Avalon Technologies IPO to open on April 3

Avalon Technologies, the first initial public offering (IPO) of the financial year 2023-24, is set to open for subscription next week.

Here are 10 key things to know about the public offer:

1) IPO Dates
The first day of bidding for this maiden public issue would be April 3, and the offer will close on April 6.

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

3) Public Issue size
Avalon intends to raise Rs 865 crore through its IPO that comprises a fresh issuance of shares worth Rs 320 crore, and an offer for sale (OFS) of equity shares worth Rs 545 crore by promoters and other shareholders.

The OFS includes equity shares worth Rs 131 crore being sold by Kunhamed Bicha, shares worth Rs 172 crore being sold by Bhaskar Srinivasan, Rs 16 crore by T P Imbichammad, Rs 10 crore by Mariyam Bicha, Rs 65 crore by Sareday Seshu Kumar. Also, Anand Kumar and Luquman Veedu Ediyanam will each sell shares worth Rs 75.5 crore in the OFS.

The public issue has been reduced from Rs 1,025 crore to Rs 865 crore after the company mopped up Rs 160 crore via pre-IPO placement.

The company has already raised Rs 389.25 crore from anchor investors on March 31, hence Rs 475.75 crore worth of shares will be up for sale during April 3-6.

4) Objectives of the issue
The electronic manufacturing services (EMS) company is going to utilise the fresh issue proceeds for repaying debts (Rs 145 crore), and working capital requirements (Rs 90 crore), besides general corporate purposes.
The funds raised via the OFS will go to the selling shareholders, not the company.

5) Lot size and investors’ reserved portion
Investors can bid for a minimum of 34 equity shares and in multiples of 34 shares thereafter. With this, the minimum application size for retail investors would be Rs 14,824 per lot (34 shares), and the maximum would be Rs 1,92,712 for 13 lots (442 shares).

The company has reserved 75 percent of the offer for qualified institutional buyers (QIB), 15 percent for high networth individuals (HNI), and the remaining 10 percent for retail investors.

6) Company profile
Incorporated in 1999 at Chennai, Avalon Technologies is a fully-integrated EMS company with end-to-end operations in delivering box build solutions, with a focus on high-value precision-engineered products.

It provides a full-stack product and solution suite, right from printed circuit board (PCB) design and assembly, to the manufacture of complete electronic systems (box build). Its customers include global original equipment manufacturers (OEMs), including OEMs located in the United States, China, Netherlands, and Japan.

The company caters to a mix of established and long-product-lifecycle industries, such as industrial, mobility, and medical devices, and high-growth sunrise industries, such as solar power, electric vehicles, and hydrogen fuel in the clean energy sector, and digital infrastructure in the communications sector.

With 12 manufacturing units across the United States and India, Avalon has increased its customer base from 54 in FY19-20 to 89 as of November 2022, and grown its order book from Rs 504.67 crore in FY19-20 to Rs 1,190.25 crore in that time.

Per a Frost & Sullivan report, the EMS sector is expected to grow at a significant pace. While the EMS market in India was valued at Rs 1.46 lakh crore ($20 billion) in FY21-22 and is expected to grow at a CAGR of 32.3 percent to hit Rs 4.5 lakh crore ($60 billion) in FY25-26, the US EMS market was valued at approximately $140 billion in 2021, and is expected to grow at a CAGR of 6.1 percent to $188 billion by 2026.

The company compares itself with Dixon Technologies, Amber Enterprises, Syrma SGS Technology, and Kaynes Technology.

7) Financials
At Rs 34.2 crore, Avalon has recorded a 19.2 percent year-on-year (YoY) decline in profit after tax (PAT) for the eight-month period ended November FY22-23 on a high base due to exceptional income in the year-ago period. The profit margin dropped to 5.84 percent from 7.81 percent in the same period.

Consolidated revenue from operations increased 8 percent YoY to Rs 585 crore for the eight-month period of FY22-23, with the clean energy segment contributing 23 percent, mobility and transportation 22 percent, industrials 28 percent, communication 9 percent, and 17 percent by medical and other segments.

On the operating front, EBITDA (earnings before interest, tax, depreciation, and amortisation) grew 16.8 percent YoY to Rs 68 crore, while the margin expanded by 87 basis points (bps) to 11.63 percent in the same period.

For the financial year 2021-22, the company has clocked a 195 percent growth in PAT at Rs 68.2 crore and a 22 percent rise in revenue at Rs 841 crore, compared to the previous year. Net profit margin jumped 476 bps to 8.1 percent in the same period. EBITDA increased 47.5 percent to Rs 97.5 crore, with the margin expanding 202 bps to 11.6 percent .

The company’s total borrowings will be reduced to around Rs 150 crore post the IPO from about Rs 300 crore now, R M Subramanian, CFO, Avalon Enterprises, said.

8) Promoters
Kunhamed Bicha, Chairman and Managing Director, and Bhaskar Srinivasan, Non-Executive Director, are the founders and promoters of Avalon, who collectively hold 53.38 percent of the company’s shares. The total promoter and promoter group holding is 70.75 percent, and the remaining 29.25 percent is held by public shareholders, including UNIFI Financial, Ashoka India Equity Investment Trust Plc, and India Acorn Fund.

R M Subramanian is the Chief Financial Officer of the company, while Dr. Rajesh V is the Company Secretary, Compliance Officer, and Legal Head of the firm.

9) Risks and concerns
Here are the key risks and concerns highlighted by brokerages (Swastika Investmart, Canara Bank Securities, Reliance Securities).

• The company has had negative cash flow in the past.
• Dependence on a limited number of customers for a major portion of its revenues.
• Disruption in the operation of its manufacturing facilities.
• The company may be subject to financial and reputational risk due to product quality and liability issues.
• Any increase in the cost of raw materials or components, or any delay, shortage or interruption in the supply of raw materials and major production inputs may adversely affect the operations, cash flow, and financials of the business.
• Failure to maintain optimal inventory levels could lead to increase in inventory holding costs.
• Foreign exchange fluctuations.

10) Allotment and Listing Dates
Avalon will finalise the IPO share allotment by April 12 and the refunds will be credited to the bank accounts of unsuccessful investors by April 13. Eligible investors will get shares in their demat accounts by April 17.

Finally, its stock will be listed on the BSE and NSE on April 18.

JM Financial, DAM Capital Advisors, IIFL Securities, and Nomura Financial Advisory and Securities (India) are the merchant bankers to the issue, while the registrar to the offer is Link Intime India. Moneycontrol