| IRM Energy Limited | ||||||
| Ratings reaffirmed at 'CRISIL A+/Stable/CRISIL A1'; rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A+/Stable/CRISIL A1’ ratings to the bank facilities of IRM Energy Limited (IRM Energy).
The ratings centrally factor in the comfortable business risk profile of the company, wherein it has a monopoly in the supply of compressed natural gas (CNG) and piped natural gas (PNG) in the authorised four geographical areas (GAs), that is, the Banaskantha and Fatehgarh Sahib GAs awarded in the sixth round of bidding, the Diu and Gir Somnath GA awarded in the ninth round and Nammakkal Tiruchirapalli GA awarded in eleventh round.
The ratings also factor in adequate operating performance, driven by infrastructure augmentation leading to improvement in the financial risk profile of the company. These strengths are partially offset by exposure to debt-funded capital expenditure (capex) and project-related risks and moderate gas availability risk. |
Analytical Approach The standalone business and financial risk profile of IRM Energy has been considered for analysis. |
Key Rating Drivers & Detailed Description Strengths:
The company is the sole distributor of CNG and PNG in the authorised GAs. While marketing exclusivity rights for the Banaskantha GA and Fatehgarh Sahib GA is over, the company has marketing exclusivity rights till february, 2027 for Diu and Gir Somnath GA and till March, 2030 for Nammakkal & Tiruchirapalli GA. IRM Energy has also been granted network exclusivity rights of 25 years for infrastructure creation, including laying down of pipelines and CNG distribution outlets, thus providing sufficient revenue visibility over the medium to long term.
The company has comfortably grown its revenue over the years, supported by healthy year-on-year growth in volume, driven by infrastructure augmentation as well as increased penetration in the first two GAs. Ban by the National Green Tribunal on the usage of polluting fuels, primarily in the state of Punjab, has helped spur overall growth in volumes from the industrial segment. However, the operating margins were adversely impacted during first half of fiscal 2023 due rise in input gas prices which was not fully passed on to the customers and increased dependence on spot gas. The revival in margins will remain a key monitorable.
Weaknesses:
IRM Energy is expected to incur capex of Rs 245 crore and Rs 1500 crore to set up the CGD network in the Diu and Gir Somnath GA and Nammakkal Tiruchirapalli GA respectively, to be undertaken over a span of eight years. While almost 70% of the required funding is tied-up for 3 GA’s with the banks and is at advanced stage for 1 other GA, with an endeavour to deleverage the books, the company is expected to fund its capex through internal accrual to the extent possible. The steady cash accrual generated by the company is expected to improve the gearing to below 1 time over the medium term.
Implementation risks include obtaining approvals from local and state government bodies for laying pipeline grids and setting up dispensing centres; delays in obtaining approvals could hold up the project. The company has displayed a sufficient track record of timely and cost-efficient setting up of its network in the first two GAs. A similar achievement of timely execution with the minimum work programme targets for the other two GA within the approved budget cost would be a key monitorable.
As per the Government directives announced in 2014, CGD companies were to be given a priority in terms of allocation of the cheaper domestic gas; for CNG and domestic PNG sales. However, considering the pace at which the CGD industry is expected to grow its volumes, domestic APM gas may not be sufficient to meet its entire requirements and the companies would increasingly have to resort to the costlier non-APM domestic gas/imported R-LNG to suffice its supply requirements. The Government has recently revised its guidelines on allocation and supply of pooled gas wherein GAIL along with monitoring the supply of APM domestic gas will also be responsible for sourcing the required non-APM gas/imported LNG to meet the players CNG and domestic PNG sale requirements. IRM Energy’s ability to pass on the price hikes to its end consumers as alternate fuels are priced even higher, will be a key monitorable. |
Liquidity: Strong Annual cash accrual will likely be sufficient to support the capex and debt obligation over the medium term. Repayment of the debt availed for the first two GAs has started in fiscal 2022, debt obligation of around Rs 10 crore is payable in fiscal 2023. Expected capex outflow of around Rs 207 crore in fiscal 2023 and Rs 145 crore in fiscal 2024 will likely be financed through internal accruals. The company is expected to maintain cash balance of Rs 50-100 crore at all times. |
Outlook: Stable The operating and financial risk profile of the company should remain comfortable over the medium term, backed by healthy growth in volume and steady realisations. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company IRM Energy was incorporated in December 2015 to venture into the CGD business space. Mr Rajiv L Modi (trustee of IRM Trust) owns a 99.99% equity interest in Cadila Pharmaceuticals Ltd (which holds a 51.00% equity stake in IRM Energy), so effectively, the promoter holds an equity stake of around 70% in the company. The remaining 30% stake is held by other strategic partners including Enertech Distribution Management Pvt Ltd.
The company has been granted exclusive rights for laying, building, operating and expanding a city or local natural gas distribution network in the authorised four GAs: the Banaskantha GA, the Fatehgarh Sahib GA, the Diu and Gir Somnath GA and the Nammakkal Tiruchirapalli GA. The network exclusivity rights for infrastructure creation, including laying down of pipelines and CNG distribution outlets, for these GAs would extend up to 25 years. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 30-Dec-22 in line with the lender-wise facility details as on 06-Sep-21 received from the rated entity.
Criteria Details
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