Company Overview
Incorporated in June 2010, JNK India Ltd. 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. They have capabilities in thermal designing, engineering, manufacturing, supplying, installing, and commissioning heating equipment and cater to both domestic and overseas markets. The company has diversified into flares and incinerator systems and has been developing capabilities in the renewable sector with green hydrogen. Heating equipment is required in process industries such as oil and gas refineries, petrochemicals, fertilizers, hydrogen and methanol plants, etc. Domestically, the company has completed projects in Andhra Pradesh, Assam, Bihar, Karnataka, Kerala, Maharashtra, Tamil Nadu, and West Bengal. Globally, the company has completed projects in Nigeria and Mexico. The company has successfully completed projects in far-reaching locations like Numaligarh, Assam; Kochi, Kerala; Barauni, Bihar in India and an overseas location at Lagos,
Nigeria. Further, the company has ongoing projects in Gujarat, Odisha, Haryana, Rajasthan in India and globally in Oman, Algeria, and Lithuania. As of December 31, 2023, JNK India has 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 is in the process of supplying heating equipment to 11 of the 24 operating oil refineries across India.
Objects of the issue:
The net proceeds from the fresh issue will be used towards the following purposes:
- Offer for sale – Rs. 300 crores;
- Funding working capital requirement of the company – Rs. 262.7 crores;
- General corporate purposes – Rs. 87.3 crores.
Investment Rationale:
Established track record and customer confidence position JNK to seize industry growth opportunities
JNK India Ltd. has built a robust reputation over the past decade, showcasing a successful track record in completing heating equipment projects for a diverse clientele spanning industries such as oil and gas refineries, petrochemical, and fertilizer sectors. The company’s commendable performance has been acknowledged both domestically and internationally, with recognition for timely project completion and adherence to safety standards. By serving a broad spectrum of clients including major players like Indian Oil Corporation Limited, Tata Projects Limited and overseas entities, JNK has established a solid foundation of trust and reliability within the industry. This extensive experience, coupled with a commitment to customized solutions and on-time execution, positions the company as a preferred partner for heating equipment needs, offering a competitive edge in a market with limited players. JNK India Ltd. is strategically positioned to capitalize on the burgeoning demand within the Indian refinery, petrochemical, and fertilizer segments, driven by factors such as increased domestic consumption and global market opportunities. With numerous projects expected to be commissioned in the coming years, the company stands to benefit from the estimated demand of approximately Rs. 45,000 million annually between Fiscal 2024 and Fiscal 2029. Additionally, the global expansion of oil and gas refinery capacities present further growth prospects, with JNK India Ltd. leveraging its partnership with JNK Global to access larger project opportunities. As a key player in the process-fired heaters market, characterized by high entry barriers and stringent industry standards, JNK India’s expertise in thermal designing, engineering, and manufacturing positions it as a trusted supplier of critical heating equipment. With a dedicated
team of experienced professionals and stringent quality assurance measures in place, the company is well-equipped to meet the evolving needs of its clientele and capitalize on the industry’s growth trajectory.
Diversification driving market expansion; Financial performance reflecting stability and growth
JNK India’s strategic move to diversify its product portfolio beyond traditional heating equipment into waste gas handling systems and renewable energy systems marks a pivotal step towards expanding its market presence and enhancing profitability. By catering to a wider array of industries such as oil and gas refineries, petrochemicals, fertilizers, and renewable energy, the company has unlocked new avenues for growth and revenue generation. The expansion into waste gas handling systems,
including flares and incinerators, taps into the growing demand for efficient waste management solutions across refinery, petrochemical, and fertilizer plants.
With an estimated demand of approximately Rs. 10,750 million annually from refineries alone between CY23 and CY28, JNK India Ltd. stands poised to capitalize on this lucrative segment. Furthermore, the foray into renewable energy systems aligns with India’s ambitious renewable energy targets, presenting substantial growth opportunities in the evolving energy landscape. Leveraging its engineering capabilities and the technical expertise of JNK Global, the company is strategically positioned to capitalize on the burgeoning renewable energy sector in India, characterized by significant investments and favorable government policies. This diversification strategy not only expands JNK India’s market reach but also reinforces its competitive position in the industry, positioning it for sustained growth in the years to come.
Additionally, JNK India’s demonstrated financial performance underscores its resilience and growth trajectory, with impressive revenue, EBITDA, and profit after-tax growth over the last three fiscal years. Achieving a commendable CAGR of 72.0%, 68.1%, and 67.8% for revenue from operations, EBITDA, and profit after tax, respectively, for FY2021-23 period, the company has showcased robust financial performance driven by its strategic initiatives and operational efficiency. Furthermore, the substantial order book value of Rs. 8,450.3 million as of December 31, 2023, representing 2.50 times the revenue from operations for the same period on an annualized basis, reflects strong revenue visibility and underscores the company’s ability to secure and execute projects successfully. With the majority of the order book attributed to the Indian market and supplemented by overseas contracts, JNK is well-positioned to capitalize on its established track record and competitive edge to sustain momentum in its business operations.
Valuation and Outlook:
JNK India stands at the forefront of the heating equipment sector, poised to leverage the growing demand within the oil and gas industry. While the rise of renewable energy presents a potential challenge, the company’s strengths and strategic partnerships position it well to navigate these dynamics. Operationally, JNK India benefits from its strategic collaboration with JNK Global, a major player in the processfired heater production industry with a 16% global market share. This collaboration provides JNK India with access to overseas markets and strengthens its position in the domestic heating equipment market. Moreover, the industry’s high entry barriers, characterized by stringent quality norms and high switching costs, fortify the company’s market position and limit competition. Over the three years from FY21 to FY23,
the company achieved an average return on equity (ROE) of 53% and a return on capital employed (ROCE) of 58%. Although there was a slight dip in the nine months ending December 2023, with ROE and ROCE at 28% and 27%, respectively, these figures underscore the company’s robust financial performance. Furthermore, JNK India’s working capital-intensive nature is mitigated by the IPO proceeds, ensuring that the company does not rely on external funding for the next three years. Regarding market dynamics, the expansion of refinery and petrochemical capacities globally bodes well for JNK India’s future growth prospects. The company is well-equipped to meet domestic heating equipment demand independently, while its partnership with JNK Global ensures its competitiveness in overseas markets. Moreover, JNK India’s asset-light operations and dominant share in the domestic market position it favorably to capitalize on the medium-term demand growth. In terms of valuation, despite demanding a P/E multiple of 49.8x at the higher price band, JNK India presents an attractive proposition, given the company’s unique product profile and promising growth prospects. Considering the financial metrics, market dynamics, and valuation multiples, we maintain a positive outlook on JNK India Ltd. Therefore, we recommend a “SUBSCRIBE” rating for the issue from a medium to long-term perspective.
