India's data center sector is experiencing unprecedented growth, with ₹5 lakh crore in announced investments during 2025 from major players including Reliance, Google, Adani Connex, Amazon Web Services, and TCS. This massive expansion creates substantial opportunities for companies in the thermal management ecosystem, particularly heat exchanger manufacturers who provide critical cooling solutions for data centers.

Market Opportunity and Growth Drivers

The Indian heat exchanger sector is projected to grow at 9% annually to reach $1.80 billion by 2032, while the global market is expected to increase from $18.90 billion in 2024 to $33.00 billion by 2033. Data center revenue is estimated to rise fivefold, from $1.50 billion in FY25 to nearly $8.00 billion by FY30, as installed capacity scales from 1.60 gigawatt to 8.00 gigawatt.

HVAC applications account for 14.90% of the end-user market, while chemicals, oil and gas, and power and energy comprise 56.80% of total demand.

KRN's Strategic Market Position

KRN Heat Exchanger and Refrigeration has positioned itself strategically within the fast-growing commercial HVAC segment, which the company estimates is expanding at 20-25% annually. The company serves 132 customers, with its top 10 clients accounting for 73.20% of revenue, including established OEMs like Daikin, Schneider Electric, Blue Star, and Voltas.

KRN offers six core product categories, with condenser coils representing 60.70% of revenue and evaporator coils contributing 30.40% in FY25. The company's product portfolio includes:

• Condenser coils and evaporator coils
• Headers and copper parts
• Fluid and steam coils
• Sheet metal components
• Bar-and-plate heat exchangers
• Roll-bond evaporators

Data Center Cooling Competitive Advantage

KRN has developed a competitive edge in data center cooling through its capability to manufacture extremely large heat exchangers required for hyperscale data centers. The company estimates that heat exchangers for Google's planned data center in Visakhapatnam will cost ₹1,500.00 crore, with KRN targeting a 50% market share in this segment.

The company distinguishes itself through backward integration, manufacturing components in-house including headers, copper parts, and sheet metal. Its in-house testing capabilities enable prototyping and performance validation for major clients.

Capacity Expansion and Export Growth

To capitalize on growing demand, KRN has expanded its annual capacity from 1 million units to nearly 6 million units. Management targets 20% capacity utilization at the new facility in FY26, increasing to 50% in FY27.

Export revenue currently stands at 15.60% in H1 FY26, with management aiming to increase this to 50% over the next three years, driven by higher commercial HVAC demand in North America and Europe.

Financial Performance and Outlook

KRN's financial performance reflects its expansion strategy and market positioning:

In H1 FY26, momentum continued with revenue rising 43% year-on-year to ₹267.00 crore. EBITDA increased 34% to ₹47.80 crore, while margins moderated by 130 basis points to 17.90%. Net profit grew 25% to ₹30.40 crore.

Management believes an EBITDA margin of 20% is sustainable over the medium term, with PAT expected to improve by 1-1.5% over the next 2-3 years, supported by solar power savings, PLI incentives, and a lower 15% tax rate at the new facility.

Risk Factors and Market Challenges

Several risks require monitoring including import dependence for raw materials, which exposes the company to potential supply chain disruptions. Higher inventory holding has led to sub-optimal resource utilization, tying up working capital. The company's reliance on a limited set of large customers increases exposure to insourcing risk if key clients choose to manufacture heat exchangers in-house.

At ₹716.00 per share, KRN trades at 75x price-to-earnings multiple, with RoCE of 12.40% and RoE of 10.60%, reflecting investor confidence in the company's growth prospects within India's expanding data center ecosystem.

KRN Heat Exchanger and Refrigeration Limited , a leading player in the HVAC and refrigeration industry, has reported a robust performance for the second quarter of fiscal year 2026, with significant growth in revenue and profitability.

Financial Highlights

The company's standalone revenue for Q2 FY26 witnessed a remarkable year-on-year growth of 126%, reaching INR 227.22 crores compared to INR 100.48 crores in the same quarter last year. This substantial increase was driven by strong execution, improved capacity utilization, and sustained customer demand across both domestic and export markets.

The company's EBITDA increased by 69% to INR 29.60 crores, while net profit nearly doubled to INR 23.66 crores, marking a 95% growth compared to the previous year.

Operational Updates

New Manufacturing Facility

KRN's new manufacturing facility in Neemrana, commissioned on May 30, 2025, has started contributing significantly to the company's growth. In Q2 FY26, the new facility generated approximately INR 33.00 crores in revenue, operating at 20% capacity utilization. The management aims to increase this utilization to 50% in the next fiscal year.

Export Performance

The company's export business continues to show strength, with notable contributions from markets such as the UAE, United States, Canada, and Italy. The UAE market, in particular, has seen increased demand from existing customers.

Strategic Acquisition

KRN's subsidiary has acquired the bus air-conditioning division of Spare Refrigeration Systems Private Limited. This strategic move aims to expand the company's presence in the automotive HVAC segment and is expected to contribute to future growth.

Future Outlook

The management expressed optimism about the company's future prospects, citing several factors:

1. Capacity Expansion: With the new Neemrana facility ramping up, KRN expects to significantly increase its production capabilities.

2. Market Growth: The overall HVAC and refrigeration industry continues to see strong demand momentum, supported by infrastructure expansion and energy-efficient adoption.

3. Government Initiatives: The company anticipates benefits from the Production Linked Incentive (PLI) scheme and state government incentives starting next year.

4. Credit Rating: KRN recently received a CRISIL A- rating with a stable outlook for its bank facilities, which may potentially lead to improved financing terms.

5. Diversification: The company is expanding its product portfolio, including entry into bus air-conditioning and potential future involvement in railway HVAC systems.

While the management remains cautious about providing specific guidance, they expressed confidence in maintaining the positive growth trajectory in the coming quarters, supported by their expanded manufacturing capabilities and diversified product offerings.

As KRN Heat Exchanger and Refrigeration Limited continues to capitalize on market opportunities and strategic initiatives, investors and industry observers will be keenly watching the company's performance in the subsequent quarters to gauge the sustainability of its growth momentum.