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.

Risks

Valuations are currently very high, so I will wait for them to cool. Further, the benefit of the expansion plans will only be seen from next year, so I don’t expect much appreciation for this coming year. Lastly, any global macro event can disrupt the firm’s business

Disc - Not Invested as valuations too high

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Please find below notes from promoter interview and concall transcripts. Key highlights include 6x capacity expansion

• Manufactures fin and tube heat exchangers for HVAC applications which finds applications in cooling systems of Railways, Metros, Data Centers, Air chillers, logistics, cold rooms etc.
• Exchangers form 10% of RAC and may go up to 20% for complex products
• Commercial refrigeration industry is growing at 20-25% CAGR segment where company mainly operates (97% revenues towards commercial)
• 5 types of heat exchangers viz. shell and tube, spiral, plate, special and fin & tube
o Company is mainly into fin & tube and does copper to copper and copper to aluminium
• First to develop air condenser for bus ACs
• Setup new subsidiary and machines for air cooler, oil coolers and new machines
o Plate and bar exchangers
• Focus on export markets viz. US & Europe
• Exports have increased to 15% of revenues and plans to double exports
• Exports have 2.0x margins
• Annual turnover for finned tube heat exchangers is anticipated to grow from USD 133 Mn in 2022 to nearly USD 277 Mn by 2029, almost doubling in size
• Europe and Asia are planning China +1
• In USA, there is ADD on Chinese heat exchangers
o Forecast good export on back on repeat orders plus new product lines plus new customers

Analysis
• Historically gross asset turn has ben 5-6x and with incremental capex of INR 300 Cr which gets fully utilized by H1FY27
o Commercial production from Sep-25 and assume full ramp up in at max a years’ time
o Sep-26 should be operating at overall capacity utilization of 60-70%
• Changing export mix estimated to go up to 30-35% from current 20%
• Export orders have double margin of domestic thereby high chances of PE rerating with both topline growth and margin expansion
• Estimated revenues of c. INR 2,000 Cr revenues (6x asset turn on gross block of INR 340 Cr) with 20% steady EBITDA and 13-15% PAT margins
• In Mar’26, on 1 year forward multiple of 35-40x, estimated Mcap should be INR 10,000 Cr (250 Cr Pat times 35-40x multiple)
• 3x from current levels in 18-24 months’ time (Current Mcap is c. INR 3,650 Cr going to 10,000 Cr)

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Interesting interview of Santosh Kumar Yadav where you can get some insights into the company as well:

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Below information is largely from their presentation, ive tried to collate on tables. >https://www.bseindia.com/xml-data/corpfiling/AttachHis/45d7b08c-00ff-42be-9f6b-b82ef4f99133.pdf

Particulars FY24 FY23 FY22 FY24 %
Domestic Sales 26285 21910 14106 85%
Export Sales 4527 2820 1494 15%
Other Operating Income 16 18 12 0%
Total 30828 24748 15611 100%
Product sales FY24 FY23 FY22 FY21 FY24 %
Evaporator Coils 11559 7153 5144 1763 37%
Condenser Coils 17030 15227 9947 5629 55%
Headers/Copper Parts 468 182 57 32 2%
Sheet Metal Parts 14 17 6 7 0%
Other Operating Revenue 1758 2170 458 151 6%
Total 30828 24748 15611 7582 100%
Export FY24 FY23 FY22 FY24 %
Asia 2669 1445 1384 9%
North America 1066 754 14 3%
Europe 791 621 96 3%
Total Export Revenue 4527 2820 1494 15%
Total 30828 24748 15611 100%
Customer Since
Daikin 2018
Schneider Electric IT 2019
Kirloskar Chillers 2020
Blue Star 2021
Climaventa Climate Tech 2021

As i could find very little information on KRN order book, i tried to corelate KRN with few Diakin announcement as i presume diakin is its largest customer ( i have no data to confirm this yet ).>https://www.business-standard.com/companies/news/daikin-industries-invests-rs-1-400-cr-in-india-to-boost-local-manufacturing-124092000450_1.html

Sept-24 Daiking news
Diakin Expanding manufacturing in india
Diakin plan Doubling revenue by 2025
Daikin sold units in Q1 7 lakh
Indias house hold with AC 7%
India AC unit potential by FY25 300 lakh
Diakin Increasing Production in india for export

So i am presuming KRN might have chances to get good orders even from the domestic market for assembly by Brand owners and additional export orders of the AC components.

I might be over enthusiastic about domestic RAC. basically mooning is it at sweet spot, having middle class flush with AC money, KRN getting more orders from Daikin?

The stock is running hot, but i am dreaming and corelating it with PGEL’s run which also has RAC component attached to it.

I continue to try finding information on KRN order book.

D- Invested at dip after listing (not an advise, neither qualified etc.)

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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.

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Ratios

Standalone Figures in Rs. Crores / View Consolidated

Mar 2021 Mar 2022 Mar 2023 Mar 2024
Debtor Days 84 70 57 62
Inventory Days 33 63 114 139
Days Payable 129 120 102 59
Cash Conversion Cycle -11 14 69 142
Working Capital Days 12 29 72 169
ROCE % 42% 67% 42%

Cash Conversion Cycle and Working Capital Days are very high, any thoughts on same?

Also, stock has run up a lot and PE seems to be frothy.

Another thing I am not clear with is what is the additional capacity.

Is it 6x more so total 7x of current capacity, or 6x of current capacity?

Also, as they are saying that they are at full capacity utilisation as of today so just extrapolating when they have the new capacity running full throttle they should hit around 700 crore in revenues.

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I am impressed for your valuable information of the company.Actually i am new to fundamental analysis,can you say that where you got the Future Revenue Growth Projections: of the krn.

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Yes management gave guidance that it will be 6x of current capacity with more than 500 crore revenue.

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@Rudra2
if 6X capacity adds 500 Cr…extrapolating 70% utilization adds 350 crore revenue. Totaling 650 Cr by FY27 ?

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Press Release_Press Information Bureau.pdf (157.0 KB)

KRN HVAC Products Private Limited got selected in the PLLI scheme for Heat exchangers for committed investment of 141.72

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Table 2: Applicants referred to the Committee of Experts (CoE)
i. Air Conditioners (Gestation Period FY 2021-23)
S.no Applicant Name Eligible Products Committed
Investment
(Rs. in cr.)
1 KRN HVAC Products Private Limited 1. Heat exchangers

…KRN is not yet approved

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KRN posted good result…+5% (99 → 104)topline growth on QoQ…should do +30% (308 → 400) YoY.

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KRN: Key Growth Drivers & Strategic Initiatives

1. Capacity Expansion

• KRN is undertaking a major capacity expansion in Nimran, Rajasthan , investing over ₹300 crore through its subsidiary KRN HBAC Products Pvt Ltd .

• This expansion aims to increase capacity six-fold , with mass production starting in the second half of next year .

• The new facility will strengthen KRN’s core HBAC and refrigeration business while enabling entry into high-growth sectors like railway electrification, heavy earth movers, and industrial cooling .

2. Product Diversification

• Expanding into bar and plate heat exchangers , targeting electric locomotives, off-road vehicles, and earth movers .

• Introducing new heat exchanger products , including stainless steel (SS) tube heat exchangers , which have potential applications in the nuclear energy sector .

3. Export Growth

• KRN is expanding into Europe and North America , leveraging the China-plus-one strategy and favorable trade policies .

• Export contribution grew from 9.57% to 14.68%, with a goal to surpass 50% of total revenue.

4. Government Incentives

• Actively tracking the Production Linked Incentive (PLI) scheme for white goods, which could boost earnings.

• Signed an MoU with the Rajasthan government for a ₹1,000 crore investment over the next five years under the Rajasthan Investment Promotion Scheme (RIPS) , offering incentives of 1.4% to 1.6% of topline revenue for the next 10 years .

5. Margin Expansion

• Focused on margin improvement through:

Advanced quoting and manufacturing efficiencies .

Cost-saving solar energy adoption to lower power costs.

Export-driven growth , which offers higher margins than domestic sales .

6. Customer Acquisition

• Actively expanding both domestic and international customer bases.

• Participating in exhibitions in the USA, India, and Germany to attract new customers.

7. Strategic Partnerships & Approvals

• Received a tender from BLW for 10 units for development .

• Engaged in customer testing and approval processes for new product launches.

8. Innovation & Technology

• Investing in cutting-edge machinery and technology sourced from Europe, the USA, Japan, and China .

• This will make the new facility India and South Asia’s largest for heat exchanger production .

9. Addressing Capacity Constraints

• Currently operating at nearly full capacity—the new facility will significantly increase production volume.

10. Geographic Expansion

• Plans to open a new facility in South India within the next six months .

KRN’s New Facility in Nimran, Rajasthan: Impact on Production

1. Six-Fold Capacity Expansion

• The facility will increase KRN’s production capacity six times , addressing current constraints and growing demand .

2. Phased Implementation

Phase 1 (HVAC Facility) began last year with existing products.

Phase 2 will start in April 2025, with four sets of installations:

Sets 1 & 2: Machinery already installed.

Sets 3 & 4: Expected completion soon.

Trial production in April 2025 ; mass production by the second half of the year .

3. New Product Lines

• Expanding existing products and launching new product lines like bar and plate heat exchangers .

• Targeting high-growth industries : electric locomotives, off-road vehicles, and earth movers .

• Introducing SS tube heat exchangers , catering to nuclear energy applications .

4. State-of-the-Art Technology

• Equipped with the latest imported machinery from Europe, the USA, Japan, and China .

• Will be South Asia’s largest heat exchanger manufacturing facility outside OEMs.

5. Revenue Growth

• Expected to generate 5-6x the current revenue once fully operational.

• Will expand capacity for existing customers and enable entry into new markets .

6. Addressing Capacity Constraints

• KRN is currently operating at full capacity—the new facility will help scale production and meet export demand.

7. Customer Approvals & Testing

• Some products will enter production immediately, while others require customer approvals and testing.

• KRN has already started customer trials and received development orders .

Overall, this expansion is a major strategic move that will drive KRN’s growth, diversification, and global reach.

Geographic Expansion & Export Strategy

1. Focus on Europe & North America

• Expanding into the USA and Canada, capitalizing on the China-plus-one strategy.

• Competing directly with Mexican manufacturers.

2. Global Shift Advantage

• KRN sees a huge opportunity as companies reduce dependence on China, boosting its export business.

3. Strategic Market Targeting

• Participating in major exhibitions in India, the USA, and Germany to acquire new customers .

4. South India Expansion

• Planning a new facility in South India , currently in the planning phase with a six-month target for finalization .

5. Addressing Export Demand

• Current capacity constraints limit export growth—the Rajasthan facility will resolve this.

6. Competitive Edge

• Competing effectively with European & North American manufacturers, leveraging:

Cost advantages .

US tariffs on Mexican imports improving KRN’s positioning.

7. Customer Acquisition & Strategic Relationships

• Actively growing customer relationships in export markets , developed over the past 3-4 years .

By focusing on global expansion, strategic partnerships, and capacity growth, KRN aims to strengthen its international presence and drive long-term revenue growth.

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Summary of recent crisil report on monitoring:

:small_blue_diamond: Total IPO Funds: ₹342 Cr
:small_blue_diamond: Utilized: ₹177 Cr
:small_blue_diamond: Unutilized: ₹165 Cr (Parked in Fixed Deposits)

Purpose Allocation (₹ Cr) Utilized (₹ Cr) Balance (₹ Cr)
Subsidiary Investment (New Plant) 236 72 164
General Corporate Purposes 75 75 0
Issue Expenses 31 30 1
Total 342 177 165

:white_check_mark: No deviations, delays, or compliance issues
:white_check_mark: Plant setup at Neemrana in progress
:white_check_mark: Idle funds earning 7 - 8.5% interest in FDs

Funds are on track as per IPO objectives.

Full Report > https://www.bseindia.com/stockinfo/AnnPdfOpen.aspx?Pname=83c210db-2d89-4fe4-8f8f-6be15113de37.pdf

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