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Leading Electronic Manufacturing Service Providers Avalon Technologies Plans to Raise 865 Crores Via IPO 

03 Aug 2023

Avalon Technologies is among the few companies that have filed red herring prospectuses with the SEBI in March 2023. The entity plans to raise a total of about ₹865 crores via a fresh issue of shares as well as from an offer for sale (OFS) from its promoters. Want to know if this public issue is something that you might want to invest in? Continue reading to find out. 

Company Overview

Incorporated in 1999, Avalon Technologies Limited is an electronic manufacturing service provider. Thanks to a vertically integrated business model, the company owns and operates the entire supply chain all by itself. This gives Avalon a strong edge over its competitors since it allows the company to provide better and faster services to its clients. 

With over 12 facilities in major Indian and global cities like Chennai, Bangalore, Atlanta and Fremont, Avalon Technologies is capable of providing a wide range of manufacturing services. The entity’s service portfolio includes design, engineering, New Product Introduction (NPI), volume production, life cycle management, system integration, PCB assembly, metal and machining, plastics and supply chain management. 

The services of Avalon Technologies are widely used by industries such as automotive, industrial, clean energy, and communication. In addition to this, the company also serves ‘sunrise’ industries like solar, EV and hydrogen. Some of the key clients of the entity include Kyosan India, Zonar Systems, Collins Aerospace, e-Infochips, The US Malabar Company, Securaplane Technologies and Systech Corporation. 

Company Financials

In the red herring prospectus filed by Avalon Technologies in March 2023, the company has published comprehensive financial statements for three financial years. Here’s an overview of a few of the key financial metrics of the  

(figures are in ₹ crores)

Particulars

Eight Months Ended November 30, 2023 FY22 FY21 FY20
Equity Share Capital 11.33 1.59 1.59 1.53
Total Borrowings 316.4 294.05 295.33 248.48
Operating Revenue 584.7 840.7 690.4 641.8
EBITDA 68.05 97.55 66.14 64.48
Restated Profit  34.18 68.16 23.08 12.32
Diluted Earnings Per Share (EPS) 6 11.3 4.01 2.21
Return on Capital Employed (RoCE) 17.58% 27.41% 21.26% 26.83%
Return on Net Worth (RoNW) 28.17% 85.86% 40.36% 25.19%
Net Asset Value (NAV) per equity share 26.37 15.6 11.19 8.93

Note: Except for the figures under Diluted EPS, Return on Capital Employed (RoCE), Return on Net Worth (RoNW) and NAV per equity share, all other figures are expressed in ₹ crores. 

Key Strengths of the Company 

Avalon Technologies has listed a few of the strengths that its business has in its red herring prospectus. Let’s take a quick look at a few of them. 

  • Vertically integrated business model
  • Ability to provide one-stop solutions for electronics and electro-mechanical design and manufacturing 
  • Business leader in high mix, flexible volume product manufacturing  
  • Diversified clients, industries, geographical locations and service portfolio 
  • The business has high entry barriers for new entities 
  • High order book value of about ₹1190 crores as of November 2022 

Key Risks for the Company 

In addition to the strengths, the prospectus also lists some of the key risks that the company faces. Here’s a closer look at what they are. 

  • Around 50% of the company’s revenue is from the top 10 clients
  • Lack of long-term agreements with suppliers 
  • The electronic manufacturing services business is very competitive
  • Business is vulnerable to government regulations and foreign exchange fluctuations 

Details of the IPO

The initial plan of Avalon Technologies was to raise ₹1,025 crores via the IPO. However, in the company’s red herring prospectus, the total issue was downsized to ₹865 crores. Out of the ₹865-crore issue, around ₹320 crores would be from a fresh issue of about 73,39,450 equity shares. The remaining ₹545 crores are slated to be from an offer for sale from the company’s promoters and other selling shareholders, who would be offloading around 1,25,00,000 equity shares via this issue. 

According to the final red herring prospectus, the upcoming IPO 2023 of Avalon Technologies will open for subscription on April 03, 2023. After remaining open for 4 days, the subscription will close on April 06, 2023. The price band of the public issue has been decided as ₹415 to ₹436 per equity share. Because the face value of Avalon Technologies shares is ₹2 per share, the premium for the IPO comes up to around ₹413 to ₹434 per equity share. In a bid to make it easy for retail investors to subscribe to the issue, the company has set the minimum lot size of the issue at just 34 shares. 

Concerning the reservation portion of the IPO, 10% of the issue has been set aside for retail investors and 15% for Non-Institutional Buyers (NIBs). The remaining 75% of the issue is reserved for Qualified Institutional Buyers (QIBs). 

Objects of the Offer

The ₹320 crores that the company gains from the issue of 73,39,450 equity shares will be used by it to further the following objectives. 

  • For the repayment of the entire or a part of the company’s and its subsidiary’s outstanding borrowings 
  • For funding its working capital requirements 
  • For general corporate purposes

Conclusion

Avalon Technologies Limited is a major player in the supply of critical and sensitive electronic equipment used in a wide range of industries. The high order book value of around ₹1,190 crores as of November 30, 2022, signifies the company has good future growth prospects. 

If the IPO from Avalon Technologies is something you might invest in, consider setting up a trading and demat account first. Without it, you cannot invest in upcoming IPOs or other securities. To open a demat account, all that you need to do is visit the official website of Motilal Oswal, where you can fill out and submit an online application. Once the account is set up, you can proceed to invest in the Avalon Technologies public issue. 

 

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