Buy Avalon Technologies; target of Rs 690: Motilal Oswal

Motilal Oswal's research report on Avalon Technologies

Avalon Technologies (AVALON) stands out in the EMS landscape as the only player with a significant manufacturing presence in the US. While this has historically been a competitive advantage for the company, recent economic headwinds in the region have posed challenges. However, the company is successfully navigating these issues with a well-defined recovery plan for its US business, alongside continued growth in its domestic operations. The US business is witnessing recovery with a shift in stance from destocking to restocking. Further, various strategic steps taken by the company during the leaner period are yielding results as the company is securing new orders and onboarding new clients. AVALON’s domestic business is expected to thrive with significant wins in the aerospace, defense, EV, and industrial sectors. The company is expanding into new areas such as solar and servers while preparing to meet increasing demands with two new facilities in Chennai. Overall, we expect that majority of the pain is behind the company. AVALON’s domestic as well as US businesses are expected to ramp up over 2HFY25 and FY26, leading to strong growth for the company.

Outlook

We estimate AVALON to clock a CAGR of 28%/54%/78% in revenue/EBITDA/Adj. PAT over FY24-FY27. We reiterate our BUY rating on the stock with a TP of INR690 (40x Jun’26E EPS).