Avalon Technologies lists on a subdued note; dips 5% from issue price

Avalon Technologies (Avalon) made a subdued debut with its shares listed at Rs 431 on the BSE, at 1 per cent discount when compared with its issue price of Rs 436 on Tuesday. The listed at par on the NSE.

At 10:30 AM; Avalon quoted 5 per cent lower at Rs 415 on BSE. A combined 2.1 million equity shares changed hands at the counter on both the exchanges.

The company proposed to use initial public offering (IPO) proceeds towards debt payment, funding working capital requirements and general corporate purposes.

Avalon is a fully integrated electronic manufacturing services (EMS) company, catering to global clients into clean energy, mobility, industrial and communications domains. The company earned ~62 per cent (FY22) of its total revenue from exports (mainly to the US) while the rest comes from the domestic market.

The company’s consolidated revenue grew at a CAGR of ~14 per cent in FY20-22 led by clean energy segment (EV, solar, hydrogen) which grew at ~30 per cent CAGR during the same period. Despite higher raw material costs, the EBITDA margin increased 160 bps to 11.6 per cent supported by savings in employee and other costs. PAT grew ~5.5x to Rs 68 crore tracking one-time gains and EBITDA margin expansion.

The brokerage firm believes that since the company is a fully-integrated EMS provider, it has diversified end-user industries and clients, with strategic manufacturing locations. Therefore, the company is likely to benefit from 'Make-in-India' and PLI schemes of the government as it promotes local manufacturing of components, and electronics systems.

However, Avalon faces competition from both Indian and global EMS companies like Bharat FIH, Dixon Technologies, Amber Enterprises, Kaynes Technology SFO Technologies, Foxconn, Syrma SGS Technology, Pegatron, Wistron, etc. In order to be preferred by its customers, Avalon will have to maintain its cost efficiency.

The competitive nature of the industry may result in substantial price competition. Increased competition could result in significant price competition, reduced revenues, lower profit margins, or loss of market share, any of which could adversely impact Avalon’s business, analysts at ICICI Securities said in the IPO note.

India’s EMS industry is likely to grow at a CAGR of 32.3 per cent from Rs 1,469 billion in FY22 to Rs 4,502 billion in FY26. The EMS market in North America is expected to grow at a CAGR of 4.8 per cent from US$91 billion in CY21 to US$114 billion in CY26.

Vertically integrated business model to help gain wallet share of customers and enhance market share, manufacturing facilities in the US give a competitive edge, caters to high growth industry verticals such as clean energy and Avalon has long standing relations with its customers are key triggers/highlights of the company, the brokerage firm said.

Brokerage firm Choice Broking said that the company is demanding an EV sales multiple of 3.1x, which is at a discount to peer average of 6.3x. Based on FY24E forecasts, the demanded EV sales is around 2.3x, which looks attractive for a company like Avalon, operating in high-growth EMS space, said analysts.