A Detail Research Report on Avalon Technologies Limited

Summary

A Detail Research Report on Avalon Technologies Limited with the tagline Manufacturing your Success

AVALON TECHNOLOGIES  LIMITED

Recommendation:  Buy

CMP:  Rs. 473/-                             TARGET: Rs.663 /-

SENSEX: 71555 /-                                NIFTY:  21743/-

KEY STOCK STATISTICS:

Market Capitalization (crs): 3104 /-

Book Value: Rs.81.20 /-

Face Value: Rs.2 /-

52 week High/Low:  732/347

P/E Ratio: 71.10

Industry P/E: 39.45

P/BV: 4.72

Dividend Yield: 0.00/-

Company Background:

1. Incorporated in 1999, Avalon Technologies Limited is a leading fully integrated Electronic Manufacturing Services ("EMS") company with end-to-end capabilities in delivering box-build solutions, focusing on high-value precision-engineered products.

2. They provide a full stack product and solution suite, from printed circuit board (“PCB”) design and assembly to the manufacture of complete electronic systems (“Box Build”), to global OEMs across the United States, China, Netherlands, and Japan.

3.  Avalon is one of the leaders in high mix, flexible volume product manufacturing segment and specializes in manufacturing and providing design support for critical integrated assemblies, sub-assemblies, components, and enclosures for multiple industry verticals.

4.  Company has 14 manufacturing units located across the United States and India.

Shareholding Pattern(%):

Source: Company, KFO Research

FUTURE OUTLOOK:

We are well-positioned to operate successfully inboth these regions. We operate today by choicein high complex, high margin B2B space. India isespecially at an inflection point, which is set to expand the country’s market share in the global EMS sector from 2.2% to 7% by 2026. In India, we see phenomenal opportunities, both interms of manufacturing and customer base. Several product and design centres are commencing in India, setting the stage for growth in the next three years. We are also seeing global companies exploring India as an alternate supply chain destination to China.Indian companies too are favouring Indian suppliers instead of Chinese suppliers. The favourable policy scenarios in both the US andIndia, work to our advantage. Our manufacturing presence in these locations positions us well to leverage the benefits of both places and provide our customers with significant value in terms of cost arbitrage, quality and supply reliability. We have further embarked on the addition of two manufacturing units in Chennai. This expansion marks a significant milestone in our quest to cater to the evolving customer needs while bolstering our position in the global market.

Source: Company, KFO Research 

INDUSTRY OUTLOOK

Global EMS Industry : The Electronics Manufacturing Services (EMS) market has been growing steadily in recent years due to the increasing use of electronic devices across the world. The EMS market was worth approximately USD 880 Billion in 2021. It is expected to grow at a rate of 5.4% and reach USD 1,145 Billion by 2026.

Indian EMS Industry : The Indian EMS market was estimated at USD 20 Billion in the fiscal year 2021-22. The market is expected to grow rapidly at an annual rate of 32.3% and reach USD 80 Billion by FY 2025-26. The Indian EMS industry is an important part of the country’s larger electronics ecosystem. India stands out in the EMS sector with impressive growth and unique competitive strengths. Over the last ten years, the Indian EMS industry has gained significant prominence. The strong expansion of India’s electronics industry is mainly due to the high demand for electronic products within the country. This demand is driven by factors like increasing incomes, quicker replacement cycles for products, the rise of remote work culture, and favourable tax structures. Government projects such as nationwide broadband connectivity, rural electrification, renewable energy initiatives, and e-governance programmes also contribute to the demand. The growth of renewable energy infrastructure and energy-efficient portable electronic components will further accelerate market expansion.

Source: Company, KFO Research

Growth Drivers:

1. Only India EMS player to have full-fledged manufacturing facilities in the US.

2.  Major wins in US and India across sectors such as Power, Industrial, Clean energy, Automotive and Rail.

3.  Avalon is now a strategic manufacturing partner for C-DAC, playing a pivotal role in advancing India's capabilities in High Performance Computing, through the 'RUDRA' program.

4.  Successfully delivered the first wiper blade assembly sample, marking a key milestone in the Aerospace segment.

5.  One new manufacturing plant at Chennai is set to go live by Q1 FY25.

6. For addressing our increasing domestic business, we are planning to expand our existing facilities.

7. EMS market is poised for a robust growth across industries. India showcases unique competitive strengths.

8. Sunrise sector - Partner with emerging pioneers. Eg: Clean energy technology companies.

9. Established businesses – Collaborate, Grow wallet share via up-selling & cross-selling.

10. Win using integrated capabilities. For eg: Start with design services and reach box build.

11.  India plans to install 450GW of renewable energy capacity by 2030.

BUSINESS HIGHLIGHTS 

PROS

· Company has reduced debt.

· Company has a good return on equity (ROE) track record: 3 Years ROE 27.8%

CONS

· Though the company is reporting repeated profits, it is not paying out dividend

· Company's cost of borrowing seems high.

Source: www.screener.in 

VALUATIONS:

On the basis of EPS Multiple Method, we are recommending ‘Buy’ for the stock. Since the stock offers good opportunity, we initiate a ‘BUY’ signal on the stock with 12-month price target of Rs 663/- share an upside of  39.87 % from current levels.

PEER COMPARISON : 

BALANCE SHEET (RS. IN CRORES):

CASH FLOW STATMENT ( RS. IN CRORES):

PROFIT AND LOSS ACCOUNT (RS.IN CRORES):

Source: www.sharescart.com