KRN Heat Exchanger & Refrigeration's IPO opened for subscription today. Should you invest?

• Company looking to raise Rs 341.5 crore via fresh issue
• Aims to set a new manufacturing facility in Rajasthan
• Stable financials, experts recommend subscribing for long-term

The IPO of KRN Heat Exchanger, a prominent manufacturer of aluminum, copper fins, copper tubes, heat exchangers, water coils, condensers, and evaporator coils opened for subscription today. The company's products find multiple applications in heating, ventilation, air conditioning, and refrigeration (HVAC&R) across domestic, commercial and industrial facilities.

The company, which caters to multiple sectors, including data center cooling, railways, defence, automobiles etc, is looking to raise Rs 341.5 crore, all via fresh issue. For this, it is offering 1,55,23,000 shares at a price band of Rs 209-220. The issue closes on September 27, 2024, with tentative listing on both NSE and BSE scheduled for October 3rd, 2024.

From the funds raised, the company intends to invest Rs 242.5 crore in its wholly owned subsidiary, KRN HVAC Products Private Ltd, through which it will set up a new manufacturing facility at Neemrana, Rajasthan.

On the first day of offer i.e. today, the company's IPO was subscribed 23.56x in retail category, 1.43x amidst QIBs (Qualified Institutional Buyers) and 52.38x in the NII (non-institutional investors). But should you subscribe to this IPO? We find out

Strong financials

The company's profits after tax (PAT) have seen a consistent growth over the years, jumping from Rs 10.6 crore in FY22 to Rs 39.1 crore in FY24. As a result, its PAT margins have also expanded from 6.8% in FY22 to 12.7% in FY24. The company's revenue from operations have also doubled during this period, inching up from Rs 156.1 crore in FY22 to Rs 308.3 crore in FY24. KRN's EBITDA has also seen a significant surge, moving up from Rs 16.9 crore in FY22 to Rs 58.5 crore in FY24. Clearly, the company has been doing well on the financial front.

However, the risks underlining the subscription must also be identified. The company heavily relies on its top 10 customers, which account for 72% of the company's revenue. Moreover, the company does not have any long-term agreements with its customers. Also, the company heavily relies on imported raw materials, importing 78% of its required raw materials in 2024. Any delay or cancellations on the front of customers or even suppliers can obviously have an adverse impact on the company's operations.

Expert Opinion

Despite this, most experts recommend subscribing to KRN's IPO for the long term. Says Anand Rathi Research, "KRN plans to expand its capacity multi-fold, which will generate increased growth in revenues from existing as well as new products like bar and plate heat exchanger, oil cooling unit with blower and motor and roll bond evaporator with improved margins from the export markets. On Valuation parse, at the upper price band the company’s implied market cap is around Rs 13,100 Mn valuing at PE of 33.5 times for FY24 which appears to be fully priced. Looking at the company’s experienced legacy along with its plan to expand internationally and rising demand
in HVAC market which could aid KRN’s revenue and profit margin in long run. Therefore we believe that this issue may be considered for its long term growth. Hence we give “SUBCRIBE for LONG TERM” rating to this IPO".

Swastika Investmart recommends the same, despite noting that the company has no listed peers to draw valuation comparisons with. "The company is an industry leader with international quality standards, along with having strong relationships with leading clients and a steady growth in both revenue and profitability. 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", their IPO note says.

SBI Securities also notes that the issue is attractive, especially since the company has shown a healthy financial track record. "At the upper price band of Rs 220, the company is valued at FY24 P/E multiple of 35.0x based on its post issue capital. KRN’s Revenue/EBITDA/PAT has grown at a CAGR of 40.5%/86.1%/92.1% respectively over FY22-24. The IPO proceeds will be utilized for establishing a new manufacturing unit, which will help expand its product portfolio and distribution channel. We recommend subscribing to the issue for long term investment horizon", says their IPO note.