KRN Heat Exchanger IPO - Issue Details, Financials, Strengths, Risks, Valuation And More: DRChoksey

DRChoksey Research Report

KRN Heat Exchanger and Refrigeration Ltd. will launch its initial public offering on Sept. 25 and the offer will close for subscription on Sept. 27. The Rajasthan-based manufacturer of fin and tube-type heat exchangers, catering primarily to the heat ventilation air conditioning and refrigeration industry has fixed the price band in the range of Rs 209-Rs 220 per share.

The minimum lot size for bidding will be 65 shares, with further bids to be made in multiples thereof.

The Rs 341.95 crore IPO comprises only of a fresh issue of 1.55 crore equity shares with no offer-for-sale component.

Object of the offer

1. Investment in wholly owned subsidiary,

2. General corporate purposes.

Strengths :

• Promoters exhibit strong leadership and are supported by highly experienced senior management.

• Consistent financial performance.

Strategies :

• Expand its customer base.

• Enhancing existing products base and product quality.

• Regular Improvement in product design and development.

• Increasing global footprint and augmenting growth in current geographies.

Outlook & Valuation:

KRN Heat Exchanger and Refrigeration is strategically poised for sustained growth within the HVAC&R industry, leveraging its comprehensive manufacturing capabilities in heat exchangers, condenser coils, evaporator units and related components. The company has consistently demonstrated strong financial performance, reporting revenues of Rs 3,083 million in FY 2024, with a substantial 96.66% of revenue derived from its evaporator and condenser coils segment.

The company also reported a ROE and ROCE of 40.86% and 31.21% respectively during FY24. This robust financial foundation is complemented by a remarkable customer retention strategy, which includes long-standing relationships with key clients such as Daikin Airconditioning India Pvt. Ltd. KRN’s proactive strategies to expand its customer base and product offerings position it well to capitalize on the growing global demand for heat exchangers.

The company plans to penetrate new markets, particularly in North America and Europe, while enhancing its existing product line through continuous innovation and customization. By establishing KRN HVAC Products Pvt. Ltd. for new manufacturing capabilities, KRN aims to diversify its portfolio and reduce reliance on major customers, thereby mitigating risks. Based on current growth metrics and the strategic initiatives outlined, KRN is positioned for a favorable valuation.

IPO is pegged at a PE multiple of 35 times. In light of the impressive growth prospects, strong financials and strategic expansion initiatives, we assign a ‘Subscribe’ rating for KRN Heat Exchanger and Refrigeration’s IPO.

Risks:

• The company’s revenue is significantly dependent on its single customer Daikin which contributed around 33% of the revenue during the year FY24. Delay or Cancellation of orders by any one or all of the top customers could could adversely impact the company.

• Inability to identify customer demand accurately and maintain an optimal level of inventory in manufacturing facility would impact the company.

• The company depends on a few key suppliers, sourcing 14.94% to 17.46% from its largest supplier and over 57% from its top five suppliers across FY 2022 to 2024. Any delays in supply could affect operations and financial performance.

• The company relies heavily on vendors in Malaysia, South Korea, Thailand, Vietnam, and China, with import purchases with more than 70% of raw material sources from these countries. As a result any country-related risk or any change in Government policies in relation to import of goods from any specific country or region may adversely affect the sourcing of the raw materials which may have an adverse effect on the operations.

• If the company's top 10 customers in the refrigeration and air conditioning industry begin manufacturing heat exchangers in-house or if there is a downturn in the industry, sales could be negatively impacted.

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