Avalon Technologies Ltd

[kdjolly]

I started compiling these notes few weeks ago, when US tariffs were in force and only Q2 FY26 results were available. So I am posting them with timelines.

02/02/2026

1. Summary

Avalon Technologies is one of India’s leading fully integrated Electronic Manufacturing Services (EMS) companies. Unlike mass-volume consumer electronics manufacturers (like those making mobile phones), Avalon specializes in high-mix, flexible-volume manufacturing for critical industries such as Aerospace, Railways, Clean Energy, and Industrials.

The company distinguishes itself through a “Dual-Shore” manufacturing model, operating high-tech facilities in the United States (Atlanta) and cost-efficient volume manufacturing in India (Chennai, Bengaluru). This unique structure allows Avalon to offer clients the best of both worlds: US-based prototyping and complex integration close to the end-market, and India-based low-cost volume production.

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2. Company History & Evolution

Founded in 1999 by Kunhamed Bicha and Bhaskar Srinivasan, Avalon started as a pure-play Printed Circuit Board (PCB) assembler in Chennai. Over 25 years, it has evolved into a vertically integrated solutions provider.

• 1999: Incorporated as Avalon Technologies Pvt Ltd in Chennai.

• 2003: Earned first ISO 9001 certification.

• 2005-2008: Opened dedicated facilities for cables and PCB assembly.

• 2009: Strategic Acquisition: Acquired design capabilities to move up the value chain (ODM services).

• 2010-2011: Entered high-barrier sectors like Aerospace and Railways.

• 2016: Enhanced “Box Build” capabilities (assembling the full final product, not just components).

• 2023: Listed on NSE/BSE via IPO.

• 2024-25: Strategic entry into Semiconductor Equipment components and Clean Energy (Solar/Hydrogen).

• 2025: Commissioned a new export-focused facility in Chennai (MEPZ-SEZ).

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3. Promoter Background & Remuneration

The company is led by technocrats with deep domain expertise in the US and Indian markets.

Key Personnel

• Kunhamed Bicha (Chairman & Managing Director):

  • Background: Founder with over 2 decades of experience in the EMS sector. He drives the company’s strategic vision, particularly the cross-border India-US synergy.

  • Remuneration (FY25): Approximately ₹23.73 Million.

• Bhaskar Srinivasan (Non-Executive Director):

  • Background: Co-founder, instrumental in setting up the operational framework and US client relationships.

  • Remuneration (FY25): Approximately ₹7.58 Million.

• Suresh Veerappan (CFO): Leads financial strategy, capital allocation, and investor relations.

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4. Products & Capabilities

Avalon is a “One-Stop Shop” for EMS. It does not just assemble parts; it manufactures the sub-components in-house, leading to higher margins and customer stickiness.

Core Capabilities

1. PCB Design & Assembly (PCBA): Complex multi-layer boards for critical applications (e.g., signaling systems, medical devices).

2. Cable & Wire Harness: Custom cable assemblies for power, RF, and data transmission.

3. Magnetics: Transformers, inductors, and coils manufactured in-house.

4. Sheet Metal & Machining: Precision metal fabrication for enclosures and chassis (critical for “Box Build”).

5. Injection Molded Plastics: High-precision plastic parts for casings and components.

6. Box Build (System Integration): assembling the final finished product. Box Build revenue contributed 53% of total revenue in Q2 FY26, indicating a shift towards higher value-add work.

Key Industries Served

• Industrials: Power automation, heavy machinery control systems.

• Mobility:

  • Railways: Braking systems, signaling, and the new Kavach anti-collision system.

  • Aerospace: Cabin subsystems, engine parts (AS9100D certified).

• Clean Energy: Solar inverters, hydrogen fuel cell components, and EV charging infrastructure.

• Communications: 5G infrastructure equipment and satellite systems.

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5. Manufacturing Facilities

Avalon operates 15 manufacturing units globally, with a total manufacturing area of 575,000+ sq. ft..

• India (Chennai & Bengaluru): Focus on high-volume, labor-intensive manufacturing. The Chennai units are located in the MEPZ-SEZ (Special Economic Zone), providing tax benefits for exports. A new export-oriented unit was recently commissioned in Chennai.

• USA (Atlanta, Georgia): Focus on high-complexity, low-volume NPI (New Product Introduction) and prototyping. This facility allows US clients to iterate designs quickly before shifting mass production to India (“hub and spoke” model).

Strategic Advantage: The US facility acts as a “foot in the door” for clients who are wary of offshoring immediately. Once the prototype is perfected in Atlanta, Avalon migrates the bulk manufacturing to Chennai for cost savings.

6. Financial Analysis & Quality of Earnings

Latest Q2 FY26 Results vs. Previous Periods

Avalon demonstrated strong momentum in Q2 FY26, driven by a rebound in US demand and ramp-up of new Indian programs.

Analysis of Earnings Quality:

• Revenue Growth: The 39% YoY growth is organic and volume-driven, validating the recovery in the US market and strong domestic order inflows.

• Other Income Impact: In Q2 FY26, “Other Income” was ₹115.79 Million, which is substantial relative to the Profit Before Tax of ₹331.63 Million. Investors should note that a portion of the bottom line is supported by non-operating income (likely interest on cash reserves/IPO proceeds), meaning core operating profitability is slightly lower than headline PAT suggests.

• Margin Pressure: Gross margins compressed by ~250 bps YoY (36.8% to 34.3%) due to a shift in product mix (more Indian customers, typically lower margin than US) and ramping up of new facilities which are not yet at full efficiency.

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7. Working Capital & Cash Flows

For an EMS company, working capital management is the critical risk factor.

• Net Working Capital (NWC) Days: Improved significantly to 129 days (H1 FY26) from peaks of >160 days in FY24. This shows better management of inventory and receivables.

• Inventory Management: Inventory days stand at 86 days. While improved, this is still relatively high compared to pure-play assembly peers (like Dixon), but typical for “High-Mix, Low-Volume” players who must stock varied components for diverse clients.

• Cash Flow Concern:

  • Operating Cash Flow (OCF): For H1 FY26, OCF was negative ₹10 Cr.

  • Reason: The company is front-loading inventory to execute its large ₹1,863 Cr order book. While this indicates growth, it burns cash in the short term.

  • Free Cash Flow (FCF): Currently negative due to working capital build-up and ongoing Capex.

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8. Capex, Timelines & Future Prospects

Capex Strategy

Avalon follows a “Capex Light” model. The asset turnover ratio is healthy at 8.7x.

• Recent Capex: Investment in the new Chennai facility (Phase II brownfield expansion) to serve export demand.

• Future Capex: Focused on upgrading machinery for high-precision sectors (Aerospace/Semicon) rather than just building massive sheds.

• 

  Future Opportunities

  1. Semiconductor Equipment: Avalon has partnered with a global major to manufacture subsystems for semiconductor plants. This is a high-margin, “sticky” business with long qualification cycles.

  2. Clean Energy: Producing components for hydrogen and solar sectors.

  3. Kavach System: The Indian Railways’ indigenous anti-collision system offers a massive domestic opportunity. Avalon is in the prototyping/approval stage for this.

  4. Guidance: Management raised FY26 revenue growth guidance to 28-30% (up from 23-25%), signaling strong confidence in H2 execution.

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  9. Acquisitions & Synergies

  The user asked about acquisitions. Avalon generally prefers organic growth but makes strategic tech investments.

  • Zepco Technologies (Recent Strategic Investment): Avalon acquired a ~4.05% stake in Zepco.

    • Synergy: Zepco specializes in electric motors, drives, and controllers. This allows Avalon to integrate these critical components into its offerings for the EV and Drone sectors, moving beyond just circuit boards to full powertrain sub-assemblies.

  • Past Acquisition (2009): Acquired a design firm to add “New Product Introduction” (NPI) capabilities, which today is the cornerstone of their high-margin US business.

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  10. Competition Analysis

  vs. China

  • The “China+1” Tail wind: Global OEMs are actively moving manufacturing out of China to de-risk supply chains. Avalon is a prime beneficiary because it offers a US-India hybrid option. Clients can keep IP-sensitive prototyping in the US (Atlanta) while moving volume production to India, completely bypassing China.

  vs. Indian Peers

  Avalon operates in a different niche than most Indian EMS players.

  

  Avalon does not compete directly with Dixon (volume play). Its closest peers are Kaynes Technology and Cyient DLM, which also focus on high-value, low-volume industrial/aerospace electronics.

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  11. Red Flags, RPTs, & Contingent Liabilities

  • Contingent Liabilities: The company has reported contingent liabilities of approximately ₹2.76 Cr (related to tax disputes/claims not acknowledged as debt). This is low relative to their balance sheet size and not a major alarm.

  • Related Party Transactions (RPT): RPTs are generally at arm’s length. The rental of premises from promoters or related entities is common in mid-cap family-owned businesses but should be monitored. The AR states RPTs are in the ordinary course of business.

  • Customer Concentration Risk:

    • US Reliance: ~61% of revenue comes from the US. While this drives high margins, it exposes Avalon to US economic slowdowns or protectionist policies (tariffs). However, management states they recover 99% of tariffs from clients.

    • Top Clients: A significant portion of the order book is concentrated among a few top global OEMs. Loss of a key account (like Collins Aerospace or their major Rail client) would be material.

  • Cash Burn: The negative Operating Cash Flow in H1 is a “Yellow Flag”. While explicable by growth, continuous cash burn to fund inventory for new orders can strain the balance sheet if receivables are delayed.

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  12. Risk Factors

  1. Working Capital Intensity: The business requires upfront investment in inventory. If clients delay payments (Receivables > 90 days), liquidity tightens.

  2. Currency Fluctuation: With >60% revenue in USD and costs in INR/USD, volatility impacts margins. (Mitigated by natural hedging via US operations).

  3. Execution Risk: Ramping up the new Chennai facility and semiconductor lines requires precise execution. Delays leads to margin drag (overhead absorption issues).

  4. Geopolitical Risks: Changes in US import tariffs could theoretically hurt the “India to US” export model, though the “China+1” trend currently outweighs this.

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  “One Big Beautiful Bill” (OBBB)

  The “One Big Beautiful Bill” (OBBB), signed into law by President Trump on July 4, 2025, represents a significant policy shift that directly impacts Avalon Technologies, particularly its Clean Energy and EV segments.

  Based on the recent legislative details and Avalon’s Q2 FY26 performance (reported in November 2025), here is how the OBBB affects the company:

  1. Accelerated “Rush-to-Finish” for Solar & Wind

  The OBBB imposes a strict “placed-in-service” deadline for wind and solar projects. To claim the remaining tax credits, projects must be completed by December 31, 2027, or have commenced construction by July 4, 2026.

  • Impact on Avalon: Avalon manufactures solar inverters and power conversion systems. In the short term (H2 FY26 and FY27), this creates a demand pull-forward. US developers are likely to accelerate orders to meet the 2027 deadline. This is reflected in Avalon’s revised upward revenue guidance (28–30%) for FY26.

  • The “Cliff” Risk: Post-2027, the demand for utility-scale solar components in the US may drop significantly as federal subsidies for these specific technologies phase out.

  2. Elimination of EV and Charging Credits

  The OBBB terminates the New Clean Vehicle Credit (30D) and Commercial Clean Vehicle Credit (45W) by September 30, 2025, and the charging station credit (30C) by June 30, 2026.

  • Impact on Avalon: Avalon’s exposure to the EV charging infrastructure market is at risk. With the expiration of the 30C credit, the rollout of US charging networks is expected to slow down. Management may need to pivot this segment toward the Indian domestic market or other geographies to offset the US slowdown.

    

    3. Tightened FEOC (Foreign Entity of Concern) Rules

    The OBBB introduces aggressive restrictions on “Prohibited Foreign Entities,” specifically targeting Chinese ownership and material sourcing in the clean energy supply chain.

    • Strategic Advantage for Avalon: This is perhaps the biggest positive for Avalon. Because the bill makes it nearly impossible for projects using Chinese-linked components to qualify for tax benefits, US OEMs are under immense pressure to decouple from China.

    • Avalon’s “Dual-Shore” model (Atlanta for NPI and India for volume) becomes the preferred “China+1” alternative. During the Q2 earnings call, management noted that the “India-US” synergy is a major factor in their order book growth (₹1,863 Cr).

    4. Expansion of Hydrogen Timelines

    Unlike solar and wind, the OBBB was slightly more lenient with Clean Hydrogen, allowing the Production Tax Credit (PTC) to continue for projects starting construction through 2027.

    • Impact on Avalon: Avalon has recently entered the hydrogen fuel cell component space. The 2027 window provides a longer runway for Avalon to scale its hydrogen-related sub-assemblies compared to its solar business.

    5. Corporate Tax Benefits (Bonus Depreciation)

    The OBBB made 100% Bonus Depreciation permanent for business property acquired after January 19, 2025.

    • Impact on Avalon: As a capital-intensive manufacturer, Avalon benefits from the ability to immediately write off its US-based Capex (like equipment for its Atlanta facility). This improves the company’s post-tax cash flows, partially offsetting the negative operating cash flow seen in H1 FY26 due to inventory build-up.

    Summary

    

    Investor Perspective: While the OBBB creates a challenging environment for US renewables, Avalon is uniquely positioned to capture the market share moving away from China. The company’s pivot toward high-mix sectors like Semiconductor Equipment and Railways (Kavach) acts as a hedge against the volatility in the US clean energy legislative landscape.

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    Avalon Technologies is a high-quality, niche EMS player that is distinct from the mass-market assemblers. It is an “Industrial Proxy” rather than a “Consumption Proxy.”

    • Positives: Strong order book, high entry barriers (Aerospace/Rail certs), integrated manufacturing, and unique US footprint.

    • Negatives: High working capital needs and current negative cash flow from operations.

    • Outlook: With the raised guidance and entry into the semiconductor/clean energy space, the company is positioned for robust growth, provided it manages its cash conversion cycle effectively.

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  • 11/02/2026

    Addendum: Q3 FY26 Performance & Strategic Updates

    1. Latest Financial Performance (Q3 & 9M FY26)

    Avalon reported its strongest quarterly performance to date in Q3 FY26, marking its sixth consecutive quarter of sequential growth.

    

  • • Guidance Update: Due to improved visibility and project ramp-ups, management significantly revised its FY26 revenue growth guidance upward to ~40%, compared to the earlier revised guidance of 28%–30%.

    • Order Book: The order book reached ₹2,016 Cr as of December 31, 2025, with an average execution period of 14 months. Additionally, long-term contracts (15–36 months) stand at ₹1,183 Cr.

    2. Vertical Growth & Segment Highlights (9M FY26)

    Growth was well-diversified across high-margin industrial and mobility sectors:

    • Industrials (35% of Revenue): Grew 67% YoY.

    • Rail (16% of Revenue): Grew 70% YoY, driven by braking and signalling systems.

    • Aerospace (8% of Revenue): Grew 64% YoY.

    • Clean Energy (19% of Revenue): Grew 35% YoY, with strong traction in battery energy storage systems (BESS).

    • Box Build Contribution: Improved to 53% of revenue, reflecting the successful shift toward fully integrated system assembly.

    3. Working Capital & Cash Flow Management

    The company showed significant structural improvement in operational efficiency:

    • Net Working Capital (NWC) Days: Improved to 118 days in December 2025 (down from 131 days in September 2025 and 150 days in December 2024).

    • Trade Receivables: Reduced sequentially to 72 days.

    • Cash Flow from Operations (OCF): Successfully turned positive with ₹51 Cr generated in Q3 FY26.

    • Asset Turnover: Improved to 9.5x in Q3 FY26 from 7.5x in FY25, maintaining a capital-light model.

    • Return on Capital Employed (ROCE): Reached 18.8%.

    4. US Tariffs & Dual-Shore Dynamics

    A major tailwind emerged with the reduction of US tariffs on imports from India from 50% to 18%.

    • Impact: During the high-tariff period, Avalon recovered 99% of costs from customers, showing high customer stickiness. The lower 18% rate now makes Indian manufacturing for US customers even more competitive against other Southeast Asian nations and China.

    • US Operations Profitability: While the US facility still operates at a loss (~₹7 Cr PAT loss in Q3), the losses are narrowing as energy storage systems and new programs ramp up.

      

    • 5. Future Prospects: Semiconductor & New Programs

      • Semiconductor Equipment: Avalon completed the project readiness phase for a global major to manufacture Industry 4.0-compliant complex subsystems. This is expected to contribute meaningfully to revenue starting in FY27.

      • Satellite Communications: Completed prototypes for control units in satellite antenna systems; volume orders are expected in FY27.

      • Aerospace Expansion: Bidding on advanced metal cockpit assemblies and landing gear components, moving further up the value chain.

      • Energy Storage (BESS): A significant long-term growth driver in the US, particularly as demand for power rises due to data center expansion.

      6. Red Flags & Risk Updates

      • Labour Code Impact: New Indian Labour Codes (effective November 21, 2025) resulted in a non-material incremental impact of ₹33 lakh in Q3.

      • Product Mix Margins: While India margins are high (16.7% EBITDA), group margins are currently diluted by US operational losses and a higher mix of Indian domestic revenue.

      • Inventory Levels: Although improved, inventory remains at 97 days, which requires continuous monitoring to prevent cash traps during rapid scaling.

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      Disclosures:

    • Compiled Notes from here & there, No Buy/Sell Recommendation. I have a tracking position, still studying & waiting for the price to cool down. The idea to study this company came from @kbsekhar who is an inspiration.

    • Disclaimer: These notes are for educational purposes only and should not be considered as an investment advice. Always conduct your own research or consult with sebi registered financial advisors before making investment decisions.

[kdjolly]

Murali Srinivasa on how PCBs are made and why India lags

Video Summary: The PCB Landscape and India’s Position

The discussion provides a deep dive into the “substrate of electronics”—the Printed Circuit Board (PCB). Key takeaways include:

• The “Skyscraper” Analogy: PCBs are compared to multi-story buildings. A simple remote uses a 1-2 layer board (single story), while a smartphone uses a “High Density Interconnect” (HDI) board with 40–60 layers compressed into the thickness of a credit card.

• Fabrication vs. Assembly: There is a critical distinction between PCB Fabrication (the chemical-heavy process of making the bare green board) and EMS/Assembly (placing components like chips on that board). Fabrication requires 20–25 complex machines, whereas basic assembly (SMT) can be done with three.

• The “Know-How” Gap: Manufacturing is not just about capital; it is about “tribal knowledge”—controlling chemical temperatures and precision (down to 25–50 microns). China leads because US engineers spent decades teaching Chinese factories these specific “recipes.”

• Supply Chain Bottlenecks: India moved from being a net exporter to a net importer of copper (following the Sterlite plant closure). Since copper and specialty chemicals drive 50–60% of a PCB’s cost, India faces a significant cost disadvantage compared to China’s 2,000+ factories in the Shenzhen region.

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Value Chain Analysis: Where Avalon Technologies Stands

Using the framework from the video, Avalon Technologies occupies a high-value, specialized position that differs from the mass-market “assembly” or “fabrication” players.

1. Primary Segment: High-Complexity EMS & System Integration

The video notes that India has thousands of EMS shops, but most are “long-tail” assemblers. Avalon sits at the top tier of this segment. Instead of just “picking and placing” components on a board, Avalon focuses on “Box Build” (System Integration).

• Value Add: They manage the entire finished product. In Q3 FY26, Box Build revenue reached 53%, indicating that Avalon is moving away from being a mere “line operator” to a full-scale manufacturing partner.

2. Vertical Integration: Beyond the PCB

The video highlights that a product is more than just a PCB. Avalon’s unique strength is that they manufacture the “peripheral” components in-house:

• Sheet Metal & Machining: They build the “chassis” or enclosures.

• Magnetics: They manufacture the transformers and coils.

• Cables & Wire Harness: They handle the complex “nervous system” of the device.

• Position: This integration allows them to capture margins that would otherwise go to sub-vendors, providing a “one-stop-shop” for global OEMs.

3. The “Dual-Shore” Moat

Murali Srinivasa mentions that “know-how” is the biggest barrier. Avalon bridges this gap through its Atlanta, USA facility.

• Design & NPI (New Product Introduction): Avalon captures the Design/Prototyping stage in the US, where the “tribal knowledge” is strongest, and then migrates the high-volume production to its India plants. This positions them higher in the value chain than companies that only execute provided designs (pure contract manufacturing).

4. Niche vs. Mass Volume

The video discusses the difficulty India faces in HDI boards for smartphones (mass volume). Avalon avoids this “red ocean” by focusing on High-Mix, Flexible-Volume sectors:

• Aerospace, Rail (Kavach), and Clean Energy: These sectors require high reliability and “sticky” certifications rather than the sheer scale of 2,000 factories. Avalon’s capabilities are built for high-spec industrial ruggedness rather than consumer electronic miniaturization.

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While India as a whole lags in PCB Fabrication (the base layer), Avalon Technologies has successfully climbed the value chain into System Integration and ODM-lite services. By controlling the metal, plastic, and cable components around the PCB and maintaining a design presence in the US, they have insulated themselves from the low-margin “commodity assembly” trap discussed in the video.

[kdjolly]

Avalon Technologies has the Capability to Manufacture and assemble complex, double-sided Printed Circuit Boards (PCBs) with up to 32 layers.

In addition to this multi-layer capacity, the company’s PCB assembly (PCBA) capabilities include:

Package Handling: Support for advanced packaging technologies including POP (Package-on-Package), BGA (Ball Grid Array), QFN (Quad Flat No-lead), and Discrete packages down to microscopic 01005 sizes.

Density: Ability to assemble up to 56 BGAs on a single PCBA.

Variety: Expertise in handling complex high-power PCBAs, as well as Rigid and Rigid-Flex variations.

Specialised Testing: Comprehensive testing protocols including flying-probe, in-circuit, burn-in, and thermal cycling tests.

Based on industry benchmarks and the technical specifications provided in the company’s disclosures, Avalon Technologies’ manufacturing capabilities are considered “Good” to “High-End,” particularly within the specialised niche of high-complexity B2B electronics. They significantly exceed the capabilities of “average” or “mediocre” Electronic Manufacturing Services (EMS) providers that typically focus on high-volume consumer goods.

1. PCB Layer Count: “High-End”

• Benchmark: A typical smartphone uses 8–12 layers, and high-performance servers usually require 16–24 layers.

• Avalon Capability: Avalon can manufacture and assemble double-sided PCBs with up to 32 layers.

• Significance: Boards with 32 layers are at the high end of multilayer technology and are typically reserved for mission-critical applications like satellite communication systems, electronic warfare, and advanced medical imaging.

2. Component Miniaturisation: “Good/Precision”

• Benchmark: Handling 01005 components (0.2 mm x 0.4 mm) is one of the most difficult tasks in SMT (Surface Mount Technology) because they are almost invisible to the naked eye and extremely lightweight.

• Avalon Capability: Avalon possesses the precision equipment and clean-room environments required to assemble 01005-sized components.

• Significance: This capability is a requirement for high-added-value products like surgical robots and 5G infrastructure, where space is extremely limited.

3. Certifications: “Premium/Niche”

• Benchmark: While standard ISO 9001 certifications are common, AS9100D and NADCAP are the “pillars of aerospace quality management”.

• Avalon Capability: Avalon holds both AS9100D (Aerospace quality) and NADCAP (National Aerospace and Defense Contractors Accreditation Program) certifications.

• Significance: NADCAP is a rigorous accreditation for special processes like welding and machining. It is not common among general EMS firms and is a prerequisite for working with top-tier global aerospace and defense OEMs.

4. Integrated “Box-Build” Model: “Superior”

• Benchmark: Mediocre EMS companies often act as “component stuffers,” assembling only the printed circuit boards.

• Avalon Capability: Avalon is a “Box-Build” specialist, where this integrated segment contributes 53% of its revenue.

• Significance: By managing the entire product lifecycle—including sheet metal, injection-molded plastics, and final system integration—Avalon creates higher “customer stickiness” and captures more of the value chain than standard assembly houses.

When comparing Avalon Technologies’ manufacturing capabilities with other major Indian players in the Electronics Manufacturing Services (EMS) space, Avalon is positioned as a “High-Complexity, Value-Added” player rather than a high-volume assembly house.

Technical Comparison: Avalon vs. Key Competitors

Which one has the “Best” capabilities?

The definition of “best” depends on the specific manufacturing requirement:

1. Best for Technical Complexity: Avalon Technologies & Cyient DLM

• Avalon stands out with its explicit capability to manufacture and assemble 32-layer PCBs. In the electronics world, 32 layers is considered “ultra-high-density,” typically found only in advanced satellite and defense equipment.

• Cyient DLM is a direct peer in terms of technical certifications, holding NADCAP status, which is a stringent requirement for global aerospace and defense OEMs.

2. Best for Vertical Integration: Avalon Technologies

• Unlike high-volume players like Dixon Technologies, Avalon is a “one-stop-shop”.

• They manufacture the internal PCB, the external metal or plastic enclosure (“Box-Build”), and the internal magnetics and cables all in-house. This vertical integration is considered superior for maintaining intellectual property and reducing supply chain lead times compared to peers who must outsource enclosures.

3. Best for Scale and Future Tech: Kaynes Technology

• While Avalon leads in current “box-build” complexity, Kaynes Technology is considered the leader in scale and future semiconductor roadmaps.

• Kaynes has already begun commercial operations at its OSAT (Outsourced Semiconductor Assembly and Test) facility, which moves them into chip-level manufacturing—a step “upstream” from Avalon’s system-level focus.

4. Best for Consumer/Volume: Dixon Technologies

• For high-volume consumer goods (smartphones, TVs), Dixon has the best capabilities in terms of speed and asset turn. However, their technical complexity (PCB layers and precision) is significantly lower than Avalon’s specialized industrial focus.

Conclusion

If the requirement is precision engineering and complex integration (e.g., a satellite antenna or a high-end medical scanner), Avalon Technologies is currently considered to have the most comprehensive “Box-Build” and vertical integration capabilities in the Indian mid-cap space. However, for OEMs looking at semiconductor-level manufacturing, Kaynes Technology holds the edge in future roadmap capabilities.

[siddybee]

6 months back, I had written a detailed article on Avalon Technologies — a company in the business of electronics manufacturing [EMS].

India — although late to the party — is serious about building EMS capabilities and is investing in various programs like the PLI schemes, Electronics Component Manufacturing Scheme [ECMS], India Semiconductor Mission 2.0 [ISM 2.0] etc.

The intent is clear — India wants to be a reliable partner for any global counterpart looking to de-risk their supply chain away from China. India cannot completely replace China [that might take decades] but can slowly chip away at the global EMS market share.

Verdict?

Increased business for Indian EMS players, and because it is not a zero-sum game, multiple companies can win and co-exist — because the pie keeps getting bigger.

Stock performance of major EMS players in India [Source: Google Gemini]

From the table above, you can see that some of the key Indian EMS players have been on a tear for the last few years delivering stellar returns to investors. Can this run continue? Which stock would be the best pick? Should you follow a basket approach — investing equally in 5-7 EMS players?

Unfortunately, no one knows. However, one thing is clear — that this sector deserves your attention. The potential for growth is immense and what we can do is learn about the players and place our bets accordingly.

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Avalon Technologies - a quick brief

If you’re lazy to read my original article on Avalon, here’s a quick summary of how they make money.

Avalon was incorporated in 1999, headquartered in Chennai. It started with the business of PCB assembly, got into magnetics → plastics → metal assembly → cable assembly → wire harnesses → and ultimately became a fully integrated EMS player delivering box-build solutions.

The business model is simple — customers want electronic components but don’t want to build their own manufacturing facilities, so they sub-contract the process to companies like Avalon. And for the manufacturing process, customers pay a service fee.

Avalon has 15 manufacturing facilities — out of which 2 are based in the US, giving it a unique leverage over EMS players who only manufacture in India.

The switching costs in the EMS business are quite high — meaning that once you win a customer [which takes a considerable time], the customers stick with you for a long time. Unless you screw up big time.

The reason is simple, to switch to another EMS supplier — the customers will have to go through the entire process again [Design > Prototype > Testing & Validation > Production] which is time consuming. And time = money.

Business Opportunities & Growth Drivers

On 31st December 2025, Avalon had an order book of INR 3,200 Cr executable over a period of 3 years — which is 3x FY25 sales, offering good revenue visibility.

Quick snapshot of Avalon’s business for Q3FY26.

But, as an investor — you should be interested in the order book that is not quantified. Order book which is invisible to the markets. The potential revenue that could flow to Avalon, based on various projects that it is dabbling in. That’s where the alpha is.

Let’s look at some of the exciting projects that Avalon is working on.

• Semiconductor opportunity — Avalon has onboarded a semiconductor equipment manufacturer as a customer and will provide box build solutions that will go inside semiconductor equipments. Avalon has completed the project readiness phase ahead of volume production and expects meaningful revenues from this segment from FY27. THIS IS A MUST WATCH GOING FORWARD!

Each of these machines cost $2-$3 million and Avalon will be making small parts which will go inside these machines. The management hasn’t given any number but expects it to be a BIG opportunity and is already in conversation with a second customer in this segment.

• Other business opportunities:

  • Avalon completed its first tranche of prototypes to manufacture control units for satellite antennae systems. [Expecting volume orders in FY27 - number undisclosed]

  • Prototypes for industrial processing sector and power sector have commenced.

  • Onboarded new customers across industrial and defense segment for products like mission critical power inverter platforms, critical components for integrated battlefield command systems.

  • Ramping up the energy storage systems program and making steady progress in aerospace cabin assemblies.

• Bidding pipeline:

  • The company is bidding for projects in advanced metal cockpit assemblies + landing gear components [Aerospace segment]

  • On the cusp of foraying into cable commodities [Aerospace segment]

The management has not placed any revenue number (#) on these opportunities, so it is anyone’s guess how much money Avalon will make from these projects or whether these projects will actually materialize — which is what makes it fun to track this company.

Green Shoots

Insulated from tariffs? — One of the things that impressed me reading the Q3 earnings transcript was the fact that Avalon was able to recover 99% of the impact of higher US tariffs from its customers — reflecting a strong and long-standing relationship it has built with its customers.

The way the company dealt with high tariffs (50%) was commendable. Avalon has 2 manufacturing facilities in the US, enabling it to deal with an uncertain tariff regime in the future as well.

With Trump in-charge, predicting the future is a fool’s game. All possibilities are on the table!

Now that the tariffs have reduced from 50% → 18%, Avalon finds itself in a favorable position to win more business.

Guidance — The management revised its FY26 revenue guidance upwards from 28% growth → 40% growth, a positive trend. No specific revenue guidance for FY27 was given. EBITDA will continue to remain in the range of 10-12%.

Number-gasm — Increase in ROCE from 11.3% → 18.8% YoY. Reduction in working capital days from 130 days → 118 days. Negligible debt to equity. Asset turnover improved to 9.5 times reflecting operational efficiency. US manufacturing facility remains loss making.

Conclusion

At a P/E of 70+ times, Avalon is not a cheap stock to own at these levels. Plus, promoters have been selling some part of their stake every quarter, signaling profit booking.

A high DII shareholding means that mutual funds will rate Avalon as a BUY, diverting retail SIPs into the stock, offering little space for the stock to correct from here, hence this is not a value buy.

Shareholding pattern QoQ of Avalon Technologies.

What makes Avalon a lucrative company to own, is the future potential, which the market has already factored in to some extent, leaving little money on the table at current valuations. The semiconductor opportunity is a BIG one, which will materialize in FY27 and beyond. The company is dabbling in many other projects.

The question is — can Avalon surprise the market with its future projects, the value of which is not known at this moment in time but will be revealed in the foreseeable future? Can it become an EMS behemoth like Dixon in the next 5-7 years?

That is where the bet needs to be placed.

[Mohammad_Sami]

The stock works if you believe three things: the order book converts into sustained revenue, operating leverage expands margins, and working capital normalizes over time. The biggest watch items are free cash flow, inventory days, tariff recovery, and whether new programs start contributing before the current valuation multiple compresses. On a quality-vs-price basis, Avalon is better described as a growth-at-a-premium name than a cheap compounder. Avalon’s shift to a 54% Box-build model is the “secret sauce” for FY27. If they can sustain the 11.5%+ margins seen in Q4 FY26, the stock is likely to undergo a further re-rating toward the ₹1,500 level.