Motilal Oswal's research report on Avalon Technologies
Avalon is uniquely placed in the Indian electronics manufacturing services (EMS) sector with its well-established manufacturing presence in the US. Moreover, the company serves various emerging and fast-growing end-user industries such as clean energy, mobility and medical technology across the globe, which cumulatively accounted for ~62% of Avalon’s total revenue as of 9MFY25 (vs. ~59% as of FY24). Amid the current uncertain global environment where many countries are facing a major threat to their trading prospects due to US tariffs, India is believed to be in a favorable situation. After the Trump administration’s decision to pause tariffs on all countries, except China, which is facing an exorbitant tariff of 245% on its exports to the US, the EMS sector may see a gradual shift of some business from China to India in the mid to long term. China exported ~20% of total electrical machinery to the US as of CY24 vs. India’s 1.7%. Even if India is imposed with a proposed tariff of 26%, it will be lower than the proposed tariffs on India’s key competitors, like China (245%), Vietnam (46%) and Taiwan (32%), in the EMS sector. This will present an opportunity for Indian EMS companies, especially for Avalon due to its well-established US plant.
Outlook
We estimate Avalon to post a CAGR of 30%/57%/80% in revenue/EBITDA/adj. PAT over FY24-27, driven by strong growth and healthy order inflows. Reiterate BUY with a TP of INR970.
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