About IRM ENERGY Limited

The company is engaged in the business of laying, building, operating, and expanding the city or local natural gas distribution network. It is a city gas distribution (“CGD”) company in India, with operations at Banaskantha (Gujarat), Fatehgarh Sahib (Punjab), Diu & Gir Somnath (Union Territory of Daman and Diu/Gujarat), and Namakkal & Tiruchirappalli  (Tamil Nadu).

The company supplies PNG & CNG to its custmers.

Compressed Natural Gas: Customers include operators of public transport vehicles such as taxis, auto-rickshaws, and private vehicles such as cars, buses, light goods vehicles, and heavy goods vehicles.

Piped Natural Gas: Customers are broadly classified into three segments, which are, industrial PNG (small, medium and large-sized enterprises), commercial PNG (such as hotels, restaurants, bakeries, hostels and community halls) and domestic PNG (predominantly using PNG as cooking gas).

Natural gas consumption in India clocked a compound annual growth rate (CAGR) of 3.8% between fiscals 2016 and 2020, rising to ~176 mmscmd in fiscal 2020. However, it dipped 5% in fiscal 2021 due to Covid-19 related challenges such as constrained transportation and industrial activities. Demand rose again ~4.8% in fiscal 2022.

Total household PNG connections are expected to surge from ~78.2 lakh as of fiscal 2021 to 190-200 lakh by fiscal 2026 due to increasing CGD penetration in newer areas and the government’s push to increase gas consumption. This number will further multiply with the CGD network covering Andhra Pradesh, Tamil Nadu, Telangana, West Bengal, etc, between fiscals 2025 and 2030. Moreover, consumption per connection should increase due to rising disposable income and economic growth. Consequently, demand from the domestic segment is projected to log a 38-39% CAGR between fiscals 2023 and 2030.

Industrial PNG demand to clock an 7-8% CAGR between fiscals 2023 and 2027, with demand stabilising at a 6-7% CAGR between fiscals 2027 and 2030. Newer geographical areas (GAs) will have a lower share in industrial demand over the long term, as the major industrial regions, such as Gujarat, Maharashtra, and Delhi, have already shifted to PNG. However, long-term demand growth from the commercial segment could remain healthy.

Risk Analysis.

1. The company is dependent on 3rd party sourcing for transportation of natural gas. 7 suppliers are responsible for 100% raw material.
2. Transporting gas from one place to another is hazardous.
3. The company has recently issued 2,75,000 shares in the recent past one year for ₹550 each.
4. The company's 96% of the top line comes from CNG and industrial PNG.
5. The company requires various licenses from the government and other approvals as well.
6. The company requires 15 to 18 months to generate revenue from its Gas.
7. 2 Directors of the company are the BOD members of listed companies which are suspended from being traded on NSE &BSE.
8. Any breakdown in the network infrastructure of the supply could affect the company.
9. The company is undergoing 2 criminal litigations, 29 regulatory actions and 12 material tax litigations as per materiality policy, involving the promoters as well.
10. The CNG business is dependent on OMCs and third-party dealers for the operation of CNG filling stations.
11. All the pre matches of the company, including the corporate office are on lease, the expansion of business is dependent on Gas. Advancement in the electric vehicle could affect the business for the company as well