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KRN Heat Exchanger and Refrigeration Limited — Q3 FY25 earnings call

Call held 3 Feb 2025

Management summary

KRN Heat Exchanger and Refrigeration Limited reported strong Q3 FY25 results with significant year-on-year growth in revenue, EBITDA, and net profit, driven by increased demand and initial contributions from its HVAC subsidiary. The company is undertaking a major INR 300 crores+ capacity expansion in Neemrana, targeting a 5x to 6x increase in peak revenue by FY28, with sample production starting in April 2025 and mass production in the second half of next year. While gross margins saw a temporary dip due to increased employee costs for new facility training and raw material price increases, management expects to pass on costs and improve margins post-stabilization.

Highlights

Q3 FY25 Revenue of ₹116.36 crores, up 73.67% YoY.
Q3 FY25 EBITDA of ₹15.81 crores, up 34.76% YoY.
Q3 FY25 Net Profit of ₹13.73 crores, up 74.44% YoY.
9M FY25 Total Income of ₹305.88 crores, up 32.96% YoY.
9M FY25 Net Profit of ₹38.01 crores, up 39.02% YoY.
INR 300 crores+ capacity expansion underway, targeting 5x to 6x peak revenue.
Sample production for new facility to begin in April 2025, with mass production in H2 FY26.
Exports grew from 9.57% to 14.68% of revenue, with a target to exceed 50% shortly.

Key financials

2 periods

Headline

Revenue
₹116.36 Cr
YoY +73.7%
EBITDA
₹15.81 Cr
YoY +34.8%
Net Profit
₹13.73 Cr
YoY +74.4%

9M FY25

Total Income
₹305.88 Cr
YoY +33%
Net Profit
₹38.01 Cr
YoY +39%

What they filed

Q1 FY27: revenue up 59.6%, net profit up 18.8% against the same quarter last year.

₹ Cr · quarterly

Line item	Q2 FY25	Q3 FY25	Q4 FY25	Q1 FY26	Q2 FY26	Q3 FY26	Q4 FY26	Q1 FY27
Revenue	99	104	131	114	223 +125%	136 +31%	202 +54%	182 +60%
Expenses	81	88	111	95	194	119	184	157
EBITDA	18	16	20	20	30 +67%	17 +6%	18 −10%	25 +25%
Margin	18%	16%	15%	17%	13%	13%	9%	14%
Other income	2	3	1	3	4	5	3	2
Interest	1	0	1	1	1	1	1	1
Depreciation	1	1	1	1	1	1	1	1
Profit before tax	17	18	20	21	32 +88%	20 +11%	19 −5%	25 +19%
Tax rate	29%	30%	30%	25%	25%	25%	10%	25%
Net profit	12	13	14	16	24 +100%	15 +15%	17 +21%	19 +19%
EPS	1.95	2.04	2.21	2.52	3.81	2.43	2.71	2.85

How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Capacity

Peak Revenue Multiple Capacity · High confidence 5x to 6x of current level

Once this facility will fully be operational, we expect to generate peak revenue of 5x to 6x of current level.

— Sonu Gupta, CFO
Capacity Increase Multiple Capacity · High confidence 6-fold

This plant is more than just an extension, this is a game changer with a 6-fold capacity increase.

— Sonu Gupta, CFO
Production Volume Increase Multiple Capacity · High confidence 6X

Let me list facility wise. So, we said like total our production volume will increase by 6X compared to existing facility and mass production will start from second half of next year.

— Santosh Yadav, Chairman and Managing Director

Production

Sample Production Start Production · Q1 FY26 · High confidence April 2025

We are on the track to begin sample production in April 2025.

— Sonu Gupta, CFO
Mass Production Start (New Facility) Production · H2 FY26 · High confidence second half of next year

So, mass production will start in second half of next year.

— Santosh Yadav, Chairman and Managing Director

Revenue

MOU with Rajasthan Government Revenue · next 5 years · High confidence 1000 crores

No, we signed like 1000 crores MOU with government and we will try to meet this 1000 crores in next 5 years.

— Santosh Yadav, Chairman and Managing Director
Q4 FY25 Revenue Growth Revenue · Q4 FY25 · Medium confidence 5%-10%

This running quarter is almost same or maybe we will try to increase like 5%-10% on last quarter. Because our capacity is almost full.

— Santosh Yadav, Chairman and Managing Director
Revenue Multiple (from FY25 end) Revenue · coming 3 years time · High confidence 5 times

FY'25 end of the year results, we have assumed that we will multiply by 5 times in the coming 3 years time.

— Sonu Gupta, CFO

Export Mix

Export Contribution to Top Line Export Mix · shortly · Medium confidence more than 50%

Now percentage around 20% of total top line and next like shortly we will try to make like more than 50%.

— Santosh Yadav, Chairman and Managing Director

Profitability

Gross Margin Improvement (on existing) Profitability · Medium confidence 1% to 2%

So, if I include all these 3, 4 regions. So, we will able to increase 1% to 2% on existing.

— Santosh Kumar, Chairman and Managing Director
Margin Increase (overall) Profitability · coming years · Medium confidence slightly increase

our margin will slightly increase compared to our existing margin in coming years.

— Santosh Kumar, Chairman and Managing Director

Government Incentives

RIPS Incentive Government Incentives · next 10 years · High confidence 1.4% to 1.6% of the top line

So, there is the like provision we can receive 1.4% to 1.6% of the top line for next 10 years.

— Santosh Kumar, Chairman and Managing Director
PLI Incentive Government Incentives · next 3 years · Medium confidence 6% to 4%

They will give 6% to 4% for next 3 years on the top line of the production or incremental on the last year.

— Santosh Kumar, Chairman and Managing Director

Risks & concerns

Temporary Margin Pressure
medium

Due to increased employee costs for new facility training (150 new hires) and raw material price increases (China subsidy removal), expected to last 4-5 months.

Management acknowledged
Execution Delays for New Facility Mass Production
medium

While sample production starts April 2025, mass production for the new 6x capacity facility is only expected in the 'second half of next year' (H2 FY26), implying a longer ramp-up.

Management acknowledged
Capacity Constraint for New Customers/Export Demand
low

Existing capacity is almost full, leading to an inability to supply new customers and meet all export demand, which the new facility aims to address.

Management acknowledged

Areas of evasion (3)

Specific revenue guidance for FY25/FY26
Exact percentage of data center revenue
Detailed breakdown of new product capacity vs existing product capacity

Q&A highlights

3 direct

Gross Margin Dip and Recovery Direct

First is like our employee cost is increased because now we have almost 850 people against last quarter it was 700. So, because now we hired 150 manpower for our new like facility. So, they are under training... And secondly, some impact on the -- for one month for raw material because earlier China giving subsidy almost 13%... from 1st January we already passed this impact to our customer...

Directly addresses a key financial concern (margin compression) with specific reasons and a timeline for recovery, indicating temporary nature.

Asked by Rucheeta Kadge

New Capacity Utilization and Demand Drivers Direct

So, actually there is 3-4 parameters. So, we are increasing our capacity including other products as well... existing customer growth is there... we will add some domestic customer... we will add export customer... And then fifth one is new products. So, if I club all things then we will able to increase 5-6x.

Provides a comprehensive view of how the massive capacity expansion will be utilized, detailing multiple demand drivers and customer segments.

Asked by Yashwanthi

Competition and Market Opportunity in North America Direct

USA put the duty 25% on Mexico as well. So, for us I think now we can easily compete to Mexico and Canada vendor as well, if they want to supply in USA... Even they can get almost 10% of like their bottom line of saving if they receive our product.

Reveals a significant geopolitical tailwind (US duties on Mexico) that could give KRN a competitive advantage in the North American market, directly impacting export growth potential.

Asked by Shivkumar Prajapati

2 min read 6 chapters

Detailed narrative

Strong Q3 FY25 Performance and 9M Growth

KRN Heat Exchanger reported robust financial results for Q3 FY25, with revenue reaching INR 116.36 crores, marking a substantial 73.67% year-on-year increase. EBITDA grew by 34.76% to INR 15.81 crores, and net profit surged by 74.44% to INR 13.73 crores. For the nine months ended December 31, 2024, total income stood at INR 305.88 crores, up 32.96% YoY, with net profit increasing by 39.02% to INR 38.01 crores, reflecting strong execution and demand.

Transformational Capacity Expansion Underway

The company is progressing with a transformational capacity expansion in Neemrana, Rajasthan, involving an investment of over INR 300 crores through its subsidiary, KRN HVAC Products Pvt. Ltd. This expansion is expected to result in a 6-fold increase in capacity and generate peak revenue 5x to 6x of the current level. Civil work is nearly complete, machinery trials are underway, and sample production is slated to begin in April 2025, with mass production anticipated in the second half of next year.

Strategic Diversification and Export Focus

KRN is strategically expanding into high-growth sectors such as railway, electrification, heavy earth movers, and industrial cooling, alongside its core HVAC and refrigeration business. The company is also entering the bar and plate heat exchanger market, with its facility 'almost ready for production' and proto orders received. Exports have shown steady growth, increasing from 9.57% to 14.68% of total revenue, with a future target to exceed 50% shortly, driven by expansion into Europe and North America and favorable trade policies.

Temporary Margin Pressure and Recovery Outlook

Gross margins experienced a temporary dip in Q3 FY25, primarily due to a 150-person increase in employee headcount for new facility training and the withdrawal of a 13% subsidy by the Chinese government on copper and aluminum, impacting raw material costs for one month. Management stated that raw material price increases have been passed on to customers from January 1, 2025, and the impact from employee costs is expected to normalize within the next 4-5 months as mass production commences.

Government Incentives and Market Opportunities

KRN is set to benefit from government incentives, including the Rajasthan Investment Promotion Scheme (RIPS) 2024, which offers 1.4% to 1.6% of the top line as an incentive for 10 years, and a potential PLI scheme offering 6% to 4% on the top line for the next 3-5 years. The company also highlighted a competitive advantage in North America due to the USA imposing a 25% duty on imports from Mexico, making KRN's products more competitive for US customers.

Customer Acquisition and Order Book Strategy

The company maintains a 'rolling type' order book, with forecasts for 2 months and purchase orders for 1 month, ensuring continuous supply based on customer requirements. KRN is actively adding new customers, with existing clients showing 20-30% growth and data center demand growing over 30%. The new capacity is crucial for onboarding new domestic and export customers, some of whom represent annual requirements of over INR 100 crores.

This is an AI-generated summary of a publicly available earnings call transcript.

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