Accumulate Avalon Technologies Ltd for Target Rs.927 by PL Capital
Strong performance, Margins Expanded
Avalon Technologies (AVALON IN) has reported strong earnings growth of 244% YoY led by strong pickup in the clean energy and mobility segment. EBITDA margin expanded by healthy ~410bps YoY to 12.1%, attributed to a favorable segment mix (Mobility/industrials increased to 31%/28% of revenue) with increased domestic manufacturing (reached 87% of revenue). AVALON's revenue grew by 58.1% YoY, supported by 91.0% YoY increase in the mobility segment (contributed ~31% to revenue), and ~88% YoY growth in the clean energy segment (~18% to revenue). AVALON has guided 18-20% growth in topline for FY26 and with a GM 33-35%. We estimate FY25-27E revenue/EBITDA/PAT CAGR of 27.5%/37.7%/45.9%, with EBITDA margin expansion of ~170bps.
We maintain our ‘Accumulate’ rating with a TP of Rs 927 (earlier Rs 900) valuing at 35x FY27 earnings, due to uptick in the stock prices, healthy performance in Q4FY25. We have revised our FY27 EPS estimates upward by 3.0% to reflect stronger growth in order book.
Revenues increased by 58.1%, PAT grew by 243.8%: Sales increased by 58.1% YoY to Rs 3.4bn (PLe: Rs 3.0bn). Clean Energy/Mobility& Transportation/Industrials Communication/Medical segment grew by 87.6%/91.0%/41.8%/26.5%/12.4% YoY. The Mobility& Transportation/Industrials segment contributes 31%/28% to the revenue. Gross margins contracted by ~250 bps to 35.1% (PLe: 35.8%). EBITDA grew by 140.5% YoY to Rs 414mn (PLe: Rs314mn). EBITDA margins expanded by ~410bps to 12.1%. (PLe: 10.4%). PBT grew by 227.6% YoY to Rs 326mn (PLe: Rs 232mn).PAT grew by 243.8% YoY to Rs 243mn (PLe: Rs 166mn). The Order book grew by 29% YoY to Rs 18bn in Q4FY25.
Con call highlights: 1) Management is expecting a growth of 18-20% in the topline, with the higher growth from H2 compare to H1 and gross margin in the range of 33-35% for FY26. 2) Avalon expects to double its revenue from FY24-27, driven by growth in India, existing US operations, and new US projects. 3) The company is also entering new, sophisticated technology segments critical for next-generation electronics and digital infrastructure, with promising early progress. 4) The company is enhancing its technical capabilities through strategic a partnership with Zepco Technologies, a leader in designing and manufacturing motors, drives, controllers, and power solutions for sectors like drones, EVs, and defense. Which will provides a design arm for clean energy customers, creating a pipeline for production and strengthening the company's presence in emerging technology areas. 5) The company is seeing strong growth in clean energy, infrastructure, rail, and industrial sectors, with new client additions in India and the US. The mobility and aerospace segments are expected to maintain steady growth. While India margins remain strong, US margins are expected to improve by FY26 through localization and strategic positioning. 6) The company remains optimistic about the clean energy segment, focusing primarily on energy storage systems and inverters, which are growing at 70% in the US. This includes commercial, industrial, and some residential applications, supported by rising demand from data centers driven by AI server requirements. 7) The company highlighted that any tariffs imposed by the USA will be passed on to customers. 8) In Q4 FY25, the domestic-to-exports revenue mix stands at 47:53. The company aims to achieve a 50:50 ratio going forward. 9) The new export-focused manufacturing plant in Chennai is now fully operational, while Phase 2 of the brownfield expansion to meet rising domestic demand has also commenced and also plans to invest Rs450-500mn in Capex for FY26.
Above views are of the author and not of the website kindly read disclaimer
