The Electronic Manufacturing Services (EMS) sector has been thriving lately. At such a time, Nuvama Institutional Equities has pointed out that Avalon Technologies differs from peers on two fronts.
Firstly, about 60 percent of its revenue comes from the US, and secondly, it boasts a substantial portfolio of clients in the clean energy sector, the brokerage firm said.
Four EMS stocks had gone public over the past one year—Syrma SGS Technology, Kaynes Technology, Cyient-DLM and Avalon Technologies. These have rallied 20-45 percent in the past one month.
Read more | Kaynes Tech gains 5% on CLSA's bullish projections for EMS sector
Currently, 75 percent of Avalon Technologies' production is done in India, with the remaining 25 percent in the US. Going forward, the company plans to move some production to India from the US in order to cut costs.
Additionally, it is also working on improving efficiency in its US facilities to further boost margins. Overall, the company aims to maintain FY23 margins. Besides, it plans to use some of the IPO funds to reduce interest expenses in FY24, the brokerage firm added.
Another positive development for Avalon Technologies, according to Nuvama Institutional Equities, is that its working capital days, which increased to 151 days in Q1FY24, are now improving. The company is confident of being able to reduce it by 10-15 days.
Read more | Syrma: Soaring demand for electronics, govt boosters to fuel high growth
The company offers comprehensive box-build solutions in India, specialising in high-value, precision-engineered products. Using a unique global delivery approach, it provides a full range of product and solution services, including PCB design, assembly, and manufacturing of complete electronic systems (box-build) for various global OEMs, including those in the US, China, the Netherlands, and Japan.
Avalon Technologies serves a range of industries like power, clean energy, railways, aerospace, and medical, which typically have long life cycles. This diversification in industries helps protect against fluctuations in global markets and industry cycles. Additionally, the company has penetrated emerging sectors like clean energy, including solar, hydrogen, and electric vehicles (EVs).
In FY23, clean energy constituted 25 percent of the company's total income, while industrials accounted for 29 percent, mobility or transportation for 21 percent, communication and medical for 11 percent,, and other industries for 14 percent of the income, respectively.
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