Avalon Technologies, a contract manufacturer of electronic equipment, is listed on bourses with no drama as expected. Analysts now believe that there is limited upside in the near term and hence partial profits can be booked.
The stock started off at Rs 431 on the BSE against the issue price of Rs 436 per share, while the listing price on the NSE was Rs 436.
“We recommend to partially book profit and hold remaining allotment for the long term as the company being end-to-end integrated solutions, providing a “One Stop Shop” for electronics and electro–mechanical design and manufacturing services. has high entry barriers to business,” said Astha Jain, Senior Research Analyst at Hem Securities.
Avalon Technologies is one of the leading fully integrated electronic manufacturing services (EMS) companies with end-to-end operations in delivering box-build solutions in India, catering to multiple industries like industrial, mobility, medical devices, solar, electric vehicles (EVs), hydrogen and digital communication and infrastructure, through 12 manufacturing facilities across India and USA. The 13th facility at Chennai is currently under construction.
Analysts believe the company has a well-diversified business leading to strong growth avenues. Along with established relationships with a marquee customer base, the company has a global delivery footprint with high-quality standards and advanced manufacturing and assembly capabilities, which brews excitement among some investors. .
“However, valuation looks a little bit on the higher side,” said Jain.
Avalon Technologies, at the upper band of Rs 436, is valued at P/E multiple of 55.5x based on 8MFY23 annualised earnings on post-issue capital, according to SBI Securities.
The Rs 865-crore maiden public issue of the electronic manufacturing services company had seen 2.21 times subscriptions during April 3-6, mainly aided by qualified institutional investors. Most brokerages had given a 'subscribe with a long term' rating for the issue given the long-term benefits from the tailwinds of Aatmanirbhar Bharat and the Production Linked Incentive Scheme (PLI scheme) across verticals.
Manish Chowdhury, head of research at Stoxbox, said considering the current market situation, the market does not look ready to ascribe such a high P/E multiple to the company. He highlighted that Avalon operates in a highly competitive and fragmented marketplace where further erosion in margins cannot be ruled out.
Another concern among investors was the higher offer for sale (OFS) portion of the IPO. OFS proceeds go directly to shareholders selling shares and the companies don’t get anything from that.
“In general, investors don’t like or prefer to be invested in a higher OFS IPO offer where there is no room for any upside in the near term,” said Prashanth Tapse, Senior VP (Research), Mehta Equities. “Hence, we advise conservative investors to avoid holding and watch out for better companies and opportunities, while risk takers can hold based on their risk appetite.”
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