 "Initial public offerings, IPOs, stock market, investors")
Electronic manufacturing company Avalon Technologies' initial public offering (IPO) opened for subscription on April 3, and will close on April 6, 2023. The price band of Rs 865-crore public issue is set at Rs 415-435 per share. The stock is likely to debut on the bourses on April 18, 2023.
On Monday, shares of Avalon Technologies enjoyed Rs 30 premium in the grey market, which translated to a likely listing price of Rs 465 apiece on the upper price band. Upon listing, Avalon Technologies will join peers like Dixon Technologies, Amber Enterprises, Syrma SGS Technology, and Kaynes Technology.
The company is a fully-integrated electronic manufacturing services (EMS) company, with 10 manufacturing units located in India, and two in the US - Georgia, and California. From designing and assembly of printed circuit board (PCB) to manufacturing complete electronic systems (box build), their products are widely used in industries like clean energy, and emerging communication technology.
The public issue is a combination of fresh and offer-for-sale (OFS) portions. While the fresh issue size is Rs 320 crore, the OFS comprises Rs 545 crore. However, the company will not receive any proceeds from the OFS part.
The issue is broken into four parts - 75 per cent is reserved for qualified institutional buyers (QIBs), 10 per cent for big non-institutional investors (NIIs), 5 per cent for small NIIs, and remaining 10 per cent for retail investors.
On the financial front, revenue from operations rose 8 per cent to Rs 584 crore in eight months of FY23 (8MFY23), whereas profit-after-tax (PAT) dropped 8.1 per cent to Rs 34 crore in 8MFY23 from Rs 42 crore in 8MFY22.
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Here's what brokerage houses recommend for Avalon Technologies IPO:
Reliance Securities | Subscribe
The brokerage firm believes that since the company is a fully-integrated EMS provider, it has diversified end-user industries and clients, with strategic manufacturing locations. Therefore, the company is likely to benefit from 'Make-in-India' and PLI schemes of the government as it promotes local manufacturing of components, and electronics systems. Considering healthy outlook in the Indian EMS industry, and valuation comfort of over 55x P/E on annualised FY23 financials, they recommend a 'subscribe' to the issue.
Ventura Securities | Not Rated
Analysts assert that it is one of the few companies that provide one-stop-shop for electronics, and electro-mechanical design, and manufacturing services. Moreover, the company's wide-range offerings in EMS services serves as an entry barrier for new entrants. Over the years, they have had 12 manufacturing facilities, with 66 production lines. However, analysts cautioned that any disruption in operations of manufacturing facilities could impact overall financial performance.
Swastika | Subscribe
As the EMS sector is a sizable industry globally, it is expected to grow in India at a significant pace too, given a shift of global demand from China to India. It operates a business with high entry barriers and global delivery footprint. However, the company's PAT margin declined in the first eight months of FY22, and is weighed by high debt ratio. That said, analysts see the public issue fully priced at a P/E ratio of around 39x, and recommend 'subscribe' to high-risk investors for the long-term.
Choice | Subscribe
The brokerage firm said that the company is demanding an EV sales multiple of 3.1x, which is at a discount to peer average of 6.3x. Based on FY24E forecasts, the demanded EV sales is around 2.3x, which looks attractive for a company like Avalon, operating in high-growth EMS space, said analysts. Therefore, they recommend a 'subscribe' to the public issue.
Canara Bank Securities | Subscribe
The company largely generates revenue from the US (63 per cent), catering to sunrise industries like clean technology, power automation, and mobility. With an order book of Rs 1,190 crore, as of November 2022, the client base is around 80. Overall, the brokerage firm expects the industry to grow 32 per cent CAGR. The debt-to-equity ratio also seems to be above average than peers, said analysts. Therefore, they recommend 'subscribe' for the long-term.
