This smallcap stock has zoomed 44% in 2 days; doubled within 3 months

Shares of Avalon Technologies hit a new high of Rs 849.45, as they surged 20% on the BSE in Friday's intra-day trade on heavy volumes.

Shares of Avalon Technologies hit a new high of Rs 849.45, as they surged 20 per cent on the BSE in Friday’s intra-day trade, extending its Thursday’s rally, after the company reported a strong second quarter earnings for the financial year 2024-25 (Q2FY25). 

 

In the past two days, the stock of this smallcap has zoomed 44 per cent from Rs 589.95. Within three months, the market price of this leading player in the Electronics Manufacturing Services (EMS) industry has nearly doubled from Rs 426.25 on August 9, 2024.

 

At 01:38 pm; Avalon was up 19 per cent at Rs 840.05, as compared to 0.12 per cent decline in the BSE Sensex.  The average trading volumes at the counter jumped multi- fold. A combined 7.71 million shares representing 11.7 per cent of total equity of the company changed hands on the NSE and BSE.

 

In Q2FY25, Avalon Technologies reported 140 per cent year-on-year (YoY) growth in net profit at Rs 17.48 crore, as against a net profit of Rs 7.28 crore in Q2FY24.  The company’s revenue from operations surged by 36.8 per cent YoY to Rs 275.02 crore versus Rs 200.99 crore in the same quarter last year. Earnings before interest, tax, depreciation, and amortization (EBITDA) margin improved 470 bps to 11.0 per cent from 6.3 per cent in a year ago quarter.

 

Currently, the order book stands at Rs 1,490 crore, up 19 per cent YoY. Avalon has long-term contracts worth Rs 1,100 crore, which are expected to be executed over an average period of 14 months to 3 years. The company expects to incur a capex of Rs 40 - 45 crore annually for the next two years, in line with its asset-light model.

 

Avalon is engaged in EMS with capabilities in Printed Circuit Assembly Boards (PCBA’s), custom cable, wire harness, metal, plastic, magnetics components and assemblies with enhanced capabilities in engineering design and development.

 

The management had said they anticipate a recovery in H1, followed by increased momentum in H2 of fiscal year 2024-25. The outlook for the coming years looks promising, with fiscal year 2024-25 being crucial for the company’s growth trajectory, they added.

 

Given the growing demand, expanding order book, strong cash flows, and comfortable liquidity position, the company is optimistic about its performance. With profits closely linked to production scale and revenue, the outlook for the coming years is promising. This year shall be a pivotal point that will lay the foundation for long-term growth over the coming decade, Avalon said in its FY24 annual report.

 

As, recovery was seen ahead of H2FY25, analysts at JM Financial Institutional Securities expect management to beat the revenue guidance of 20 per cent YoY in FY25 led by export pick up with restocking in the US, domestic tailwinds in railways (capitalizing on kavach opportunity) and industrials. 

 

In the mid-long term the brokerage firm expects over the next 2-3 years, Avalon will see strong profitable growth led by higher share of box builds among peers + customer stickiness, increasing share of clean energy, continuous focus on adding new customers along with increasing wallet share and strong domestic order book traction, along with growing exports business.