What you must know about IRM Energy IPO?

IRM Energy Ltd was incorporated in the year 2015 as a city gas distribution (CGD) company. The company is broadly involved in developing, operating, and expanding of local natural gas distribution network. IRM Energy is a value-driven energy enterprise that caters to industrial, commercial, domestic, and automobile customers. It already has its presence in the Banaskantha District of Gujarat, as well as in the state of Punjab. It is also present in other places like Diu and Gir-Somnath. Currently, IRM Energy Ltd caters to the natural gas requirements of 48,172 domestic clients, 179 industrial units, and 248 commercial clients. The company currently has a total of 216 CNG gas stations across key geographies. IRM Energy Ltd is part of the renowned Cadila Pharmaceuticals Ltd group of Gujarat, which has been around for more than 50 years.

Cadila Pharmaceuticals Limited (CPL) is the flagship company of the Cadila group. CPL is one of the largest privately held pharmaceutical companies in India. It is an integrated health care solutions provider with pharmaceutical product basket comprising of more than 450 brands and 700 SKUs. The Cadila group has over time, diversified into manufacturing of pharmaceutical machinery, herbal health care products, hospitals, travel, and travel related financial services. The company was promoted by Rajiv Indravadan Modi, Cadila Pharma and IRM Trust. The promoter holding, currently, is 67.94%, which will get diluted to 50.07% post the IPO. The funds will be used for capex in the CGD business and for repayment of some high cost loans, apart from general corporate purposes. The issue will be lead managed by HDFC Bank and BOB Capital Markets. Link Intime India Private Ltd will be the issue registrar.

Highlights of the IPO issue of IRM Energy Ltd

Here are some of the key highlights to the public issue of IRM Energy Ltd.

• IRM Energy Ltd has a face value of ₹10 per share while the price band for the book building IPO has been set in the band of ₹480 to ₹505 per share. The final price will be discovered within this band through the process of book building.
   
• The IPO of IRM Energy Ltd will be entirely a fresh issue of shares with no offer for sale (OFS) component in the IPO. It is well known that while the OFS is not EPS or equity dilutive, the fresh issue tends to be equity and EPS dilutive.
   
• In the case of IRM Energy Ltd IPO, the fresh issue portion comprises the issue of 1,08,00,000 shares (1.08 crore shares), which at the upper price band of ₹505 per share will translate into fresh issue size of ₹545.40 crore.
   
• Since there is no offer for sale (OFS) portion the fresh issue size will also be the size of the overall IPO. Hence, the overall IPO portion will comprise of the issue of 1,08,00,000 shares (1.08 crore shares), which at the upper price band of ₹505 per share will translate into a total IPO issue size of ₹545.40 crore.

The proceeds of the fresh issue portion will be used to fund the capex of its CGD business as well as to repay / prepay outstanding loans availed by IRM Energy Ltd.

Promoter holdings and investor quota allocation quota

The company has been promoted by Rajiv Indravadan Modi, Cadila Pharmaceuticals Ltd and IRM Trust. Currently the promoters hold 67.94% of the company, which will get diluted post the IPO to 50.07%. As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while only 35% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors . The stock of IRM Energy Ltd will be listed on the NSE and on the BSE. The table below captures the gist of the allocation to various categories.

It must be noted here that the anchor allocation portion in the above issue of IRM Energy will be carved out of the QIB portion and the QIB public issue portion will be proportionately reduced to the extent of the anchor placement.

Lot sizes for investing in the IPO of IRM Energy Ltd

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of IRM Energy Ltd, the minimum lot size is 29 shares with upper band indicative value of ₹14,645. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of IRM Energy Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for IRM Energy Ltd IPO and how to apply?

The issue opens for subscription on 18th October 2023 and closes for subscription on 20th October 2023 (both days inclusive). The basis of allotment will be finalized on 27th October 2023 and the refunds will also be initiated on 27th October 2023. In addition, the demat credits are expected to happen on 30th October 2023 and the stock will list on 31st October 2023 on the NSE and the BSE. IRM Energy Ltd offers a very unique combination. It has an established and tested business model; it is into an industry that is considered the future of the economy as it increasingly shifts towards green energy sources. Let us now turn to the more practical issue of how to apply for the IPO of IRM Energy Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of IRM Energy Ltd

The table below captures the key financials of IRM Energy IPO for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (All ₹ figures are in crores)

There are few key takeaways from the financials of IRM Energy Ltd which can be enumerated as under

1. In the last 3 years, the revenues growth has been robust showing the potential that the CGD business has in India as it shifts towards more green fuel. Purely on the strength of the prospects of the sector and the pedigree of the group, the pricing does look like it has something on the table for investors. Sales growth has been very sharp.
    
2. The latest year profit margins and the return on assets are not really comparable since the company has been hit by higher costs in the current year. That is the risk in this business as it remains vulnerable to hike in input costs. That is something IPO investors need to be prepared for as a key risk factor.
    
3. The company has sharply improved its sweating of assets as is evident from the asset turnover ratio crossing 1 in the latest year. This is a business in which a lot of costs are front ended in the business.

The company trades at a P/E of around 24 times earnings, which is relatively high. However, on the positive side, the debt of the company is quite low, despite the high levels of ROE and ROCE. Hence equity return traction should be higher for the stock. Investors can take a serious look at the IPO from a long term perspective with the appreciation that the cyclical price risk will be high in this business.