Firm Overview:
Avalon Applied sciences Restricted (“Avalon Applied sciences”) was integrated on November 3, 1999. Avalon Applied sciences is without doubt one of the main totally built-in Digital Manufacturing Providers (“EMS”) corporations with end-to-end capabilities in delivering field construct options in India, with a concentrate on excessive worth precision engineered merchandise. They supply a full stack product and resolution suite, proper from printed circuit board (“PCB”) design and meeting to the manufacture of full digital programs (“Field Construct”), to sure international unique tools producers (“OEMs”), together with OEMs situated in america, China, Netherlands, and Japan.
Objects of the Provide:
- Prepayment or reimbursement of all or a portion of sure excellent borrowings availed by the corporate and one in all its Materials Subsidiaries, i.e., Avalon Know-how and Providers Non-public Restricted.
- Funding the working capital necessities.
- To hold out the Provide for Sale of Fairness Shares by the Promoting Shareholders.
- Obtain the advantages of itemizing the Fairness Shares on the Inventory Exchanges.
Funding Rationale:
- Distinctive Place: Avalon Applied sciences has a singular international supply mannequin, comprising design and manufacturing capabilities throughout each India and america. Avalon Applied sciences is the one Indian EMS firm with full-fledged manufacturing amenities in america, which provides them a singular aggressive benefit within the North American markets. The corporate has 12 manufacturing items situated throughout america and India: one unit in Atlanta, Georgia, one unit in Fremont, California, seven items in Chennai, one unit in Kanchipuram and two items in Bengaluru. The electronics manufacturing companies (EMS) market in India was valued at Rs.1.5 trillion (trn) in FY2022 and is predicted to develop at a CAGR of 32.3% to succeed in a worth of Rs.4.5 trn by FY2026. It will create an opportunity to drive the income progress of the corporate.
- Excessive Entry Obstacles: Avalon Applied sciences has constructed long run relationships with its shoppers and as of November 30, 2022, they’d a median relationship of 8 years, with shoppers who accounted for 80% of their income. Their expertise in providing EMS companies throughout product and business verticals for purchasers globally for a number of years serves as an entry barrier within the business for any new entrants. Given the depth and nature of the engagement with longstanding prospects, their prospects wouldn’t discover it simple to switchover to different EMS suppliers as the price, effort and time for such transitions is excessive. Most of their buyer engagements are with the lengthy lifecycle industries reminiscent of energy, railways, aerospace, medical, and many others.
- Monetary Monitor Document: The consolidated income from operations have elevated at a CAGR of 14% between FY20-FY22 from Rs.642 crs in FY20 to Rs.841 crs in FY22. The PAT margin posted a robust progress of simply 1.9% in FY20 to eight% in FY22. The corporate has a diversified income base with 20% of the general income caters to scrub vitality, 27% to mobility, 30% to Industrial, 7% to communication and eight% every to Medical and others. Their order e book (open order) has stood at Rs.1190 crs (1.4x of FY22 Income) as of November 30, 2022. Most of their open orders shall be fulfilled inside one yr to 18 months.
Key Dangers:
- OFS – The IPO is a mixture of supply on the market (OFS) and Recent concern with OFS being 63% of the general concern dimension. Within the supply on the market (OFS), present promoters and shareholders will offload shares value of Rs.545 crs. Promoter & Promoter group promoting shareholders will offload shares value Rs.329 crs and different promoting shareholders will offload shares value Rs.216 crs. The corporate is not going to obtain the proceeds value Rs.545 crs from the OFS half.
- Consumer focus Threat – Greater than 50% of the income comes from High 5 shoppers of the corporate. A lack of relationship with any of those prospects can have a huge effect on the profitability of the enterprise.
Outlook:
Avalon is without doubt one of the main built-in digital manufacturing companies corporations in India with properly diversified enterprise resulting in robust progress. Its revenues and margins improved considerably in the previous few years. The corporate’s listed friends in response to the RHP are Dixon Applied sciences, Amber Enterprises, Kaynes Know-how India, Syrma SGS Know-how and Elin Electronics. Evaluating to its friends, Avalon is a pure B2B participant with essentially the most diversified finish consumer Industries and solely Kaynes and Avalon have a ten%+ EBITDA Margin when in comparison with others. At greater value band, the itemizing market cap shall be round ~Rs.2847 crs and Avalon Tech is demanding a P/E a number of of 42x based mostly on FY22 EPS. Whereas evaluating with the Trade P/E of 76x, the corporate appears to be positioned between undervalued to Pretty valued class. Primarily based on the above views, we offer a ‘Subscribe’ score for this IPO.
If you’re new to FundsIndia, open your FREE funding account with us and luxuriate in lifelong research-backed funding steering.
Different articles you might like
Submit Views:
1,431