Fundamental Analysis Of Avalon Technologies: The Indian EMS market is expected to grow rapidly at an annual rate of 32.3% and reach USD 80 billion by FY25–26. One such company in this sector is Avalon Technology, which is different from other players. Read this article to learn more about this company, its finances and how it stands out from other players.
Fundamental Analysis Of Avalon Technologies – Company Overview
Avalon Technologieswas established in 1999, it is one of India’s leading fully integrated Electronic Manufacturing Services (EMS) companies, a prominent player in the Electronic Manufacturing Services (EMS) domain, and boasts 14 strategically positioned manufacturing units across the US and India that integrate. manufacturing, warehousing and logistics, distinguishing itself as a leading EMS provider with a global footprint.
With a diverse product portfolio across industries such as clean energy, transportation, industrials, communications and medical devices, Avalon serves as a one-stop destination for all EMS requirements.
Through a distinctive global delivery model, Avalon offers end-to-end solutions, encompassing PCB design and assembly, cable assembly and wire harnesses, sheet metal fabrication and machining, magnetism, injection-molded plastics, and complete box construction services for electronic systems. .
Unique among its Indian competitors, Avalon is the only EMS company with manufacturing facilities in the United States. Its customer base extends to global OEMs across the US, China, the Netherlands and Japan, reflecting Avalon’s reputation.
Segment Analysis
Clean Energy: Avalon operates in key product categories in the clean energy sector, such as solar, hydrogen, and electric vehicles (EV).
Mobility: Avalon collaborates with customers in air, rail and automotive transportation to create resilient and sustainable systems. It produces complex sheet metal fabrications, machining and injection-molded plastics for applications in the aerospace sector.
Industrial: Avalon’s integrated design and manufacturing solutions help innovate across technologies such as power electronics and transformers.
Communication: Avalon supports 5G network equipment manufacturers with concept-to-realization and turnkey builds. Its integrated vertical manufacturing for products helps its customers use 5G technologies.
Medical & Other: The Company offers PCBAs for oxygen concentrators, PCBAs for blood analyzers, and cables for flow meters, etc.
(Source: Annual Report)
Industry Overview
India continues to remain a bright spot in the global economic landscape. It is leveraging its demographic dividend, digital transformation and innovation potential to drive continued growth.
According to the economic survey, India’s GDP growth is expected to reach 6.5% in FY24 and will be one of the fastest growing economies, driven by a progressive regulatory environment, strong industrial policy, subdued private sector and sustained capital expenditure.
The Indian EMS market has been estimated at $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 FY25–26.
India’s electronics industry is gaining global recognition, particularly for its research and development centers, design and engineering services, and Electronic Systems Design and Manufacturing (ESDM) capabilities.
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Fundamental Analysis Of Avalon Technologies – Financials
Revenue & Net Profit
The company’s financial statement indicates that revenue increased by 12 percent from ₹ 841 crore to ₹ 945 crore from FY22 to FY23, respectively. On a 3-year CAGR, the company has grown at 10.15 percent.
The company’s net profits declined by 20 percent, from ₹ 67 crore in FY22 to ₹ 53 crore in FY23. On a 3-year CAGR, the company grew by 45 percent. The decrease in the net profit ratio is due to a higher profit in the previous period due to income arising regarding the exceptional item.
The EMS industry is experiencing strong favorable trends in India, which has caused the order book to increase by 43.5% to Rs. 1,231 crore as on March 31, 2023, compared to Rs. 858 crore by March 31, 2022, which gives them greater revenue visibility for the medium term.
The table below shows Avalon’s revenues and profits over the last 4 years.
Profit Margins
The funds reported an operating margin of 12% and a net profit margin of 5% in FY23, compared to 12% and 8%, respectively, in FY22. From a four-year perspective, operating margins stand at 11% and net profit margins at 4.5%.
The margins have steadily increased in the past years as a result of conscious choices, a focus on integrated solutions with a large engineering content, and a commitment to high-margin sectors such as aviation and clean energy. The fall in NPM in the current year was due to a fall in net profit.
The table below shows Avalon’s profit margins over the last 4 years.
Return Ratios
In terms of its return ratio, Avalon’s business generates a good return on capital employed and equity. Its RoCE and RoE stood on a similar scale at 17% respectively, in FY23, indicating efficient utilization of resources and good returns.
The RoCE remained stable, and the ROE decreased compared to last year due to an increase in equity due to the IPO. From a longer perspective, the ratios have improved.
The table below shows Avalon’s ROE and RoCE over the last 4 years:
Leverage Ratios
Looking at the company’s leverage ratio, we can see that the debt-to-equity ratio has decreased. This indicates that the company relies less on borrowed capital to finance its business and can retain more of its income. The debt has been reduced by a significant amount compared to 3.37 times in FY22 due to the repayment of loans from the proceeds of the IPO.
The company’s interest coverage has strengthened, with ICR standing at 3.65 times in FY23 and the 4-year average of 3. This indicates that the company can pay its interest easily.
The table below shows Avalon’s D/E and interest coverage ratio over the last 4 years:
Fundamental Analysis Of Avalon Technologies – Key Metrics
Fundamental Analysis Of Avalon Technologies – Future Plans
- India in particular is at an inflection point that is poised to expand the country’s market share in the global EMS sector from 2.2% to 7% by 2026, creating a huge opportunity.
- The company has a prospect of doubling its revenue over the next three years and achieving robust revenue in the future.
- Avalon will maintain an optimal mix of client bases across India and the US to onboard high-value businesses in the US and execute them in India at a low cost.
- The company plans to grow traditional businesses by increasing wallet through cross-selling and up-selling.
- Avalon began the expansion of two factories with a total area of approx. 1.6 Lakh Sq. ft. at MEPZ-Chennai, which will mainly be used for large box buildings
Conclusion
In the article “Fundamental Analysis Of Avalon Technologies” we explored its business, how it performed in the last four years, and what its plans are. The EMS sector has huge opportunities in today’s world, with the fastest growing markets being India and the US, giving Avalon additional advantages.
Further analysis is required before investing to understand the risk and return characteristics of the company. What do you think about this company? I hope to hear from you in the comments section below.
Written by Ashish
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