KRN Heat Exchanger and Refrigeration Ltd

Here’s a detailed note from concall

Company Overview:

• Founded: 2017
• Specialty: Manufacturing aluminum and copper heat exchangers, condenser and evaporator coils, primarily for HVAC&R applications.
• Production Capacity: 1 million units annually, with a facility spanning over 100,000 sq. ft.
• Listing Date: Recently listed on NSE and BSE (Oct 2024).
• Revenue Sources: 81% from domestic sales, 19% from exports (Q2 FY25).

Q2 FY25 Financial Highlights:

• Standalone Revenue: Surpassed INR 100 crore (39.41% YoY increase).
• Consolidated Revenue: INR 92.53 crore (28.41% YoY increase).
• EBITDA: Consolidated EBITDA grew 36.38% YoY to INR 19.59 crore, with a 21.70% margin.
• Net Profit: Increased 42.98% YoY to INR 12.37 crore, with a 13.35% net profit margin.

Future Revenue Growth Projections:

1. Expansion Plan with New Subsidiary (KRN HVAC Products):

   • Capacity Expansion: Sixfold increase, aiming to cater to rising domestic and export demands.
   • Funding: Primarily through proceeds from IPO, internal accruals, and potential bank financing.
   • Timeline: Sample production expected to start in April 2025, with full-scale commercial production by Q2 FY26.

2. Revenue Contribution from New Capacity:

   • Targeting significant contributions by FY26 as the capacity expands and reaches ~85-90% utilization within three years post-expansion.
   • Revenue Projections: With full utilization, peak potential from this new capacity could exceed INR 2000 crore.

3. Key Drivers of Future Growth:

   • Product Diversification: Launch of bar and plate heat exchangers, roll bond heat exchangers, and expansion into new applications (e.g., oil cooling in heavy machinery, electric locomotives).
   • Market Demand: Expanding demand from sectors like data centers (contributed 7% to revenue in FY24), with Schneider Electric as a major client.
   • Export Market Penetration: Targeting Europe and North America, leveraging anti-dumping tariffs on Chinese imports in the U.S. and demand for high-quality, reliable heat exchangers. Plans to add more clients in Europe and North America, bolstered by successful exhibits in these regions.

4. Strategic MoU with Rajasthan Government:

   • Objective: INR 1000 crore investment plan under the “Rising Rajasthan” initiative.
   • Funding Strategy: Combines IPO proceeds with internal accruals and, if necessary, additional financing.
   • Timeline: Investment spread over five years, expected to generate substantial revenue as new capacities become operational.

5. Customer Base and Sales Strategy:

   • Major Clients: Top clients include Daikin, which contributes 33% to revenues, and Schneider Electric, covering around 90-95% of KRN’s data center business.
   • Revenue Diversification: Plans to add new clients in both domestic and export markets, with over 200 potential customers in the pipeline.

6. Profitability and Margin Growth:

   • Efficiency Gains: New facilities will have a solar-powered 8 MW unit and benefits from Rajasthan’s RIPS 24 policy incentives, potentially enhancing EBITDA margins.
   • Export Revenue Impact: Export margins are generally higher than domestic, with the potential to further lift overall profitability as export share rises.

Investment Summary:

KRN is well-positioned for substantial growth due to strategic expansions, product diversification, and strong export potential. The company’s substantial capacity additions, key partnerships, and growing client base in the HVAC&R sector indicate strong future revenue prospects with stable profitability margins.