IPO Size: Rs. 342 cr, Entirely Fresh Issue

• For greenfield capex worth Rs. 242 cr

Price band: Rs.209-220 per share

M cap: Rs. 1,367 cr, implying 25% dilution

IPO Date: Wed 25^th Sep to Fri 27^th Sep 2024, Listing Wed 3^rd Oct 2024

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

Heat Exchangers Maker

KNR Heat Exchangers is a 7-year old Alwar, Rajasthan based manufacturer of copper and aluminium heat exchangers, used by the heating, ventilation, air conditioning, and refrigeration (HVAC&R) industry. Company’s operations are B2B with Daikin, Schneider, Blue Star as customers, making end-products used in commercial and industrial applications like data centre, metros, railways, malls (not much residential end-use). In FY24, 38% of Rs. 308 cr revenue was generated from evaporator coils and 55% from condenser coils.

Massive Greenfield Capex

KNR Heat Exchangers has 2 plants in Rajasthan, with utilization of over 84% in FY24. It is undertaking greenfield expansion worth Rs. 279 cr, which will have 7x of current capacity, under a wholly owned subsidiary (for tax incentives). Rs. 36 cr investment has already been deployed and Rs. 242 cr will be funded from IPO proceeds. New capacity will cater to exports, railways (bar and plate heat exchanger) and new products are expected to come on stream by April 2025. Exports potential is large, especially in North America, due to 25% anti-dumping duty on Chinese imports and company being a China+1 player.  

High Margin Business

Between FY22-24, revenue grew at 41% CAGR to Rs. 308 cr, with 92% PAT CAGR. Nearly 14% of revenue is generated from exports (Middle East, North America and Europe). Given the nature of product, EBITDA margin is at 19%, with net margin of 12%. FY24 net profit stood at Rs. 39 cr, with EPS of Rs. 8.7, on equity of Rs. 46 cr.  

Attractively Priced

On FY25E EPS of over Rs. 10.25, PE multiple works out to about 21x, on current year basis, which is seen attractive, due to high growth visibility on a sizeable new capacity and serving higher-margin commercial and industrial end-customers.  

Company has done 2 pre-IPO rounds in the past 1 year – it raised Rs. 9.5 cr at Rs. 200 per share on 14^th Aug 2024 and Rs. 32 cr at Rs. 152 per share on 21^st Oct 2023. Current price, though 10% higher in a month’s time, is still justified.  

Promoter holding will drop from 94% to 71% post IPO.