Avalon Technologies Limited IPO opens on 3 April: Here are the details

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Avalon Technologies IPO

Avalon Technologies IPO opens for subscription on 3rd April. The company looks to raise up to Rs 865 crore through the public issue. Here are the details: 

Avalon Technologies Limited IPO Details:

  • Avalon Technologies IPO Date: 3 April - 6 April 2023
  • Avalon Technologies IPO Price band: Rs 415 - Rs 436
  • Avalon Technologies IPO Issue Size: Rs 865.00 crore (Fresh Issue of Rs 320 crore and Rs 545 crore OFS)
  • Reservation: QIB 75%, Retail 10%, NII 15%
  • Minimum Investment: Rs 14,824
  • Post Issue Implied Market Cap: Rs 2,725 – Rs 2,847 crore
  • Bid lot: 25 shares, and in multiples of 34 shares.

Avalon Technologies Limited IPO: Issue objective

Avalon Technologies proposes to utilize the Net Proceeds towards funding the following objects:

  • Prepayment or repayment of all or a portion of certain outstanding borrowings availed by the company and one of the Material Subsidiaries - Avalon Technology and Services Private Limited (ATSPL).
  • Funding the working capital requirements of the company.
  • General corporate purposes.

Avalon Technologies IPO: About Avalon Technologies

  • Avalon Technologies Limited was incorporated in 1999. They are one of the leading fully integrated Electronic Manufacturing Services (EMS) companies with end-to-end capabilities in delivering box-build solutions in India in terms of revenue in FY22, with a focus on high-value precision-engineered products. 
  • The company also provides a full stack product and solution suite, right from printed circuit board (PCB) design and assembly to the manufacture of complete electronic systems (Box Build), to certain global original equipment manufacturers (OEMs), including OEMs located in the United States, China, Netherlands, and Japan. 
  • Avalon Technologies has a unique global delivery model, comprising manufacturing and design capabilities across, both India and the United States.
  • Avalon Technologies is the only Indian EMS company with full-fledged manufacturing facilities in the US, which gives them a unique competitive advantage in the North American markets.
  • They specialize in manufacturing and providing design support for critical integrated assemblies, sub-assemblies, components, and enclosures for multiple industry verticals.
  • Their electronic manufacturing facilities comprise an aggregate of 66 production lines, consisting of 11 Surface Mount Technology lines, 12 Through Hole Technology lines, and 43 assembly lines.
  • They have 12 manufacturing units located across the United States and India.

Avalon Technologies IPO: Products and Services

Below are some products and services of Avalon Technologies:

  • Design Services: The company’s design division located in Bengaluru, Karnataka makes them a PCB analysis/design engineering company operating in various verticals, including power, transportation, semiconductor, networking, IOT, and medical.
  • New Product Development: Company’s NPD division is equipped with an advanced PCB assembly/test facility focused on quick turnarounds of assembly processes.
  • PCB Design and Assembly: The company is a leading EMS provider serving customers across the globe. They are an end-to-end service provider of PCBAs, with in-house capabilities to support the entire value chain for their customers.
  • Metals/Sheet Metal Fabrication: Sheet metal fabrication is the process of forming desired shapes from metal sheets using various manufacturing methods.

Avalon Technologies IPO: Industry Overview

  • The global EMS market is traditionally comprised of companies that manufacture electronic products, predominantly assembling components on printed circuit boards (PCBs) and box builds for OEMs.
  • The global EMS market was estimated at $880 billion in 2021 and is expected to reach $1,145 billion in 2026 at an annual growth rate of 5.4%.
  • China leads the global EMS business with a 46.7% share in 2021. It is a global leader due to operational cost benefits, availability of a large number of highly skilled personnel, and many other factors.
  • The PCBA market was valued at $590 billion in 2021 and is expected to reach $740 billion in 2026. The market is expected to grow at a CAGR of 4.6% by 2026.
  • EMS market segmentation by B2B and B2C - In India, the B2C market was valued at Rs 1,289 billion in FY22 and is expected to maintain its dominance, reaching Rs 3,988 billion in FY26, while the B2B market remains far behind. In FY22, the B2B market was valued at Rs 180 billion, and it is expected to grow to Rs 513 billion by FY26.

Avalon Technologies IPO: Listed Peers

The company has many listed peers and will continue to face competition from them. The listed peers include names like Dixon Technologies, Amber Enterprises India, Syrma SGS Technology, and Kaynes Technology India. The comparison with listed peers is as below for FY22:

  • In terms of revenue, Dixon Technologies is the largest player with total revenue of Rs 10,697.08 crore. Avalon Technologies is towards the bottom with a revenue of Rs 840.72 crore. 
  • Earning Per Share (EPS) is highest for Dixon and Amber - Avalon is third on the list, well above Syrma and Kaynes.
  • The overall industry has high PE - the average PE of listed peers is 76.4. Avalon Technologies has a much lower PE compared to peers - 36.73 – 38.58.
  • Among listed peers, the net debt of Avalon is on the higher side.
  • In terms of EBITDA margin, Avalon Technologies is only behind Kaynes Technologies (13.26%) with an EBITDA margin of 11.60%.
ParticularsAvalon TechnologiesDixon Technologies (India)Amber Enterprises IndiaSyrma SGS TechnologyKaynes Technology India
Revenue from operations (in ₹ Cr)840.7110,697.084,206.401,266.65706.25
Total income (in ₹ Cr)851.6510,700.894,239.631,284.37710.35
Material margin (in ₹ Cr)286.59917.84676.73374.55216.82
Material margin (%)*34.09%8.58%16.09%29.57%30.70%
EBITDA (in c cr)97.55379.05275.38125.9893.67
EBITDA margin11.60%3.54%6.55%9.95%13.26%
PAT (in ₹ Cr)68.16190.33111.3276.4641.68
PAT margin8.00%1.78%2.63%5.95%5.87%
Net working capital (in ₹ Cr)277.74583.371,045.91370.86267.69
Net debt (in ₹ Cr)283.91140.63349.47121.03147.95

Avalon Technologies IPO: Financials

  • For FY20, FY21, and FY22, the company has reported a revenue of Rs 641.87 crore, Rs 690.47 crore, and Rs 840.72 crore, respectively. The revenue has grown at a CAGR of 14.39%.
  • For FY20, FY21, and FY22, Avalon Technologies has reported an EBITDA of Rs 64.48 crore, Rs 66.14 crore, and Rs 97.55 crore, respectively. The EBITDA margin for the same period was 10.05%, 9.58%, and 11.60%, respectively.
  • The profit for the above period was Rs 12.23 crore, Rs 23.08 crore, and Rs 68.16 crore, respectively. The net profit margins have increased from 1.89% in FY20 to 8% in FY22.
  • For the last three financial years, the average RoNW and EPS were 50.47% and 5.84, respectively.
  • The ROCE for the same period was 26.83%, 21.26%, and 27.41%, respectively.
  • The company has a high debt-to-equity ratio. However, it has come down from 5.89 to 3.68 in FY22.

Avalon Technologies IPO: Unique Selling Propositions

End-to-end integrated solution: With a focus on their customers’ needs, the company offers an integrated and well-diversified solution suite comprising PCB design and assembly, manufacture of cable assembly and wire harnesses, sheet metal fabrication, etc.

High entry barrier: Given the depth and nature of their engagement with longstanding customers, their customers would not find it easy to switch over to alternative EMS providers as the cost, time, and effort for such transitions is high. 

Well-diversified business leading to strong growth avenues: Company's business is well-diversified, in terms of end-use industries, customers, geographies, and offerings. Over the years, they have diversified and expanded customer bases and developed operations to cater to various end-use industries across multiple product capabilities.

Established relationships with marquee customer base: They have several global brands as customers both in India and overseas. Avalon has a history of strong customer retention and has been growing its customer base.

Avalon Technologies IPO: Growth Potential

Sustaining and catering to high-growth sunrise industry sectors: They intend to leverage their experience and expertise to focus on upcoming, high-growth sectors, such as clean energy and emerging communication technologies. They aim to focus on high-margin value products with medium to long life cycles that need precision engineering, expertise to innovate, and the ability to deliver flexible manufacturing plans.

Consolidate and expand position in global markets: They plan to continue to focus on customers with whom they have long standing relationships to develop and supply more sophisticated, higher-margin products. Also, they plan to continue to consolidate their position in well-established end-use industries, including industrial, communications, mobility, and medical devices.

Creating high growth opportunities: Electric vehicles are one of the key growth opportunity verticals, due to the technology transformation currently underway with autonomous car development and electric vehicle commercialization activities. They intend to continue to leverage their capabilities to focus on such high-growth opportunities. 

Invest in expanding technological capabilities and manufacturing capacities: They intend to continue to invest in technology infrastructure to enable further technical innovation, improve operational efficiencies, increase customer satisfaction, and improve sales and profitability.

Avalon Technologies IPO: Risks

Sourcing of raw material: The company sources its raw material from suppliers, primarily on a purchase order basis, who may not perform their contractual obligations promptly, or at all. Any increase in the cost of raw materials or components, delay, shortage, interruption, or reduction in the supply of raw materials and major production inputs to manufacture products may adversely affect their business.

Rapid changing industry: The market in which the company and its customers operate is characterized by rapidly changing technology, evolving industry standards and demand for features, and constant product innovation. These conditions may also result in significant competition and short product life cycles.

Dependency on certain customers for a portion of revenues: They have had a relationship with the top ten customers for an average period of 9.60 years. However, the loss of any one of them will have a significant impact on the revenue. For FY22, the percent contribution of the top 10 customers was 64.57%.

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.

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