Two interesting IPOs on the anvil – KRN Heat Exchanger and Diffusion Engineers are up for grabs. Are you confused about which one to opt for? Here’s a quick look at both the company’s valuations as well as risks involved.  

KRN Heat Exchanger IPO

KRN Heat Exchanger IPO is priced at Rs 220 per, upper band, with an issue size of Rs 342 crore. It has been subscribed a bit over 55 times so far. The issue was fully subscribed within 15 minutes of opening on day 1.

There was a substantial increase in the net profit of the company. In FY22 it reported a profit after tax of Rs 10.6 crore and in the very next year, it jumped to Rs 32.3 crore in FY23. It reported  Rs 39.1 crore of net profit in FY24. Now, this can be attributed to the increase in margins of the company, rising from 6.8% in FY22 to 13.1% in FY23 and then falling again a bit next year. The impact of a fall in margin growth in FY24 can be seen in the PAT. However, there’s a problem with the company, its ROE (return on equity) fell substantially in FY24, sinking below that of FY22.

“Being a first-generation entrepreneur with over 19 years of experience in manufacturing heat exchangers and refrigeration units has moved KRN from a single product to a multi-product company with long-standing business relationships with leading clientele and multi-fold expansion in revenues in the coming years offers strong growth going ahead with consistent profitability. Hence, we recommend a “Subscribe” to the issue,” said Reliance Securities in a research report. 

KRN Heat Exchanger  IPO – Risks

The fact that it is dependent on a clutch of customers for the bulk of its revenue is one of the key concerns. It is susceptible to geopolitical challenges and the raw material supply chain is subject to uncertainties.

Diffusion Engineers IPO

The Diffusion Engineers IPO is priced between Rs 159 to Rs 168 per equity share and the issue size is Rs 158 crore. It has been subscribed 7.3 times so far and the company aims to use the money raised for funding capital expenditure requirements towards the expansion of the existing manufacturing facility and setting up of a new manufacturing unit at Nagpur, Maharashtra.

Some part of the raised proceeds will be used to fund the working capital requirements of the company.

The company reported a consolidated net profit of Rs 308 crore in FY24, a jump of almost 40% on year compared to Rs 221 crore it reported in FY23. While it posted a consolidated net profit of Rs 162 crore in FY22.  As the company’s PAT is rising so are its PAT margins over the years, but the point to look at is its sales growth. The company’s sales growth has fallen significantly to 9.1% in FY24 from 24.6% in FY23, a fall of 15.5 percentage points. 

“Over the coming years, the company plans to enhance its service delivery by robust growth and operational efficiency. At the upper price band company is valuing at a P/E of 20.4x with a market cap of Rs 6,290 million post-issue of equity shares and a return on net worth of 18.5%. On the valuation front, we believe that the company is fairly priced. Thus, we recommend a “Subscribe” rating to the IPO,” said Anand Rathi Research in an IPO note. 

Diffusion Engineers IPO  – Risks

Consolidation of manufacturing units in one single city: The company operate from four manufacturing facilities all of which are located in Nagpur, Maharashtra. “Any localized social unrest, natural disaster, or breakdown of services or any other natural disaster in and around,  Nagpur,  Maharashtra or any disruption in production at, or shutdown of, all our manufacturing units could have material adverse effect on our business and financial condition,” said Diffusion Engineers in its DRHP filed with SEBI.