KRN Heat Exchanger and Refrigeration Limited is gearing up for its Initial Public Offering (IPO), aiming to solidify its position as a leading manufacturer and exporter specializing in aluminium/copper fins and copper tubes heat exchangers, alongside water coils, condenser, and evaporator coils. Their high-quality products are supplied to well-known OEMs in the Heating, Ventilation, Air Conditioning, and Refrigeration (HVAC&R) industry.

The IPO, which opens for subscription on September 25, 2024, and closes on September 27, 2024, is a Book Built Issue amounting to ₹341.50 Crores, consisting entirely of a Fresh Issue of 155.23 Lakh Shares. The allotment is expected to be finalized on September 30, 2024, with a tentative listing on the BSE NSE set for October 3, 2024.

The share price band is established between ₹209 to ₹220 per share, with a minimum lot size of 65 shares. Retail investors need to invest a minimum of ₹14,300, while High-Net-Worth Individuals (HNIs) must invest for 14 lots (910 shares), amounting to ₹2,00,200.

Subscription and Market Performance

As of 05:00 PM on September 25, 2024, the KRN Heat Exchanger IPO has seen overwhelming interest, being subscribed 15.13 times on its first day. This reflects a strong demand among investors and highlights the attractiveness of the IPO. The Grey Market Premium (GMP) is anticipated to range between ₹125 to ₹130, indicating a robust potential for listing gains of 55% to 60%. However, potential investors should exercise caution, as the GMP is speculative and does not guarantee actual trading prices upon listing.

Anchor Investors and Capital Allocation

KRN has successfully raised ₹100.1 Crores from Anchor Investors at the upper price band of ₹220 per share, allocating 45,50,000 equity shares to them. This solidifies confidence in the company’s growth potential, particularly in light of the current market demand for HVAC&R solutions.

Objectives of the IPO

The proceeds from the Fresh Issue are earmarked for key objectives, including:

Investment in Subsidiary: Approximately ₹24,246.10 Lakhs is allocated for equity investment in their wholly owned subsidiary KRN HVAC Products Private Limited for setting up a new manufacturing facility at Neemrana, Alwar, Rajasthan.

General Corporate Purposes: The remaining funds will be utilized for various corporate needs and strategic initiatives.

Financial Performance Overview

KRN Heat Exchanger has demonstrated remarkable growth in its financial performance over recent years. The company’s revenue has increased from ₹15,822.53 Lakhs in Fiscal 2022 to ₹31,354.12 Lakhs in Fiscal 2024. Correspondingly, the EBITDA has grown significantly, rising from ₹1,693.56 Lakhs in FY22 to ₹5,845.24 Lakhs in FY24. The Profit After Tax (PAT) has also improved substantially, from ₹1,059.04 Lakhs in FY22 to ₹3,906.86 Lakhs in FY24.

For the KRN Heat Exchanger IPO, the company is issuing shares at a pre-issue Earnings Per Share (EPS) of ₹8.69, with a post-issue EPS of ₹6.28. The pre-issue Price-to-Earnings (P/E) ratio is 25.31x, while the post-issue P/E ratio is 35.03x. With a Return on Capital Employed (ROCE) of 31.21% and a Return on Equity (ROE) of 40.86%, these metrics suggest that the IPO is reasonably priced given the company’s financial strength.

Investment Recommendation

Given KRN Heat Exchanger's strong financial metrics, significant subscription interest, and the promising potential for listing gains, we recommend that investors Apply to the KRN Heat Exchanger and Refrigeration Limited IPO. This IPO offers a compelling opportunity for both short-term listing gains and long-term investment due to its solid operational foundation and growth prospects.

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