KRN Heat Exchanger IPO: Financials to cash flows—10 key risks you must know before subscribing to the ₹342-crore issue

KRN Heat Exchanger IPO: The initial public offering (IPO) of KRN Heat Exchanger and Refrigeration Limited opened for subscription on Wednesday, September 25, 2024. The mainboard IPO of the leading fin and tube-type heat exchanger manufacturer will remain open for bidding till September 27, 2024.

KRN Heat Exchanger IPO, worth ₹342 crore, comprises a fresh issue of 15,543,000 equity shares. There is no offer-for-sale component in the issue. The price band has been fixed at ₹209 to ₹220 per equity share with a face value of ₹10. The lot size is 65 equity shares; thereafter, it will be in multiples of 65 equity shares.

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KRN Heat Exchanger IPO details

The floor price is 20.90 times the face value, and the cap price is 22 times the face value of the equity shares. The price-to-earnings ratio based on diluted EPS for the financial year 2024 at the upper price band is 25.32 times, compared to the Nifty 50 PE ratio of 22.90 times. 

KRN Heat Exchanger IPO has reserved not more than 50 per cent of the shares in the public issue for qualified institutional buyers (QIB), not less than 15 per cent for non-institutional Institutional Investors (NII), and not less than 35 per cent of the offer is reserved for retail investors.

The company, in consultation with the book-running lead manager (BRLM), undertook a pre-IPO placement of 4,77,000 equity shares for cash consideration aggregating ₹954 lakhs. 4,57,000 equity shares have reduced the issue size. Holani Consultants Private Limited is the lead manager for the KRN Heat Exchanger IPO, and Bigshare Services Pvt Ltd is the registrar for the issue.

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Tentatively, KRN Heat Exchanger IPO basis of allotment of shares will be finalised on Monday, September 30, and the company will initiate refunds on Tuesday, October 1, while the shares will be credited to the demat account of allottees on the same day following refund. KRN Heat Exchanger share price is likely to be listed on BSE and NSE on Thursday, October 3.

The company plans to use the proceeds from the Fresh Issue to finance an investment in its wholly-owned subsidiary, KRN HVAC Products Private Limited, by providing equity. This investment will establish a new manufacturing facility in Neemrana, Alwar, Rajasthan. The remaining funds will be allocated for general corporate purposes.

“The IPO's valuation is considered fair, although there is no listed peer for comparison. Given its strong fundamentals and potential for listing gains, investors may consider subscribing this IPO for listing gain as well as for long term,” said Shivani Nyati, Head of Wealth at Swastika investmart Ltd.

KRN Heat Exchanger Company Details

The company's promoters are Santosh Kumar Yadav, Anju Devi, and Manohar Lal. Santosh Kumar Yadav and Anju Devi collectively possess 4,39,99,960 equity shares, which accounts for 94.39 per cent of the company's issued, subscribed, and paid-up equity share capital. The company has no competitors in India engaged in a similar line of business.

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The firm produces heat exchangers with fins and tubes for the HVAC (heat, ventilation, air conditioning) and refrigeration industries. It mostly uses copper and aluminium as non-ferrous metals for its heat exchangers. The company's product line comprises sheet metal components, header/copper parts, evaporator units, evaporator coils, and fluid and steam coils.

KRN Heat Exchanger IPO: 10 key risks you must know before subscribing to the ₹342-crore issue

1.The company has no long-term contracts with any of its customers. If these customers decide not to purchase their products from them, it could result in financial instability and operational uncertainty, which could negatively impact their business and financial situation.

2.The company relies heavily on raw materials from its vendors in Malaysia, South Korea, Thailand, Vietnam and China. In FY24, FY23, and FY22, the import purchases accounted for 78.17 per cent, 79.08 per cent and 72.16 per cent of its total raw materials purchased. Any country-related risk or change in government policies concerning the import of goods from any country may affect the sourcing of raw materials, impacting business operations.

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3.To conduct its business, the company must acquire, renew, or uphold specific statutory and regulatory permits and approvals. Failure to do so promptly or at all could adversely affect the company's business, financial status, operational outcomes, and cash flow.

4.The company's revenue from operations has increased by a compounded annual growth rate (CAGR)of 25.46 per cent over the last three fiscal years. If the firm cannot sustain or manage the growth rate, the business operations and results of operations may be affected, and the growth rate may not be achievable in the future.

5.The profit after tax (PAT) has increased from ₹3231.35 lakhs in FY 2022-23 to ₹3,906.86 lakhs in FY 2023-24, leading to a growth of 20.90 per cent (YoY). The net profit from the last three financial years is increasing by a CAGR of 54.52 per cent. “If we cannot maintain these profit margins in future, our financial condition may,” said the company.

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6.The company derived 33.34 per cent, 32.85 per cent and 32.28 per cent of its revenue for FY 2024, 2023 and 2022 from its single customer-- Daikin Airconditioning India Private Limited. It derived 72.31 per cent, 70.87 per cent and 75.82 per cent of its revenue from its top 10 customers for FY 2024, 2023 and 2022, respectively. Delays or cancellations of orders by any of its top customers have a material and adverse effect on business operations.

7.If the company's top 10 customers in the refrigeration and air conditioning (RAC) Industry start manufacturing heat exchangers in-house, or if there is a downward trend, the sales could be adversely affected.

8.The issue's objectives include orders for plants and machinery that have yet to be placed. Further, the company has yet to place orders for capital expenditures. If there is any delay in placing such orders, the proposed implementation and deployment schedule of the net proceeds may be extended or varied.

9.The proposed projects specified in the “Objects of the Issue” are subject to various risks related to the non-completion of various stages as outlined in the project's implementation schedule. Delays or failures in completing any of the milestones in the implementation schedule could adversely affect the overall project completion and subsequent operations.

10.The company's inability to collect receivables from our customers or default in payment could reduce our profits and affect our cash flow.