Avalon Technologies – Last year, a thorough study was conducted on the opportunities in the electronic sector of India. In that study, several top EMS companies were identified that could benefit from the sunrise sector in India. One of the companies that stood out was Avalon Technologies. This blog will provide an unbiased overview of the company, its current state, and future growth prospects based on the latest conference call and Q3 results. Please note that this is not a buy or sell call, but rather an effort to empower readers with knowledge so they can make informed decisions.
Avalon Technologies:
Company Overview
In this blog, we will delve into the world of Avalon Technologies, a leading EMS company that has been making waves in the electronic sector of India. We will explore their history, their current state, and their future growth prospects. While the company has faced some challenges in recent times, we will uncover why Avalon Technologies remains a promising investment opportunity in the long term.
Avalon Technologies was established in 1999 and is headquartered in Chennai, India. It is a fully integrated EMS company that specialises in printed circuit board design and complete electronic systems, also known as build boxes. Avalon operates on a hybrid model with manufacturing facilities in both the US and India. This model allows them to win orders and expand their market in the US, while also optimising costs and capitalising on the growing EMS market in India.
Background
Avalon Technologies was established in 1999 and is headquartered in Chennai, India. As a fully integrated EMS company, Avalon specialises in various sectors including clean energy, mobility, industrial communication, and medical. They offer a range of services from printed circuit board design to complete electronic system manufacturing.
Revenue Breakup
- Clean Energy: 25%
- Mobility: 21%
- Industrial: 29%
- Communication: 11%
- Medical and Others: 13%
Hybrid Model
Avalon operates on a hybrid model with manufacturing facilities in both the US and India. This strategic approach allows them to optimise costs through their Indian manufacturing while leveraging their strong presence in the US to expand their market.
Challenges Faced And Performance
While Avalon Technologies has seen significant growth in the Indian market, their US business has been impacted by the current slowdown. The company faced a decline in sales and operating margins, resulting in lower profitability in the fiscal year 2024. However, it is important to note that this is primarily due to operating deleverage, and Avalon’s strong capabilities and long-term prospects remain unaffected.
Avalon Technologies has been facing challenges due to the current slowdown in the US market, which has had a significant impact on its performance. In the first 9 months of FY24, the company’s sales stood at 650 CR, compared to 945 CR in FY23. Additionally, the company’s operating leverage has resulted in lower margins and profits. However, it’s important to note that the high P/E ratio of 75 is not a true reflection of the company’s valuation. Once the market conditions improve, Avalon’s margins are expected to improve as well.
Short-Term Outlook
During the beginning of FY24, Avalon’s management had anticipated 25-30% growth and ABA touching 12-14%. However, they failed to anticipate the impact of the US slowdown, which led to a revision of their guidance to 15-25%. In the latest conference call, the management has guided for a degrowth of 8-10% in FY24 Q4. Despite these short-term challenges, management remains confident about the company’s long-term prospects.
Indian Market Opportunities
Avalon Technologies is witnessing good growth in the Indian market, with around 12% YoY growth in Q3 of FY24. The company aims to do 85% business from India in the long term, with opportunities in sectors such as railways, industrial EV, and clean energy. For example, Avalon’s customer has received approval for the kavage program, which involves working on an automatic rail protection system to prevent train collisions. The company also sees potential in the industrial EV and energy segments in India.
US Market Recovery
While the US market has been facing a slowdown, Avalon’s management expects a recovery in H1 of FY25 and further traction in the second half. They emphasise the importance of not losing sight of long-term vision and opportunities while dealing with short-term challenges. Avalon is preparing its organisation for years of growth ahead and remains focused on building a business of profitable growth in the long term.
Future Growth Prospects
Avalon Technologies is confident about their long-term vision and opportunities. They have been increasing their business in India, which now accounts for 47% of their total revenue. In the Indian market, Avalon sees great potential in sectors such as railway, industrial EV, and clean energy. Additionally, they expect a recovery in the US market in the first half of fiscal year 2025.
Order Book and Stake holding
As of December 23, Avalon Technologies has an order book of 1,275 CR, with an executable timeline of 12 to 14 months. The company also has long-term contracts worth 843 CR to be executed over the next 2 to 3 years. The shareholding pattern shows a reduction in promoter holding, but various institutional investors, including Goldman Sachs, have increased their stake in the company. This indicates confidence in Avalon’s future prospects.
Investment Outlook
While Avalon Technologies may have faced challenges in the short term, their long-term growth prospects remain promising. The correction in their share price presents an opportunity for investors to consider adding Avalon to their portfolio. It is important to closely monitor each quarter of fiscal year 2025 to make informed decisions about increasing or decreasing holdings.
Shareholding Pattern
During the IPO process, there was a reduction in promoter holdings, but recent stake additions by institutional investors like Goldman Sachs and HDFC indicate confidence in the company. Overall, the public holding has increased, further instilling trust in Avalon Technologies.
Conclusion
Avalon Technologies, despite facing challenges in the US market, remains a strong player in the EMS industry. Their strategic hybrid model, focus on the Indian market, and long-term vision make them a compelling investment opportunity. While short-term challenges should not be overlooked, it is crucial to consider Avalon’s growth potential and the correction in share prices when making investment decisions. As always, conducting further research and analysis is essential before making any investment choices.
Despite the short-term challenges faced by Avalon Technologies, the company remains optimistic about its long-term growth prospects. With a strong presence in both the US and Indian markets, Avalon is well-positioned to capitalise on the growing EMS sector in India and expects a recovery in the US market in FY25. While keeping a close eye on each quarter’s performance, investors can consider holding Avalon or adding it to their portfolio in a systematic manner. It’s important to remember that good news often comes with higher prices, so taking a long-term view is crucial. As always, conducting further research and staying informed is essential for making investment decisions.
Disclaimer: The information is only for information purpose only. It is always recommended to consult with certified financial experts before making any investment decisions. Follow busymoneyfreak.com .