Avalon Technologies is up 68% YoY. Buy the stock. It has more upside left
Avalon provides solutions in manufacturing from design, analysis to mass production. It provides customers with integrated manufacturing facilities.
Avalon Technologies reported a strong quarter, with revenue growing 37% YoY in 2QFY25, led by a healthy recovery in US operations (up 57% YoY) and consistent performance in the Indian business (up 16% YoY). Operating profitability improved (up 470bp) led by a shift in ~45- 50% of the US manufacturing operations to India and favorable operating leverage.
Motilal Oswal has recommended a buy on the following rationale:
With US operations now witnessing a healthy recovery and the Indian business experiencing growth, we expect AVALON’s revenue and profitability to experience healthy improvement from 2HFY25 onwards. We also believe the company’s long-term revenue trajectory will continue to be strong, backed by: 1) the addition of new customers in the US and Indian markets and 2) order inflows from high-growth/high-margin industries, such as Clean Energy, Mobility, and Industrials.
We estimate AVALON to post a CAGR of 31%/57%/83% in revenue/EBITDA/adj. PAT over FY24-FY27 on account of strong growth and healthy order inflows. Reiterate BUY with a TP of INR920 (premised on 35x FY27E EPS).