IRM Energy IPO Opens For Subscription Today: Is It Fairly Valued?
At the upper price band, IRM Energy is valued at a P/E of 33 times, with a market capitalisation of Rs 2,073.5 crore.
IRM Energy Ltd., a city gas distribution company, is set to launch its initial public offering on Wednesday. The three-day issue, priced in the range of Rs 480-505 per share, will conclude on Oct. 20.
The IPO consists of a fresh issue of up to 1.08 crore equity shares by existing shareholders and aims to raise around Rs 545 crore through the public issue.
The city gas distribution company has operations in Gujarat, Punjab, Union territory of Daman and Diu, Gujarat, and Tamil Nadu, and is engaged in the business of local natural gas distribution network. It supplies natural gas as compressed natural gas and piped natural gas.
As on June 30, it had 52,454 domestic customers, 269 commercial customers and 184 industrial customers. The company is expected to list on Oct. 31 on the BSE and NSE.
The company plans to use the proceeds for funding capital expenditure requirements towards development of the CGD network in the geographical areas of Namakkal and Tiruchirappalli (Tamil Nadu) between FY24 to FY27.
It also aims to use it for the prepayment or repayment of outstanding borrowings as well as general corporate purposes.
Promoters Cadila Pharmaceuticals Ltd. and IRM Trust (held through its managing trustee, Dr Rajiv Indravadan Modi) hold 49.5% and 18.4% equity in the company, respectively.
As the issue opens for subscription, let's see how it compares with its listed peers.
Valuation Snapshot
At the upper price band, IRM Energy is valued at a P/E of 33 times, with a market capitalisation of Rs 2,073.5 crore post-issue of equity shares and a return on net worth of 18.2%, according to brokerage Anand Rathi Share and Stock Brokers Ltd.
The company is fairly priced on the valuation front, according to analysts.
"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," said Anand Rathi in a note dated Oct. 17.
The business has recorded a volume compound annual growth rate of 76.58% in FY23, while its return on equity and return on capital employed ratios stood at 18.2% and 14.2% in FY23, respectively, according to StoxBox.
To Invest Or Not?
"Their strategic acquisition of geographical areas, with connectivity to gas pipelines and a consistent financial performance, offer a stable foundation for expansion... On the valuation front, we believe that the company is fairly priced. Thus, we recommend a 'Subscribe–Long Term' rating for the IPO," said the Anand Rathi note.
"On the upper price band, the issue is valued at a P/E of 24.1 times based on FY23 earnings, which is fairly valued compared to the average industry P/E of 43.9 times. We, therefore, recommend a “Subscribe” rating for the issue," said StoxBox in a note.
Strong FY22 and FY23 revenue growth at 157% and 90%, respectively, is promising, according to Prashanth Tapse, senior vice president (research), Mehta Equities Ltd.
"At Rs 505 per share, the IPO values IRMEL at Rs 2,072 crore. With industries shifting to natural gas, IRMEL's market presence and strategy make it poised for success. We recommend 'Subscribe' for long-term investors," he said.
