KRN Heat Exchanger and Refrigeration Limited (KRN) IPO Overview

Introduction

Founded on August 25, 2017, in Neemrana, Alwar, Rajasthan, India, KRN Heat Exchanger and Refrigeration Limited (KRN) manufactures fin tubes and heat exchangers, primarily using non-ferrous metals like copper and aluminium, for the HVAC&R industry. Heat exchangers transfer thermal energy between fluids without mixing, enabling heating or cooling through conduction.

KRN customizes heat exchangers in various sizes (diameters: 5 mm to 15.8 mm), offering products like condenser coils, evaporator units, and sheet metal parts for air conditioning, refrigeration, and process cooling. The company also applies advanced coatings (e.g., nano and powder coatings) to improve durability and efficiency in harsh environments.

KHERL's products are well suited for wide range of air conditioning, heating and ventilation, refrigeration, and process cooling applications Including Domestic, Commerical and Industrial Ventilation and air conditioning.The company adheres to some of the industry's best-quality product accreditations. To expand the business of and to reap the benefits of forward integration, the Company has incorporated a wholly owned subsidiary, namely KRN HVAC Products Private Limited to increase value-added products in existing portfolio.

It is also planning to venture into the distribution and sells channels which allow it to control the marketing and distribution of complete product range of heat exchangers.
By incorporating KRN HVAC Products Private Limited, it can have greater control over the supply of HVAC industry products, enhancing customer reach and brand visibility.

Industry Size

The global heat exchanger market, valued at USD 16.8 billion in 2023, is projected to grow at a CAGR of 8%, reaching USD 29.2 billion by 2030. In India, the market reached USD 689 million in 2023, with a CAGR of 10%, expected to grow to USD 1,487 million by 2030 at a CAGR of 11.6%. The industry benefits from rapid industrialization, urbanization, and infrastructure development initiatives Import Substitution etc.

Strengths

High entry barriers exist in the heat exchanger industry owing to the significant capital investment required for manufacturing facilities, machinery, and equipment procurement, along with the requirement of vast sales and service network to penetrate the market.
First generation experienced promoter. Promoters exhibit strong leadership and are supported by highly experienced senior management.
Long-standing business relationships with leading clientele.
Industry is Growing Extensively due to Global Warming and Increasing Penetration of ACs in Tier 2 and 3 Cities
Strong fundamentals with a three-year average ROE and ROCE of around 57% and 39%, respectively, between FY22 and FY24.
Forward integration through the incorporation of KRN HVAC Products, with plans to manufacture new types of heat exchangers for wider product applications.

Customer Profile

Key clients include Daikin India (33.34% of revenue), Schneider Electric, Kirloskar Chiller, Blue Star, and others. The top 10 customers contribute 72.31% of total revenue.

Products

Evaporator Coils: Their primary function is to extract indoor heat from the air and transfer it to the refrigerant flowing through their copper tubing.
Condenser Coils: Release heat in HVAC systems by converting vapor into liquid. The manufacturing process involves precision bending of the coils to create a compact and space-saving layout.
Fluid and Steam Coils: Fluid coils capture and transfer warmth or chill in the air or water, preventing unnecessary energy losses. Steam coils are commonly used in industrial applications such as air heating and processing systems.
Condensing Units and Air-Cooling Units: KRN specializes in custom manufacturing condensing and air-cooling units, tailored to meet customer project requirements.

Revenue Bifurcation

The product-wise revenue breakdown of the company:

Product	FY23-FY24	FY22-23	FY21-22
Evaporator Coils	₹11,559	₹7,153	₹5,144
Condenser Coils	₹17,030	₹15,227	₹9,947
Headers/Copper Parts	₹468	₹182	₹57
Sheet Metal Parts	₹14	₹17	₹6
Other	₹1758	₹2170	₹458
Total	₹30,828	₹24,748	₹15,611

Employees

As of July 31, 2024, KRN had 553 employees on its payroll, including 383 contract workers.

IPO Details

Price Band: ₹209-₹220

Issue Date: 25-27 Oct 2024

Fresh Issue: ₹342 Cr

Minimum Bid: 65 shares

Allocation: QIB 50%, HNI 15%, Retail 35%

Use of Proceeds: ₹242.46 Cr for setting up a new facility in Neemrana and for general corporate purposes.

Risks

No long-term written agreement with customers, including Daikin.
Heavy reliance on Daikin and top 10 customers, contributing 72.31% of revenue.
Dependence on third-party suppliers and imports for raw materials with no long-term contracts.
Revenue is not translating into operating cash flows due to receivables and inventory buildup.
Intense competition from established international players like Alfa Laval and Danfoss.

Financial Key Performance Indicators

The company's financials for the last three years are as follows:

Valuations

Post-IPO, the stock will be valued at a P/E ratio of 35 and a P/B ratio of 2.9 times.

Conclusion

KRN Heat Exchangers presents a strong business case with significant growth potential, driven by the expansion of its product range, high growth industry, forward integration strategies, and a growing customer base. However, the company faces notable risks, including dependency on key customers, suppliers, and fluctuating raw material costs.