KRN Heat Exchan

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.

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.

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.

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.

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.

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.