KRN Heat Exchanger and Refrigeration Ltd, founded in 2017 in Neemrana, Rajasthan, specializes in manufacturing fin and tube-type heat exchangers. The company primarily serves the Heating, Ventilation, Air Conditioning, and Refrigeration (HVAC&R) industry, with a strong product portfolio including evaporator coils, condenser coils, fluid and steam coils, and customized condensing and air-cooling units. Its clientele features industry leaders such as Daikin India, Schneider Electric, Kirloskar Chiller, and Blue Star.
Business Model
KRN operates on a business-to-business model, supplying essential components to HVAC&R manufacturers. The company’s revenue streams include:
Evaporator Coils: Extract indoor heat and transfer it to the refrigerant.
Condenser Coils: Release heat by converting vapor into liquid.
Fluid and Steam Coils: Used in industrial applications for air heating and processing systems.
Condensing and Air-Cooling Units: Customized manufacturing to meet specific project requirements.
Management
KRN is led by a first-generation promoter with robust leadership qualities, supported by a seasoned senior management team. Their strategic vision has been crucial in building long-term relationships with major clients and driving the company’s growth.
Competitive Edge
The company enjoys several competitive advantages:
High Entry Barriers: Significant capital investment is required for manufacturing, machinery, and sales networks.
Established Client Relationships: Strong partnerships with leading industry players provide credibility and stable revenue streams.
Product Customization: The ability to tailor solutions fosters customer loyalty and differentiation.
Recent Developments
KRN has taken a strategic step towards forward integration by incorporating a wholly owned subsidiary, KRN HVAC Products Private Limited. This move aims to manufacture new heat exchanger types, enhancing value addition and supply chain control.
Financial Outlook
KRN plans to expand its production capacity through its new subsidiary, targeting a sixfold increase to meet growing domestic and international demand. The expansion is projected to contribute significantly to revenue by FY26, with a potential to exceed ₹2,000 crore at full utilization.
Financial Performance
FY 2022-23
Revenue: ₹247.48 crore
Net Profit: ₹32 crore
EBITDA Margin: 19.83%
PAT Margin: 13.06%
FY 2023-24
Revenue: ₹308 crore (+24.6% YoY)
Net Profit: ₹39 crore (+42.98% YoY)
EBITDA Margin: 19%
PAT Margin: 13%
Q1 and Q2 of FY 2024-25
Q1
Revenue: ₹96.98 crore
Net Profit: ₹11.97 crore
EBITDA Margin: 18%
PAT Margin: 12.34%
Q2
Revenue: ₹98.54 crore
Net Profit: ₹12.31 crore
EBITDA Margin: 18%
PAT Margin: 12.37%
Capital Allocation and Growth Plans
KRN plans to utilize IPO proceeds, internal accruals, and bank financing to fund its expansion, including a new manufacturing facility in Neemrana. The company is also diversifying its product portfolio by introducing bar and plate heat exchangers and roll bond heat exchangers. These innovations will support applications like oil cooling in heavy machinery and electric locomotives. Additionally, KRN is eyeing expansion into European and North America, leveraging anti-dumping tariffs on Chinese imports in the US.
Charts, Valuation and Key Metrics
Market Capitalization: ₹6,017 crore
P/E Ratio: 151 (Highest in the Peer Group)
ROE: 41.90%
ROCE: 42.01%
Debt-to-Equity Ratio: 0.11
SWOT Analysis
Strengths
Robust financials with strong ROE and ROCE.
Established client relationships ensuring revenue stability.
Expansion plans set to drive future growth.
Weaknesses
Dependence on a limited number of clients.
High valuation compared to industry peers.
Opportunities
Rising demand for HVAC&R products in India and globally.
Expansion into new markets, including the U.S. and Europe.
Threats
Economic downturns affecting demand.
Competitive pressures from larger industry players.
Risks to Consider
Regulatory Risks: Policy changes in environmental and trade regulations may impact operations.
Competition: Larger multinational companies may introduce pricing pressures.
Market Dependency: Economic slowdowns could affect demand in the HVAC&R sector.
Final Thoughts
KRN Heat Exchanger and Refrigeration Ltd has showcased strong financial performance and ambitious growth plans. However, its high valuation and dependency on key clients remain considerations for investors. Those seeking long-term growth opportunities may find KRN an attractive option but should approach with a strategic investment plan.
Investment Recommendation
With solid fundamentals and expansion strategies in place, KRN remains a compelling choice for long-term investors. However, considering its current valuation, a cautious entry at favorable price levels is advisable as the PE runs highest in the peers.
Disclaimer
This analysis is for educational and informational purposes only and does not constitute financial advice. As per SEBI guidelines, stock price data must reflect a three-month lag. Investors should conduct their own due diligence before making investment decisions. The opinions expressed are personal and may contain biases or inaccuracies. All figures are subject to verification.
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