JNK India manufactures heating
equipment such as process-fired heaters, reformers, and cracking
furnacesrequired in process industries such as for oil and gas refineries,
petrochemical and fertilizer industries. Over the years, the company
diversified into flares and incinerator systems and has been developing
capabilities in the renewable sector with green hydrogen.
Since its inception, the company
has been working closely with JNK Global Co (formerly known as JNK Heaters Co),
a KOSDAQ-listed company. JNK Global is the only industrial-use process fired
heater producer in Korea. It is ranked amongst the top three industrial use
process fired heater producers globally. The company acts as a global joint
engineering and implementing partner for JNK Global for certain projects in heating
equipment.
To strengthen its
relationship, the company entered a co-operation agreement on May 17, 2023,
with JNK Global to cover among others marketing and geography of operations. The
company can use the logo and trademark of JNK Global. JNK Global will be mainly
responsible for markets in Asia excluding India,the US, and Russia. JNK India
will be responsible for markets in Europe, Africa, South America, and the Commonwealth
of Independent States.
The co-operation agreement
will facilitate penetration into global markets that otherwise would not have
been possible with its limited capabilities. The agreement restricts its entry
to certain overseas markets such as the Middle East. Here, the company is
required to consult with JNK Global.
JNK Global is one of the
corporate promoters of the company, holding a stake of 18.06% (post-issue
expanded equity, down from 25.79% pre-issue).
Other promoters of the company are Mascot Capital and Marketing (post-issue
32.65%), Gautam Rampelli (8.34%), Arvind Kamath (nil), and Dipak Kacharulal
Bharuka (8.92%).
In the over 13 years of
presence in the heating equipment industry, the companyhas developed capabilities
inthermal designing, engineering, manufacturing, supplying, installing,
and commissioning heating equipment. It caters to both domestic and overseas
markets.
The company as of December
31, 2023, had served 21 customers in India and eight customers overseas. It caters
to both end customers as well as contracting customers (i.e., EPC players).
While end customers accounted for 27.29% of the revenue in FY 2023 and 45.37%
of the revenue in 9M FY2024, the contracting customers accounted for 72.53% of
the revenue in FY 2023 and 54.63% of the revenue in 9m FY 2024.
In the end use industry, the
company derived 77.25% of the revenue from the O&G sector, 16.17% from
petrochemicals, 0.20% from fertilizers, and 6.38% from others.
In India, the company has
completed projects in Andhra Pradesh, Assam, Bihar, Karnataka, Kerala,
Maharashtra, Tamil Nadu, West Bengal. Worldwide, it has completed projects in
Nigeria and Mexico. Moreover, the company has completed projects in
far-reaching locationsincluding projects in India at Numaligarh, Assam;
Kochi, Kerala; Barauni, Bihar; and overseas at Lagos, Nigeria. Further, it has ongoing projects in Gujarat,
Odisha, Haryana, and Rajasthan in India and in Oman, Algeria, and Lithuania
globally.
Some of the domestic
customers include Indian Oil Corporation, Tata Projects, Rashtriya Chemicals
& Fertilizers, and Numaligarh Refinery. Further the company has catered to
overseas customers such as a leading EPC company in Europe, a leading O&G
exploration & production company in Oman, and a Middle East arm of a European
EPC company in O&G.
Export revenue accounted for
68.8% and 18.34% of the revenue from operations in FY2023 and 9M FY2024,
respectively.
The company has diversified
into designing, engineering, installing, and servicing waste gas handling
systems including flares and incinerators systems. Revenue from flares and incinerators
to total revenue from operations was 17.33% in FY 2023 and 7.18% in 9M FY2024.
Similarly, in June 2022, the
company diversified into renewable energy systems though a subsidiary, i.e.,
JNK Renewable Energy(JREPL). JREPL
currently supplies grey hydrogen through onsite and offsite production and
storage systems and is working towards capabilities of producing and storing
green hydrogen systems. JREPL is also building capabilities in the renewable
sector, with onsite hydrogen production hydrogen fuel stations and solar
photovoltaic EPC, forming part of the green hydrogen value chain. Sales of JREPL was a miniscule Rs 1.96 crore
in FY2023 and Rs 0.17 crore in 9M FY2024.
The company operates an
in-house fabrication facility at the Mundra Special Economic Zone in Gujarat.
This is spread over 20,243 square meters, with an installed capacity of 5,000
tonnesof fabrication and modularization per annum.Fabrication at the
Mundra facility is undertaken for exports. So most of the fabrication process
is out-sourced to third party fabricators.
The
Issue
The issueconsists of a
fresh issue of equity shares of Rs 300 crore and an offer for sale (OFS) of up
to 8421052 equity shares from the promoter selling shareholders and individual
selling shareholders.
Object
of the issue
Of the net proceeds from the
fresh issue, about Rs 262.69 crore will be utilized for funding working capital
requirement and balance towards general corporate purposes. The selling shareholders
will be entitled to the proceeds from the OFS (net of its portion of the offer-related
expenses). The company will not receive any proceeds from the OFS.
As on January 31, 2024, its
borrowings were Rs 157.057 crore on a consolidated basis.
Strength
An established
player in heating equipment market, with a market share of 27%
A wide
heating equipment product portfolio comprising heaters, reformers, and cracking
furnaces.
The order book at the end of
December 31, 2023, stood at Rs 845.027 crore [domestic OB Rs 729.202 crore and
overseas OB Rs 115.825 crore]. This is 2.07 times of the FY2023 revenue. Of the order book, about Rs 387.257 crore is
from contracting customers and the balance from end users.
Weakness
Derived most of its revenue (54.4%
in FY2023 and 27.1% in 9M F20Y24) from JNK Global (one of the promoters), whose
experience and technology support are used for selected projects. Orders from
JNK Global, as a contracting customer, at the end of December 2023 were Rs
88.984 crore (or 10.53%). Any kind of dissociation with JNK Global may have an
adverse impact on the business and cash flows.
Heavily dependent on the
capital expenditure of O&G refineries and the petrochemical and fertilizers
industries as they are the primary customers for heating equipment.Any slowdown
or delay in order placement from these industries will impact the fortunes of
the company.
Expansion into new business
lines may not be successful.
The immediate relatives of
one of its promoters (members of Arvind Kamath), who are deemed to be a part of
the promoter group under the Securities and Exchange Board of India (Issue of
Capital and Disclosure Requirements), 2018, have not provided consent,
information or any confirmations or undertakings for themselves. This is
required to be disclosed by a relative who is part of the promoter group in the
Red Herring Prospectus.
Does not have any R&D
facility. May have to rely on one of its corporate promoters, JNK Global, for
any new technological development.
Valuation
Sales for FY 2023 were higher
by 37% to Rs 407.30 crore. With the OPM contracting by 120 bps to 17%, OP was
up 29% to Rs 69.26 crore. The growth of
PBT was 31% to Rs 62.71 crore. Net profit increased 29% to Rs 46.36 crore.
In 9M FY 2024, net profit was
Rs 46.21 crore on an operating revenue of Rs 253.39 crore.
The EPS for FY2023, based on
the post-issue expanded equity, stood at Rs 8.3. The PE at the upper price band of the asking
price worked out to about 50 times.
In comparison, Thermax and BHEL,
which manufacture heatersbut do not makereformers and
cracking furnaces,are quoting at a PE of 119.6 times and 195.9 times
their consolidated FY2023 EPS, respectively. Patels Airtemp, which is engaged
in manufacture of Heat Exchangers quotes at a PE of 25.6 times of its FY23 EPS.
Engineers India, the larger EPC player
largely focused on the O&G sector, quotes at a PE of 33.5 times.
The company quotes at an
enterprise value (EV) of 3.16 times its order book as of end December
2023. In comparison, the EV/OB stood at 5.43
times for Thermax, 4.03 times for BHEL, 3.46 times for Engineers India.
JNK India: Issue Highlights
|
|
Fresh Issue (in Rs. Crore)
|
300
|
Offer for sale (in no. of shares)
|
8421052
|
Price band (Rs.)
|
|
Upper
|
415
|
Lower
|
395
|
Post-issue equity (Rs crore)
|
|
in Upper price band
|
11.12
|
in Lower Price Band
|
11.20
|
Post-issue promoter (including
promoter group) stake (%)
|
67.97
|
Minimum Bid (in nos.)
|
36
|
Issue Open Date
|
23-04-2024
|
Issue Close Date
|
25-04-2024
|
Listing
|
BSE, NSE
|
Rating
|
45/100
|
JNK India : Re-stated Financial
Results
|
|
|
|
|
|
|
2103 (12)
|
2203 (12)
|
2303 (12)
|
2312 (9)
|
|
Sales
|
137.72
|
296.40
|
407.30
|
253.39
|
|
OPM (%)
|
18.4
|
18.2
|
17.0
|
26.4
|
|
OP
|
25.28
|
53.84
|
69.26
|
66.87
|
|
Other income
|
0.73
|
0.74
|
4.24
|
3.37
|
|
PBIDT
|
26.01
|
54.58
|
73.51
|
70.24
|
|
Interest
|
1.35
|
3.77
|
4.21
|
5.51
|
|
PBDT
|
24.66
|
50.81
|
69.29
|
64.74
|
|
Depreciation
|
1.86
|
2.99
|
6.58
|
4.05
|
|
PBT
|
22.80
|
47.83
|
62.71
|
60.69
|
|
Share of profit from Associates
(SoPA)
|
0.00
|
0.00
|
0.00
|
0.00
|
|
PBT before EO & After SoPA
|
22.80
|
47.83
|
62.71
|
60.69
|
|
EO Exp
|
-0.01
|
0.00
|
0.00
|
0.00
|
|
PBT after EO
|
22.81
|
47.83
|
62.71
|
60.69
|
|
Tax
|
6.33
|
11.84
|
16.35
|
14.48
|
|
PAT
|
16.48
|
35.98
|
46.36
|
46.21
|
|
PPT
|
0.00
|
0.00
|
0.00
|
0.00
|
|
Net profit
|
16.48
|
35.98
|
46.36
|
46.21
|
|
EPS (Rs)**
|
3.0
|
6.5
|
8.3
|
11.1
|
|
** on post issue equity (on upper
price band) of Rs 11.12 crore. Face Value: Rs 2
|
EPS is calculated after excluding
EO and relevant tax
|
|
|
# EPS can not be annualised due to
seasonality in operations
|
|
|
Figures in Rs crore
|
|
|
|
|
|
|
|
|
|
Source: Capitaline Corporate
database
|
|
|
|
|
|