Avalon Technologies IPO: 5 Things to Know

Earlier this month, we wrote to you about the 5 big IPOs coming out in March 2023. One of those five companies, Avalon Technologies is going live with its IPO in the next week.

The company filed its draft red herring prospectus (DRHP) in August 2022. According to the draft prospects, the IPO will comprise an issue of fresh equity shares worth Rs 4,000 million (m) and an offer for sale (OFS) for Rs 6,250 m.

The initial IPO size, however, was Rs 10,250 m. It recently completed pre-IPO placement of Rs 1,600 m comprising of a fresh issue of Rs 800 m and a secondary sale of shares for Rs 800 m. Hence the IPO size is reduced to Rs 8,650 m.

Let's take a detailed look at the offer details.

Issue period: 03 April 2023 to 06 March 2023

Issue size: 8,650 m (fresh issue worth Rs 3,200 m and OFS worth Rs 5,450 m)

Price band: Rs 415 to Rs 436 per equity share

Bid lot: 34 shares and in multiples thereof

Application limit: Minimum one lot maximum thirteen lot for retail investors

Face value: Rs 2 per equity share

Grey market premium (GMP) : Rs 24 (as of 28 March 2023)

The company has reserved not more than 75% shares of the offer for qualified institutional buyers (QIB). It has reserved not less than 15% for non-institutional buyers (HNI). Hence not less than 10% of shares are available for retail individual investors.

Tentative IPO allotment date: : 12 April 2023

Tentative listing date: 18 April 2023

#1 About the company

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

It specializes in PCBA design and assembly, wire harnesses, magnetics, electro-mechanical integration, sheet metal fabrication, machining, and injection moulded plastics.

The company has 12 manufacturing units located across the US and India. Some of its key clients include Kyosan India, Zonar Systems Inc, Collins Aerospace, and eInfochips, among others.

The company sells its services to certain global original equipment manufacturers (OEMs), including OEMs located in countries like China, the Netherlands, US, and Japan.

#2 A look at Avalon's financials

The company has delivered steady financial performance in the past three years. Its sales have grown at a CAGR of 14.2% during the same time, even after considering the pandemic impact.

Net profit has also seen a sharp growth and risen by 135.2% in the past three years.

Financial snapshot of Avalon Technologies (2020-2022)

Particulars	31-Mar-22	31-Mar-21	31-Mar-20
Revenues (Rs m)	8,516.5	6,959.0	6,531.5
Revenue Growth (%)	22.4%	6.5%
Expenditure Before Tax	7,852.1	6,670.7	6,378.5
% of Total Income	92.2	95.9	97.7
Net Profit	681.6	230.8	123.3
Net Profit Margin (%)	8.0	3.3	1.9
Net Worth	871.9	282.1	34.5
Return on Net Worth (%)	85.9	40.4	25.2
Basic Earnings per share (Rs)	11.3	4.0	2.2

Data Source: Company's Red Herring Prospectus (RHP)

#3 Peer comparison

As per the company's red herring prospectus (RHP), Dixon Technologies, Amber Enterprises India, Syrma SGS Technology, and Kaynes Technology India are its listed peers.

Company	Total Income (2022) (Rs m)	Net Profit	EPS (Basic) (Rs)	Return on Net Worth (%)
Avalon Technologies	8,516.5	681.6	11.3	85.9
Dixon Technologies	1,07,009.0	1,904.0	32.3	21.9
Amber Enterprises India	42,396.0	1,113.0	32.4	6.5
Syrma SGS Technology	10,325.0	541.0	5.3	13.0
Kaynes Technology India	7,104.0	417.0	9.7	24.3

Data Source: Company's Red Herring Prospectus (RHP)

#4 Arguments in favour of the business

The global EMS market accounts for 35% of the total electronics industry. The EMS market has grown steadily over the last few years, owing to increased sales of mobile phones, consumer electronics, and IT products. OEMs' widespread use of contractual services is fueling this growth.

The electronics manufacturing services (EMS) market in India was valued at Rs 1.5 trillion (tn) in financial year 2022 and is expected to grow at a CAGR of 32.3% to reach a value of Rs 4.5 tn by financial year 2026. This shows the growth potential that the company is looking to capture...

The Indian EMS industry is relatively young, having been established for nearly three decades. The EMS industry has grown in prominence over the last decade, particularly in the last five years.

Now, with most of the global mobile phone manufacturers and their supply chain partners investing in manufacturing, the Indian EMS industry is well-positioned to unlock its true potential in the coming years.

EMS growth prospects in India

EMS providers in India have moderate maturity levels in packaging, distribution, repair, sales and marketing functions to meet geographical standards and cater to local requirements.

Among EMS service providers in India, Avalon Technologies has a unique global delivery model, comprising design and manufacturing capabilities across both India and the United States.

It is present across multiple industry verticals with a focus on complex integrated solutions with significant engineering content, leading to profitability (in terms of gross margins/EBITDA margins).

Also, Avalon Technologies has one of the largest installed bases of advanced computer aided engineering software tools in India, to cater to growing demand in the electronic design automation vertical.

#5 Risk factors

• The company sources its raw material from suppliers, primarily on a purchase order basis, who may not perform their contractual obligations in a timely manner or at all. Any hike in raw material costs may adversely affect the business and financial performance.
• The company is heavily dependent on a few customers for majority of its revenue. For FY22, the company earned 64.5% of the revenues from its top ten customers.

In conclusion...

Avalon Technologies has in-line financials and bright industry prospects. Overall, the EMS industry is jam-packed with growth opportunities which may ultimately boost its business.

However, the overall market sentiment is quite dull following the global banking crisis.

Owing to market volatility, some of the fundamentally strong companies are also trading near their 52-week lows. During such uncertain times will investors place their bet on a company with a strong competitor like Dixon Technologies?

Times are rough but the company is all geared up to go public.

Stay tuned to get further updates on this IPO and all upcoming IPOs in the market.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...