JNK India IPO review (Apply)

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Review By Dilip Davda on April 19, 2024

•    The company is a niche player in Heating Equipment segment.
•    It marked steady growth in its top and bottom lines for the reported periods. 
•    The company has orders on hand worth Rs. 845 cr. as of December 31, 2023.
•    Based on annualized FY24 earnings, the issue appears reasonably priced. 
•    Investors may park funds for the medium to long term rewards. 

ABOUT COMPANY:
JNK India Ltd. (JIL) is in the business of manufacturing the process fired heaters, reformers and cracking furnaces (together, the "Heating Equipment") that are required in process industries such as for oil and gas refineries, petrochemical and fertilizer industries. It has capabilities in thermal designing, engineering, manufacturing, supplying, installing and commissioning Heating Equipment and cater to both domestic and overseas market. 

The Indian heating equipment market is closely competed among seven companies with the Company and Thermax Limited being the most prominent and comparable players. (Source: F&S Report). Over the years JIL has diversified into flares and incinerator systems and have been developing capabilities in the renewable sector with green hydrogen. A process fired heater is a type of industrial heater used to heat fluids or gases directly by burning a fuel source such as natural gas or propane. Reformers are devices used to convert hydrocarbons, such as natural gas or naphtha, into synthesis gas or syngas, which is a mixture of hydrogen and carbon monoxide. Further, cracking furnaces are used to break down large hydrocarbon molecules into smaller ones, which can then be used to produce a variety of products, including fuels, chemicals, and plastics. 

The process of breaking down hydrocarbons is known as cracking, and it typically involves heating the hydrocarbon feedstock in the presence of a catalyst. (Source: F&S Report) The Heating Equipment are required in process industries such as oil and gas refineries, petrochemicals, fertilizers, hydrogen and methanol plants etc. In India, JIL has completed projects in, amongst others, Andhra Pradesh, Assam, Bihar, Karnataka, Kerala, Maharashtra, Tamil Nadu, West Bengal and globally have completed projects in Nigeria and Mexico. Further, it has ongoing projects in Gujarat, Odisha, Haryana, Rajasthan in India and globally in Oman, Algeria, and Lithuania. 

Further, it has successfully completed projects which were based in far-reaching locations, which included its projects in India at Numaligarh, Assam; Kochi, Kerala; Barauni, Bihar; and overseas at Lagos, Nigeria. Further, in March 2022, JIL were recognised for its safety compliance by one of the private refinery companies of a multinational industrial conglomerate from Nigeria.   

As of December 31, 2023, it served 21 Customers in India and 8 Customers overseas. Further, 7 out of the 12 oil refining companies in India, are its Customers and the company has supplied or are in the process of supplying Heating Equipment to 11 of the 24 operating oil refineries across India. (Source: F&S Report). Some of its domestic Customers include Indian Oil Corporation Limited, Tata Projects Limited, Rashtriya Chemicals & Fertilizers Limited and Numaligarh Refinery Limited. Further it has catered to overseas Customers such as a leading engineering, procurement and construction ("EPC") company in Europe, a leading oil & gas exploration & production company in Oman and a middle east arm of European EPC company in oil and gas. Also JIL has enjoyed repeat orders from certain large domestic Customers such as Rashtriya Chemical & Fertilizers Limited, Tata Projects Limited, Numaligarh Refinery Limited and Indian Oil Corporation Limited.

Likewise, JIL has executed 17 projects for JNK Global catering to their Customers in the overseas markets. JNK Global has also installed process fired heaters for its customer in Lagos, Nigeria, where one of the biggest refineries in the world (Dangote Refinery) is operated, having a capacity of 32.7 million metric tonnes per annum. (Source: F&S Report).

The company is also working on building capabilities in renewable sector with green hydrogen. It is building capabilities in renewable sector with onsite hydrogen production, hydrogen fuel stations and solar photovoltaic - EPC ("Solar PV-EPC") which forms part of green hydrogen value chain. JIL works 
as a global joint engineering and implementing partner with JNK Global as one of the Contracting Customers. As of December 31, 2023, it had 235 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route combo IPO of 15649960 shares (at the upper cap) to mobilize Rs. 649.47 cr. The issue consists fresh equity issue (approx. 7228908 shares at the upper cap) worth Rs. 300.00 cr. and an offer for sale (OFS) of 8421052 shares (worth Rs. 349.47 cr. at the upper cap). The company has announced a price band of Rs. 395 - Rs.415 per share of Rs. 2 (FV) each. The IPO opens for subscription on April 23, 2024, and will close on April 25, 2024. The minimum application to be made is for 36 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 28.14% of the post-IPO paid-up equity capital of the company. From the net proceeds of the fresh equity issue, it will utilize Rs. 262.69 cr. for working capital, and the rest for general corporate purposes. The company has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors.  

The joint Book Running Lead Managers to this issue are IIFL Securities Ltd., and ICICI Securities Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued entire equity capital at par value (based on Rs. 2 FV), it also issued bonus shares in the ratio of 15 for 1 in November 2021. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NA. Rs. 0.13, Rs. 0.19, and Rs. 4.38 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 9.68 cr. will stand enhanced to Rs. 11.12 cr. Based on the upper band of the IPO, the company is looking for a market cap of Rs. 2308.27 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 138.45 cr. / Rs. 16.48 cr. (FY21), Rs. 297.14 cr. / Rs. 35.98 cr. (FY22), and Rs. 411.55 cr. / Rs. 46.36 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 46.21 cr. on a total income of Rs. 256.76 cr. The company marked improvement in its margins year-over-year with growing top lines. As of December 31, 2023, the company had an order book worth Rs. 845.03 cr.

For the last three fiscals, the company has reported an average EPS of Rs.7.83, and an average RoNW of 55.36%. The issue is priced at a P/BV of 11.91 based on its NAV of Rs. 34.84 as of December 31, 2023, and at a P/BV of 5.47 based on its post-IPO NAV of Rs. 75.90 per share (at the upper band).   

If we attribute FY24 annualized earnings to company's post-IPO paid-up equity capital, then the asking price is at a P/E of 37.46. Thus the issue appears reasonably priced on the recent financial performances. 

For the reported periods, the company has posted PAT margins of 11.96% (FY21), 12.14% (FY22), 11.38% (FY23), and 18.24% (9M-FY24), and RoCE margins of 71.90%, 83.25%, 57.17%, and 34.73% respectively for the referred periods.

DIVIDEND POLICY:
The company has declared dividends of 100% (FY21 and FY22), 15% for FY23 and 9M of FY24. It has adopted a dividend policy in June 2023, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Thermax Ltd., and BHEL as their listed peers. They are trading at a P/E of 104.0, and NA (as of April 18, 2024). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The two BRLMs associated with this offer have handled 56 public issues in the past three fiscals, out of which 17 issues closed below the offer price on the listing date. 

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