IRM Energy IPO: Strengths & Risks Analysis

As the IRM Energy IPO approaches, investors are keen to assess the company’s strengths and risks to make informed decisions. The IPO details provide an overview of the company’s size and scope, while an analysis of its strengths and risks will help potential investors gauge the attractiveness of the opportunity.

IRM Energy IPO Details:

Here’s a quick look at the essential details of the IRM Energy IPO:

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ParameterDetails
Bidding Dates18 Oct ’23 – 20 Oct ’23
Min. Investment₹13,920
Lot Size29
Price Range₹480 – ₹505
Issue Size₹545.40Cr

Click to Read More Details About the IRM Energy IPO

IRM Energy IPO Strengths & Risks Analysis

Strengths:

  1. Industry Recognition: IRM Energy received the ‘City Gas Distribution – Growing Company of the Year 2020’ award from the Federation of Indian Petroleum Industries (FIPI), showcasing its industry leadership and growth potential.
  2. Exclusive Distribution Rights: The company enjoys exclusive rights as the sole distributor of Compressed Natural Gas (CNG) and Piped Natural Gas (PNG) in specific regions designated under PNGRB authorizations. This exclusivity provides a competitive advantage and steady revenue streams.
  3. Long Network Exclusivity Period: IRM Energy has been granted a substantial 25-year network exclusivity period, enabling it to develop critical infrastructure like pipelines and CNG distribution networks within its designated regions, offering a secure revenue base for years to come.
  4. Proven Capabilities: The company has successfully constructed and operated CNG and PNG distribution systems within its designated areas and expanded its network with additional pipelines and CNG stations. This indicates a track record of effective execution.
  5. Safety Measures: IRM Energy’s implementation of a Radio Frequency Identification (RFID) system for tracking CNG cylinder hydrotesting due dates enhances overall safety at CNG stations, reducing the risk of incidents.
  6. Impressive Revenue Growth: The company’s net revenue has experienced significant growth, increasing from Rs. 189.56 crore in 2021 to Rs. 980.09 crore in 2023, at a remarkable compound annual growth rate (CAGR) of 127.38%.

See Also: IRM Energy IPO GMP Today

Risks:

  1. Supplier Dependency: IRM Energy relies on third-party suppliers for sourcing and transporting natural gas, with seven suppliers constituting 100% of their total purchases as of June 30, 2023. Any disruptions or delays in the supply chain could significantly impact the company’s ability to provide natural gas.
  2. Safety Concerns: Transporting natural gas carries inherent hazards that could lead to accidents, posing a risk to IRM Energy’s reputation, business, and financial health.
  3. Revenue Concentration: The company heavily depends on revenue from Compressed Natural Gas (CNG) and industrial Piped Natural Gas (PNG), which together represent 96.29% of their total operations by volume. A downturn in sales in these segments could negatively affect the company’s financial condition and cash flows.
  4. Revenue Realization Delays: Generating revenue from Gas Authorities (GAs) typically takes 15-18 months, and further delays could impact the company’s financial projections and operational results.
  5. Contingent Liabilities: IRM Energy has contingent liabilities amounting to Rs. 239.68 crore as of June 30, 2023. If these liabilities materialize, it could adversely affect the company’s business and financial condition.
  6. Legal Issues: The company’s promoters are involved in multiple criminal litigations, regulatory actions, and tax litigations. Adverse outcomes in these legal matters could impact the business operations and reputation of the company and its promoters.
  7. Government Policy Dependency: The allocation of natural gas and the cost of gas supplied for CNG and domestic PNG customers in the ‘priority sector’ are subject to government policies. Any unfavorable policy changes could harm IRM Energy’s business, reputation, operations, and cash flows.
  8. Geographical Limitations: IRM Energy’s city gas distribution network operates within defined geographical boundaries and relies on authorization from the Petroleum and Natural Gas Regulatory Board (PNGRB). Factors beyond their control in these regions may affect their business operations, profitability, and cash flows.

Financial Overview:

Here’s a snapshot of IRM Energy’s financial performance over the last three years:

Financial Metric202120222023
Revenue (Cr)2125461,039
Total Assets (Cr)338555793
Profit (Cr)34.8912863.15

Source: Company’s financial reports.

IRM Energy has demonstrated robust revenue growth, more than tripling its revenue from 2021 to 2023. However, profitability experienced fluctuations in this period.

About IRM Energy:

IRM Energy operates as a city gas distribution company in India, serving regions in Gujarat, Punjab, Union Territory of Daman and Diu, and Tamil Nadu. The company specializes in establishing, constructing, managing, and extending natural gas distribution networks within urban and local areas, catering to a wide range of customers, including industrial, commercial, residential, and automotive sectors. Their services include Compressed Natural Gas (CNG) for public transport and Piped Natural Gas (PNG) for various segments.

Conclusion:

The IRM Energy IPO presents a mixed bag of strengths and risks. While the company has received industry recognition, enjoys exclusivity, and has shown impressive revenue growth, it faces significant risks like supplier dependency, safety concerns, and regulatory and legal issues. Investors should conduct thorough due diligence and consider their risk tolerance before participating in the IPO.

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