KRN Heat Exchanger IPO Subscribed 8x on Day 1: Should You Invest?

KRN Heat Exchanger, a leading manufacturer in the air conditioning and refrigeration sector, has seen a robust response to its initial public offering (IPO), with subscriptions reaching 8 times on Day 1 of the bidding process. The IPO, which launched with a price band of ₹230-₹242 per share, is expected to remain open until September 28, 2024, with the listing date likely to be October 3, 2024.

The strong demand for KRN Heat Exchanger's shares highlights the market’s confidence in the company’s growth potential. Ahead of the IPO, the company successfully raised ₹100 crore from anchor investors, including WhiteOak Mutual Fund, Bandhan Mutual Fund, and Saint Capital Fund. But does this excitement translate into a worthwhile investment for retail investors?

KRN Heat Exchanger IPO Details:

IPO Size and Price Band: KRN Heat Exchanger is offering a total of ₹342 crore worth of equity shares, priced between ₹230 and ₹242 per share. Investors can apply for a minimum of 65 shares per lot, with higher multiples available for larger bids.
Anchor Investors: Before the IPO opened to the public, KRN Heat Exchanger secured ₹100 crore from anchor investors, a positive sign for the company’s market prospects. Major institutional names like WhiteOak Mutual Fund, Bandhan Mutual Fund, and Saint Capital Fund have shown faith in the company by investing ahead of the IPO.
Use of Funds: Of the funds raised, ₹242.5 crore will be used to set up a new manufacturing facility for KRN’s subsidiary, KRN HVAC Products. The remaining funds will be allocated toward general corporate purposes, further strengthening the company’s operational capabilities.
Key Business Areas: KRN Heat Exchanger specializes in the production of fin and tube-type heat exchangers, which are widely used in ventilation, air-conditioning, and refrigeration systems. The company operates from its manufacturing facilities in Neemrana, Rajasthan, and has long-standing relationships with key industry players such as Schneider Electric IT Business India and Climate Technologies Pvt. Ltd.

Financial Performance:

Strong Growth in Revenue: For the fiscal year ending March 2024, KRN Heat Exchanger reported a net profit of ₹39.07 crore on revenues of ₹313.54 crore, reflecting strong demand for its products. This growth represents a significant increase from the previous fiscal year, where the company earned ₹32.31 crore in profits on revenues of ₹273 crore.
Capex Plans: The company is undertaking a major capacity expansion as part of its growth strategy. The capital expenditure (capex) planned is expected to position KRN as a key player in the export market, further boosting its future revenue potential.
Industry Position and Export Focus: KRN’s focus on exports is expected to bolster its growth, given the strong demand for air-conditioning and refrigeration products across global markets. Analysts have noted that KRN is positioned among the best-performing consumer durables manufacturers in India, which is reflected in its strong return ratios.

Brokerage Recommendations:

Several brokerage firms have expressed optimism about the KRN Heat Exchanger IPO, with most advising long-term investments. Here’s what some key firms are saying:

SMIFS: SMIFS recommends subscribing to the IPO for long-term gains, noting the company’s large capex plans and its export focus. According to the brokerage, KRN’s current capacity and growth outlook make it an attractive investment for those looking to capitalize on future market demand.
SBI Securities: SBI Securities echoes the sentiment of long-term growth, citing the company’s valuation at a FY24 price-to-earnings (P/E) multiple of 35, which is considered attractive given the company’s CAGR of 40.5%, 86.1%, and 92.1% over FY22-FY24 for various financial metrics. SBI Securities expects KRN to deliver strong performance over the coming years, making it a sound investment for long-term investors.
Swastika Investmart: Swastika has advised investors to subscribe for both listing gains and long-term returns. While acknowledging that there are no direct listed peers for comparison, Swastika points to the company’s fundamentals, strong profit growth, and capacity expansion as reasons to consider participating in the IPO.

KRN Heat Exchanger Grey Market Premium (GMP):

One of the key indicators of investor sentiment toward an IPO is the grey market premium (GMP). As of Day 1, KRN Heat Exchanger shares are commanding a GMP of ₹239, which is nearly 100% of the upper price band. This suggests strong potential for listing gains, particularly for short-term investors looking to capitalize on the initial excitement surrounding the IPO.

However, it’s important to note that grey market activity can be volatile, and investors should not rely solely on GMP for making investment decisions.

Should You Subscribe?

With the IPO already subscribed 8 times on Day 1, the excitement around KRN Heat Exchanger is palpable. But is it the right investment for you? Here are some factors to consider:

Long-Term Growth Prospects: KRN Heat Exchanger is positioned for strong growth, thanks to its capex expansion, export focus, and increasing demand for its products in the ventilation and refrigeration industry. Investors with a long-term horizon are likely to benefit from the company’s ability to scale its operations and tap into new markets.
Listing Gains Potential: With a GMP of ₹239, short-term investors could see significant listing gains if the stock debuts at a premium. However, given the volatility of the grey market, it’s essential to proceed with caution and avoid speculative bets based solely on GMP.
Financial Health: KRN’s strong financial performance, with growing revenues and profits, makes it an attractive investment. The company’s focus on expansion and innovation is likely to sustain its growth momentum in the coming years.

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The KRN Heat Exchanger IPO presents a compelling investment opportunity for both short-term gains and long-term growth. With a strong subscription rate, robust financials, and positive recommendations from brokerage firms, KRN is well-positioned to deliver value to investors. Whether you’re looking to benefit from the IPO's potential listing gains or aiming for a long-term investment in a growing sector, the KRN Heat Exchanger IPO is worth considering.