Avalon Technologies Ltd's initial public offer (IPO) will open for subscription on Monday, April 3, and close on Thursday, April 6. The company has fixed the price band at ₹415 to ₹436 per equity share for the proposed initial public offer.
On Friday, through its anchor book, the company was able to raise ₹389.25 crore, and a total of 24 investors took part.
Nomura Trust, Ashoka India Opportunities Fund, Goldman Sachs, Neuberger Berman Emerging Markets Equity Fund, HDFC MF, Aditya Birla Sun Life Insurance Company, HDFC Life Insurance Company, Whiteoak Capital, Mahindra Manulife Mutual Fund, Oaks Emerging Umbrella Fund Plc, and Principal Funds Inc. were among the prominent participants in the anchor book.
According to a BSE exchange filing by the company, the promoter selling shareholders and the IPO committee have decided to allocate 89.27 lakh shares to anchor investors at a price of ₹436 per share.
A total of 89.27 lakh shares were allotted, of which 29.81 lakh equity shares were distributed to 5 domestic mutual funds via a total of 10 schemes.
The company's ₹865 crore IPO is made up of ₹320 crore from a fresh share issuance and ₹545 crore from shares offer for sale (OFS) by promoters and existing shareholders.
Kunhamed Bicha, Bhaskar Srinivasan, T P Imbichammad, Mariyam Bicha, Anand Kumar, Sareday Seshu Kumar, and Luquman Veedu Ediyanam are the shareholders offloading their stake.
The offer is being made through the book-building process, in which not less than 15% of the offer must be made available to non-institutional investors and not less than 10% of the offer must be made available to retail individual investors. Not more than 75% of the offer may be allocated to qualified institutional buyers.
JM Financial Ltd, DAM Capital Advisors Ltd, IIFL Securities Ltd, Nomura Financial Advisory and Securities (India) Private Ltd are the lead manager of the issue, and Link Intime India Private Ltd is the registrar.
What do brokerages say?
Reliance Securities Ltd
According to the brokerage, the IPO is valued at 55.5 times price-to-earnings (P/E) at the upper price range, which is less than its competitors based on FY23 annualised financials. The business is an integrated EMS provider with a wide range of end-user sectors and customers in key manufacturing hubs.
Due to the complicated designing, engineering, purchasing, and manufacturing required by its scope of work, entry barriers and lengthy wait times are a result. It is also probably to gain from the government's 'Make in India' and Production Linked Incentive (PLI) programs, which encourage the production of electrical systems and components locally. The company plans to reduce its debt even more, which should increase profitability and boost return ratios.
"Considering the healthy business prospects for the Indian EMS industry, company’s high return ratios and similar margins relative to peers and valuation comfort at 55.5 times price-to-earnings (P/E) on annualised FY23 financials, we recommend 'subscribe' to the issue," said the brokerage.
Swastika Investmart Ltd
The brokerage in its report stated that EMS business is sizable both globally and in India, where it is anticipated to expand rapidly. India also benefits from a shift in global demand away from China. The company offers box-build solutions throughout India and is a completely integrated EMS provider. It runs a business with tough entry requirements and offers services all over the world.
According to the brokerage, the business has a healthy order book. Although its profit after taxes (PAT) margin for the first eight months of FY22 showed a decline and it currently has a high debt ratio, it has strong and steady financial performance with increasing margins. Second, it only services a small segment of the market and has a limited number of customers, so a shift in consumer preferences could be unfavorable.
"The issue is fully priced at a P/E ratio of around 39 times; thus, after considering all the factors, we will recommend to subscribe this issue for high risk investors for long term," said the brokerage.
Canara Bank Securities Ltd
According to the brokerage, the company's debt to equity ratio appears to be higher than that of its competitors in the same sector. However, the company's unique offering and B2B business strategy support long-term relationships with a variety of customers, guaranteeing an expanding order book and steady margin.
As per the report the company primarily derives its income from the United States (about 63% of revenues), serving up-and-coming sectors like clean technology, power automation, and mobility. With 80 customers, the company had an order book worth ₹1,190 crores as of November 2022.
The brokerage has recommend to 'subscribe' for long term rating for the IPO.
Choice Equity Broking Private Ltd
"At higher price band, the company is demanding an enterprise value/ trailing twelve months (EV/TTM) sales multiple of 3.1 times, which is at discount to the peer average of 6.3 times. Based on our FY24E forecasts, the demanded EV/Sales is around 2.3 times, which seems to be attractive for a company like Avalon, which is operating in high-growth EMS space. Thus, we assign a 'subscribe' rating for the issue," said the brokerage.
Jainam Broking Ltd
According to the brokerage's report, investors may subscribe to the IPO based on factors like the fact that the company, in terms of revenue in fiscal 2022, is one of the market leaders in India, and that its services include PCB design and assembly, cable assembly and wire harnesses, sheet metal fabrication, etc.
The brokerage considers the company's end-to-end integrated solutions, solid relationships with clients and market participants, well-diversified business, global delivery footprint with high quality standards and advanced manufacturing and assembly capabilities, and experienced board, management, and operating team to be advantageous to the company.
On the contrary, any disruption in a smooth operation of manufacturing facilities, any change in the price of raw materials, and non-compliance with specific reporting requirements under the Foreign Exchange Management Act (FEMA) may be unfavorable to the company.
"The company is not planning to do any further capital expansion through IPO money. All of the money will be used for funding the capital requirements and debt repayment. The cost of imported raw materials and expensive valuations are the points of concern," added the brokerage.
HEM Securities Ltd
The brokerage claims that the company has high entry barriers to business because it offers end-to-end integrated solutions and a "One Stop Shop" for electronics and electro-mechanical design and production services.
Business diversification within the company creates strong opportunities for development. Along with long-standing relationships with a prestigious clientele, the company also has a strong commitment to global delivery, high quality standards, and cutting-edge manufacturing and assembly capabilities.
"However, looking at the B2C market size as compare to B2B which company is into, valuation looks little bit on higher side. Hence, we recommend 'Long Term Subscribe' on issue," said the brokerage house.
Asit C. Mehta Investment Interrmediates Ltd (ACMIIL)
“Favourable policy initiatives such as ‘Make in India’ program of GOI, leading to high customer retention and cost-efficient manufacturing. Further, Company stand to benefit from the tailwinds of Aatmanirbhar Bharat and the Production Linked Incentive Scheme (PLI Scheme) across verticals, which would help to reduce import dependence as well as position India as an export hub. Hence, we recommend subscribing the issue from a long-term prospective,” said the brokerage.
Anand Rathi Share and Stock Brokers Ltd
According to the brokerage's report, the company has end-to-end integrated solutions and offers a "One Stop Shop" for electronics and electro-mechanical design and manufacturing services with high entry barriers to business thanks to its collective cross-industry experience, customer engagement capabilities, and leading position in the high mix flexible volume product manufacturing segment. It also has a global delivery footprint with high quality standards and advanced manufacturing.
"At the upper price band company is valuing at P/E of 41x with a market cap of ₹28,467 million post issue of equity shares and return on net worth of 85%. We believe that company is fully priced and recommend a 'Subscribe- Long term' rating to the IPO," said the brokerage.
SBICAP Securities Ltd
“The IPO, at the upper band of ₹436, is valued at P/E multiple of 55.5 times based on 8MFY23 annualised earnings on post issue capital. The IPO looks fairly priced across various valuation parameters when compared with its close peers. Investor can ‘subscribe’ the issue for long term investment perspective,” said the brokerage.
