KRN Heat Exchanger and Refrigeration Limited (KRN) IPO Overview

Introduction

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:

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.