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  • Writer's pictureJatin Agarwal

Avalon Technologies IPO

Updated: Apr 24, 2023


Company and IPO Overview:


With an emphasis on high-value precision engineered products, Avalon Technologies is one of the top fully integrated Electronic Manufacturing Services ("EMS") companies in India in terms of revenue in Fiscal 2022. It offers a full stack product and solution suite, from printed circuit board ("PCB") design and assembly to the production of complete electronic systems ("Box Build"), to a selected group of international original equipment manufacturers ("OEMs"), including OEMs in the US, China, the Netherlands, and Japan. This is done through a novel global delivery model.

It is capable of designing and assembling PCBs, cable assemblies, wire harnesses, sheet metal fabrication and machining, magnetics, injection moulding plastics, and end-to-end box building for electronic systems. They have years of experience producing and offering design assistance for crucial integrated assemblies, sub-assemblies, components, and enclosures for several industry verticals.

When we properly examine the EMS sector, we find that it is a sizable industry both globally and in India, with strong growth prospects. The EMS market in the United States was estimated to be worth roughly US$140 billion in 2021 and is anticipated to grow at a CAGR of 6.1% to reach US$188 billion by 2026. In contrast, the EMS market in India was valued at Rs 1,469 billion (US$20 billion) in Fiscal 2022 and is expected to grow at a CAGR of 32.3% to reach a value of Rs 4,502 billion (US$60 billion) in Fiscal 2026.

Avalon Technologies Limited has a distinct competitive advantage in the North American markets being the only Indian EMS business having complete production facilities there. The company operates 12 production facilities in the United States and India: two in Bengaluru, Karnataka; one in Atlanta, Georgia; one in Fremont, California; seven in Chennai, Tamil Nadu; one in Kanchipuram, Tamil Nadu.

The company is about to raise around ₹865 crores via IPO that comprises fresh issue of ₹320 crores and ₹545 crores as OFS. The price band of the IPO is ₹415 to ₹436. The retail quota is 10%, QIB is 75%, and HNI is 15%.


Financials (rounded off)

Date

Total Revenue (₹ in cr)

​​​PAT (₹ in cr)

​31/03/2020

653

12.33

31/03/2021

696

23.08

31/03/2022

852

68.16

Objectives of the Issue:

· The Company proposes to utilize the Net Proceeds of the issue towards prepayment or repayment of all or a portion of certain outstanding borrowings availed by the Company and one of the Material Subsidiaries, i.e. Avalon Technology and Services Private Limited (ATSPL);

· Injecting extra funds to help the business with its working capital needs;

· General corporate purposes.



IPO Details:

IPO Date

03/04/2023-06/04/2023

Face Value

₹2 per share

IPO Price Band

₹415-₹436 per share

IPO Lot Size

34 Shares

Listing at

NSE, BSE

Basis of Allotment

12/04/2023

Credit of Shares in Demat

17/04/2023

Listing Date

18/04/2023

Pre-Issue Shareholding

70.75%

Post-Issue Shareholding

51.24%

Retail Minimum Lot Size

34 shares (₹14,824)


Valuations and Margins:

FY20

FY21

FY22

EPS (Rs.)

2.21

4.01

11.3

Debt/Equity

5.89

5.28

3.64

ROCE (%)

26.83

21.26

27.41

EBITDA (%)

11.60

9.58

10.05

P/E Ratio

-

-

36.73-38.58


PE Analysis of the Company with its peer:

Name of the company

P/E

Dixon Technologies

70.32

Amber Enterprises

55.70

Syrma SGS Technology

65.02

Kaynes Technology

137


As can be seen, Avalon Technologies Ltd is valued between 36.73 and 38.58, therefore when compared to its listed competitors, the IPO is fairly priced.


Important things to note about the company:


Top reasons to consider the IPO:

· End-to-end integrated solutions, providing a “One Stop Shop” for electronics and electro-mechanical design and manufacturing services.

· High entry barriers to business through the company’s collective cross-industry experience, customer engagement capabilities and leading position in the high mix flexible volume product manufacturing segment.

· An extensive global delivery footprint with high quality standards, as well as cutting-edge manufacturing and assembly capabilities.

· Established connections with a distinguished clientele.

· Strong financial performance, consistent cash flows, and a clear growth trajectory in terms of revenue and PAT.

· When we compare the IPO with its contemporaries, Avalon Technologies offers a promising valuation.

· Experienced board, management and operating team.


Risk Factors to watch out in the IPO:

· The industry norms that govern the company's and its customers' market are always changing, and there is a perpetual need for product innovation. This can lead to strong competition and short product cycles.

· The business requires certain licenses, accreditations, and permits from the Government. Failure to obtain these can adversely impact operations.

· Reliable transportation and logistics are essential to the company's operations. An extended disruption could have a negative impact on corporate operations.

· Dependency on certain customers for revenue can adversely affect the company's profitability and results of operations.

· The business, its backers, directors, and affiliates are the subject of various pending legal disputes. If these proceedings have a negative conclusion, it could harm the business's brand and future cash flow.



Crisp Insights:

  • Grey Market Premium is currently ₹25.

  • Market is in an extreme volatile environment and hence, it is advisable to stay cautious.


Disclaimer: All information is provided for educational and informational purpose only. Data is fetched from publicly available sources such as the DRHP filed by the company. The website or the author takes no guarantee for the accuracy of the data however, we have tried our best to present accurate data to out readers. Please consult a financial advisor or do your own analysis before investing/trading in the stock market.

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