The funds raised are strategically invested to fuel the company’s aggressive expansion plans. KRN aims to grow its revenue sixfold by 2029, backed by a robust pipeline of orders and expansion in domestic and export markets.
This rapid rise reflects strong investor optimism, but it also raises the question: Can the company sustain this momentum as it embarks on its ambitious growth plans, including a target to increase revenue sixfold by 2029?
What are heat exchangers?
Every industry that deals with heat—whether it’s an oil refinery, a power plant, or an air conditioning system—relies on heat exchangers to keep things running smoothly. These machines quietly regulate temperature, humidity, and air purity, preventing overheating and improving energy efficiency.
There are four main types of heat exchangers, each playing a specific role:
Shell and tube exchangers: The backbone of the oil, gas, and chemical industries, handling high temperatures and pressures. These dominate the market, making up 53% of India’s heat exchanger industry (CY2023).
Finned tube exchangers: Used in the heating, ventilation, and air conditioning and refrigeration industry (HVAC&R), these systems regulate temperature, humidity, and air quality across residential, commercial, and industrial settings. They make up 21% of the industry.
Plate exchangers: Used in railway locomotives, metro train engines, and heavy earth-moving vehicles to keep them from overheating. They account for 20% of the market.
Spiral exchangers: Niche products used in food processing, sugar mills, and petrochemical plants, making up the remaining 6%.
What does KRN Heat Exchanger do?
KRN is a leading manufacturer of finned tube exchangers for the HVAC&R industry, specializing in commercial applications. It also operates in the plate heat exchanger market.
It provides a broad array of copper and aluminium products, including condenser coils, evaporator units, and fluid coils, to satisfy various market demands.
The company has long-term business relationships with leading original equipment manufacturers (OEMs) in the HVAC industry, including Daikin Air Conditioning, Schneider Electric, and Blue Star.
KRN heavily relies on its top 10 customers, with 72.3% of its revenue coming from them. Of these, 33% comes from Daikin alone, making its business significantly reliant on the company. Schneider contributes 10%.
This demand for the product is about to boom
In recent years, the global heat exchanger market has embarked on an impressive growth journey fueled by an escalating demand for sustainable, energy-efficient, and cost-effective solutions.
From 2019 to 2023, the market flourished at a remarkable compound annual growth rate (CAGR) of 6.4% to a valuation of $16.8 billion. This is projected to reach $29.2 billion by 2030, driven by a strong 8.2% growth rate.
This is expected to be driven by industries’ investment in technology to enhance efficiency and reduce costs. Moreover, the push towards environment-friendly solutions also acts as a tailwind for the heat exchanger market.
Traditionally, North America and Europe have dominated this industry, thanks to their strong industrial foundations and rapid innovation in manufacturing.
However, a shift is occurring. Manufacturing and industrial activities are relocating from developed regions to emerging economies such as India, leading to soaring demand for energy, infrastructure, and heat exchangers.
India’s heat exchanger demand is gearing up for growth
India’s annual industry turnover of heat exchangers has impressively surged at a 10% CAGR from 2019 to 2023, reaching a remarkable $689 million annually in 2023. This is expected to grow at an even higher 11.6% CAGR to $1.49 billion by 2030.
Rapid industrialization and urbanization, data centres, coupled with a government commitment to infrastructure development, are expected to spur this growth and drive substantial annual revenue increases in the industry.
Moreover, the growing emphasis on efficient energy usage to reduce carbon emissions is becoming a key driver of demand for heat exchangers. These systems play a crucial role in optimizing energy consumption.
As more companies look for ways to meet sustainability goals, the demand for energy-efficient technologies like heat exchangers is set to rise.
Heat exchanger is critical equipment for the HVAC&R industry
Heat exchangers are vital in the HVAC&R industry, expertly managing temperature, humidity, and air quality. Remarkably, they account for 10-12% of the value of commercial HVAC systems.
As a key player, KRN stands out as a premier supplier of heat exchangers specifically designed for commercial applications in the HVAC&R sector. Notably, the commercial HVAC market is experiencing a phenomenal growth rate of over 20% CAGR in India.
In 2023, the Indian HVAC market generated an impressive annual turnover of $9.10 billion. This figure is anticipated to skyrocket to $20.5 billion by 2029, at a CAGR of 14.5%, driven by several demand drivers.
Firstly, India is undergoing rapid industrialisation, a trend expected to persist for decades. This will significantly boost the demand for commercial air conditioning, growing at over 20% CAGR.
Consequently, the industrial and manufacturing sectors will increasingly seek heat exchangers, fueled by capital investments and strategic policy initiatives like Make in India and the production-linked incentive (PLI) scheme.
Moreover, the booming data centre sector, propelled by proactive government initiatives, is witnessing an astounding growth rate of 50% CAGR. Notably, data centres account for 7% of KRN revenues. Moreover, the demand will also be driven by the modernization of railways and the expansion of metro systems.
KRN has capitalized on the growing demand for heat exchangers, driving strong financial growth through its technological capabilities and competitive edge, establishing itself as a leading player in India.
KRN’s fundamentals are fueled by strong growth
KRN’s revenue has soared at an impressive CAGR of 42%, climbing from ₹76 crore in FY21 to ₹308 crore, fueled by a strong demand for its products.
Profitability has been equally impressive. Profits skyrocketed at a staggering 111% CAGR, jumping from ₹2 crore to ₹40 crore in FY21, a testament to its high asset turnover.
Moreover, its earnings before interest, tax, depreciation, and amortization (Ebitda) have multiplied nearly 12X, from ₹5 crore to ₹58 crore, while the margin has surged 1.6X to 19%, up from just 7.2%.
The company boasts a solid return on equity (RoE) of 41% and a return on capital employed (RoCE) of 40%, reflecting its ability to generate substantial returns for shareholders while strategically investing in expansion.
Its performance has been strong in the current fiscal year as well, touching last year’s revenue in just nine months of FY25. Its revenue grew by nearly 33% to ₹298 crore compared to last year, while its profit grew 39% to ₹38 crore in the first nine months of FY25.
Massive growth in the works: 6X capacity expansion
To meet the surging demand for its products, KRN is embarking on an ambitious expansion journey, consistently enhancing its manufacturing capabilities. For FY25E, the company has earmarked a capital expenditure of ₹250 crore, surpassing its cumulative capex over the last five years.
KRN is embracing a substantial growth trajectory with its current facility, which spans three acres and boasts a potential revenue of ₹400 crore. Operating at an impressive 85% capacity utilization, this facility is already reaping peak revenue benefits.
Despite this success, the strong demand calls for an increase in capacity. Consequently, KRN plans to amplify its operational footprint sixfold to 18 acres, unlocking a huge revenue potential of ₹2,000 crore—6.6X its FY24 revenue.
This expansive facility will begin commercial production in Q1FY27, and revenue generation is anticipated to start in Q2.
What’s truly noteworthy is KRN’s asset turnover ratio, which stands at a high 5.9X. This indicates that the anticipated capacity expansion is poised to significantly boost revenue generation.
In fact, the company already has a robust pipeline of orders that have yet to be fulfilled due to current capacity limitations. Once the capacity goes live, KRN aims to achieve full capacity utilization by FY29.
The capital expenditure is funded partly through internal accruals and partly by the proceeds from KRN’s IPO. Notably, KRN began this expansion effort before the IPO, having already invested ₹70 crore by H1FY25. The remaining ₹280 crore will be covered by the ₹342 crore raised in the IPO.
This new facility will take advantage of a 15% corporate tax rate, Rajasthan’s 1.6% revenue incentive for a decade, and the PLI scheme (upon approval) for electronics. Additionally, it will incorporate 8 megawatts of solar power to lower energy costs. This initiative will not only enhance revenue but also improve profit margins.
Expanding exports to fuel growth
KRN generates a significant 85% of its revenue from the domestic market, while exports contributed a modest 15%, translating to ₹45 crore in FY24. Excitingly, the company aims to nearly double its export revenue, targeting ₹80 crore in FY25 and even more in the years to follow.
KRN’s emphasis on high-quality, customizable heat exchangers provides a competitive advantage in the large export market. Coupled with the ongoing China+1 strategy, this is bolstering exports; Chinese heat exchangers attract duties, making exports from India approximately 15% cheaper than those from China.
With an expansion expected to commence operations in Q1 FY26, KRN is strategically positioned to boost its export revenue significantly. Since export orders generally command higher margins, increasing export share promises to increase revenue profitability and margins.
Moreover, KRN is diversifying into innovative products such as bar and plate, which are essential for electric locomotives used in Indian railways, heavy trucks, earthmovers, and compressors. This will provide it with diversification of revenue.
Still a steal or overpriced? Let’s dive into the valuation
Given its short trading history, assessing its valuation against historical benchmarks is challenging. Nonetheless, it currently operates at a price-to-earnings ratio of 146X, indicating a rather steep valuation that reflects many of these expansions in its price.
Even considering its growth potential and scarcity premium, as it lacks any listed peers, the valuation captures most of the recent positives. However, we have compared its valuation with Amber Enterprises, which manufactures room air conditioners. Relatively, we find that KRN also trades at a 40% premium to Amber P/E of 105X.
KRN is a bootstrapped company founded by a promoter with over 20 years of experience in heat exchanger and refrigeration manufacturing before seeking IPO funding. The company has carved out a niche in heat exchanger manufacturing and has secured prominent clients.
The demand is substantial, and KRN is poised to significantly benefit from India’s growing industrialization and data centre market. However, its current valuation reflects most of these positives. Moreover, as it gains scale, the current growth rate will see some moderation, too. Still, it’s worth keeping on the watchlist.
Note: Throughout this article, we have relied on data from www.Screener.in and Tijorifinance. We have used an alternate, widely used, and accepted source of information only in cases where the data was not available.
The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Madhvendra has been a passionate follower of the equity market for over seven years. He is a seasoned financial content writer who loves reading and sharing his honest opinions about publicly listed Indian companies and macroeconomics.
You can connect with Madhvendra on LinkedIn, where he has built a strong following, to explore more of his insights and engage in meaningful discussions.
Disclosure: The writer does not hold the stocks discussed in this article.
