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Friday, 31 March 2023
CM RATING 51 /100

Avalon Technologies

Niche EMS player

Growth to be driven by end-to-end solutions in EMS, increase in wallet share and new clients leveraging hybrid delivery model with access to high value market and low-cost production

Avalon Technologies, promoted by Kunhamed Bicha and Bhaskar Srinivasan, is one of the leading fully integrated electronic manufacturing services companies, with end-to-end operations in delivering box build solutions in India, with a focus on high value precision engineered products.

Through its unique delivery model comprising design and manufacturing capabilities across both India and the United States, it provides a full stack product and solution suite, right from printed circuit board design and assembly to end-to-end box build of electronic systems, to certain global original equipment manufacturers. Other capabilities of the company include cable assembly and wire harnesses, sheet metal fabrication, machining, magnetics and injection molded plastics.

Revenue mix by product and service offerings for 8mFY2023 is well spread, with 2.33% of revenue come from design, 33.18% from PCB, 48.21% from box build, 9.84% from cables, 3.83% from metal, 1.83% from magnetics and 0.77% from plastics.

Key customers of the company include Kyosan India Private Limited, Zonar Systems Inc., Collins Aerospace, e-Infochips Private Limited, The US Malabar Company, and Systech Corporation, with whom the company has had relationships for more than seven years.

The company is one of the leaders in the high mix, flexible volume product manufacturing segment and is present across multiple industry verticals, with a focus on complex integrated solutions with significant engineering content, leading to profitability.

The company service a variety of industries including long life cycle industries such as power, clean energy, railways, aerospace and medical industries as well as high volume industries such as consumer electronics and appliances, mobiles and lighting. Its business has expanded into products such as electric mobility, energy systems, satellite communications, and telematics, among others, that are used in industries such as clean energy and emerging communication technology, which are upcoming high growth sectors. These businesses, which have demanding technical requirements, enable the company to provide advanced full spectrum engineering solutions, which enable it to cater to industries such as aerospace and defense, which are high precision industries.

It has 12 manufacturing units located across the United States (one unit each at Atlanta in Georgia and Fremont California) and India (7 units in Chennai, Tamilnadu; 1 unit in Kanchipuram, Tamilnadu; 2 units in Bengaluru, Karnataka). In addition, it has a new facility in Chennai, Tamil Nadu, which is currently under construction and renovation. This enables it to offer clients local manufacturing services across these locations depending on their needs, and leverage favorable policy initiatives such as the ‘Make in India’ program of the Government of India, leading to high customer retention and cost-efficient manufacturing.

Its electronic manufacturing facilities comprise an aggregate of 66 production lines, consisting of 11 Surface Mount Technology (SMT) lines, 12 Through Hole Technology (THT) lines and 43 assembly lines. Total installed SMT capacity in FY2022 stood at 366 million component placements per year and 322 million component placements per eight months in the eight-month period ended November 30, 2022. It has separate lines for sheet metal fabrication, machining, cable assembly and wire harnesses, magnetics and plastics to mention a few. Each of its facilities is accredited with global quality standards and certifications.

The company strives to provide fully integrated end-to-end product and solution suite to its customers ranging from sourcing raw materials from various countries, manufacturing, quality testing and packaging to logistics. The backward integration of its manufacturing facilities enables the company to be cost efficient, reduce dependency on third party suppliers (providing components) and control quality of components used in the manufacture of products. Among others, it has in-house manufacturing of components and sub-assemblies, which supports all its product verticals. The company relies on its backward integration for timely and quality manufacturing of products to fulfill its customers’ demands.

Forsheet metal fabrication, the company has a medium to complex sheet metal fabrication job shop and provides such services on all types of metals including mild steel, stainless steel, copper, aluminum and super alloys. Further, it has its own powder coating facility and an ecosystem of special process (such as surface treatments, heat treatment and X-ray inspection to mention a few) suppliers which enables it to manufacture both aero and non-aero products. Moreover, the company is certified for tungsten inert gas and resistance welding by the Center for Military Airworthiness and Certifications (CEMILAC), a regulatory body under the Defence Research and Development Organisation (DRDO) and by the National Aerospace and Defence Contractors Accreditation Program (NADCAP), a worldwide co-operative program within the aerospace and defense industry.

The Issue and object

The issue comprises offer for sale of equity shares aggregating Rs 545 crore and fresh issue of equity shares aggregating to Rs 320 crore. The offer for sale comprises sale of equity shares aggregating to a value of Rs 131 crore by Kunhamed Bicha; Rs 172 crore by Bhaskar Srinivasan, Rs 16 crore by T P Imbichammad and Rs 10 crore by Mariam Bicha, the promoter and promoter group selling shareholders; and Rs 75.5 crore by Anand Kumar; Rs 65 crore by Sareday Seshu Kumar; and Rs 75.5 crore by L V Ediyanam, the other selling shareholders. On post issue expanded equity at the upper price band, the holding of other selling shareholders will be 12.19%.

Of the net proceeds from fresh issue, the company proposes to utilize Rs 145 crore toward prepayment and repayment of certain outstanding borrowings and Rs 90 crore towards funding the working capital requirements of the company. The balance is for general corporate purposes.

Total outstanding borrowings as end of January 31, 2023, stood at Rs 324.117 crore.


Provides end-to-end integrated solutions and is one of the few EMS companies in India, that offer one-stop services from PCB design and analysis to new product development (NPD) and subsequent volume production.

Long standing relationship with customers. As of November 30, 2022, it had an average relationship of 8 years, with customers who accounted for 80% of its revenue in 8mFY2023.

Large and increasing customer base across diverse industries including the sunrise industries such as clean energy and emerging communication technologies. Customer base as end of November 30, 2022, stood at 89 up from 72 and 81 as end of November 2021 and March 2022. It caters to 14, 11, 39 and 13 customers in clean energy, communication technology, industrial and mobility, respectively, as of November 2022. Of the 8mFY2023 revenue, about 23.3% come from clean energy, 22.4% from mobility, 28.1% from industrial, 9% from communication, 8.7% from medical and 8.5% from others.

Opportunity to increase cross-selling of its products and services to increase wallet share with its existing customers and expand into new or adjacent product verticals with its existing customers.

The order book as end of November 2022 stood strong at Rs 1190.246 crore up from Rs 857.869 crore as end of Mar 2022 and Rs 918.232 as end of November 2021.

Global delivery footprint with high quality standards and advanced manufacturing and assembly capabilities.Only Indian EMS company with full-fledged manufacturing facilities in the United States, which gives it a unique competitive advantage in the North American markets. Further it will also gain from reshoring of manufacturing back to USA due to US-China trade tension and change in supply chain strategy of EMS companies in North America post covid pandemic.

Hybrid model of delivery leveraging access to high value market and low-cost production. It offers to cater directly to US clients from Indian facilities or automated portion from US facilities and the labor-intensive portion from Indian plants.

It also benefits from leveraging manufacturing cost arbitrage, through its manufacturing facilities located in India, for the global market. About 48% of its revenue in FY2022 came from US facilities and balance 52% from Indian manufacturing plants.

The EMS sector is a sizeable industry globally and in India and is expected to grow at a significant pace.


The markets for its products are characterized by factors such as rapid technological change, the development of new end products and their rapid obsolescence, evolving industry standards and significant price erosion over the life of a product.

Availability of key components such as semiconductors, integrated circuits, MOSFET devices and transistors in time as well as at reasonable cost. Any shortage may result in higher RM cost as well as increased inventory to sustain manufacturing operations without any disruption.

Loss of relationship with any of its top customers (top 2 and10 accounted 18% and 54% of 8mFY2023 revenue) or a reduction in their demand may have a material adverse effect on performance of the company.

Foreign exchange fluctuations may adversely affect earnings and profitability. Revenue from outside India in FY2022 and 8mFY2023 was 62.19% and 57.86%, respectively.

Change in import and export regulations of both India and key export and import markets.

Capacity utilization of certain product facilities such as plastic and injection molded plastics, metal fabrication and cables &wire harness assembly are at 22%, 46% and 60%, respectively, for 8mFY2023 and 53%, 60% and 59%, respectively, for FY2022.

Contingent liabilities as of November 30, 2022, stood at Rs 3.72 crore.


Consolidated sales for FY2022 were higher by 22% to Rs 840.72 crore. With the operating profit margin expand by 200 bps to 11.6%, the operating profit leaped 47% to Rs 97.55 crore. The PBT before EO was up 130% to Rs 66.44 crore gained by higher other income as well as lower interest and depreciation cost as % of sales. The EO income was Rs 19.99 crore (against nil) and thus the PBT after EO jumped up 200% to Rs 86.43 crore. EO income for FY22 is in relation to the paycheck protection loans under the new federal program designed to support small businesses during the covid-19 pandemic which the USA subsidiary of the company had applied for and received in April 2020 and February 2021. Eventually, net profit after MI was up 194% to Rs 63.16 crore.

For the eight-month period ended November 2022, consolidated sales was up 8% to Rs 584.79 crore and the OP was up 17% to Rs 68.06 crore with OPM expand by 80 bps to 11.6%. The PBT before EO was up 41% to Rs 47.39 crore. But with EO being nil for the period against an income of Rs 19.89 crore, the PBT after EO on escalated base was down 12% to Rs 47.39 crore. Eventually the net profit after MI was down 10% to Rs 34.19 crore. For TTM period ended Nov 2022, the consolidated net profit was Rs 59.42 crore on sales of Rs 884.10 crore.

The consolidated EPS (on expanded post issue equity based on the upper price) for TTM period ended Nov 2022 is Rs 9.1 and the PE works out to 48 times.

In comparison the EMS players of similar size in revenue such as Syrma SGS Technology, Kaynes Technology and Elin Electronics are quoting at a PE of 49.2 times 75.9 times and 15.4 times of their consolidated EPS for the TTM period ended December 2022. Similarly, larger players such as Dixon Technologies and Amber Enterprises quotes at a PE of 70 times and 55.6 times of their consolidated EPS for the TTM period ended December 2022.

Avalon Technologies: Issue Highlights

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51 /100

Avalon Technologies : Re-stated Consolidated Financial Results

2003 (12)

2103 (12)

2203 (12)

2211 (8)






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** on post issue equity (on Upper price band) of Rs 13.06 crore. Face Value: Rs 2

EPS is calculated after excluding EO and relevant tax

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Source: Capitaline Corporate database