Investments in CNG segment to drive growth
We recently interacted with the management of IRM Energy to gain an understanding of their plans for FY26 and beyond. Following are the key highlights – (i) IRM remains positive on CNG segment continuing to observe robust volume growth in FY26, owing to strong CNG vehicle additions in its GAs and expansion of CNG retail network, (ii) PNG segment volume growth is expected to remain tepid as Fatehgarh Sahib GA has observed few industrial customers moving back to alternate fuel sources, (iii) management aspires to achieve EBITDA per unit of INR 5.25-5.50/scm for FY26E as against INR4.6/scm and INR4.7/scm reported in FY25 and Q1FY26 respectively. We maintain BUY on IRM Energy (IRM), with a revised target price of INR 440/sh.
▪ The road ahead: IRM expects the strong growth recorded in CNG volumes in Q1FY26 (+21% YoY) to sustain through FY26E. It has entered an agreement with Red Taxi, which operates a fleet of ~700 taxis in the Tiruchirappalli GA, to incentivize cab drivers for shifting from petrol and diesel to CNG by providing them a pre-filled fuel card, which can be used at IRM CNG stations. However, PNG segment volume growth is anticipated to witness resistance owing to few industries moving back from natural gas to more affordable alternate fuels like coal. As the management expects CNG segment to record robust volume growth in the near term while PNG volume growth is expected to remain under pressure, the share of CNG volume, which is a higher-margin business, is expected to improve in the overall volume mix. Currently, ~43% of the demand is met through APM gas and HPHT gas, the prices of which are linked to crude oil rates. With improving share of CNG volume (higher margin business) and expectations of crude oil prices remaining benign in the near term, IRM has guided for expansion in FY26E EBITDA per unit to INR 5.25-5.50/scm from INR 4.7/scm recorded in Q1FY26. The management is confident of adding 50 CNG stations in FY26E which will aid CNG volume growth in the medium to longer term.
▪ Strong growth in CNG vehicle registrations in Q1FY26: The recent Vahan data for IRM’s GAs for Q1FY26 (Apr-Jun 2025) suggests a ~13% YoY growth in new CNG vehicle registrations to 2,610 vehicles from 2,306 at the same time last year. Growth was led by the Banaskantha GA (+18%), followed by Tiruchirappalli GA (+31%) and Namakkal GA (+44%).
