Domestic brokerage Motilal Oswal reiterated its ‘buy’ rating on electronics manufacturing services (EMS) firm Avalon Technologies, believing that the EMS player is well poised to benefit from the ongoing tariff concerns.
The brokerage reaffirmed its share price target of Rs 970 per share, which indicates an upside of 17 percent from current levels.
At 10.40 am, Avalon Technologies shares were quoting Rs 828, higher by 0.12 percent on the NSE.
India is believed to be in a favourable situation with respect to the ongoing global scenario, one of the sectors that can benefit from this opportunity is the EMS sector. “Avalon Technologies is uniquely placed in the Indian electronics manufacturing services sector with its well-established manufacturing presence in the US,” said the brokerage.
Motilal Oswal posited that Avalon will be in a better position in the EMS space during the tariff spat, supported by its strategic manufacturing footprint, long-standing relationships with U.S. and global clients, and rising order inflows from the domestic market.
Avalon’s revenue and profitability are likely to see healthy improvement going forward. The company holds stake in various emerging and fast-growing end-user industries such as clean energy, mobility and medical technology globally, that cumulatively accrued to ~62 percent of Avalon’s total revenue as of 9MFY25.
The EMS sector may see a gradual shift of some business from China to India in the mid to long term. China exported ~20 percent of total electrical machinery to the US as of CY24 vs. India’s 1.7 percent. As India is placed better than China and Vietnam, it offers better legroom for EMS companies, especially for Avalon due to its well-established US plant.
Further, Avalon benefits from rising domestic demand, steady to improving demand from the U.S., a well-balanced client mix across domestic and export markets, and a more favorable manufacturing footprint relative to its peers.
While the company's manufacturing footprint has strategically shifted towards India, it retains the flexibility to move automated operations back to its U.S. facilities to mitigate tariff-related risks. In addition to this the company does not face any risks of margin pressures due to tariffs, owing to its cost-plus structure on products.
India’s electrical machinery sector leads the country’s exports to the US, making up approximately 15.6 percent of total exports as of CY24. This highlighting the US’s reliance on imported EMS, we believe that orders from key clients are unlikely to be significantly affected by tariffs.
Avalon posted a robust 28 percent YoY growth in its order book during 9MFY25, bringing the total order book, along with long-term contracts, to Rs 2,700 crores for the period. This growth was supported by strong goodwill and a diversified client base. Notably, the order book mirrors the revenue split between India and the US, indicating sustained and balanced demand from the U.S. market.
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