KRN Heat Exchan

Risks

• Its revenue from operations has significantly increased from Rs.15,611.46 Lakhs in FY 2021-22 to Rs.24,748.08 Lakhs in FY 2022-23 resulting in growth of o ver 58% (YOY). Similarly, its revenue from operations has further increased from Rs. 24,748.08 Lakhs in FY 2022-23 to Rs. 30,828.31 Lakhs in FY 2023-24 leading to growth of 24% (YOY). Its revenue from operations from last three Financial Years are increasing by Compounded Annual Growth Rate (CAGR) of 25.46%. If the company is unable to sustain or manage its growth rate its business operations and results of operations may be adversely affected, and this rate of growth may not be achievable in the future.

• Its Profit after Tax ("PAT") has significantly increased from Rs.1,059.04 Lakhs in FY 2021-22 to Rs.3,231.35 Lakhs in FY 2022-23 resulting in growth of over 205.12% (YOY). Similarly, our PAT has further increased from Rs.3231.35 Lakhs in FY 2022-23 to Rs.3906.86 Lakhs in FY 2023-24 leading to growth of 20.90% (YOY). Its PAT from the last three financial years is increasing by CAGR of 54.52%. If the company is unable to maintain these profit margins in future, its financial condition may be adversely affected.

• The company is dependent on and derive 33.34%, 32.85% and 32.28% of its revenue for the Financial Year 2024, 2023 and 2022 from its single customer namely Daikin Airconditioning India Private Limited and further the company derives 72.31%, 70.87% and 75.82% of its revenue from the company top 10 key customers for the Financial Year 2024, 2023 and 2022 respectively. Delay or Cancellation of orders by any one or all of its top customers could have a material and adverse effect on its business, results of operations and financial condition.

• The company does not have any long-term agreements with any of its customers. If its customers choose not to source their requirements from the company, it would lead to financial instability and operational uncertainty and its business and financial conditions may be adversely affected.

• The company relies on limited number of suppliers and procure 14.94%, 17.29% and 17.46% of its raw materials for the Financial Year 2024, 2023 and 2022 from its largest supplier and further the company procure 57.73%, 57.98% and 52.38% of its raw materials from the company Top 5 suppliers and 77.99%, 78.48% and 70.07% of its raw material from its top 10 key suppliers for the Financial Year 2024, 2023 and 2022 respectively. Any delay in the supply of its raw materials by these suppliers may adversely affect the results of operations and financial condition.

• The company does not have any long-term contracts with any of its suppliers. Further the company is heavily dependent on overseas suppliers to ensure quality supplies to it as per the company quality specifications. Any shortfall in the supply of its raw materials as per the company specifications or an increase in its raw material costs or other input costs or any country specific challenges may adversely affect the pricing and supply of its products and have an adverse effect on the company`s business, results of operations and financial condition.

• The company relies heavily for its raw materials from its vendors in Malaysia, South Korea, Thailand, Vietnam and China and in Financial Year 2024, 2023 and 2022, its import purchases accounted for 78.17%, 79.08% and 72.16% of the company total raw materials purchased. Any country-related risk or any change in Government policies in relation to import of goods or import of goods from any specific country or region may adversely affect the sourcing of its raw materials which may have an adverse effect on the company`s business, operations and financial condition.

• The company is required to obtain, renew or maintain certain statutory and regulatory permits and approvals required to operate its business and if the company fails to do so in a timely manner or at all and its business, financial conditions, results of operations and cash flows may be adversely affected.

• Its inability to collect receivables from the company customers or default in payment by them could result in the reduction of its profits and affect its cash flows. The company inability to collect receivables from its customers or default in payment by them could result in the reduction of its profits and affect the company cash flows.

• Its inventory holding is Rs.8,440.52, Rs. 5,508.43 and Rs. 2,130.85 for the Financial Year ended on March 31, 2024, 2023 and 2022 which tantamount to 37.02%, 29.99% and 16.42% of its Cost of Goods Sold. Such continuous increase has led to sub optimal utilization of resources. If the company fails to manage the Inventory and forecast the demand its business operations and financial conditions may be adversely affected.

• The Proposed project specified in the "Objects of the Issue" is subject to a variety of risks related to the non-completion of various stages as outlined in the schedule of implementation of Proposed project. Delays or failures in completing any of the milestones in the schedule of implementation could adversely affect the overall project completion and subsequent operations.

• If the company top 10 customers engaged in refrigeration and air conditioning (RAC) Industry starts manufacturing Heat Exchangers in-house, or if there is a downward trend in Industry, its sales could be adversely affected.

• The Company has a limited operating history, which will make it difficult for the investors to evaluate its historical performance or future prospects.

• The company is subject to the terms and conditions set by RIICO for the transfer of lease rights. If the company is unable to comply with the terms and conditions, it may lead to enforcement actions by RIICO for such non-compliance.

• The objects of the Issue include orders for plant and machinery which have not yet been placed. Further, the company is yet to place orders for capital expenditures. In the event of any delay in placement of such orders, the proposed schedule of implementation and deployment of the Net Proceeds may be extended or may vary.

• The Company benefits from certain export benefits and other local state government incentives which are subject to the policies and decisions of the Government. Any reduction in or termination of incentives/ subsidies/ schemes its enjoy or change in other favourable government policies resulting in reduction or termination of incentives/ subsidies/ schemes may affect its business, results of operations, cash flows and financial condition.

• The company has contingent liabilities that have not been provided for in the Company`s financials which if materialized, could adversely affect its financial condition.

• The Company, its Promoters and its Directors are party to certain legal proceedings. Any adverse outcome in such proceedings may have an adverse impact on its reputation, business, financial condition, results of operations and cash flows.

• Its Objects to issue - "Investment in wholly owned subsidiary in the form of equity for setting up a manufacturing unit" is subject to the risk of unanticipated delays in implementation, cost overruns and certain Government approvals and licenses. If the company is unable to implement the expansion plans at the planned cost or time or unable to obtain Government approvals and licenses, it could materially and adversely impact its business, results of operations and financial condition.

• There have been certain instances of delays in payment of statutory dues by the Company and its Subsidiary in the past. Any failures or delay in payment of such statutory dues may expose it to statutory and regulatory action, as well as significant penalties, and may adversely impact its business, results of operations, cash flows and financial condition.

• The company has significant working capital requirements which are funded through bank secured borrowings for the Financial Years 2024, 2023 and 2022. If the company is unable to secure adequate bank borrowings for working capital on commercially reasonable terms it could have a material adverse effect on its business, financial condition, and results of operations.

• Its business is dependent on the company manufacturing Units, and the company is subject to certain risks in its manufacturing process. Any slowdown or shutdown in its manufacturing operations could have an adverse effect on its business, financial condition and results of operations.

• Its cost of production is exposed to fluctuations in the prices of raw material particularly Aluminium Foil, Copper Foils, Galvanize Sheet, Copper Tubes and Copper and Aluminum Sheet and Stainless Steel. The company does not take any hedging instruments to cover the price fluctuations instead the company pass on the price fluctuations on its customers on quarterly basis by revision in its selling prices. In case the company is unable to pass on upward fluctuations in the prices of raw material to its customers, its margins will be affected and will have material adverse effect on its business, financial condition, and results of operations.

• Any surplus holding of highly volatile and price sensitive raw materials such as copper tubes, copper rods and aluminium foil on account of inaccurate forecasting of customer orders and failures to manage raw material inventory could adversely affect its business, results of operations and financial condition.

• An inability to renew quality accreditations in a timely manner or at all, or any deficiencies in the quality of its products may give rise to product liability claims and negatively affect the company`s business prospects and financial performance.

• On April 07, 2023, the Company incorporated wholly owned subsidiary company named KRN HVAC Products Private Limited. As its wholly owned subsidiary was incorporated on April 07, 2023, the Restated Financial Information for the year ended on March 31, 2023 and March 31, 2022 does not include financial information for its wholly owned Subsidiary prior to its incorporation. Thus, its Restated Consolidated Financial Information, for the Financial Year ended on March 31, 2024 and Restated Standalone Financial Information for the Financial Year ended on March 31, 2023 and 2022, are not comparable and will not be comparable with the financial statements of future financial years.

• The company is subject to precise technical specifications. Its failures to comply with the technical specifications prescribed by such customers may lead to loss of business from such customers and could negatively impact its reputation, which would have an adverse impact on its business prospects and results of operations.

• Its business depends upon the capabilities and performance of the company Promoters and Senior Management that will be crucial to determining the success and growth of the company. Similar to this, the directors of its wholly owned subsidiary "KRN HVAC Products Private Limited," are its Promoters, Santosh Kumar Yadav and Anju Devi. As a result, its promoters are crucial to the project`s implementation success in its subsidiary.

• The industry segment in which the company operates being fragmented, the company faces competition from other players, which may affect its business operations and financial conditions.

• All of its Directors does not have any prior experience of being a director in any other listed company in India.

• Its may not be successful in penetrating new export markets which may have an adverse impact on its business, financial condition, results of operations, and future prospects.

• There have been some instances of delayed filing/ incorrect filings in the past with the Registrar of Companies which may attract penalties.

• Its business faces several product-specific and technology advancement risks that could materially affect its operations and financial results.

• There has been certain non-compliance with labour laws by the Company. Consequently, its may be subject to regulatory actions and penalties for such non-compliance and our business and financial condition may be adversely affected.

• The company is highly dependent on the HVAC industry and any unfavorable effect on HVAC industry will adversely affect its revenue generation and future growth possibilities.

• Its business is dependent on certain key end-use industries, and any downturn in these industries could materially and adversely affect its financial condition and results of operations.

• The emerging trends in the Indian heat exchangers industry, such as hybrid heat exchangers, better energy efficient models, smart heat exchangers, modular heat exchanger and usage of new alloys and composites materials, may pose some challenges which could affect the Company`s operations and financial condition.

• The company is subject to significant risk resulting from foreign exchange fluctuations, which could adversely affect its results of operations. Further, a decline in India`s foreign exchange reserves and higher interest rates in the Indian economy could also adversely affect it.

• The company regularly work with hazardous materials such as LPG gas and Oxygen gas which could be flammable and activities in its manufacturing facilities can be dangerous, which could cause injuries to people or property.

• A major part of its total revenue from operations is generated from the State of Rajasthan which accounts for 41.24%, 43.79% and 49.19% respectively, of its total revenue from operations for the Financial Year ended on March 31, 2024, 2023 and 2022. Any adverse developments affecting its operations in such region, could have an adverse impact on its business, financial condition, results of operations and cash flows.

• The company appoint contract labour for carrying out some of its operations and its may be held responsible for paying the wages of such workers, if the independent contractors through whom such workers are hired default on their obligations, and such obligations could have an adverse effect on its results of operations, cash flows and financial condition.

• The company has allotted 26,13,000 equity shares of face value of Rs.10 each within the last twelve months to certain persons/entities, which may be at a price below the Issue Price.

• Its manufacturing units, Registered and Corporate Office are located on premises taken on a lease basis. There can be no assurance that these lease agreements will be renewed upon termination or that the company will be able to obtain other premises on lease basis on same or similar commercial terms or at all.

• All its manufacturing units are situated in one geography namely Neemrana, Alwar, Rajasthan. Any adverse development affecting such a region may have an adverse effect on its business, prospects, financial condition, and results of operations.

• The Company has acquired leasehold rights in respect of Plot No. F-44, EPIP, Neemrana, Alwar, Rajasthan from RIICO for industrial use of the said plot. However, the company has been using the said plot for warehousing purposes. As a result, its may be required to pay the penalties imposed by RIICO for the change in usage of the land.

• The Company is dependent on third party transportation providers for transportation of raw materials and finished goods. Accordingly, any increase in transportation costs or unavailability of transportation services for its products or transportation strikes may have an adverse effect on its business.

• The Company may encounter challenges resulting from the fouling on heat exchangers, which may have environmental impacts and could adversely affect business operations.

• Data relating to the installed production capacity and capacity utilization of its manufacturing Units is based on various assumptions and estimates and future production and capacity may vary.

• The agreements governing its indebtedness contains certain conditions, covenants and restrictions which have bearing on its business operations, additional financing, and capital structure.

• Its Promoters and the company`s Group Company have provided personal guarantees for secured loan facilities obtained by it, and any failures or default by it to repay such loans could trigger repayment obligations on its Promoters and the company Group Company, which may also impact its Promoter`s ability to effectively service its obligations as its Promoter and thereby, adversely impact the company`s business and operations.

• The company has in the past entered related party transactions and may continue to do so in the future.

• Certain sections of this Red Herring Prospectus disclose information from the industry report which has been commissioned and paid for by it exclusively in connection with the Issue and any reliance on such information for making an investment decision in the Issue is subject to inherent risks.

• Its management will deploy Net Proceeds which are pending utilization in scheduled commercial banks and there is no assurance that the objects of the Issue will be achieved within the time frame expected or at all, or that the deployment of the Net Proceeds in the manner intended by it will result in any increase in the value of your investment. Any variation in the utilisation of the Net Proceeds or in the terms as disclosed in the Red Herring Prospectus would be subject to certain compliance requirements, including prior shareholders` approval.

• The schedule of its estimated deployment of Net Proceeds is subject to inherent uncertainties.

• Its manufacturing activities are dependent on the delivery of an adequate and uninterrupted supply of electrical power at a reasonable cost. Any shortage or any prolonged interruption or increase in the cost of power could adversely affect its business, result of operations, financial conditions and cash flows.

• Its may not be able to protect the company trademarks from infringement.

• If the company is subject to any frauds, theft, or embezzlement by its employees, suppliers or customers, it could adversely affect the company reputation, results of operations, financial condition and cash flows.

• Its insurance may be insufficient to cover all losses associated with its business operations.

• Its Subsidiary namely KRN HVAC Products Private Limited may not pay cash dividends on equity shares held by it. Consequently, the Company may not receive any return on investments in its Subsidiary.

• The company may be subject to labour unrest, slowdowns and increased wage costs.

• Its ability to grow the company`s business depends on the company`s relationships with its customers and any adverse changes in these relationships, or its inability to enter new relationships and thereby expand its customer network, could negatively affect the company`s business and results of operations.

• Its ability to pay dividends or conduct share buybacks in the future will depends upon its future earnings, financial condition, cash flows, working capital requirements, capital expenditures and lender consents and the company cannot assure you that its will be able to pay dividends or conduct Share buybacks in the future.

• The company has included certain non-GAAP financial and operational measures related to its operations and financial performance that may vary from any standard methodology that may be applicable across the industry in which the company operates, and which may not be comparable with financial, operational or industry related statistical information of similar nomenclature computed and presented by similar companies.

• Its may be subject to unionization, work stoppages or increased labour costs, which could adversely affect its business and results of operations.

• If the company fails to maintain an effective system of internal controls, its may not be able to successfully manage, or accurately report, the company financial risks.

• Its Promoters or Directors may have interests, either directly or indirectly, in ventures involved in a business similar to it, which may result in a real or potential conflict of interest.

• Its Promoter, also being the Managing Director, and some other Directors and Key Managerial Personnel of the Company, hold Equity Shares in the Company and are therefore interested in its performance in addition to their remuneration and reimbursement of expenses.

• The inability to protect, strengthen and enhance its existing reputation could adversely affect the company`s business prospects and financial performance.

• The company has not entered into any formal arrangement for technical support service for maintenance and smooth functioning of its equipment`s and machineries, which may affect the company`s performance.