Upcoming IPO: KRN Heat Exchanger Fixes Price Band At Rs 209-220/Share For Public Issue; Check Details

KRN Heat Exchanger and Refrigeration Limited is set to hit the market with its Initial Public Offering (IPO). The subscription period starts on September 25, 2024, and closes on September 27, 2024.

Price Band

The price band of the KRN Heat Exchanger IPO is set between Rs 209 and Rs 220 per equity share, with the floor price being 20.90 times and the cap price 22 times the face value of the shares. The price-to-earnings (P/E) ratio based on diluted earnings per share (EPS) for FY24 at the upper price band is 25.32 times, slightly higher than the Nifty 50 P/E ratio of 22.90 times.

Subscription Details and Lot Size

Investors can subscribe to the IPO by purchasing a lot size of 65 equity shares, with multiples of 65 thereafter. The IPO will reserve 50% of its shares for Qualified Institutional Buyers (QIBs), 15% for Non-Institutional Investors (NIIs), and the remaining 35% for retail investors.

The anchor investor allocation will take place on September 24, 2024, a day before the public subscription opens.

IPO Size and Fresh Issue

KRN Heat Exchanger's IPO, worth Rs 342 crore, consists entirely of a fresh issue of 1,55,43,000 equity shares, with no offer-for-sale (OFS) component. Notably, the company had undertaken a pre-IPO placement of 4,77,000 equity shares for cash, amounting to Rs 9.54 crore, thereby reducing the overall issue size slightly.

The proceeds from this fresh issue will be used to finance KRN Heat Exchanger's wholly-owned subsidiary, KRN HVAC Products Private Limited, and establish a new manufacturing facility in Neemrana, Alwar, Rajasthan. The company also plans to utilize a portion of the funds for general corporate purposes.

Key Promoters and Leadership

KRN Heat Exchanger is led by a strong promoter group, including Santosh Kumar Yadav, Anju Devi, and Manohar Lal, who together hold a significant stake in the company. As of the Red Herring Prospectus (RHP) filing date, the promoters collectively owned 94.39% of the company's issued, subscribed, and paid-up equity share capital.

Industry Overview

The global heat exchanger market has experienced substantial growth in recent years. In 2023, the market was valued at $16.8 billion, with a Compound Annual Growth Rate (CAGR) of 6.4% from 2019 to 2023. The Indian heat exchanger market followed a similar trajectory, recording a turnover of $689 million in 2023 and growing at a 10% CAGR over the same period. This growth has been largely driven by the increasing demand for energy-efficient and sustainable solutions in the HVAC and refrigeration sectors.

With its specialized product range, including evaporator coils, condenser coils, header/copper parts, and sheet metal components, KRN Heat Exchanger is positioned to capitalize on the growing demand for heat exchanger products. The company's reliance on key non-ferrous materials like copper and aluminium further gives it a push.

Revenue Contribution

KRN Heat Exchanger's business model is highly dependent on a few key clients, particularly Daikin Airconditioning India Private Limited, which accounted for over 32% of the company's total revenue in FY22, FY23, and FY24. Additionally, a significant portion of the company's revenue is generated from its top 10 customers, who collectively contributed over 70% of its total revenue in recent fiscal years.

Financial Performance

The company has demonstrated healthy financial growth, with revenue increasing from Rs 249.89 crore in FY23 to Rs 313.54 crore in FY24. In terms of profitability, KRN Heat Exchanger recorded a net profit of Rs 39.07 crore for FY24, up from Rs 32.31 crore in the previous fiscal year.

Key Risks

While KRN Heat Exchanger presents a promising growth story, there are some risks that potential investors should consider. One major risk is the company's lack of long-term contracts with its key customers, which could lead to volatility in revenue generation if any major client decides to scale back or discontinue their business relationship. Additionally, the company's operations rely heavily on obtaining and renewing statutory and regulatory permits, the delay or failure of which could have adverse effects on its financial and operational performance.

IPO Timeline and Listing

The basis of allotment for the KRN Heat Exchanger IPO will be finalized on September 30, 2024, with refunds initiated on October 1, 2024. Shares are expected to be credited to the demat accounts of successful applicants on the same day, and the company's shares will be listed on the BSE and NSE on October 3, 2024.