Hold Avalon Technologies Ltd for the Target Rs. 1,083 By Prabhudas Liladhar Capital Ltd
Decent performance but margins contracted
Avalon Technologies (AVALON IN) has reported decent revenue growth of 39.1% YoY mainly driven from Mobility/Industrial segments (grew by ~29%/65% YoY). EBITDA margin contracted by healthy ~90bps YoY to 10.1%, (Mobility/industrials contributes 28%/36% to the revenue) with increased domestic manufacturing (reached 81% of revenue). AVALON has upward its guidance from 23-25% to 28-30% growth in topline for FY26 and maintained its gross margin to 33-35%. We tweak our earnings estimates for FY27/FY28. We estimate FY25-28E revenue/EBITDA/PAT CAGR of 30.7%/36.0%/42.5%, with EBITDA margin expansion of ~130bps. We maintain our ‘HOLD’ rating with a TP of Rs 1,083 valuing at 45x Sep’27 earnings, healthy performance in H1FY26.
Q2FY26 financial performance: Sales grew by 39.1% YoY at Rs 3.8bn (PLe: Rs 3.5bn) Clean Energy/Mobility& Transportation/Industrials/Communication segment revenue grew by 47.2%/29.1%/65.4%/39.1% YoY, whereas medical segment revenue declined by 21.5% YoY. The Mobility & Industrial segments account for 64% of revenue. Gross margins contracted by ~250 bps to 34.3% (PLe: 35.0%). EBITDA grew by 28.1% YoY to Rs 386mn (PLe: Rs 310mn). EBITDA margins contracted by ~90bps to 10.1% (PLe: 8.9%). PBT stood at Rs 336mn (PLe: Rs 225mn). PAT stood at Rs 250mn (PLe: Rs 168mn). The Order book grew by 25.5% YoY to Rs 19bn in Q2FY26. Box-build revenue grew by 56.8% YoY, contributes 53% revenue (vs 47% in Q2FY25).
H1FY26 financial performance: Sales grew by 48.7% YoY to Rs7.1bn. Clean Energy/Mobility& Transportation/Industrials/Communication segment revenue grew by 33.9%/54.5%/74.4%/65.3% YoY, whereas medical segment revenue declined by 3.8% YoY. EBITDA grew by 98.5% YoY to Rs685mn. Margin expanded by ~240bps YoY to 9.7%. PBT grew by 146.9% YoY to Rs529mn. PAT grew by 158.3% to Rs392mn.
Con call highlights: 1) Management upward their revenue growth guidance from 23-25% to 28-30% for FY26, while maintaining gross margin guidance at 33–35%. 2) Company had onboarded three major customers across the power, industrial, and defense verticals, with production starting in the US and later transitioning to India. These customers are expected to become among the company’s top 10 accounts within the next year. 3) The railway segment reported 58% YoY growth in H1FY26, with the Kavach safety system having completed testing and on track for commercial production in the second half of FY27. 4) The export-focused Chennai plant has commenced production and is ramping up steadily, supported by the dual-shore model. Production for locomotive engine subsystems will begin in the second half of FY26, while Phase 2 of the Chennai brownfield expansion is progressing well and is scheduled for completion by Q3FY26. 5) Avalon strengthened its design capabilities through a collaboration with Zepco in the power and clean energy segments. The partnership focuses on design activities, including projects like drone motors for the Indian market, with manufacturing expected to follow after the design phase. 6) The company remains confident of sustaining its growth momentum and reaffirmed its commitment to double revenues over three years, from FY24 to FY27. 7) Avalon has entered partnership in H1FY26 semiconductor equipment manufacturing partnership has achieved prototype completion, with full-scale production expected by FY27. 8) In H1FY26, the company incurred a capex of Rs 244mn. For the full year, it has outlined a capex plan in the range of Rs 450–550mn. 9) Net Working capital days improved by 11 days QoQ to 131 days, and management expects it to normalize to 120–130 days by FY26.
Please refer disclaimer at https://www.plindia.com/disclaimer/
SEBI Registration No. INH000000271
