The initial share sale of gas distribution company IRM Energy Limited opened for public subscription on Wednesday, October 18, and will conclude on October 20. According to market analysts, shares of IRM Energy were commanding a premium of ₹75 in the grey market today.

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It is important to note that grey market premiums are just an indicator as to how the company's shares are stacked up in the unlisted market and are subject to change rapidly.

Should investors apply or not?

Analysts have a 'Subscribe' rating to the public offer given the company's strong business prospects, including strong parentage, experienced board and management team, diverse customer portfolio and strong relationship with its customers.

Swastika Investmart: Subscribe

"IRM has showcased consistent development of its gas distribution business in its key geographical areas (GAs). The company has a diverse customer portfolio and distribution network of CNG and PNG and a strong relationship with its customers," Shivani Nyati of Swastika Investmart said in a note.

The issue is coming at a price-earnings valuation of 24.12 times, which appears fairly priced. Thus, considering the factors and the positive growth outlook, Nyati has recommended investors to 'Subscribe' to the IPO.

However, the analyst said that IRM Energy is still in the early stages of growth and may be impacted by unforeseen factors and other risks such as limited geographic reach, government policies, delayed revenue generation, etc.

Anand Rathi: 'Subscribe - long term'

On the valuation front, brokerage firm Anand Rathi believes that the company is fairly priced. Thus, it has recommended investors to 'Subscribe' to the IPO for a long term.

According to the brokerage, the company has a successful track record in building and operating distribution systems and their diverse customer portfolio, which are its strong points. Additionally, the company’s strong parentage and experienced leadership, along with their emphasis on technology adoption, bolster their growth potential, it said.

Compared with competitive fuels, Anand Rathi said that the company provides a more reliable and environmentally friendly alternative fuel to all their customer segments, and hence has been able to tap potential customer segments in the respective Gas.

Furthermore, the brokerage noted that their strategic acquisition of GAs with connectivity to gas pipelines and consistent financial performance offer a stable foundation for expansion.

"At the upper price band, the company is valued at P/E of 33 times with a market cap of Rs 20,735 million post issue of equity shares and return on net worth of 18.2%," it said.

About the public offer

IRM Energy has fixed a price band of ₹480-505 per share, and investors can bid for a minimum of 29 shares in one lot, and in multiples thereafter.

The IPO comprises entirely a fresh issue of ₹1.08 crore shares and there is no offer-for-sale component. Considering the upper end of the price band, the total offer size comes to about ₹545 crore.

The capital raised will be utilised for funding capital expenditure requirements for the development of the City Gas Distribution network. It will also be used for repayment of all or a portion of certain outstanding borrowings availed by the company, and general corporate purposes.

About 50% of the issue has been reserved for qualified institutional buyers, 15% for non-institutional investors and 35% for retail investors.

IRM Energy raises Rs 160 cr from anchors

Ahead of the issue opening, the city gas distribution company has mopped up ₹160.35 crore from anchor investors.

IRM Energy has allocated 3.1 million shares at the upper end of the price band of Rs 505 per share to anchor investors including Quant Mutual Fund, SBI General Insurance, HDFC Life, DSP MF, ITI MF, BOI MF, Nippon AIF and PNB Metlife among others.

Key concerns

- Transporting natural gas is hazardous and could result in accidents, which could adversely affect the company’s reputation, business, financial condition, results of operations, and cash flows.

- The company typically requires 15-18 months to generate revenue in its geographical areas. Any further delay in realising revenue may affect projections, results of operations, and cash flows.

- Its operations are restricted to defined geographical boundaries and the natural gas requirements in these regions may be affected by various factors.

- The company requires various licenses and approvals for undertaking their businesses.

- The company is heavily reliant on CNG and industrial PNG supply operations and any decrease in the sales may have an adverse effect on the business.

Company Overview

IRM Energy has reported strong financial performance in the last few years, except in FY23, when profit was impacted by a rise in gas prices due to geopolitical situations.

The company is involved in developing, operating, and expanding of local natural gas distribution network. IRM Energy is a value-driven energy enterprise serving industrial, commercial, domestic, and automobile customers.

It supplies natural gas to two primary sets of customer segments - CNG and PNG. HDFC Bank and BoB Capital Markets are the book-running managers for the IPO, while Link Intime is the registrar.

The share allotment will likely be finalised on October 27, and the listing date on both BSE and NSE is scheduled for October 31.

(Edited by : Akanksha Upadhyay)

First Published:Oct 18, 2023 10:50 AM IST