KRN Heat Exchanger and Refrigeration Ltd

Company Overview

KRN Heat Exchanger and Refrigeration Limited, established in 2017, specializes in manufacturing and exporting heat exchangers and coils for HVAC&R applications. Within just seven years, the company has grown rapidly and achieved significant industry recognition, positioning itself as a key player in the HVAC sector. KRN’s manufacturing facility covers over 100,000 square feet with an annual capacity of over 1 billion units, allowing it to serve major domestic and international clients like Daikin and Schneider Electric.

Financial Performance

In the second quarter of FY25, KRN reported standalone revenue surpassing ₹100 crores, marking a 39.41% year-over-year growth. Consolidated total income for the same period reached ₹92.53 crores, a 28.41% increase compared to Q2 FY24. Additionally, consolidated EBITDA rose 36.38% year-over-year to ₹19.59 crores, improving the EBITDA margin to 21.7%. Net profit surged by 42.98% to ₹12.37 crores, reflecting a net profit margin of 13.35%. For the first half of FY25, KRN achieved a total income of ₹189.52 crores, up by 16.24%, and an increase in net profit by 24.93% to ₹24.34 crores.

Strategic Growth Initiatives

KRN signed a ₹1000 crore Memorandum of Understanding (MOU) with the Rajasthan government under the Rising Rajasthan initiative to support its expansion plans. The recent IPO has also raised ₹342 crores, earmarked for strategic investment in growth initiatives, with additional funding expected to come from internal accruals and bank financing as necessary.

KRN HVAC, a wholly-owned subsidiary, is set to begin commercial production in April 2025, with new capacity expected to bring a substantial increase in output within three years. The new production line will introduce bar and plate heat exchangers and roll bond heat exchangers to target a broader range of applications, including the growing data center segment, which currently comprises around 7% of KRN’s revenue.

Product and Market Expansion

KRN’s main products, fin and plate heat exchangers, are designed for large-scale applications across shopping malls, hotels, data centers, hospitals, and railways. The company’s products are tailored to meet the diverse needs of industries requiring highly reliable and customized heat exchange solutions, a competitive edge that allows KRN to stand out among OEMs.

KRN’s strategic focus includes expanding its market share in both the domestic and international sectors. Currently, 81% of revenue is derived from the domestic market, with 19% from exports. There are plans to leverage the listing to increase engagement and enhance KRN’s market presence globally, especially in the North American and European markets, taking advantage of the China-Plus-One strategy and ongoing anti-dumping tariffs on Chinese products.

Operational Insights

Operating as a B2B company, KRN emphasizes quality, customization, and long-term client relationships. With a current capacity utilization rate of 85%, the company expects to achieve full utilization within three years post-expansion. Raw material inventory remains high, as many essential materials are imported, which ensures production stability amidst supply chain fluctuations.

Market Position and Competitors

KRN stands out as a listed company within just seven years of operations, with significant revenue growth and high ROE and ROCE metrics. Despite established competitors like United Heat and Patel Airtemp, KRN’s focus on high-capacity, commercial-grade products like fin and plate heat exchangers positions it in a niche market. Clients like Daikin, the second-largest HVAC manufacturer globally, and Schneider Electric, a leader in data center solutions, highlight KRN’s appeal among top-tier clients.

Industry Trends and Growth Potential

The HVAC industry is expected to experience sustained demand due to rising temperatures and infrastructure expansion in sectors such as data centers and commercial real estate. KRN projects growth rates of 20% for the commercial AC segment and 50% for data center AC products, underlining a significant opportunity in these areas. KRN’s focus on high-asset turnover and profit margins makes it well-positioned to capture this growing market.

Challenges and Future Outlook

While the company has shown robust growth, challenges remain in scaling production and expanding exports in a competitive global market. However, KRN’s ongoing investment in solar power integration and government incentives could help sustain margins and address environmental regulations. The company is optimistic that the upcoming production ramp-up in its new subsidiary will enable it to reach revenue projections of ₹350-400 crores by FY26, contingent upon full utilization of the new facilities.

This comprehensive overview underscores KRN Heat Exchanger and Refrigeration Ltd.’s growth trajectory, strategic initiatives, and market positioning in the HVAC&R industry. With a solid foundation, strong client relationships, and proactive expansion efforts, KRN is well-prepared to capitalize on industry trends and drive sustained growth.