Avalon Technologies - EMS Play with US heavy and Proxy to Clean Energy

Avalon Technologies Concall notes - August 2023

:black_small_square: Leading EMS, started 1997, 12 manufacturing units in India and US and two units in Chennai

:black_small_square: Offers services to Clean Energy, Industrials, Railways, Aerospace, EVs, Medical and Security Infrastructure

:black_small_square: Management acknowledges that Q1 results are comparatively subdued. However, in line with past trends, second half should do better than first half

:black_small_square: Growth in Indian Market is good but US market is going thru near term challenges.

:black_small_square: In Q1, 45% business is from India and 55% is from US. India segment grew 50% increase YoY in revenues. Over all, for India, growth could be 35% in FY24.

:black_small_square: Haven’t lost a single customer in US during this slowdown

:black_small_square: 73% manufacturing done in India. Goal is to get to 80-20

:black_small_square: US customers are rebalancing inventories. There is no clear visibility into how long this might take.

:black_small_square: US market - Top line has come down, fixed cost remains same plus employee cost went up in US and hence, took a big hit on the margins and that hurt overall margins

:black_small_square: Management hasn’t seen slowdown in US like this before

:black_small_square: Had given a guidance of 25%-30% growth rate for FY24 earlier but now, we believe it will be 15-25% range

:black_small_square: To improve the profitability, management is doing two things: 1) Optimizing production allocations - Strategic relocation of some of the production activities from US plant to India plants and 2) Rationalizing costs in US operations

:black_small_square: Added 3 Clean Energy customers (2 in US and 1 in India) with one of them being in EV space. Revenues from these customers may show up in H2FY24 to FY25 and some of our previous wins will translate into revenues in next 2-3 quarters.

:black_small_square: Entered a new segment in Aerospace. Received first order in Plastic parts used in interiors of commercial aircrafts. Also entering into heat shields

:black_small_square: Adding seasoned senior management professionals across operations and business development

:black_small_square: Repaid about 200cr outstanding debt (from IPO and internal accruals). US subsidiary has about 100cr debt left as of Q1FY24. India entity is almost debt free now.

:black_small_square: Working Capital cycle may fluctuate but planning to decrease it by 10-15 days by end of FY24 compared to FY23 (it was 117 end of FY23)

:black_small_square: Expecting to grow more in Railways Braking and Interlocking. No specific timelines or visibility is there as it depends on when Govt will release. But the customers are saying “Get Ready”.

:black_small_square: In the Communication and Networking devices(where PLIs are coming into picture), Avalon is working with two large entities/govt bodies but very early conversations.

:black_small_square: On the win in Aerospace (Heat shields, Plastics components) for commercial aircraft - Working on it for couple of years. Big win and it’s a start. Ramp up make take 8-12 months. It might be $3-5 million per part per year of kind of opportunity. Avalon has done smoke detectors before and doing plastic components for the first time

Avalon Technologies: My interpretation of Q1FY24 concall

  1. US Market slow down is real and no clear signs of how long the slow demand may last. Expect a weak Q2 as well

  2. Avalon is adding more seasoned mgmt in business development space. While this is a good things for future years, it also means, employee cost will go up. Mgmt had already mentioned that, US employee played spoil sport in Q1 margins. So, I don’t expect any better for Q2 also.

  3. They had given a guidance of 25-30% just couple of months and now revised it to 15-25% (the tone sounded more on lower side). To me, it looks like the scenario is changing quite fast. So, I would operate with the assumption that FY24 might be more like 15% growth and more of it coming from India.

  4. But the fact that they haven’t lost any customer and actually won a few including one in EV and new orders in Aerospace builds confidence on the future. Plus, they are one of the large players when it comes to Railways.

Disc: I am personally holding it and will look forward to nibbling slowly as the stock price consolidates.


Hi @kbsekhar
Nice write-up on the Concall with all the aspects covered.
Avalon technologies is an end to end PCB Box build company in the B2B segment.
The products of the company is applied into Clean Energy,Mobility,Transportation among others.

Just another thing to add is the Indian revenue contribution to sales would be at par in the coming years.
Company does not forsee itself foraying into the consumer durables as of now.


Promoter holding has decreased almost 20% last quarter. Any clarification on that?

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Pre ipo
And post ipo
Ipo’d last month

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