JNK India Limited (Subscribe)

Highlights

JNK India Limited (JNKIL) incorporated in 2010, engage in the business of manufacturing of process fired heaters, reformers and cracking furnaces (together, the Heating Equipment) that are required in process industries such as for oil and gas refineries, petrochemicals and fertilizer industries.

They have capabilities in thermal designing, engineering, manufacturing, supplying, installing and commissioning Heating Equipment and cater to both domestic and overseas market. Over the years, they have diversified into flares and incinerator systems and have been developing capabilities in the renewable sector with green hydrogen.

In India, they have 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.

As of December 31, 2023, they have served 21 customers in India and 8 customers overseas. Further, 7 out of the 12 oil refining companies in India, are JNKIL’s customer and JNKIL supplied or are in the process of supplying heating equipment to 11 of the 24 operating oil refineries across India.

Since JNKIL’s inception, they have been working closely with JNK Global, a KOSDAQ listed company. The relationship between the company and JNK Global is both independent and collaborative in nature. While for certain projects JNKIL is able to participate independently and acquire projects in heating equipment, for certain projects they partner as a global joint engineering and implementing partner for JNK Global.

Out of the total proceeds of Rs. 6,494 mn, Rs. 2,626 mn would go towards funding working capital requirements. Rs. 374 mn would go towards general corporate purposes, and Rs. 3,494 mn would go towards existing selling shareholders of the company.

Key Highlights

• Demand for heating equipment from Indian refineries, petrochemicals, and fertilizer (urea) segments between FY24 and FY29 is estimated at Rs. 270,890 mn i.e., approximately Rs. 45,000 mn on an annualized basis. Further, 61 pct, 37 pct and 2 pct of this demand would come from petrochemicals, refineries and fertilizers (urea), respectively. Furthermore, 46 pct, 24 pct, 16 pct and 14 pct of this demand would come from cracking furnaces, low capital expenditure heaters, high capital expenditure heaters and reformers, respectively.
• The company intend to expand their customer network in some of the overseas markets including Europe for them to capitalise on the untapped opportunities. The company propose to continue to pursue inorganic growth opportunities in relatively larger markets, such as Italy, the Middle East and Africa.
• The company is also evaluating tie-ups / arrangements with players with technology know-how in areas such as flares and incinerator systems and electrolyser technology for hydrogen generation.
• JNKIL also working on building capabilities in the renewable sector with green hydrogen. They are 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.
• JNKIL order book value was Rs. 8,450.27 mn on 9MFY24, out of which Rs. 7,292 mn or 86.29 pct was from the Indian market and Rs. 1158 mn or 13.71 pct was from the overseas market. The current order book is 2.50 times of the FY24E sales which indicates near term revenue visibility.
• The company plans to leverage their knowledge of the industry, and engineering capabilities, and through their extensive experience, established product portfolio and proven track record, The company believe they are well positioned to capitalise on the upcoming demand of heating equipment.
• Sales of the company have grown by ~71.97 pct CAGR during the period FY21–23, while EBITDA and profit grew by ~68.09 pct and ~67.75 pct CAGR over the same period respectively. During FY23, the company reported sales of Rs. 4,073 mn which increased by ~37.46 pct YoY, while EBITDA increased by 34.68 pct YoY to Rs. 735 mn as the EBITDA margin declined from 18.41 pct in FY22 to 18.05 pct in FY23. As of FY23 the company reported profit of Rs. 463 mn which was increased by ~28.84 pct YoY. During 9MFY24 the Sales/EBITDA/Profit came at Rs. 2,533 mn/Rs. 702 mn/Rs. 462 mn.

Key Risk

• Any downside in the capital expenditure of oil and gas, petrochemical and fertilizers industry would create an adverse impact on JNKIL business.
• The company do not have any trademark or logo registered in their name. If their corporate promoter JNK Global prohibits them from using the trademark and logo and may have an adverse impact on the business of the company.

Financial Performance and KPI’s

Peer Comparison based on FY23 figures

Valuation

JNK is in a good position to take advantage of global and Indian investment in the oil and gas, petrochemicals, and fertilizer industries. Due to high entry barriers, JNKIL grabbed 27 pct market share (new orders) of heating equipment suppliers in India in FY23. At the upper end of the price band, the issue quotes at PE 37.42x its FY24 annualised earnings, which appears to be fully priced. One can apply it from a longer-term perspective.

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