Avalon Technologies’ ₹865 cr IPO opens today: 10 things to know

The ₹865 crore-initial public offering (IPO) of Avalon Technologies, a global electronic manufacturing services company, will open for subscription today. The issue comprises a fresh issuance of shares worth ₹320 crore, and an offer for sale (OFS) of equity shares worth ₹545 crore by promoters and other shareholders.

Ahead of the IPO, the Chennai-headquartered company raised ₹389.25 crore from 24 anchor investors. The company allocated 8,927,751 equity shares at ₹436 per equity share with face value of ₹2 per share to anchor investors including Nomura, Goldman Sachs, Aditya Birla Sun Life Insurance Company, HDFC Life Insurance Company, Franklin India Mutual Fund, Ashoka India Opportunities Fund, HDFC Mutual Fund and WhiteOak Capital.

Here are ten things to know about Avalon’s IPO before you subscribe:

IPO Dates: The first issue of the financial year 2023-24 will open for subscription today and close on April 6. The shares of the company are expected to list on the domestic stock exchanges BSE and NSE on April 18, 2023.

Price Band: The price band has been fixed at ₹415-436, per share, with a face value of ₹2 each.

Lot Size: Investors can apply for a minimum of 34 equity shares and in multiples of 34 shares thereafter. With this, the minimum application amount for retail investors is ₹14,824 per lot (34 shares), and the maximum is ₹1,92,712 for 13 lots (442 shares).

Issue Size: The EMS company has cut its IPO size to ₹865 crore from ₹1,025 crore planned earlier after it raised ₹160 crore in the pre-IPO placement, which took place between October 2022 and February 2023. The issue comprises of ₹320 crore from the fresh issuance of equity shares and ₹545 crore through an OFS of shares by promoters and existing shareholders. The OFS will see the sale of shares to the tune of ₹131 crore by Kunhamed Bicha, up to ₹172 crore by Bhaskar Srinivasan, up to ₹10 crore by TP Imbichammad, up to ₹10 crore by Mariyam Bicha, up to ₹75.50 crore each by Anand Kumar and Luquman Veedu Ediyanam, and ₹65 crore by Sareday Seshu Kumar.

Objective of IPO: Of the ₹320 crore raised from fresh issue, Avalon proposes to utilise ₹145 crore towards prepayment or repayment of all or a portion of certain outstanding borrowings availed by the company and one of its material subsidiaries, Avalon Technology and Services Private Limited (ATSPL). As of January 2023, the consolidated outstanding borrowings of Avalon Technologies stood at ₹324.12 crore.

Shareholders Quota: As per document filed with SEBI, the company has reserved 75% of the offer for qualified institutional buyers (QIB), 15% for high networth individuals (HNI), and the remaining 10% for retail investors.

Financial Performance: For the financial year 2021-22 (FY22), the company’s total income rose to ₹851.65 crore from ₹695.90 crore in the previous fiscal. The net profit for the year surged to ₹68.16 crore compared with ₹23.08 crore a year ago. On the operational front, EBITDA margin improved to 11.6% from 9.58% a year ago.

Promoters: The company is founded and promoted by Kunhamed Bicha and Bhaskar Srinivasan, who collectively own 53.38% stake in the firm. Kunhamed Bicha is Chairman and Managing Director of the company and Bhaskar Srinivasan is Non-Executive Director of Avalon. As per the shareholding pattern filed with SEBI, the promoter entities held 70.75% stake in the company, and the remaining 29.25% is owned by public shareholders, including UNIFI Financial, Ashoka India Equity Investment Trust Plc, and India Acorn Fund.

Outlook & Valuation: The issue has received “Subscribe” rating from most of brokerages. Swastika Investmart in its report said that the issue is fully priced at a price-to-earnings (P/E) ratio of around 39X and has recommend to subsribe this issue for high risk Investors for long term. According to Reliance Securities, the IPO is valued at 55.5 times P/E at the upper price range, which is less than its competitors based on FY23 annualised financials. The brokerage has recommended 'subscribe' to the issue.

Risk Factors: The company had negative cash flows from operating activities in the past and it depended on limited number of customers for major portion of its revenue. Adding to it, the company sources raw material from suppliers, primarily on purchase order basis, who may not perform their contractual obligations in a timely manner, or at all. Any increase in the cost of raw material or components, delay, shortage, interruption or reduction in the supply of raw materials and major production inputs to manufacture products may adversely affect their business, results of operations, cash flows and financial condition.  

Established in 1999, Avalon delivers box build solutions, with a focus on high value precision engineered products. Its key customers include Kyosan India, Zonar Systems Inc., Collins Aerospace, e-Infochips, The US Malabar Company, Meggitt (Securaplane Technologies Inc) and Systech Corporation, with whom it has had relationships for more than seven years.

The company's key customers include Faiveley Transport Rail Technologies, TransDigm Technologies, Zonar Systems Inc., Collins Aerospace, Caire Inc, e-Infochips, Haas Automation, TMEIC, and Ohmium India. Avalon has 12 manufacturing units located across the United States and India: one unit in Atlanta, Georgia, one unit in Fremont, California, seven units in Chennai, Tamil Nadu, one unit in Kanchipuram, Tamil Nadu and two units in Bengaluru, Karnataka.