JNK India ltd - Oil and Gas sector proxy?

[Mayur_Bapodara]

INTRODUCTION

• JNK India Limited was incorporated in 2010 and is engaged in designing, manufacturing, supplying, installing, and commissioning process-fired heaters, reformers, and cracking furnaces (HEATING EQUIPMENTS).

• The company has a diversified product portfolio that caters to varied industries such as oil and gas refineries, petrochemical, steel, fertilizer, etc.

• Evolution of the company

  

Strategic Collaboration with JNK Global

• Company has strategic collaboration with JNK Global, the renowned industrial-use Process Fired Heater producer in Korea, and it is one of the promoters of JNK India.
• This provides access to extensive knowledge and resources, fostering innovation and efficiency in JNK India projects.
• JNK India acts as a global joint engineering and implementing
  partner for JNK Global
  This snippet explaines it well
  
  

PROMOTERS

1. Arvind Kamath
   

   
   
   Arvind Kamath is major promoter of the company and holds 32.65% stack via MASCOT CAPITAL AND MARKETING PRIVATE LIMITED

2. Goutam Rampelli
   

   
   
   Gautam Rampelli holds 8.34% stack in the company

3. Dipak Bharuka
   

   
   
   Dipak Bharuka holds 8.92% stack in the company

INDUSTRY OVERVIEW

• Established business line for the company is in the segment of heating equiments. (Process fired heaters, Steam reformers, Cracking furnaces)
  NOTE: For more technical understanding and product applications, please refer company DRHP here. JNK INDIA LTD-DRHP

• Demand potential for Indian refinery segment

  

• Demand potential from Indian petrochemical segment

  

• Demand potential from fertilizer (Urea) segment
  

  

So, total demand for heating equipment from Indian refineries, petrochemicals and fertilizer (Urea) segments between Fiscal 2024 and Fiscal 2029 is estimated at ₹ 27,089 crore i.e., approx. ₹ 4500 crore on an annualized basis. 61% of this demand would come from petrochemicals followed by 37% from refineries and 2% from fetilizers (Urea).

Same way, demand for heating equipment from the refineries in the countries of interest between calendar year 2024 and calendar year 2028 would be ₹49,045 crore i.e., approx. ₹ 7256 crore on annualized basis.

COMPETITIVE LANDSCAPE

• The process fired heaters market has high barriers to entry and there are only a handful of suppliers, despite surge in demand.
• If the operation of a process fired heater is interrupted for even one day, users could incur significant losses, which is why suppliers undergo a thorough selection process.
• The Indian heating equipment market is closely competed among seven companies with JNK India and Thermax being the most prominent and comparable players. Bharat Heavy Electricals Limited is also a participant however, its revenue from heating equipment is comparatively lower compared to its other flagship businesses.
• In terms of revenue from heating equipment, JNK India is the largest company in India with a revenue of more than ₹ 4,000 million in Fiscal 2023.
• In terms of volume, the company is currently installing 25 units, which is higher than any of its competitors currently executing in the Indian market.
• Based on discussion held with the leading heating equipment suppliers, approximately ₹ 22,000 million of heating equipment have been ordered in Fiscal 2023.
• As per Fiscal 2023 orders, company commands 27% market share in heating equipment space in India.
• At global level, JNK India commands 2% market share and JNK Korea commands 14% market share.

FINANCIALS AND FUTURE GROWTH

• From FY21 to FY24, revenue has grown at CAGR of 50%+ with OPM margins in the range of 18%-20%.
• Company has generated positive operating cash flow in 3 out of last 4 years, though cumulative OCF/PAT conversion rate for last 4 years is 39% which seems little low.
• Company’s current orderbook stands at Rs. 1246 crore as of Q1 FY25.
• Company’s orderbook was at Rs. 620 crore at the end of FY24, and after getting significant order of close to Rs. 700 crore from Reliance Industries for cracking furnace, orderbook strengthen significantly.
• Company plans to execute opening orderbook fully plus some portion of new orderbook, so revenue for FY25 will be close to 700 crore with 18% OPM.
• There is healthy bid pipeline of Rs. 4000 crore and company’s conversion rate stand at 20-25% historically. So there is good visibility for future orders.

RISK FACTORS

• Company is proxy to Oil and Gas sector growth, so if there is slowdown in capex plans or delay in new projects in this sector, it can affect the orderbook and future visibility of the business.
• Company has derived majority of revenues from their Corporate Promoter, JNK Global and use their experience and technology support for select projects. Any kind of dissociation with JNK Global may have an adverse impact on their business, results of operations and cash flows.

OTHER NOTES

• Company recently entered into Flares, Incinerators segment which is 4% of total revenue which I have not covered here in detail. I will add in subsequent comments.
• Company is also building capabilities in renewable sector with green hydrogen as well through subsidiary JNK Renewable Energy Private Limited, which we need to track going forward.

Disclaimer : Tracking

[Mayur_Bapodara]

NOTES AR-FY24

• Global refining capacity is projected to expand by 3.3 million barrels per day between 2023 and 2030, supported by a simultaneous increase in the supply of non-refined fuels such as biofuels and natural gas liquids (NGLs).

• Some of the key major projects successfully executed during our journey include:

  1. Successful Commissioning of Crude Heaters and CCR Heaters for Dangote Refinery Heaters (Nigeria).
  2. Commissioning of Methanol Reformer for Assam Petrochemical.
  3. Crude Heaters and Atmospheric Residue Heaters for Pemex, Mexico.
  4. Hydrogen generation and dispensing station at IOCL R&D centre, Faridabad.

• Company supplied modularised heaters to Nigeria for the largest single-train refinery. This project involved designing and delivering some of the biggest
  heaters ever constructed, showcasing our ability to manage complex, large-scale modularisation tasks with precision and efficiency.

• We are collaborating with IIT, Mumbai for advanced burner technology, reflecting our commitment to environmental sustainability and innovation.

• we have added 103 new employees during the year in various functions thereby increasing our team strength to 253 staff members as at end of FY2024. (68% increase in employee strength in a year)

[raviprabhu2000]

I could be wrong but below are two observations from DRHP which led me to be away from this company.
Risk 1 - We derive a significant portion of our revenue from operations from orders which are contracted to us by Contracting Customers. We have received projects from Contracting Customers such as Tata Projects Limited, and JNK Global, one of our Corporate Promoters. However, we receive majority of our projects from JNK Global. We work with JNK Global as one of our Contracting Customers and thereby cater to various End User Customers including Indian Oil Corporation Limited in India.
My view: Above tells me that company can have a intermediary influenced by promoter or the Korea partner group where the profits could be stored – with no annual report out yet – check for related party transaction in future. Almost 50% of the orders are from JNK Global.
Risk 2 - We are an asset light Company wherein we outsource our fabrication process to third-party fabricators for most of our projects which presents numerous risks.
My View: How can manufacturing company be asset light ,Reason could be that promoter Arvind Kamath has many businesses under brand name Mascot and Porvair so work might be going der for processing and hence needs deeper review.

[Shridhar_Taparia]

Are there any new notes or updated link of the JNK india update?

[Rishi_Patel]

No news nor any brokerage calls. I think it’s just moving because it hasn’t moved for a while now despite of the good fundamentals & a healthy order book.

[23_Investments]

Yes, no news but the chart formation is good for a bounce, low volume any buying would result in quick rally

also as you said fundamentals look good

[Mayur_Bapodara]

Recent Management interview.

JNK India Aims To Maintain Margins Of 18% In FY25: Arvind Kamath Gives Insights

[inxs_22in]

JNK India has shown strong growth in their business for the first half of this financial year. Their revenue grew by 47% compared to last year, reaching INR 1,981 million. The company also secured several new projects, bringing their total pending orders to an all-time high of INR 13,116 million.

One of their biggest achievements was getting their first order from the United States through a company called KBR. This is significant because the US market typically prefers to work with American or European suppliers for such equipment. They also won their first process plant order from HPCL’s Mumbai refinery and secured a project from Adani’s green PVC plant in Mundra.

Most of JNK India’s business comes from making heating equipment, which accounts for 83% of their orders. They mainly serve Indian customers (91% of orders), with petrochemical and refining companies being their biggest clients. The company sees good opportunities ahead, especially in Russia where they could potentially win projects worth INR 2,000 crores.

However, their profit margins have been lower than usual lately. This is because many of their current projects are in the middle or final stages, which typically involve higher costs. They’ve also had some extra expenses from employee stock options (ESOP) and from growing their business. The company expects their margins to improve in the second half of this year as they start working on their new orders.

Looking at the full year, JNK India expects to generate revenue between INR 600-700 crores. They plan to complete all their existing projects worth INR 621 crores this year, with additional revenue coming from new orders. The management is confident about their future, particularly after entering the US market. They’re also expanding into new areas like renewable energy while strengthening their position in their core petrochemicals business.

The employee stock option costs, which have been affecting their profits, will end by March 2025. This, combined with their strong order book and expansion plans, makes the management optimistic about their future performance.

[sougataG]

JNK does business with the US and Russia. Does this not make it vulnerable to US sanctions?