KRN Heat Exchanger & Refrigeration IPO Analysis 2024: Should You Subscribe?

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The IPO (initial public offering) of KRN Heat Exchanger & Refrigeration Ltd (KRN) commences on September 25 and concludes on September 27, 2024. The offering, carrying a Grey Market Premium (GMP) of 108%, attracted significant interest on its first day of bidding. 

However, investors need a clear understanding of both potential rewards and risks before subscribing. This IPO analysis provides a comprehensive review to help make an informed decision.

KRN IPO Details

  • Issue Size: Rs 341.95 crore
  • Price Band: Rs 209 – Rs 220
  • Lot Size: 65 shares
  • Listing Date: October 03, 2024

KRN IPO Subscription Status

The IPO of KRN Heat Exchanger & Refrigeration Ltd witnessed robust demand on its first day, with subscriptions reaching 23.5 times by 5 p.m. Non-institutional investors subscribed 52.33 times their allocation, while retail investors subscribed 23.48 times. Meanwhile, qualified institutional buyers subscribed 1.43 times their reserved portion.

Overview of KRN

KRN is a leading manufacturer of fin and tube type heat exchangers specifically tailored for the heat ventilation air conditioning and refrigeration (HVAC&R) industry. It uses non-ferrous metals like copper and aluminum to produce its products. 

The firm offers customized heat exchangers in various shapes and sizes, adapting to customer needs and market demands, with tube diameters ranging from 5 mm to 15.8 mm. Their extensive product line includes condenser coils, evaporator units, evaporator coils, header/copper parts, fluid and steam coils, and sheet metal parts designed for diverse cooling applications.

KRN Key Strengths

  • Strong Financial Growth: KRN has demonstrated significant growth, with its operational revenue and net profit achieving compounded annual growth rates (CAGRs) of 41% and 92%, respectively, from FY22 to FY24.
KRN Financials
  • Solid Return Metrics: KRN’s financial efficiency is highlighted by impressive return metrics, with a Return on Equity (RoE) of 40.86% and a Return on Capital Employed (RoCE) of 31.21% in FY24.
  • Healthy Profit Margins: As of March 31, 2024, KRN reported EBITDA and Net Profit Margins of 18.96% and 12.67%, respectively.
  • Marquee Clientele: KRN has developed strong relationships with leading firms such as Daikin Airconditioning, Schneider Electric, Kirloskar Chillers, Blue Star, Climaventa Climate Technologies, and Frigel Intelligent Cooling Systems.

KRN Risk Factors

  • Client Concentration: KRN's revenue concentration is high, with its top 1, 5, and 10 customers representing 33%, 55%, and 72% of its total operational revenue as of FY24, respectively. This dependency on a limited number of clients exposes the company to significant risk if there is a reduction or delay in orders. 
  • No End-User Product: If any of the key customers begin manufacturing heat exchangers internally, KRN could lose a crucial revenue stream and face more competition.
  • Legal Risks: Arkade is currently entangled in various legal disputes involving its directors and promoters. Adverse rulings in these legal matters could damage the company's reputation and financial stability.

KRN Valuation & Recommendation

In terms of valuations, the IPO seems reasonably priced with a price-to-earnings (P/E) ratio of 25x based on FY24 earnings. Additionally, the grey market premium (GMP) for the issue suggests a solid market debut on the bourses.

KRN has shown significant growth in its financial metrics over recent years, setting a positive trend for the future. With solid return ratios and ongoing expansion plans, the firm is expected to enhance its performance in coming years.

Given the fair valuations, impressive growth metrics, strategic expansion initiatives and strong industry tailwinds, investors may consider subscribing to this IPO from a medium-term perspective.

For a deep dive into other IPOs, explore: IPO Corner on Liquide

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