Everything you need to know about IRM Energy Limited IPO

About the company

Incorporated in 2015, IRM Energy Limited 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. We develop natural gas distribution projects in the geographical areas (GAs) allotted to us for industrial, commercial, domestic, and automobile customers.

The company supplies natural gas to two primary sets of customer segments:

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

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).

Their clientele comprises 52454 domestic clients, 184 industrial units, and 269 commercial clients.

As of June 2023, the company has 262 CNG gas stations across its operating geographical areas.

About the Industry:

India is not only the third-largest energy consumer in the world after China and the US but also one of the fastest-growing energy consumers among its peers. Moreover, India has annually been reiterating its commitment to bring down carbon emissions as pledged in the Paris Agreement. The share of natural gas in India’s primary energy mix has increased from 6.3% in 2020 to 6.5% currently. This is still way below the global average share of 24%. The Target is to raise natural gas share in the energy mix to 15% by 2030.

Natural gas consumption in India clocked a compound annual growth rate (CAGR) of 3.8% between fiscal 2016 and 2020, rising to ~176 mmscmd 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 by 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. Segments such as CGD saw healthy growth. However, demand from the power segment declined as higher LNG prices affected the load factor (PLF) of gas-based power plants. In fiscal 2023, demand from natural gas declined by ~6%. The decline in demand was attributable to a steep rise in prices and constrained supplies under long-term LNG contracts. The demand remained subdued from the power, refinery, and petrochemicals sectors as these sectors are dependent on imported gas pushing the demand downwards. The gas demand in fiscal 2024 is expected to rebound by 12-13% due to a mix of factors such as a favorable 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). The development of the NGG would connect all the major demand and supply centers in India. In addition, the government is taking various measures to promote the use and distributorship of liquified natural gas (LNG) through establishment/capacity enhancements of LNG terminals and regasification. It aims to create a regasification capacity of 70 mmtpa (million metric tons per annum) by 2030 and 100 mmtpa by 2040.

The CNG segment is expected to register a healthy CAGR of 26-27% between fiscals 2023 and 2027, driven by the cost competitiveness of CNG vis-à-vis petrol. As CNG directly competes with petrol in the vehicle segment, conversion from petrol to CNG would continue during the forecast period, given the cost advantage. CNG stations have increased at a healthy YoY growth of 32% between fiscals 2022 and 2023, supporting faster adoption of CNG vehicles across various segments with OEMs launching CNG vehicles to address the demand. CNG adoption in three-wheelers surged from 26% in fiscal 2022 to 29% in fiscal 2023. CNG adoption in light commercial vehicles (LCVs) increased by 14% in fiscal 2023 from 5% in fiscal 2021.

Total household PNG connections are expected to surge from ~78.2 lakh as of fiscal 2021 to 190-200 lakh by fiscal 2026 due to increasing CGD penetration in newer areas and the government’s push to increase gas consumption. This number will further multiply with the CGD network covering Andhra Pradesh, Tamil Nadu, Telangana, West Bengal, etc, between fiscals 2025 and 2030. Moreover, consumption per connection should increase due to rising disposable income and economic growth. Consequently, demand from the domestic segment is projected to log a 38-39% CAGR between fiscal 2023 and 2030.

Issue size:

The entire Rs. 545.4 crore public offer of IRM Energy Limited comprises of fresh equity issue.

Objects of the issue and proceeds utilization:

Purpose Proceeds (₹ crores)
Funding capital expenditure requirements for the development of the City Gas Distribution network in the Geographical Areas of Namakkal and Tiruchirappalli (Tamil Nadu) in Fiscal 2024-2027 307.26
Prepayment or repayment of all or a portion of certain outstanding borrowings availed by the company 135
General corporate purposes Balance

Financial information and other valuation metrics

Financial Year Total Assets (₹ crores) Total Revenue (₹ crores) Profit After Tax (₹ crores) EPS EBITDA (₹ crores)
March 31, 2021 338.11 212.54 34.89 12.39 72.97
March 31, 2022 554.80 549.19 128.03 43.88 200.89
March 31, 2023 792.90 1,045.10 63.14 20.93 118.93

Risk factors to consider:

Dependence on third parties: Company is dependent on third parties for sourcing and transportation of natural gas. As of June 30, 2023, the company procured natural gas from seven suppliers which constituted 100% of the total quantity purchased. Any disruption in the receipt of such natural gas from these third parties, or delay or default in timely transportation of the natural gas could lead to a disruption or failure in the supply of natural gas by us, which could adversely affect the business, reputation, results of operations and cash flows.

Foreign exchange impact: While gas supply is benchmarked to global indexes in USD, the revenues of the Company are in INR. Accordingly, our cash flow is indirectly exposed to currency rate fluctuations.

Advancements in alternate sources of energy: The price at which the company sells CNG and PNG is benchmarked to the price of alternate fuels available such as petrol, diesel, other liquid fuels, and LPG. Since these products are by-products of crude oil, prices of alternative fuels are positively linked to the price of crude oil. As such, despite the benchmarking of the price of natural gas to the price of alternative fuels, any decrease in the prices of crude oil or other alternative fuels such that natural gas becomes a relatively expensive option for the company’s customers, could result in a shift in customer preference to these alternative fuels, which could adversely affect the business, results of operations and cash flows.

Higher capex: The company is required to do capital expenditure for infrastructure rollout over a substantial period of time. The cost of input materials may significantly go up in this time frame.

IPO Schedule

Issue Period 18th October to 20th October 2023
Price band ₹ 480 - 505
Minimum Bid quantity 29 & Multiples thereof
Deadline for accepting UPI mandate Until 5 PM on the issue closing day
Finalization of Allotment 27th October 2023
Initiation of Refunds 27th October 2023
Credit of Shares 30th October 2023
Date of Listing 31st October 2023
Mandate end date 4th November 2023
Anchor Investors Lock-In End Date 19th November 2023

How to apply to the IRM Energy Limited IPO?

You can apply for the IRM Energy Limited IPO using any supported UPI app by following two steps:

  • Enter your bid on Kite
  • Accept the UPI mandate on your phone

On acceptance of the mandate, the bid amount will get blocked in your bank account. Click here to learn more.

How to check the allotment status for IRM Energy Limited IPO?

You can check the allotment status for the IRM Energy Limited IPO on the website of the Registrar and Transfer agent. Alternatively, you can also check the allotment status on the NSE website.