KRN Heat Exchanger and Refrigeration Q1 FY27 earnings call

KRN Heat Exchanger and Refrigeration Limited delivered a robust Q1 FY27, with consolidated revenue from operations growing 118.87% year-on-year to INR 252.32 crores. This strong top-line growth translated into significant profitability improvements, with consolidated EBITDA increasing 178.85% to INR 49.06 crores, and net profit rising 164.84% to INR 32.90 crores. The company also saw substantial margin expansion, with consolidated EBITDA margin improving to 19.44% from 15.26% and net profit margin increasing to 13.04% from 10.77%.

The company's international business was a key growth driver, with overseas revenue increasing 177% year-on-year and products now reaching customers across 14 countries. While exports to North America and Europe saw strong growth, revenue from the UAE declined due to a significant increase in freight costs from USD 1,500 to USD 6,000 per container, making KRN less competitive in that region. Management highlighted that the diversified portfolio across geographies and applications helps mitigate regional challenges.

KRN is actively broadening its product offerings beyond traditional fin and tube heat exchangers to include bar and plate, refrigeration components, and complete HVAC systems. This expansion targets diverse applications such as data centers, railways, industrial cooling, and mobility. The company noted that while liquid cooling is used for data center racks, fin and tube products are still essential for overall room cooling, ensuring continued relevance. Management also stated that there is no current technology that can replace heat exchangers entirely.

To support future growth, KRN is focused on expanding its manufacturing base, strengthening backward integration, and enhancing product breadth. The company plans a new facility in Bangalore, primarily to serve South India customers, with an estimated capex of INR 100 crores for land, building, and machinery, expected to be operational within one year. This expansion is considered a 10-15% increase in capacity, not a major one, and will initially transfer existing business before adding new revenue.

KRN is making inroads into the railway sector, having participated in a CLW tender where it emerged as the L1 bidder for a portion of the INR 70 crore tender, potentially securing orders worth INR 8 crores. The company is also developing complete HVAC systems for Indian Railways, with revenue expected from FY28. In the bus AC segment, KRN maintains a run rate of INR 5-6 crores per month and is on track to achieve 15% market share, with supply to a new large customer commencing next month.

The company is progressing towards eligibility for government incentive schemes. For the PLI scheme, KRN expects to meet the INR 400 crore fin and tube revenue criteria by Q3/Q4 FY27, after which it will apply. The entitlement certificate for the RIPS scheme was received at the end of June, and management plans to discuss its provisional accounting with auditors this quarter, with an update expected by the end of August 2026. These schemes are anticipated to contribute to future profitability, with RIPS being a 10-year benefit.

KRN confirmed that the QIP funds received at the end of June are sufficient to support its growth plans for the next two years without requiring additional debt or incurring higher interest costs. Management anticipates interest costs to be 'much, much less' in the coming two years due to the QIP. The company also noted that elevated employee costs this quarter were a necessary investment for scaling the business and building a complete team across various departments, increasing total strength to over 1,500.