Maheswar Sahu, Non-Executive Director and Chairman, IRM Energy Limited

26 Mar 2024 , 03:15 PM

Run us through the company’s business model.

The Company is in the business of City Gas Distribution. The business encompasses mainly distribution of natural gas in our authorized areas through network of pipelines and CNG stations. We cater to mainly four segments i.e. Transport (CNG), Industrial customers, Commercial customers and Domestic Household customers. As part of the project rollout, the Company identifies the location for setting up City Gate Station and Mother Station closer to the SV Station of the Transmission Companies (GAIL, GSPL and IOCL) which helps in savings, both in terms of project cost and operational cost. The Company looks to procure natural gas at competitive price, optimize its operational expenditure by the use of technology to offer natural gas to its customer base (all segments) to enable them to switch from alternate polluting fuels to natural gas. Further, the Company remains committed to health and safety and has established best safety systems and practices which ensure safe, reliable and uninterrupted distribution of gas. In our endeavor to be one of the most efficiently run city gas entity, we have entered into strategic partnership with Shizuoka Gas Co Ltd (Japan’s 4^th largest company in terms of natural gas volumes). This alliance would allow us to capitalize on harnessing potential breakthrough technologies which would help us to better meet the energy needs of our customers.

Further, the Company chooses to set up its own designed and branded CNG stations through a franchise model. This helps us in decrease our dependence on the Oil Marketing Company’s retail outlets to supply CNG in our authorized areas. On the policy and regulatory front, the Company enjoys infrastructure exclusivity of 25 years and marketing exclusivity of 8 years from the authorization date for the respective authorized areas. There are sufficient entry barriers for other companies to come to our area once marketing exclusivity expires.

How will you deploy the funds raised from the IPO? 

Out of the total net proceeds of the Issue, (a) Rs. 307.26 crore is proposed to be used to fund the capital expenditure requirements for development of the City Gas Distribution network in the Geographical Areas of Namakkal and Tiruchirappalli (Tamil Nadu) in Fiscal 2024, 2025 and 2026; (b) Rs. 167.50 crore shall be used to prepay or repay all or portion of outstanding debt of the Company; and (c) Balance amount shall be used for general corporate purpose (which shall not exceed 25% of the net proceeds).

Is the company looking to enter new cities in the future? 

As part of Company's business strategy, we intend to acquire licensed GAs of other CGD companies, based on the demand outlook and geographic synergies to our existing operations as we believe that there will be consolidation going forward in this sector. Additionally, the Company shall also look to participate in any forthcoming CGD bidding round which may be announced by the regulator in future.

What are the company's strengths vis-a-vis other listed CGD companies? 

Below are some of the strengths of the Company 

a. Efficient project execution

b. Strong parentage, Board and management team

c. Agile and nimble operations

d. Young workforce with average age less than 30

e. Adoption of technology to optimize operations

Tell us about your future growth strategies.

1. We intend to expand our presence in existing and newer GAs through an improved captive distribution channel. 

2. For the newly authorized geographical areas of Namakkal and Tiruchirappalli Districts in Tamil Nadu, the Company intends to establish key infrastructure to develop the CGD network as there is a great business potential.

3. We intend to continue to use technology to optimise our operational cost and enhance customer experience.

4. Going forward, we are exploring to import competitively priced LNG directly from Gas Producing regions globally. Our Japanese Strategic partners have vast experience in importing LNG to Japan. Shizouka Gas also operates an LNG terminal in Japan.  The vision is import LNG and cater to ever growing natural gas demand of the company and natural gas anchor customers.

5. While we remain focused to grow our city gas distribution network, we are shaping ourselves to become an Energy Company in line with the vision of GOI for clean and green growth. In order to achieve this business integration, we have interests and ownerships in certain complementary businesses viz. (a) Farm Gas Pvt Ltd (to provide cost-effective and economically viable renewable energy through waste and biomass management by converting biomass as well as municipal solid waste to compressed biogas (CBG) and bio-fertilizer and (b) SKI Clean Energy Pvt Ltd (implement our proposed renewable (solar) energy projects envisaged for sale of renewable power to reputed industrial, commercial customers and green hydrogen generating/producing companies through long term power purchase agreements).

Provide us with a snapshot of the company’s financial profile. What are its key strengths thereof?

 

Sr. No	Six Months ending Sept 30, 2022	Year ending March 31, 2022	Year ending March 31, 2021	Year ending March 31, 2020
Volume (mmscm)	97.73	151.06	63.00	45.25
Volume Growth (%)	62.83%	139.79%	39.23%	70.75%
Net Revenue from Operations (net of Excise Duty) (in Rs million)	4708.68	5071.45	1895.65	1475.57
EBITDA (Consolidated) (in Rs million)	669.36	2008.98	729.72	496.80
PAT (Consolidated)  (in Rs million)	392.45	1280.28	348.89	210.65
EPS (Consolidated)  (in Rs)	$ 13.32	43.88	12.39	8.60
ROCE (Consolidated)  (In %)	$9.23%	39.01%	19.98%	16.94%
ROE (Consolidated)  (In %)	$12.76%	52.53%	29.67%	28.19%

  $ Not annualized.

What are the challenges in front of the company and how are you mitigating them?

Sr. No	Challenge	Mitigation
1	Gas Sourcing at competitive price	Strategically switched to R-series gas (Domestic HPHT bidding of RIL-BP) which is subject to PPAC ceiling price on the basis of landed price of alternative fuels. As a result of the ceiling, the Company took benefit of lower cost.    The Company has a diversified portfolio of gas contracts to mitigate the risk of reliance on any single contract. The contracts are linked to various global benchmarks to reduce the risk of any unprecedented market scenario.   Also, for the future demand, the commercial and marketing teams endeavour for efficient gas sourcing by anticipating market conditions with an aim not only to ensure maximum benefit to customers by ensuring affordability but also to achieve sustainable demand growth. The company will continue to monitor the cost of natural gas and source natural gas in the most cost-effective manner from various suppliers.
2	Low conversion of vehicles into CNG	Kirit Parikh committee recommendations to cap APM gas price at relatively lower level would remove the high gas cost overhang for CGDs and drive volume and increase the conversions.
3	Delay in obtaining statutory permissions from local bodies for project execution	This is mitigated through proper liasoning and intervention both at the cutting edge working level and also at the highest level. Further, represents various impending issues related to obtaining of permissions before appropriate forums (state and central level).