The credit rating agency stated that the upgrade reflects CRISIL Ratings’ expectation that the business risk profile of the company will strengthen in the near term driven by increased capex in the new geographical area (GA) of Namakkal & Tiruchirappalli which is likely to result in sustained volume growth and higher cash accruals over the medium term.

Further, the debt protection metrics have also improved on back of deleveraging of balance sheet during the current fiscal. IRM Energy is net debt free as of December 2023 and is likely to remain so over the medium term.

The ratings continue to factor strong business model having a monopoly in the supply of compressed natural gas (CNG) and piped natural gas (PNG) in the authorised four GAs, that is, the Banaskantha and the Fatehgarh Sahib GAs awarded in the sixth round of bidding, the Diu & Gir-Somnath GA awarded in the ninth round and the Namakkal & Tiruchirappalli GA awarded in the eleventh round.

The ratings also factor in healthy operating performance, driven by infrastructure augmentation in the GAs leading to strong financial risk profile of the company. These strengths are partially offset by exposure to risk related to under-achievement of minimum works program (MWP) targets in the 3rd and 4th GA, project-related risks and input risks related to availability of gas as well as volatility in prices.

IRM Energy operates in the city gas distribution (CGD) business space. 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 geographical areas (GAs): the Banaskantha GA, the Fatehgarh Sahib GA, the Diu and Gir Somnath GA and the Namakkal & Tiruchirappalli 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.

The scrip fell 1.85% to currently trade at Rs 552.85 on the BSE.