basis.
MERCHANT BANKER'S TRACK RECORD:
The two BRLMs associated with the issue have handled 11 public issues in the past three years, out of which 5 issues closed below the issue price on listing date.
Review By Dilip Davda on October 12, 2023
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
(Dilip Davda -SEBI registered Research Analyst-Mumbai,
Registration no. INH000003127 (Perpetual)
Email id: dilip_davda@rediffmail.com ).
The initial public offer (IPO) of IRM Energy Limited offers an early investment opportunity in IRM Energy Limited. A stock market investor can buy IRM Energy IPO shares by applying in IPO before IRM Energy Limited shares get listed at the stock exchanges. An investor could invest in IRM Energy IPO for short term listing gain or a long term.
Read the IRM Energy IPO recommendations by the leading analyst and leading stock brokers.
IRM Energy IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the IRM Energy IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.
Our recommendation for IRM Energy IPO is to subscribe.
As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe to the IRM Energy IPO.
The IRM Energy IPO allotment status will be available on or around October 27, 2023. The allotted shares will be credited in demat account by October 30, 2023. Visit IRM Energy IPO allotment status to check.
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