KRN Heat Exchanger and Refrigeration Limited IPO Summary
Introduction: KRN Heat Exchanger and Refrigeration Limited is launching its initial public offering (IPO), which has garnered significant attention due to its specialized product range and potential in the air conditioning and refrigeration industry. This blog provides a concise overview of the company’s operations, products, and key financials, alongside an analysis of the industry and associated risks.
Overview of the Company |
| KRN Heat Exchanger and Refrigeration Limited is primarily engaged in the manufacturing of Fin and Tube type heat exchangers. These exchangers are crucial components in heating, ventilation, air conditioning, and refrigeration (HVAC-R) systems. For a layperson, Fin and Tube type heat exchangers might not be immediately clear, but they are commonly found in air conditioners (ACs) and similar systems, making them familiar products despite the technical jargon. |
| The company offers a wide range of products, including: |
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Product Applications |
| Evaporator Coils: These are crucial components in AC systems, designed to cool air by absorbing heat. They are typically installed inside the AC unit in a room. |
| Condenser Coils: Installed in the external unit of an AC, these coils release heat into the surrounding environment. If you’ve ever stood near the outside unit of an air conditioner, you would have felt the warm air being expelled—this is due to the condenser coil. |
| Fluid and Steam Coils: These coils are used in systems like temperature-controlled swimming pools. They help maintain water temperature, ensuring comfort for swimmers. |
| Condensing and Air Cooling Units: These units are crucial in large-scale refrigeration systems, such as those found in ice cream factories or ice storage facilities. They help maintain the required temperature for preserving frozen products. |
| Headers and Copper Parts: Precision and minimal imperfections are vital when manufacturing these small but essential components for heat exchangers. |
| Sheet Metal Parts: These are structural elements used to support various components in HVAC-R systems. |
Revenue Distribution |
| The company’s main sources of revenue are evaporator coils and condenser coils, which together contribute more than 90% of the company’s income. In the financial year 2023-24, evaporator coils accounted for 50% of total revenue, while condenser coils contributed 55.2%, showing a slight decline from previous years. |
Major Clients |
| KRN Heat Exchanger’s client list includes several prominent names: |
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| These partnerships underscore the company’s strong position in the HVAC-R sector. |
Industry Growth Potential |
| The HVAC-R industry in India is set to experience robust growth due to factors like rising income levels, increased spending power, and growing demand for air conditioners. With extreme temperatures becoming more common, air conditioning has shifted from being a luxury to a necessity. Consequently, the demand for components such as those manufactured by KRN Heat Exchanger is expected to rise. |
Key Risks |
| While the company has promising prospects, certain risks should be considered: |
| Customer Concentration Risk: Dyin Air Conditioning India Private Limited contributes 33.34% of KRN’s revenue, with the top five clients accounting for 55.12% of total sales. This reliance on a few key customers presents a risk—if any of these clients were to shift to another supplier, it could severely impact the company’s revenue. |
| Supply Chain Risk: KRN sources a large portion of its raw materials from countries like Malaysia (43%), Vietnam (32%), and South Korea (12%). Any disruption in these countries, whether due to geopolitical issues or economic instability, could affect the company’s supply chain, impacting production and overall profitability. |
Financial Performance |
| The company has demonstrated consistent financial growth across key metrics: |
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| Additionally, KRN’s Return on Equity (ROE) and Return on Capital Employed (ROCE) for FY 2023-24 stand at 24.86% and 31.2%, respectively. |
Future Plans and IPO Details |
| KRN Heat Exchanger plans to use the proceeds from the IPO for investments in its subsidiary, KRN HVAC Products Private Limited, to establish a new manufacturing facility in Nimrana, Rajasthan. The total estimated cost for setting up this facility is ₹2,246.1 lakhs. |
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Conclusion
KRN Heat Exchanger and Refrigeration Limited is well-positioned to benefit from the growing demand for HVAC-R systems in India and abroad. While the company does face risks related to customer concentration and supply chain dependencies, its strong financial performance and strategic expansion plans make it an interesting proposition for investors.
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