IPO Size: Rs. 649 cr 

• Fresh Issue of Rs. 300 cr for working capital (Rs. 263 cr)
• Offer for sale (OFS) Rs. 349 cr by the promoters (95% to drop to 68%)

Price band: Rs. 395-415 per share  

M cap: Rs. 2,308 cr, implying 28% dilution

IPO Date: Tue 23^rd Apr to Thu 25^th Apr 2024, Listing: Tue 30^th Apr 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Heating Equipment Manufacturer

JNK India, established in 2010, manufactures heating equipments, such as process fired heaters, reformers and cracking furnaces used in oil and gas refineries and petrochemical industry. It enjoys 27% domestic market share in the 7-player heating equipment industry, besides developing capabilities in renewable sector for green hydrogen and solar photovoltaic EPC.

Korean Parentage

Korea-based JNK Global, world’s #3 industrial-use process fired heater producer, is company’s co-promoter. It holds 25.8% stake in the company (18% post IPO). This leads to good technical capability (including thermal design capacity) for manufacturing the critical equipment and helps in order procurement, leading to superior margins.

Strong Order Book

As of 31.12.23, outstanding order book stood at Rs. 845 cr, representing 2.1x FY23 revenue of Rs. 407 cr. Company guides executing this order book in 15 months, providing healthy revenue growth visibility. 

High Margins Business

FY23 revenue stood at Rs. 407 cr, up from Rs. 296 cr in FY22. The capital goods company clocks margin as high as 60% gross and 18% at EBITDA level. In 9MFY24, revenue stood at Rs. 253 cr, with 27% EBITDA and PAT of Rs. 46 cr, on favourable business mix, leading to net margin of 18% and an EPS of Rs. 9.5.

Business is asset light, with fixed assets of just Rs. 24 cr. But working capital requirement is high - as much as 6 months in inventory and debtors combined. Thus, the fresh issue will fund working capital requirement of the growing business.

Attractively Priced

Based on FY25E EPS of about Rs. 17, share is being offered at a PE multiple of 24x, which is seen attractive for a capital goods player, even factoring in the cyclicity of the oil and gas sector. Due to asset light business model, RoE is as much as 48%. Besides, JNK India’s margins are much superior to both peers Thermax and BHEL’s single digit net margin, while both are quoting at a PE of 100+.