KRN Heat Exchangers, a leading manufacturer in the fin and tube-type heat exchanger sector, is set to launch its Initial Public Offering (IPO). With its strong foothold in the HVAC&R industry, the company serves various domestic and international markets.
This article reviews the KRN Heat Exchangers IPO, covering the company’s business model, financials, and future growth prospects.
Business Overview
KRN Heat Exchangers specializes in manufacturing fin and tube-type heat exchangers, with diameters ranging from 5 mm to 15.88 mm. The company’s product lineup includes:
- Condenser coils
- Evaporator units
- Evaporator coils
- Header/copper parts
- Fluid and steam coils
- Sheet metal parts
These products are utilized in domestic, commercial, and industrial HVAC&R applications. The company focuses heavily on B2B solutions, providing air conditioning and refrigeration products to industries like data center cooling, heat pumps, and transportation sectors, including buses, trucks, and metro trains.
Client Base
KRN has established a robust client portfolio with major domestic and international companies. Some of the prominent clients include:
- Daikin Air Conditioning
- Schneider Electric
- Kirloskar Chillers
- Blue Star
- Carrier
- Voltas
As of FY24, KRN served 115 clients, with Daikin accounting for over 33% of its revenue. The top 10 clients contributed 72% of the company’s total revenue.
Domestic and International Operations
KRN operates both domestically and internationally, exporting its products to markets such as the UAE, USA, Italy, and Saudi Arabia. The revenue breakdown is as follows:
- Domestic Revenue: 85%
- Export Revenue: 15%
Domestic Revenue Distribution (State-wise)
- Rajasthan: 41%
- Maharashtra: 11%
- Karnataka: 9%
- Haryana: 8%
- Uttarakhand: 4%
- Himachal Pradesh: 3.5%
- Gujarat: 2.5%
- Others: remaining
Export Sales Distribution
- UAE: 8.4%
- USA: 3.45%
- Italy: 2.3%
- Others: remaining
Product-wise Revenue Distribution
- Evaporator Coils: 37.5%
- Condenser Coils: 55.25%
- Headers/Copper Parts: 1.5%
- Others: 5.5%
Manufacturing Facility and Capacity
KRN’s manufacturing facility is located in Neemrana, Rajasthan, spread over an area of 7,800 square meters. The company’s capacity utilization in FY24 was around 85%. KRN sources raw materials from suppliers in Malaysia (34%), Vietnam (26%), South Korea (9%), and Thailand (5%), with domestic suppliers contributing 21%.
Workforce
As of July 31, 2024, KRN employed 553 personnel, which includes 170 full-time employees and 383 contractual employees.
Objects of the Issue
KRN Heat Exchangers aims to raise ₹342 crore through its IPO. The funds will be allocated as follows:
- Setting Up a New Manufacturing Facility (₹242 crore)
The company plans to invest in its wholly-owned subsidiary, KRN HVAC Products Private Limited, to set up a new manufacturing facility in Neemrana, Rajasthan. This facility will be seven times larger in terms of capacity compared to the existing one. It will focus on manufacturing bar and plate heat exchangers, oil cooling units with blowers, motors, and roll band evaporators. Commercial production is expected to commence by April 2025. - General Corporate Purposes (₹100 crore)
A portion of the funds will be used for general corporate purposes, including working capital and expansion initiatives.
Key Performance Indicators (KPIs)
- Revenue: ₹313 crore
- PAT: ₹39 crore
- PAT Margin: 12.7%
- Debt-to-Equity Ratio: 0.45
Financial Performance
Over the last three years, KRN Heat Exchangers has demonstrated solid financial performance, with revenue growing at a Compound Annual Growth Rate (CAGR) of 25%, while Profit After Tax (PAT) grew at 54% CAGR.
Valuation
The company is offering its shares at a Price-to-Earnings (PE) ratio of 33.5x, indicating that it is priced at a premium. This valuation appears to factor in the company’s recent robust growth. Notably, there are no comparable listed peers for KRN Heat Exchangers in the Indian market.
IPO Demand and Grey Market Premium (GMP)
The demand for KRN’s IPO has been strong, with a Grey Market Premium (GMP) exceeding 115% as of September 26, 2024. The anchor book has also shown a decent subscription.
Risks and Concerns
- Customer Concentration: A significant portion of KRN’s revenue comes from a few key clients, with Daikin alone contributing over 33%. The company does not have long-term contracts with these clients, which could pose a risk.
- Capacity Expansion Details: While KRN plans to expand its manufacturing capacity significantly, the company has not provided specific numbers regarding the increase in capacity in its Red Herring Prospectus (RHP).
- Short-term Growth: KRN’s new manufacturing facility will become operational by April 2025. Until then, the company may not experience significant growth in FY25.
Conclusion
KRN Heat Exchangers is a key player in the HVAC&R industry, serving both domestic and international markets. The company has displayed strong growth over the past few years, and its upcoming manufacturing expansion could further enhance its position. With robust client relationships and a growing presence in new verticals, KRN is well-positioned for future growth.
Tags: KRN Heat Exchangers IPO, IPO Review, HVAC&R Industry, Heat Exchanger Manufacturer, KRN IPO Analysis, Stock Market, KRN Heat Exchangers Financials, KRN Heat Exchangers Business Model
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