KRN Heat Exchanger and Refrigeration Limited IPO Review

IPO Summary of KRN Heat Exchanger and Refrigeration Limited

Introduction

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Hey folks, C Raran here, and I welcome you all to a very interesting IPO summary of KRN Heat Exchanger and Refrigeration

Limited.

Company Overview

First and foremost, as usual, we have to try and understand what does the company do. This company manufactures Fin and Tube-type heat exchangers. For a non-science student like me, I was initially confused about what these Fin and Tube-type heat exchangers are. However, after looking at an image, I realized that I have seen this before—like in an old Fiat car’s mechanic workshop.

But does the company manufacture the entire exchanger or just parts of it? Well, they have a product range that includes evaporator units, condenser coils, evaporator coils, copper parts, fluid and steam coils, and sheet metal parts.

Where Are These Parts Used?

You may be wondering, where are these parts used? These components are primarily used in the heat ventilation, air conditioning, and refrigeration industry. Now, let’s understand more clearly where each part is used.

1. Evaporator Coil: The evaporator coil is used inside air conditioners. It helps in cooling the warm air and releasing cool air into the room.
2. Condenser Coil: This is found in the external AC unit outside the room. It is responsible for releasing the heat into the environment, which is why you feel hot air near that external unit.
3. Fluid and Steam Coils: These coils are often used in temperature-controlled environments, like heated swimming pools, ensuring the water temperature remains warm.
4. Condensing Units & Air Cooling Units: These are crucial components in refrigeration systems, used in places like ice cream factories or ice storage facilities.
5. Headers and Copper Parts: These smaller but precisely engineered parts are critical for ensuring accuracy in larger systems.
6. Sheet Metal Parts: These are structural parts that support other components, like coils.

Revenue from Product Segments

Now that we’ve covered what the company manufactures, let’s look at the revenue generated from these products. The majority of the revenue—more than 90%—comes from evaporator coils and condenser coils. Over the past few years, the revenue from evaporator coils has increased from 32.95% to 50%, while for condenser coils, it has decreased from 63.7% to 55.2%. Clearly, these two products are the main contributors to the company’s revenue.

Major Clients

Talking about clients, KRN Heat Exchanger has some major clients, including Dyin Air Conditioning India Pvt Ltd, Schneider Electric, Kosar Chillers, Blue Star, and Clima Venta. These names are well-known in the air conditioning and refrigeration industry.

Industry Growth and Demand

The industry outlook is quite promising. According to the Red Herring Prospectus (RHP), increasing consumption is driving the demand for non-discretionary items like air conditioners. With more income and spending power in India, products like air conditioners are becoming more essential rather than a luxury.

 

Exports and Client Base

Approximately 15% of the company’s revenue comes from exports, with Asia contributing 59%, North America at 23.5%, and Europe at 17.5%. The company has a growing international clientele, which has increased from 10 clients to 32 in the past two years.

Key Risks

Now, let’s discuss some key risks associated with KRN Heat Exchanger. Their largest customer, Dyin Air Conditioning, contributes 33.34% of the total revenue. If this client shifts to a different supplier, it could significantly impact the business. Additionally, the top five customers contribute 55.12% of the total sales, making the company vulnerable to losing key clients.

Another key risk is related to their raw material sourcing. A significant portion of their materials is sourced from Malaysia (43%), Vietnam (32%), and South Korea (12%). If any geopolitical issues arise in these regions, it could disrupt the company’s supply chain and affect production.

Financials

Let’s quickly review the financials. Revenue has been steadily growing at a CAGR of 25.46%, and EBITDA margins have improved from 10.85% to 18.96%. PAT (Profit After Tax) has also grown from 6.78% to 12.67%, indicating strong financial performance.

Key Objects of the Issue

The company plans to use the IPO proceeds for investing in its wholly-owned subsidiary, KRN HVAC Products Pvt Ltd, to set up a new manufacturing facility in Rajasthan.

IPO Details

The IPO opens on 25th September and closes on 27th September, with a price band of Rs. 209 to 220. The total issue size is Rs. 341.95 crore, with 100% of it as fresh issue.

Conclusion

In summary, KRN Heat Exchanger and Refrigeration Limited is a key player in the HVAC and refrigeration industry, with strong financials and a growing clientele. This IPO could be an exciting opportunity for investors looking to invest in a company with promising growth prospects.

I hope you found this IPO summary helpful. If you did, don’t forget to like and share. I’ll see you in the next one!

Take care, and bye for now!