United Heat Transfer coming with IPO to raise Rs 30 crore

United Heat Transfer

• United Heat Transfer is coming out with an initial public offering (IPO) of 50,84,000 equity shares in a price band Rs 56-59 per equity share.
• The issue will open on October 22, 2024 and will close on October 24, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 5.60 times of its face value on the lower side and 5.90 times on the higher side.
• Book running lead manager to the issue is Swastika Investmart.
• Compliance Officer for the issue is Diksha Sadanand Shetty.

Profile of the company

United Heat Transfer is engaged in the manufacture of a range of shell and tube heat exchangers, air cooled heat exchangers, pressure vessels and process flow skids equipment’s which are used as critical equipment’s for petrol and diesel engines, railway engines, maritime engines, cruse and cargo ships, ferries, pleasure boats, marine diesels, mining trucks, megayachts, heavy engines, fishing boats, heavy trucks, freighters, trawlers, heavy haulages, power gen sets, super tankers, off highway engines etc. since 1995.

The company extends its expertise with the growing national and multinational OEM industry for Heat Exchangers, Moisture Separators Pressure Vessels and Process Flow Skids. It manufactures heat transfer equipment’s as per the TEMA (Tubular Exchanger Manufacturers Association) standards, ASME Section VIII Div. 1, Div. 2, (unfired pressure vessels), API 660, 661, NES standards. Its strength lies in the excellent quality and craftsmanship of its products, the engineering expertise of its team, and its continuous pursuit of developing technologically innovative products.

The company operates two advanced manufacturing facilities situated in Nashik, also known as the Holy City. Its corporate office and manufacturing Unit No. I are situated at Ambad MIDC, Nashik houses and Unit No. II is situated at Talegaon Dindori sprawling over the land of 13 acres. Both facilities are located in a well-developed industrial area providing easy availability of resources, easy for logistics and transportation enhances efficiency of timely delivery as per convenience of its customers. Both its manufacturing facilities have proper infrastructure, availability of Labour, Water and Power supply. Its ability to design and produce customized quality products, compatible products, guidance throughout the design and manufacturing process, technical support provides it significant competitive advantages. 

Proceed is being used for:

• Repayment of debt
• Meeting incremental working capital requirements
• General corporate purpose

Industry Overview

The global heat exchanger market size was valued at $16.7 billion in 2020, and is projected to reach $28.3 billion by 2030, growing at a CAGR of 5.5% from 2020 to 2030. A heat exchanger is a device that facilitates the process of heat exchange between two fluids that are at different temperatures. Heat exchangers are used in many engineering applications, such as refrigeration, heating and air-conditioning systems, power plants, chemical processing systems, food processing systems, automobile radiators, and waste heat recovery units. In addition, air preheaters, economizers, evaporators, superheaters, condensers, and cooling towers used in a power plant are a few examples of heat exchangers. Moreover, heat exchangers are an enabling technology for efficient power generation with a closed, recuperated Brayton cycle, using supercritical carbon dioxide (sCO2) as the working fluid.

Meanwhile, India's Diesel Generator Market size is expected to grow from $1.10 billion in 2023 to $1.42 billion by 2028, registering a CAGR of 5.20% during the forecast period (2023-2028). Over the medium period, factors such as uninterrupted and reliable power supply and heavy deployment of DG (diesel generator) set in healthcare services and the IT sector are accountable for the market's progress. Improvement in technology can lead to an upsurge in the market's growth during the forecast period. On the other hand, the Indian diesel generator market may face hurdles in the near future due to the growing trend of renewable power generation, particularly in industries that have targeted reducing greenhouse gas emissions. Nevertheless, diesel generators are widely used as a prime and standby source in the manufacturing sector. India is predicted to be the global manufacturing hub by 2030 due to the efforts poured in by the Make in India program launched by the Government of India. Such developments are anticipated to create significant opportunities for the market.

A diesel generator is a device that combines a diesel engine and an electric generator to generate electricity. This is an example of an engine generator. A diesel compression-ignition engine is typically built to run on diesel fuel, but specific models are also designed to run on other liquid fuels or natural gas. The India diesel generator market is segmented by power output, application, end user, and ratings. The market is segmented by power output into portable, inverter, industrial, and induction generators. The market is segmented by application into standby, prime power, continuous, and peak shaving. By end-user, the market is segmented into residential, commercial, and industrial. Ratings segment the market into 0-75 kVA, 75-375 kVA, and Above 375 kVA. 

Pros and strengths

Integrated manufacturing facilities: Optimized design and on time delivery are the keys to success. Maintaining a high standard of quality for its products is critical to its brand and continued growth. Ever since its inception, it has been laying paramount importance towards quality improvisation of its products. It adheres to stringent quality parameters and ensures strong controls for precision are maintained throughout the processing.

Strategic location of unit: The company’s manufacturing hub is located at Nashik which is well developed industrial area and has been growing in terms of industry set up. Its facility has proper infrastructure with good conditions of road and transport facility and availability of Water and Power supply. Labor is easily available from nearby areas as these facilitate it to fetch them as per its workload in factory. This location gives a competitive edge over competitors to its business.

Long standing relation with customers: The company’s business is customer centric and requires optimum utilization of its existing facilities, assuring a quality supply of materials and achieving consequent economies of scale. It has been able to build trust and establish relations with its major customers for a long time. It deals with various companies and has been able to deliver them with consistent products all these years. It designs and manufactures products which act as an input for its customers and therefore each customer has their own stringent condition relating to design, quality, time and manufacturing of products. The raw material used in production is specified by its customer and it purchases it on those specific raw materials. It needs to supply the goods in their mentioned schedule, lots and boxes as per their given list. It provides prompt assistance and goes the extra mile to resolve any issues or concerns.

Risks and concerns 

Dependent on few numbers of customers for sales: The company’s top 5 customers contribute 79.25%, 67.65%, 55.28% and 63.48% of its total sales for the period ended on July 31, 2024 and for the financials year ended on March 31, 2024, 2023 and 2022 respectively. The company is engaged in the business of manufacturing of Heat Exchangers. Its business operations are highly dependent on its customers and the loss of any of its customers may adversely affect its sales and consequently on its business and results of operations. The loss of one or more of these significant or key customers or a reduction in the amount of business it obtains from them could have an adverse effect on its business, results of operations, financial condition and cash flows. It cannot assure that it will be able to maintain historic levels of business and/or negotiate and execute long term contracts on terms that are commercially viable with its significant customers or that it will be able to significantly reduce customer concentration in the future. Any decline in its quality standards, growing competition and any change in demand may adversely affect its ability to retain them.

Geographical constrain: The company’s domestic sales are dependent on the top 5 States including Maharashtra, Gujarat, Tamilnadu, Karnataka and Andhra Pradesh. It generates almost 94.66%, 91.16%, 83.22% and 88.27% of the revenue of the total sales generated as on July 31, 2024, March 31, 2024, 2023 and 2022 respectively from these 5 states. Its domestic sales are depending on the above states and in future if any it is not able to sale its products to these states its revenue will impact majorly.

Dependent on a few suppliers for purchase of product: The company’s top 10 suppliers contribute 74.04%, 63.40%, 36.46% and 39.86% of its total purchases for the period ended July 31, 2024 and for the year ended on March 31, 2024, 2023 and 2022 respectively. It cannot assure that it will be able to get the same quantum and quality of supplies, or any supplies at all, and the loss of supplies from one or more of them may adversely affect its purchases of stock and ultimately its revenue and results of operations. However, the composition and amount of purchase from these suppliers might change as it continues to seek new suppliers for its product for better quality and price in the normal course of business. Though the company will not face substantial challenges in maintaining its business relationship with them or finding new suppliers, there can be no assurance that it will be able to maintain long term relationships with such suppliers or find new suppliers in time.

Outlook

United Heat Transfer manufactures essential equipment such as heat exchangers, pressure vessels, and process flow skids. The company's products are used in petrol and diesel engines, maritime vessels, mining trucks, and heavy machinery, among other applications. A diverse customer base across various continents enhances its global presence, minimizing reliance on any single market. Moreover, it has knowledgeable and skilled team to ensure efficient production and delivery of products. On the concern side, the company is dependent on few numbers of customers for sales. Loss of any of these large customers may affect its revenues and profitability. Moreover, the company’s topline is dependent on few States and loss of any of these large States may affect its business operations.

The company is coming out with a maiden IPO of 50,84,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 56-59 per equity share. The aggregate size of the offer is around Rs 28.47 crore to Rs 30.00 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations decreased 13.95% from Rs 6,995.09 lakh in fiscal 2023 to Rs 6,019.31 lakh in fiscal 2024. The decrease in the year 2024 was due to lower sales booking. Moreover, the company’s profit after tax increased 194.91%, from Rs 211.54 lakh in fiscal 2023 to Rs 623.85 lakh in fiscal 2024.

In its business, the company focuses on undertaking orders of high transactional value. It intends to offer its products at competitive prices compared to its competitors. To achieve this, it performs optimized design with cost effective solutions with good product life cycles. Providing this benefit to its customers makes it an attractive choice for them to do repetitive business with it. As the company has grown multifold in recent years, it is able to execute transactions of high order value. With the increase in footfall of its customers it intends to increase its businesses in the coming years.