KRN Heat Exchanger in FY26: Growth Scales Up, but Working Capital Becomes the Plot

KRN Heat Exchanger and Refrigeration Limited ended FY26 with a clear message in its investor presentation and earnings call. The business is moving from a single-plant, heat-exchanger-led model into a broader HVAC&R manufacturing platform anchored by a new Neemrana facility and a push into system-level products.

On a consolidated basis, FY26 revenue stood at 600.06 crore and total income at 609.81 crore, up 38.06% year on year. Profitability strengthened as well. EBITDA rose to 112.48 crore and the EBITDA margin expanded to 18.74%. Net profit reached 76.47 crore with a 12.54% margin. In Q4 FY26, consolidated revenue was 179.48 crore and net profit was 23.36 crore.

The company also disclosed a widening product canvas. Beyond fin-and-tube coils, it now highlights bar-and-plate heat exchangers, microchannels, complete HVAC systems, refrigerator components, sheet metal, technical tubes, tubings and piping, refrigeration equipment, and bus air-conditioning systems.

FY26 performance: growth with improving margins

The consolidated P&L shows operating leverage. Raw material costs increased with scale, but EBITDA grew faster than revenue, pushing margins higher versus FY25. However, the standalone statements reflect a different picture. Standalone FY26 EBITDA margin was 12.54% and Q4 standalone EBITDA margin was 8.91%, highlighting that profitability trends vary by entity during the ramp-up phase.

A key management point in the call was that the business is not project-driven. The company described its order book as rolling-base, with quarterly pass-through clauses for copper LME, aluminium LME and USD/INR. It also stated it maintains around 2.5 months of inventory, which can provide a buffer but also ties up capital.

The capacity story: Plant I near full, Plant II is the growth engine

The investor presentation frames Plant II as the central driver of the next growth leg. Plant I (existing) is described as near full utilisation, with a peak revenue capacity of about 450 crore. Plant II, under subsidiary KRN HVAC Products, is indicated to have a peak revenue capacity range of 1,800 to 2,400 crore depending on product mix. That implies a combined peak revenue capacity of roughly 2,250 to 2,850 crore, compared with FY26 consolidated revenue of 600.06 crore.

In the earnings call, management gave a utilisation snapshot and an outlook. It said the new facility’s utilisation in FY26 was around 15%, and it is planning to reach about 50% utilisation in the current year (call context indicates FY27) and around 80% in the next year (context indicates FY28). The company also acknowledged that the ramp has been slower because commissioning, shifting operations, and customer approvals were still underway during FY26.

The gating items, as presented and discussed, are customer qualification visits, quality systems, and product validation. The company highlighted certifications such as AHRI and multiple UL and ISO certifications, and it also referenced a Thermotech Research Laboratory.

New growth vectors: Bus AC and data centres

KRN’s entry into bus air-conditioning is positioned as a move up the value chain. The company acquired assets and the operating team of Sphere Refrigeration Systems’ Bus AC division in Q2 FY26, stating it paid for assets only and not equity. The presentation points to the bus AC market as 1,000 crore-plus in size and sets a FY27 revenue target of about 160 crore from the Bus AC line.

During the call, management said bus AC revenue in FY26 was around 10 crore and indicated supply has started to a few OEMs. It also suggested higher gross margin potential due to system assembly and backward integration.

The second lever is data centre cooling. Management addressed questions on liquid cooling and said liquid cooling is still early in India, while outdoor-side equipment still uses fin-and-tube solutions. It stated it is working on microchannel heat exchangers and also exploring plate-and-plate heat exchangers for CDU-type applications.

On revenue contribution, management stated data centre share was about 16% of revenue and also referenced around 18.7% contribution in Q4. It also discussed progress with Vertiv, stating quality audit approval was completed and that prototype and then mass production could begin after drawing approvals.

The main investor watch-out: cash flow and working capital

The biggest financial contrast in the deck is between profitability and cash generation. Consolidated cash flow from operating activities was -113.80 crore in FY26, versus +21.44 crore in FY25. The balance sheet shows a sharp build-up in working capital. Inventories rose to 272.91 crore and trade receivables to 174.71 crore, alongside an increase in current borrowings to 187.10 crore.

Management provided explanations that are operationally plausible but still material for investors to track. It cited delayed dispatches to UAE due to shipping disruptions, unbilled dispatches, minimum stocking for new product lines, and higher inventory for imported raw materials with longer lead times. It also suggested that normalization could take time, and indicated it expects improvement quarter by quarter.

This is the trade-off implied by the company’s strategy. Rapid scale-up, multiple new product introductions, and export expansion often require higher inventory and receivable cycles. The question is whether the ramp converts into faster cash conversion as volumes stabilise.

Takeaways

KRN’s FY26 investor materials present a company in transition from a component-led manufacturer to a broader HVAC&R platform. Consolidated growth and margin expansion were strong, and management gave explicit utilisation and business ramp targets for Plant II and bus AC.

At the same time, FY26 also exposed the financial cost of scaling. Negative operating cash flow, rising working capital and higher short-term borrowings are now central parts of the story. The next validation will come from whether Plant II utilisation ramps as discussed, whether bus AC scales toward the FY27 target, and whether export growth can compound without keeping cash flows under pressure.