Buy Avalon Technologies; target of Rs 900: Prabhudas Lilladher

Prabhudas Lilladher's research report on Avalon Technologies

We are upgrading our recommendation from HOLD to BUY given the recent correction in stock price and healthy performance in Q3FY25. We have revised our FY25 EPS estimates upward by 9.6% to reflect stronger earnings in the quarter, while maintaining our earnings estimates for FY26 and FY27. Avalon Technologies (AVALON IN) has reported healthy earnings growth of 265% YoY/37.2% QoQ, led by strong pick-up in the industrials segment. EBITDA margin expanded by a healthy ~460bps YoY to 12.3%, attributed to a favorable segment mix (industrials increased to 34% of revenue) and reduction in employee expenses with increased domestic manufacturing (reached 88% of revenue). AVALON's revenue grew by 31.1% YoY, supported by ~320% YoY increase in the industrials segment (contributed ~34% to revenue), and 28.9% YoY growth in the clean energy segment (~22% to revenue).

Outlook

AVALON has increased its revenue growth guidance to 22-24% (earlier 16-20%) for FY25 and GM to 34-36% from 33-35%. We estimate FY24-27E revenue/EBITDA/PAT CAGR of 26.1%/49.8%/67.2%, with EBITDA margin expansion of ~490bps. Upgrade to BUY.

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