JNK India confident of maintaining revenue run rate, says debt not a concern

The heating equipment maker is raising Rs 650 crore through the IPO, which is a mix of OFS and fresh issue.

JNK India, the newest IPO on the block, has garnered a good response from investors. The heating equipment maker is raising Rs 650 crore through the initial public offering (IPO), which is a mix of an OFS (offer for sale) and a fresh issue.

The company has raised Rs 195 crore via its anchor book, which has evinced interest from marquee names such as Goldman Sachs, Allianz Global, Mirae, DSP Mutual Fund, Kotak Mutual Fund and LIC Mutual Fund, among others.

Also read: JNK India IPO sees 63% subscription, retail investors outpace on Day 2

In an interview with Moneycontrol, JNK India's Chairperson Arvind Kamath and CEO & Director Dipak Bharuka provided insights into the company’s expansion strategies and future prospects.

Edited excerpts follow:

Do you have any debt on the books currently and would you be using the IPO proceeds to retire a part of it?

Kamath: As of the end of December 2023, our debt stands at approximately Rs 56 crore, primarily consisting of short-term loans utilised for our operational working capital requirements.

Would that not be a cause for concern since it's more than your current profit?

Kamath: No, not at all, because the amount is not that substantial in comparison with our robust revenue streams and substantial order book, which stood at Rs 845 crore as of December 2023. Operating within the specialised niche market of heating equipment, our product line is intricately engineered and highly customised, with project values ranging from Rs 50 crore to Rs 500 crore. Delivery timelines span from 12 to 24 months for these projects, necessitating adequate working capital. Moreover, we are obligated to provide bank guarantees to our significant clients as assurance for contract and equipment performance, further underscoring the need for sufficient working capital.

By how much will the promoter holding come down post the IPO?

Bharuka: Currently we are divesting close to 30 percent from the promoters. So, everybody, except myself, is divesting in equal proportion. There is no single promoter who is selling more or less—it is being done in a proportionate manner.

Kamath: After the issue, the promoter holding will still be at 68 percent.

Who are your key clients and how do you plan to expand your footprint globally? Which markets would you be targeting?

Bharuka: On our clientele, 86 percent of our order book comprises domestic clients. Our clientele includes major players in the oil and gas refinery sector, both within India and internationally. Clients such as IOCL, NRL, RCF, and Tata Projects are among them. Many of these clients are repeat customers. For example, we're currently executing 10-plus projects for IOCL. This showcases our strong reputation and relationships in the industry.

Regarding global expansion, we're strategising to broaden our footprint. Our target markets for expansion include regions where there's a demand for our specialised heating equipment, enabling us to capitalise on emerging opportunities beyond our domestic market.

Your closest rivals are the likes of Thermax and BHEL, and these are all diversified conglomerates. Would you also look at diversifying, and if yes, which are the areas you would like to enter?

Bharuka: While our peers have diversified businesses, our focus lies in specific segments, particularly the heating equipment market, where we maintain a stronger market share compared to them.

Kamath: However, our emphasis is on technology-driven product lines, such as fire heaters, reformers, and cracking furnaces. Over the past few years, we've ventured into waste gas and off-gas handling, including flares and incinerators. Building on our experience in handling grey hydrogen, we're now entering the green hydrogen sector. In fact, we're set to commission the first green hydrogen fuel station in Faridabad next month, which will both generate and dispense hydrogen on-site. Our strategy for diversification prioritises niche, technologically advanced products over conventional EPC projects, positioning us against global competitors, particularly European firms.

Also read: Should you subscribe to JNK India’s Rs 649-crore IPO? Analysts bullish on order flow, unique product line

What kind of revenue visibility do you have for the next five years and what kind of return ratios do you expect to generate?

Kamath: While we're unable to provide forward-looking statements at this time, I can share that our order book stood at Rs 845 crore as of December 2023, with a typical execution timeline of 12 to 15 months. Looking ahead, over the next five years, our projections for the heating equipment sector alone amount to Rs 63,000 crore globally, including India. Last year, our market share in India was 27 per cent, while globally it was just about 2 to 3 per cent for JNK India, indicating significant growth potential. Considering this trajectory, it's evident that we have a substantial runway for expansion, especially considering our qualification to bid for nearly all relevant opportunities worldwide.

Could you specify why there has been a decline in your return on equity and return on capital employed for FY23 compared to FY22?

Kamath: The decline in our return on equity and return on capital employed for FY23 compared to FY22 is primarily due to the increase in our reserves. As we consistently generate strong net profits each year, our reserves have grown, impacting the denominator when calculating these ratios. However, in absolute terms, our performance remains robust.

Your revenue run rate has been impressive, exceeding 70 per cent, if I recall correctly. Do you expect to maintain this run rate considering the trajectory of your business?

Kamath: Over the past three years, we have achieved a remarkable 70 percent compound annual growth rate (CAGR) in our business. With increasing global acceptance and numerous opportunities emerging worldwide, we believe we still have a long journey ahead of us.

Have the tensions in the Middle East had any impact on your business, given that your clients operate in the oil and gas, petrochemical, and refining sectors?

Kamath: Not really. We have observed even in previous instances such as the geopolitical tensions between Ukraine and Russia ... those situations have actually presented opportunities for Indian companies, both in Russia and elsewhere. Given India's position in today's geopolitical landscape, we believe we are well-positioned to serve a wide range of markets.

Given that you outsource fabrication, do you intend to persist with your asset-light approach, or do you have other plans in mind?

Dipak: Our business operates on an asset-light model, where we prioritise avoiding the creation of permanent assets. However, we do have our own manufacturing facility in Mundra, located near the Mundra port for efficient execution of export projects. For domestic projects, we assess the volume and criticality, establishing temporary assets near the project site as needed. Once the project concludes, we dispose of these facilities.

Kamath: Given the scale and complexity of our projects, which can be as large as 8- to 25-story buildings, logistical challenges arise. Establishing permanent facilities in specific locations, such as Baroda, would prove impractical for projects if they are somewhere in Assam, Guwahati, Haldia, or other distant sites. Therefore, we remain committed to our agile approach, ensuring flexibility and efficiency in project execution.

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