Arvind Kamath, Chairperson and Whole Time Director, JNK India

22 Apr 2024 , 12:32 PM

Please explain the company's business model and the segments it serves? Additionally, how is the business model organized or structured?

We primarily operate within the capital equipment industry, specializing in heating equipment. Our product portfolio comprises three main categories: fired heaters, reformers, and cracking furnaces. These products are crucial components in various process industries, serving as essential units from the inception of any plant.

Fired heaters are indispensable for heating raw materials at the outset of a plant's operations. Each of these equipment types is highly customized to suit the specific requirements of individual process industries. Our approach is centered around made-to-order, fully engineered solutions tailored to our clients' needs.

Our comprehensive scope of services encompasses the entire lifecycle of these equipment, from design and engineering to manufacturing, supply, and installation. While some clients opt for full-service solutions, others may solely require equipment supply.

Our clientele primarily consists of end-users involved in establishing large-scale plants such as refineries, petrochemical plants, and fertilizer plants. Additionally, we serve major engineering, procurement, and construction (EPC) contractors responsible for plant construction, who procure our heating equipment to meet their project requirements.

Could you provide a breakdown of the revenue generated within different industries, specifically between oil and gas, fertilizers and chemicals, and any other sectors that your company serves?

The demand for fired heaters primarily stems from refineries, which constituted a significant portion of our revenue initially. Over time, we expanded our offerings to include reformers and cracking furnaces, which find greater application in fertilizer plants and petrochemical facilities.

While our revenue was initially skewed towards refineries, we are gradually diversifying into the fertilizer and petrochemical sectors. Looking ahead, we aim to further increase our presence in these industries.

Additionally, we have ventured into other combustion technology products, such as waste gas handling, which includes flares and incinerators. Flares are essential for relieving waste gases in process plants, while incinerators are crucial for treating waste gases or chemicals in compliance with environmental regulations.

Our expertise in handling gray hydrogen through reformer technology has also led us to explore green hydrogen. We are proud to announce that we are establishing India's first hydrogen fuel station, featuring on-site hydrogen generation and dispensing, in Faridabad for a major oil company.

Please tell which companies.

One of the largest refineries in India is spearheading the establishment of India's pioneering hydrogen fuel station. Picture it like your regular petrol pump, but instead of petrol, it'll dispense hydrogen—pure hydrogen. What makes this project truly ground breaking is that it's an on-site generation setup. This means that hydrogen won't be transported from a remote refinery to the station; it'll be produced right there on the premises.

And here's the kicker—it's green hydrogen. The raw material for this hydrogen generation is CBG, or compressed biogas. They're providing us with compressed biogas, and from that, we're delivering clean hydrogen at 550 bar pressure, ready to power buses. In fact, they've already placed orders for Tata Motors buses, which are soon to be delivered. So, in just a matter of days, you could spot Tata buses running on hydrogen fuel in Delhi—a testament to the future of sustainable transportation. And guess what? The entire fuel station, from engineering to design to supply, is our handiwork.

Do they have lower GWP?

Absolutely, there's zero carbon emissions involved in this process. Unlike electric vehicles (EVs), where electricity generation may involve carbon emissions elsewhere, our hydrogen generation process is entirely self-contained and eco-friendly.

Starting from the compressed biogas, which is derived from natural sources, to the production of hydrogen, every step is meticulously designed to minimize environmental impact. This means that from start to finish, the entire process is clean and emission-free, making it a sustainable solution for future transportation needs.

And then, during the running of the buses also, there is no emission at all.

What are the key strengths of the company in comparison to other listed peers? I understand that the other listed peers identified in your RH may not be directly comparable.

Our company possesses several key strengths that set us apart from both listed and unlisted peers in the industry. While our business model may not directly align with that of our listed peers, we stand out in various aspects.

Firstly, in terms of product range, we are unparalleled in India. While listed peers like Thermax and BHEL may compete with us in certain segments, none offer the comprehensive range of products that we do. We are the sole Indian company capable of manufacturing fired heaters, reformers, and cracking furnaces, making us a unique player in the market. Additionally, we are also involved in waste gas and off-gas handling systems, further distinguishing us from competitors.

Secondly, our track record of execution is a testament to our expertise and reliability. Given the high entry barriers in our industry, establishing credibility and proving the efficacy of our products takes time. However, over the years, we have successfully overcome these barriers and earned the trust of our customers. Our technical qualifications and commercial viability enable us to compete for opportunities globally.

Moreover, our dedicated team of professionals, many of whom come from esteemed backgrounds in companies like Lassen and Toubro, contributes significantly to our success. With a focus on professionalism and process orientation, our team ensures efficient operations and top-notch service delivery.

Lastly, our market share of 27% in India for FY23 underscores our dominance in the sector. This achievement reflects the recognition and preference we have garnered within the market.

In summary, our comprehensive product range, proven track record, dedicated manpower, and significant market share position us as a leading player in the industry, both domestically and internationally.

Let us now delve into your raw material procurement strategy. How do you ensure consistent availability throughout the year and how do you safeguard your margins from price fluctuations in inputs?

Our raw material costs typically account for only about 8 to 10% of the total project expenditure. While crucial for project execution, this proportion is relatively small in terms of overall value. Therefore, even if there are fluctuations in raw material prices, the impact on our overall cost structure is minimal.

To mitigate potential price increases, particularly for critical components requiring high-grade metallurgy, we adopt a proactive approach. Upon receiving an order, we promptly place orders with vendors to secure pricing and prevent potential price hikes. While fluctuations in raw material prices are inevitable, any significant variations usually have negligible effects on our overall costs. These minor adjustments, typically around one to two percent, are absorbed within our existing profit margins.

Help us understand the key growth strategies of the company over the next few years.

We have outlined three key growth strategies to propel our company forward. Firstly, we aim to expand our product portfolio beyond heating equipment. While we have already established ourselves as a leading player in this sector, we are now seeking similar growth opportunities in waste gas handling products. Despite being a relatively recent addition to our offerings, we are rapidly gaining traction in this niche market. Additionally, we are venturing into the renewable energy sector, particularly focusing on green hydrogen. Although still in its early stages in India, we see immense potential for growth in this area.

Secondly, we are exploring inorganic growth opportunities through potential acquisitions of technology companies. Specifically, we are interested in companies specializing in waste gas handling or renewable energy. While we have encountered a few opportunities in the past, we remain open to future prospects that align with our growth objectives.

Lastly, we are pursuing geographical expansion beyond the Indian market. While we have achieved a significant market share domestically, we are now expanding our footprint globally. We have already executed orders in various countries, including Nigeria, Mexico, and Eastern Europe. Looking ahead, we see promising opportunities in regions such as the Middle East, Russia, Eastern Europe, Australia, Africa, and the United States. By capitalizing on these opportunities, we aim to further enhance our exports and establish a strong presence on the international stage.

India has committed to achieving net zero emissions by 2070 as a nation. How is this objective being realized in terms of its manifestation across the two aspects?

Certainly, heating raw materials is fundamental across various industries, including the production of green aviation fuel. The fired heater plays a pivotal role in this process. What we're seeing now is a push towards cleaner burning fuels, such as hydrogen. Our fired heaters are being designed to accommodate hydrogen as a fuel source, offering a cleaner alternative without carbon emissions.

Additionally, we're exploring the possibility of electrical fired heaters through ongoing research and development. While generating heat through electricity presents its own challenges, particularly in terms of energy requirements, we're actively working on designs that leverage electricity as a viable fuel source.

Regarding renewable energy sources like solar and wind power, each has its own advantages and limitations. Solar energy, for instance, is abundant in India but is limited to daylight hours. This necessitates the development of storage solutions to make the most of its potential. As for wind power, while it may not be as prevalent in India, it offers a more consistent energy supply.

In our renewable energy endeavors, we're also fielding inquiries for carbon capture solutions. We have partnered with technology companies to offer carbon capture engineering and complete plant solutions. These technologies, often sourced from abroad but also available domestically, hold promise for reducing carbon emissions and advancing sustainability efforts.

Does the company have a dividend distribution policy? If so, could you provide an overview of it?

Certainly, over the past two years, we've been consistent in our dividend distribution, typically around 20% of our profits. Given our healthy profit after tax (PAT) margins, averaging around 12%, we are committed to maintaining or improving upon these figures in the future. Consequently, our dividend policy remains aligned with our profitability, aiming to sustain or possibly enhance the dividends moving forward.