IRM Energy - Riding On Infrastructure Rollout: HDFC Securities Initiates Coverage With A 'Buy'

HDFC Securities Institutional Equities

IRM Energy Ltd. is a city gas distribution company, with operations in Banaskantha (Gujarat), Fatehgarh Sahib (Punjab), Diu and Gir Somnath (Union Territory of Daman and Diu/Gujarat), and Namakkal and Tiruchirappalli or N&T (Tamil Nadu).

Despite challenges within the CGD sector, the company has demonstrated an impressive ~78% compound annual growth rate volume growth from FY21 to FY23, accompanied by robust margins.

With operations commencing in N&T, we expect a strong ~42% CAGR volume growth from FY24-26E and robust perunit Ebitda margins of ~Rs 9.3/9.2/9 per standard cubic metre for FY24/25/26E, resulting in an expected Ebitda/profit after tax growth of ~39/44% CAGR from FY24-26E.

The stock is currently trading at an attractive valuation of 10.1 times FY25E earnings per share.

We initiate coverage on IRM with a 'Buy' rating and a discounted cash flow-based target price of Rs 580/share.

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