IRM Energy IPO opens today: Here's what brokerage firms have to say about the issue

The initial public offering (IPO) of Cadila Pharmaceuticals-backed IRM Energy will open for bidding on Wednesday, October 18 as the company will be selling its shares in the range of Rs 480-505 with a lot size of 29 equity shares and its multiples thereof. The three-day issue will conclude on Friday, October 20.

Ahmedabad-based IRM Energy is a gas distribution company with operations in Banaskantha (Gujarat), Fatehgarh Sahib (Punjab), Diu & Gir-Somnath (Daman & Diu) and Namakkal & Tiruchirappalli (Tamil Nadu). It is involved in developing, operating and expanding of the local natural gas distribution network, serving industrial, commercial, domestic and automobile customers.  

IRM Energy will be raising a total of Rs 545.40 crore via primary route, which will entirely be a sale of 1.08 crore fresh equity shares. The proceeds shall be utilized towards funding the capital expenditure requirements for projects in Tamil Nadu for next three-fiscals; repayment and/or prepayment of certain borrowings; and general corporate purposes.

IRM Energy raised a total of Rs 160.35 crore from a dozen anchor investors by allocation of 31,75,200 equity shares at a price of Rs 505 apiece. Anchor book includes names like Quant Mutual Fund, DSP Mutual Fund, ITI Mutual Fund, Bank of India Mutual Fund, HDFC Life Insurance, SBI General Insurance, PNB Metlife India Insurance and Nippon India.

IRM Energy has reserved 2.16 lakh equity shares and will give them a discount of Rs 48 per share during the issue. The company has reserved more than 50 per cent shares for the qualified institutional bidders (QIBs), while non-institutional investors (NIIs) will get 15 per cent of reservation in the IPO. Remaining quota of 35 per cent shall be allocated to the retail investors.

BoB Capital Markets and HDFC Bank are the lead managers to the issue, while Link Intime India is the registrar for this IPO. Shares of the company will be listed on both BSE and NSE. Majority of the brokerage firms are positive on the issue citing its in-line valuations, robust business and strong growth outlook. Here's what a host of brokerage firms said about the issue of IRM Energy:

Anand Rathi Research
Rating: Subscribe for long term
The company’s strong parentage and experienced leadership, along with their emphasis on technology adoption, bolster their growth potential. Furthermore, their strategic acquisition of GAs with connectivity to gas pipelines and a consistent financial performance offer a stable foundation for expansion, said Anand Rathi Research.

"Compared with competitive fuels, they provide a more reliable and environmentally friendly alternative fuel to all their customer segments, and hence have been able to tap potential customer segments in the respective gas. We believe that the company is fairly priced," it added with a recommendation of a 'subscribe for long term' rating for the IPO.

Reliance Securities
Rating: Subscribe for long term
The government’s focus on transition to a gas-based economy, development of the natural gas grid connecting the major demand and supply centers in India and increasing the natural gas share in the energy mix to 15 per cent by FY30 from 6.3 per cent in FY23 will keep the structural story intact, said Reliance Securities.

"IRM’s diverse customer portfolio and distribution network of CNG and PNG and strong relationships through collaborative efforts to a diverse customer base including industrial, commercial and domestic customers ensures efficient and optimal business mix going ahead," it added with a 'subscribe for long term' rating for the issue.

Swastika Investmart
Rating: Subscribe
IRM has showcased consistent development of its gas distribution business. The company has a diverse customer portfolio, distribution network, and a strong relationship with its customers. It has also 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, said Swastika Investmart.

"The company is still in the early stages of growth and may be impacted by unforeseen factors and other risks like limited geographic reach, government policies, delayed revenue generation. The issue is valued at a P/E valuation of 24.12 times which appears fairly priced," it added with a subscribe rating to the issue considering all the factors and the positive growth outlook.

Marwadi Financial Services
Rating: Subscribe
The company is going to list at a P/E of 19.27 times with a market cap of Rs 2,073.5 crore, whereas its peers Gujarat Gas, Indraprastha Gas, Mahanagar Gas and Adani Total Gas Limited are trading at a P/E of 21.52 times, 22.57 times, 11.37 times and 120.36 times, respectively, said Marwadi Financial Services.

"We assign 'subscribe' rating to this IPO as the company has successful development and operation of CGD business with exclusivity in CNG and PNG supply in the awarded geographical areas. Also, it is available at reasonable valuation as compared to its peers," it added.

Hensex Securities
Rating: subscribe
IRM Energy is one of the leading companies in CNG and PNG generations in its allocated GA. Company has portrayed successful development and Operations in CGD Business. The company has a diversified customer portfolio and distribution network of CNG and PNG, good connectivity of gas pipeline and an established cost-effective gas sourcing arrangement, said Hensex Securities.

"Considering all listed factors along with strong financial performance and consistent growth and profitability, we recommend a  'subscribe’ to the issue with the view of listing gains as well as for long term perspective," it added. However, it sees hazardous nature, slow revenue growth and dependence on select customers as the key risk to the business.

Mehta Equities
Rating: Subscribe for long term
IRM Energy IPO offers investors an opportunity to invest in a growing and emerging player in the city gas distribution segment, backed by Cadila Pharmaceuticals. Exclusive CNG and PNG rights, expansion plans, and a diverse customer base drive operational efficiency, said Prashanth Tapse, Senior VP (Research) at Mehta Equities.

Its vertical integration into renewables and strategic investments shows foresight. Strong FY22 and FY23 revenue growth at 157 per cent and 90 per cent, respectively is promising. With industries shifting to natural gas, IRM's market presence and strategy make it poised for success. We recommend 'subscribe for long-term' to the investors," he said.


Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.

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