Avalon Technologies Ltd: Annual Report 2023-24 Analysis

Overview #

Comprehensive Analysis #

This analysis delves into the 2023-24 Annual Report of Avalon Technologies Limited, covering its financial performance, business segments, risk factors, and ESG initiatives.

I. Financial Performance:

Avalon’s FY2023-24 consolidated financial results show a mixed picture, largely impacted by macroeconomic headwinds in its key US market.

• Revenue: Consolidated revenue decreased by 8.2% YoY to INR 867 crore, primarily due to a 16% drop in US revenue (destocking by US clients). Indian operations, accounting for 77% of revenue (INR 670 crore), remained robust and profitable.
• Profitability: Lower revenue and higher fixed costs negatively impacted operating leverage. EBITDA fell by 44.5% YoY to INR 62 crore (7.2% margin), while PAT decreased by 46.7% to INR 28 crore (3.2% margin). Indian operations maintained strong EBITDA (12.7%) and PAT (8.5%) margins. US operations reported a post-tax loss of INR 30 crore.
• Order Book: Despite the challenges, the order book increased by 11% YoY to INR 1,366 crore (executable over 14 months). Long-term contracts showed significant growth (58% YoY) reaching INR 949 crore, providing good revenue visibility for the next 2-3 years.
• Liquidity: Avalon maintained a strong cash position (INR 118 crore at year-end), with INR 50 crore earmarked for debt repayment in the US subsidiary. Existing working capital lines (INR 185 crore) provide flexibility.
• Key Financial Ratios:
  • ROCE: Declined significantly to 10% (from 24.6% in FY2023), mainly due to lower revenues and increased equity from the IPO.
  • Asset Turnover: 8.3x, indicating efficient asset utilization (though slightly down from 10.4x).
  • Net Debt/EBITDA: -0.3x (significantly improved from 2.7x), reflecting debt repayment from IPO proceeds.
  • Inventory Days: Increased to 118 days (from 106 days), partially due to lower revenue.
  • Receivables Days: Slightly improved to 79 days (from 80 days).
  • Payables Days: Decreased to 36 days (from 41 days).
  • Net Working Capital Days: Increased to 161 days (from 145 days).

II. Business Segments:

Avalon operates across diverse, high-growth sectors with a hybrid manufacturing model (India & US). Key segments and their performance:

• Clean Energy: Experienced a decline in revenue (18% of total) due to US destocking, but substantial future potential is highlighted due to increased restocking and the Inflation Reduction Act (IRA). Key products include solar hybrid systems, inverters, and charge controllers.
• Mobility (Aerospace, Rail, Automotive): Shows strong growth potential. The company secured a 15-year master agreement with a leading aerospace player and is actively involved in India’s Kavach anti-collision railway system. Automotive wins in battery management and motion control systems are expected to ramp up.
• Communication: Focus on 5G technologies, with products like baseband units (BBU), digital antennas, and control panel systems. Growing demand is projected.
• Industrials: Displays significant revenue growth (28% of total). The company supplies power electronics and transformers to various industrial clients.
• Medical: Focus on design and manufacturing for medical devices. Growth potential exists, though specific FY2024 revenue is not broken down.
• Other (Defence, Servers, etc.): Emerging segments with prototype orders indicating potential future growth.

III. Risks:

The annual report identifies several key risks:

• Macroeconomic Risk: Economic slowdown, inflation, and geopolitical instability in key markets (US) can significantly impact demand and profitability. Mitigation strategies include diversification and cost optimization.
• Raw Material Risk: Increased costs, shortages, or supply chain disruptions can affect operations. Mitigation involves maintaining sufficient inventory and securing reliable suppliers.
• Currency Fluctuation Risk: Exchange rate volatility impacts margins due to imports and exports. Mitigation includes monitoring and hedging strategies.
• Customer Concentration Risk: Over-reliance on a few key customers poses a risk. Mitigation involves securing new customers and increasing wallet share with existing ones.
• Geographic Concentration Risk: Predominant US market exposure makes the company vulnerable to regional economic downturn. Mitigation includes expanding in India and other global markets.
• Operational Risk: Manufacturing facility breakdowns or supply chain issues can disrupt operations. Mitigation includes regular maintenance and robust contingency plans.

IV. ESG Initiatives (Business Responsibility & Sustainability Report):

Avalon’s BRSR highlights its commitment to ESG principles, although data provided is limited and in some cases, incomplete.

• Environmental:
  • Focus on energy conservation (using renewable energy sources).
  • Initiatives towards reducing greenhouse gas emissions (Scope 1 & 2). An independent assessment (TÜV SÜD) was conducted.
  • Waste management programs, including recycling and responsible disposal.
  • Adherence to EPR regulations. Registration with the Pollution Control Board is pending.
• Social:
  • Employee well-being initiatives (health check-ups, insurance, training, and engagement programs).
  • Measures to improve workplace safety, with zero reported accidents.
  • Commitment to equal opportunity and inclusion.
  • Focus on training and development to improve worker skills.
• Governance:
  • Robust corporate governance framework, with well-defined Board committees.
  • Transparency and accountability measures.
  • Whistleblower policy.

V. Overall Assessment:

Avalon Technologies reported a challenging FY2023-24 due to the temporary downturn in the US market. However, the company demonstrated resilience through strong Indian operations and a growing order book with significant long-term contracts. The company’s commitment to expanding its manufacturing capabilities in India and its diversification across multiple high-growth sectors position it favorably for future growth. The ESG report indicates a commitment to sustainability, but more detailed data and targets would enhance transparency and investor confidence. The company’s financial performance and future prospects hinge on successfully navigating macroeconomic uncertainty, especially in the US, and capitalizing on the growth potential in India and other markets. The significant increase in long-term contracts demonstrates confidence in future prospects. Strengthening its management team is also a positive sign.

Detailed Analysis #

Balance Sheet #

Asset Analysis #

The values for Avalon Technologies Limited’s financial statement items, as reported in the provided annual report, are as follows (all figures are in INR Millions):

• Total Assets: 7,820.74 (Standalone) and 11,887.45 (Consolidated) Note that the consolidated figures include the assets of Avalon’s subsidiaries.

• Current Assets: 5,067.74 (Standalone) and 10,187.85 (Consolidated). Again, the consolidated figure includes the subsidiaries’ current assets.

• Cash and Cash Equivalents: 240.39 (Standalone) and 423.40 (Consolidated).

• Accounts Receivable (Trade Receivables): 1,743.29 (Standalone) and 1,868.56 (Consolidated).

• Inventory: 1,918.58 (Standalone) and 3,163.42 (Consolidated).

It’s crucial to remember that the standalone figures represent only Avalon Technologies Limited’s assets, while the consolidated figures reflect the combined assets of the parent company and its subsidiaries. Therefore, the consolidated figures provide a more complete picture of the Group’s overall financial position.

Liability Analysis #

Here are the liability figures for Avalon Technologies Limited, from the provided annual report, in INR Millions:

• Total Liabilities: 1,030.33 (Non-Current) + 2,803.88 (Current) = 3,834.21 (Consolidated). Remember that the consolidated figures include the liabilities of Avalon’s subsidiaries. Standalone figures are not explicitly provided in a summarized form but can be derived from the standalone balance sheet.

• Current Liabilities: 2,803.88 (Consolidated). Standalone figures are not explicitly summarized but can be derived from the standalone balance sheet.

• Long-Term Debt: This is not explicitly stated as a single line item. However, we can derive it by adding together the non-current portions of borrowings and lease liabilities: 533.48 (Non-Current Borrowings) + 345.56 (Non-Current Lease Liabilities) = 879.04 (Consolidated). The standalone long-term debt can be derived from the standalone balance sheet (but it is not presented as a clearly defined line item and the figures need to be summed up from the relevant sections).

• Accounts Payable (Trade Payables): 482.75 (Standalone) and 974.04 (Consolidated). The consolidated figure includes the accounts payable of subsidiaries.

It is important to note that the consolidated figures include the liabilities of all subsidiaries, providing a comprehensive view of the Group’s financial obligations. The standalone figures refer only to the parent company’s liabilities and need to be extracted and calculated from the standalone balance sheet.

Equity Analysis #

Here’s a breakdown of the equity figures for Avalon Technologies Limited, from the provided annual report, in INR Millions:

• Shareholders’ Equity: 6,731.69 (Standalone) and 5,473.41 (Consolidated). The difference is due to the inclusion of non-controlling interests (minority shareholders) in the consolidated figures. The standalone figures show only the equity attributable to Avalon’s shareholders.

• Retained Earnings: 324.86 (Standalone Profit for the year) + 1,937.45 (Opening Balance) + 0.91 (Other Comprehensive Income) = 2,263.22 (Standalone). The closing balance is provided as 2,309.53 in the standalone statement of changes in equity. The consolidated retained earnings is 1,763.24.

• Share Capital: 131.43 (Standalone) and 131.43 (Consolidated). Note that this represents the equity share capital and will be the same in both the standalone and consolidated statements. The consolidated statement also has a Non-Controlling interest which needs to be accounted for while calculating the total equity.

It is important to emphasize that the consolidated figures encompass the equity of all subsidiaries, presenting a holistic picture of the Group’s ownership structure. Standalone figures represent only the equity attributable to Avalon’s shareholders. There is a discrepancy between the reported retained earnings in the Profit & Loss statement and the Statement of Changes in Equity. The retained earnings figure in the statement of changes in equity (2,309.53 standalone & 1,763.24 consolidated) should be considered more accurate, as it accounts for all equity transactions.

Income Statement #

Operating Performance #

Here’s a summary of the key income statement items for Avalon Technologies Limited, from the provided annual report, in INR Millions:

Standalone:

• Revenue: 4,416.82
• Cost of Revenue: 3,270.43 + 69.76 (change in inventory) = 3,340.19
• Gross Profit: 4,416.82 - 3,340.19 = 1,076.63
• Operating Expenses: 487.86 (Employee Benefits) + 25.94 (Finance Costs) + 51.98 (Depreciation & Amortization) + 270.68 (Other Expenses) = 836.46
• Operating Income: 1,076.63 - 836.46 = 240.17

Consolidated:

• Revenue: 8,671.68
• Cost of Revenue: 5,522.77 + 0.55 (change in inventory) = 5,523.32
• Gross Profit: 8,671.68 - 5,523.32 = 3,148.36
• Operating Expenses: 1,849.87 (Employee Benefits) + 164.01 (Finance Costs) + 228.98 (Depreciation & Amortization) + 673.69 (Other Expenses) = 2,916.55
• Operating Income (EBITDA): 3,148.36 - 2,916.55 = 231.81

Important Considerations:

• Inventory Changes: The “change in inventories” is included in the cost of revenue calculation to reflect the impact of inventory increases or decreases on the cost of goods sold. A positive change (increase in inventory) adds to cost of revenue, while a negative change (decrease) subtracts from it.

• Standalone vs. Consolidated: The standalone figures represent only Avalon Technologies Limited’s results, while the consolidated figures include the results of all subsidiaries. The consolidated figures are a more complete representation of the entire group’s performance.

• EBITDA: The consolidated operating income is presented as EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) in the report. For a more precise operating income figure, you would need to subtract interest and taxes from the EBITDA, which are not separately itemized for the consolidated figures in the provided summary tables.

Remember that these calculations are based on the summarized information available in the annual report and some line items in the consolidated statements require further breakdown to be entirely accurate. Always refer to the full financial statements for the most precise details.

Bottom Line Metrics #

Here’s a summary of the key profitability and earnings per share (EPS) figures for Avalon Technologies Limited, from the provided annual report, in INR Millions, unless otherwise stated:

Standalone:

• Net Income (Profit After Tax): 324.86
• EBITDA: This is not explicitly stated for standalone figures, it can be calculated by adding back depreciation, amortization and finance costs to the profit before tax. 432.59 (PBT) + 51.98 (Depreciation) + 25.94 (Finance Costs) = 432.59 + 51.98 + 25.94 = 510.51
• Basic EPS: 4.98 per share
• Diluted EPS: 4.87 per share

Consolidated:

• Net Income (Profit After Tax): 279.85
• EBITDA: 625 (This is explicitly stated in the report)
• Basic EPS: 4.29 per share
• Diluted EPS: 4.19 per share

Important Considerations:

• Standalone vs. Consolidated: As before, the standalone figures represent only Avalon Technologies Limited’s results, while the consolidated figures incorporate the results of all its subsidiaries.
• EBITDA Calculation: Standalone EBITDA had to be calculated as it’s not provided directly. The consolidated EBITDA is explicitly provided in the report’s summary, but a more precise measure of operating income would require adjustments for interest and taxes, which are not separately detailed for consolidated figures in the provided summary.
• EPS Calculation: EPS calculations are based on the weighted average number of outstanding shares, which is affected by factors such as bonus share issuances and share options.

The consolidated figures provide a more complete picture of the entire group’s financial performance. Refer to the full financial statements for the most detailed and precise values. There are some discrepancies and rounding differences between the numbers in the various financial statements.

Cash Flow #

Cash Flow Components #

Here’s a summary of the cash flow statement items for Avalon Technologies Limited, from the provided annual report, in INR Millions:

Standalone: The Standalone Statement of Cash Flows is not explicitly provided in the document summary. It would need to be extracted and calculated from the full Standalone Statement of Cash Flows.

Consolidated:

• Operating Cash Flow: (97.83) Note that this is a net figure, meaning it is cash used in operating activities.
• Investing Cash Flow: (2,047.53) This is also a net figure representing net cash used in investing activities.
• Financing Cash Flow: (1,813.40) This is a net figure representing net cash used in financing activities.

Important Considerations:

• Net Figures: All the figures above are net cash flows. A negative sign indicates a net outflow of cash (more cash used than generated), while a positive sign indicates a net inflow of cash (more cash generated than used). The detailed cash flow statement would show the individual components of each category.

• Consolidated Figures: These figures represent the consolidated cash flows of Avalon Technologies Limited and all its subsidiaries. Standalone data is not readily available from the provided summary.

• Reconciliation: The net change in cash and cash equivalents during the period should reconcile with the sum of the net cash flows from operating, investing, and financing activities.

To get the precise values for each component of operating, investing, and financing cash flows, you must refer to the complete Consolidated Statement of Cash Flows presented in the annual report. The figures above are merely a summary of the net amounts.

Cash Flow Metrics #

The annual report does not explicitly state free cash flow, but we can estimate it and calculate the capital expenditure and dividends.

Capital Expenditure (CAPEX):

The annual report does not directly provide a single figure for capital expenditure. CAPEX information is dispersed throughout the report in the discussion on capital work in progress and the Management Discussion & Analysis section. To calculate a precise CAPEX figure, you would need to carefully review all capital asset additions described within the report.

Dividends Paid:

The annual report clearly states that no dividends were paid during FY2023-24.

Free Cash Flow (FCF):

Free cash flow is not explicitly reported. However, we can estimate it using the available data. A common calculation is:

FCF = Operating Cash Flow - Capital Expenditures

Given the limitations of directly extracting precise CAPEX from the provided report information, we cannot calculate the free cash flow precisely. The information provided suggests the operating cash flow was negative (meaning cash used rather than generated). Along with the expectation that capital expenditures were positive (meaning cash was spent), it is likely that the free cash flow was also negative. To derive a precise free cash flow figure, you would need to carefully extract all capital expenditure details from the relevant sections of the annual report and subtract this figure from the (negative) operating cash flow figure.

In summary:

• Capital Expenditure (CAPEX): Cannot be precisely determined without a more detailed breakdown of capital asset additions from the full report.
• Dividends Paid: INR 0
• Free Cash Flow (FCF): Cannot be precisely determined from the summary data provided. It would be negative based on the available information on operating cash flow and expected CAPEX.

Always refer to the complete annual report for the most accurate figures.

Profitability Ratios #

Here’s a summary of the profitability ratios for Avalon Technologies Limited, calculated from the data in the annual report. Remember that all figures are in INR Millions unless otherwise stated, and that some rounding differences may exist due to the use of summarized data.

Standalone:

• Gross Margin: (Gross Profit / Revenue) * 100 = (1,076.63 / 4,416.82) * 100 = 24.37%
• Operating Margin: (Operating Income / Revenue) * 100 = (240.17 / 4,416.82) * 100 = 5.44%
• Net Profit Margin: (Net Income / Revenue) * 100 = (324.86 / 4,416.82) * 100 = 7.36%
• Return on Equity (ROE): (Net Income / Average Shareholders’ Equity) * 100 = (324.86 / [(6,569.94 + 6,731.69)/2]) * 100 = 4.88%
• Return on Assets (ROA): (Net Income / Average Total Assets) * 100 = (324.86 / [(9,441.56 + 7,820.74)/2]) * 100 = 3.26%

Consolidated:

• Gross Margin: (Gross Profit / Revenue) * 100 = (3,148.36 / 8,671.68) * 100 = 36.3%
• Operating Margin (EBITDA Margin): (EBITDA / Revenue) * 100 = (625 / 8,671.68) * 100 = 7.2%
• Net Profit Margin: (Net Income / Revenue) * 100 = (279.85 / 8,671.68) * 100 = 3.23%
• Return on Equity (ROE): (Net Income / Average Shareholders’ Equity) * 100 = (279.85 / [(5,370.19 + 5,473.41)/2]) * 100 = 5.16%
• Return on Assets (ROA): (Net Income / Average Total Assets) * 100 = (279.85 / [(11,887.45 + 9,441.56)/2]) * 100 = 2.23%

Important Considerations:

• Rounding: Slight variations might exist due to rounding of figures in the report’s summary tables.
• Standalone vs. Consolidated: Standalone figures represent only Avalon Technologies Limited, while consolidated figures include all subsidiaries. Consolidated results provide a broader view of the entire group’s financial health.
• Average Equity and Assets: ROE and ROA calculations utilize the average of the beginning and ending balances for equity and total assets, respectively.
• Operating Margin: The consolidated operating margin is presented as EBITDA margin because the income statement does not provide a clear breakdown of interest and taxes for consolidated results. To calculate a more precise operating margin, these amounts would need to be subtracted from EBITDA.

For precise and detailed ratios, consult the complete financial statements within the annual report. The figures presented here are based on the summarized financial information provided.

Liquidity Ratios #

Calculating the liquidity ratios for Avalon Technologies Limited requires using the figures from the balance sheet. Here’s a calculation of the liquidity ratios using the data provided in the annual report summary. Remember that all figures are in INR Millions, and there might be slight discrepancies due to rounding in the summarized data. Also note that the standalone figures need to be derived from the full standalone balance sheet as they are not explicitly summarized in the report.

Consolidated:

• Current Ratio: Current Assets / Current Liabilities = 10,187.85 / 2,803.88 = 3.63
• Quick Ratio: (Current Assets - Inventories) / Current Liabilities = (10,187.85 - 3,163.42) / 2,803.88 = 2.50
• Cash Ratio: (Cash & Cash Equivalents + Marketable Securities) / Current Liabilities = (423.40 + 754.92) / 2,803.88 = 0.42

Standalone: The standalone figures are not explicitly provided in the summary table, they can be derived from the full standalone balance sheet. Using the values we calculated earlier:

• Current Ratio: Current Assets / Current Liabilities = 5067.74 / 972.53 = 5.21
• Quick Ratio: (Current Assets - Inventories) / Current Liabilities = (5067.74 - 1918.58) / 972.53 = 3.20
• Cash Ratio: (Cash & Cash Equivalents) / Current Liabilities = 240.39 / 972.53 = 0.25

Important Considerations:

• Rounding: Minor discrepancies might appear due to rounding differences in the summarized data presented in the report.
• Consolidated vs. Standalone: As always, the consolidated ratios reflect the combined liquidity of Avalon and its subsidiaries, providing a broader view. The standalone ratios reflect only the parent company’s liquidity.
• Marketable Securities: The quick ratio and cash ratio calculations for the consolidated figures include Marketable securities because they can be readily converted to cash. In the standalone data, no marketable securities are shown in the summary.
• Inventory: The quick ratio excludes inventories because they are not always easily or quickly converted to cash.

For precise liquidity ratio calculations, it’s essential to use the complete balance sheet figures from the annual report. The values presented here are based on the limited summary data provided.

Efficiency Ratios #

Calculating efficiency ratios requires using data from both the income statement and the balance sheet. Here’s a calculation of the efficiency ratios for Avalon Technologies Limited using the data from the annual report summary. Note that there might be minor discrepancies due to rounding, and the use of averages for balance sheet items. Standalone figures need to be calculated from the full standalone financial statements.

Consolidated:

• Asset Turnover: Revenue / Average Total Assets = 8,671.68 / [(11,887.45 + 9,441.56)/2] = 0.83x
• Inventory Turnover: Cost of Goods Sold / Average Inventory = 5,523.32 / [(3,178.99 + 3,163.42)/2] = 1.75x
• Receivables Turnover: Revenue / Average Accounts Receivable = 8,671.68 / [(2,062.01 + 1,868.56)/2] = 4.40x

Standalone: Standalone figures are not explicitly provided in the summary and must be extracted and calculated from the full standalone financial statements. Using the values calculated earlier:

• Asset Turnover: Revenue / Average Total Assets = 4,416.82 / [(9,441.56 + 7,820.74)/2] = 0.56x
• Inventory Turnover: Cost of Goods Sold / Average Inventory = 3,340.19 / [(1,735.34 + 1,918.58)/2] = 1.88x
• Receivables Turnover: Revenue / Average Accounts Receivable = 4,416.82 / [(1,319.67 + 1,743.29)/2] = 2.88x

Important Considerations:

• Rounding: Minor discrepancies are possible due to rounding in the report’s summary tables.
• Averages: These calculations use the average of the beginning and ending balance sheet values for total assets, inventory, and accounts receivable.
• Cost of Goods Sold: The consolidated cost of goods sold includes the cost of goods sold by subsidiaries. The standalone cost of goods sold is calculated using the figures we calculated earlier for standalone values.
• Consolidated vs. Standalone: The consolidated ratios represent the overall efficiency of the entire group, which is more complete than the standalone ratios which only represent the parent company’s performance.

To obtain the most precise results, you should use the complete data from the full financial statements of the annual report, not just the summaries. The values presented here are estimates based on the limited information from the summary tables.

Leverage Ratios #

Calculating leverage ratios requires data from both the balance sheet and the income statement. Here’s a calculation of the leverage ratios for Avalon Technologies Limited using the data provided in the annual report summary. Remember that there might be minor discrepancies due to rounding and the use of averages for balance sheet items. Standalone figures need to be derived from the full standalone financial statements, as they are not presented in a summarized form in the report.

Consolidated:

• Debt-to-Equity Ratio: Total Debt / Total Equity = (1,641.51 + 974.04 + 71.29) / 5,473.41 = 0.48 (Note: This uses Total Liabilities as a proxy for total debt. A more precise calculation would require separating current and non-current portions of liabilities to better define “total debt”)

• Debt-to-Assets Ratio: Total Debt / Total Assets = (1,641.51 + 974.04 + 71.29) / 11,887.45 = 0.22 (Note: This also uses Total Liabilities as a proxy for total debt and may not be entirely precise.)

• Interest Coverage Ratio: Earnings Before Interest and Taxes (EBIT) / Interest Expense = (380.55 + 164.01) / 164.01 = 3.31 (Note: This uses the PBT figure and adds back interest expense. A more precise EBIT would require adjustments for non-cash items within operating expenses. This is the consolidated interest expense, a more precise measure would require calculating the interest expense from the interest bearing liabilities shown in the balance sheet)

Standalone: Standalone figures must be derived from the complete standalone financial statements as they are not summarized directly in the provided report summary. We need to make several assumptions to estimate these values. Using figures from our previous calculations:

• Debt-to-Equity Ratio: Total Debt / Total Equity = (116.52 + 972.53) / 6731.69 = 0.16 (Note: This uses the sum of current and non-current liabilities as total debt. A more precise calculation would require carefully identifying the portion of the liabilities which are actual debt obligations)

• Debt-to-Assets Ratio: Total Debt / Total Assets = (116.52 + 972.53) / 7820.74 = 0.14 (Note: This calculation uses the sum of current and non-current liabilities as total debt and may not be fully accurate).

• Interest Coverage Ratio: EBIT / Interest Expense = (432.59 + 25.94) / 25.94 = 17.46 (Note: This uses the PBT figure from the standalone income statement and adds back the interest expense from the same statement. It may not be entirely accurate due to the lack of a precise standalone EBIT figure)

Important Considerations:

• Rounding: Minor discrepancies may be observed due to the rounding of numbers in the summary tables of the annual report.
• Debt Definition: The calculations above use the total liabilities as a proxy for total debt. A more accurate calculation would involve careful identification and summation of the specific debt components from the balance sheet which represent debt obligations only. Lease liabilities are included within the total liabilities and may or may not be considered as a part of the debt, depending on the context.
• EBIT Calculation: The precise EBIT (earnings before interest and taxes) is not directly provided in the summarized income statements and thus needs to be estimated by using the PBT and adding back the interest expenses.
• Consolidated vs. Standalone: Consolidated ratios represent the financial leverage of the entire group, while standalone ratios reflect the leverage of the parent company alone. Consolidated figures provide a more complete financial view of the entity.

To get the most accurate leverage ratios, it is recommended to use the complete financial statements from the annual report and make careful calculations rather than using the summarized data. The values above are estimates based on the available summary information and may not be entirely precise.

Market Analysis #

Market Metrics #

The annual report provides some but not all of the information needed to calculate these market-based ratios. Therefore, we can calculate some, but not all, of these metrics. Also, since market data fluctuates constantly, any values calculated will be snapshots at a particular point in time.

Market Cap:

The market cap is not directly provided. To calculate this, you would need the current market price per share and the total number of outstanding shares. The number of outstanding shares is provided (6,57,12,692), but the current market price is not. Therefore, we cannot calculate the market cap.

P/E Ratio (Price-to-Earnings Ratio):

The P/E ratio is not directly provided and cannot be calculated without the current market price per share and the earnings per share (EPS). While we calculated the EPS earlier, the current market price is not available. Therefore, we cannot calculate the P/E ratio.

P/B Ratio (Price-to-Book Ratio):

The P/B ratio also cannot be calculated without the current market price per share. We have the book value per share (which can be derived from the shareholder’s equity figures), but without the market price, the P/B ratio cannot be calculated.

Dividend Yield:

The annual report states that no dividends were paid in FY2023-24. Therefore, the dividend yield is 0%.

Dividend Payout Ratio:

Since no dividends were paid, the dividend payout ratio is also 0%.

In summary:

• Market Cap: Cannot be calculated due to missing market price data.
• P/E Ratio: Cannot be calculated due to missing market price data.
• P/B Ratio: Cannot be calculated due to missing market price data.
• Dividend Yield: 0%
• Dividend Payout Ratio: 0%

To obtain these market-based ratios, you need the current market price per share, which is not included in the provided annual report. These ratios are highly dependent on the current market conditions.

Business Analysis #

Segment Analysis #

The annual report does not provide a complete breakdown of all the requested information for each business segment. Some data is available, but other key metrics (market share, precise geographic presence) are missing. This analysis will use the available information and highlight areas where data is absent.

Note: Revenue figures are in INR Millions unless otherwise stated. Growth rates are calculated by comparing FY2024 to FY2023. Margins represent EBITDA margins unless otherwise stated. Market share information is not provided in the report.

Missing Information:

• Revenue Breakdown for Several Segments: The report does not provide a detailed breakdown of revenue for several segments (Mobility, Communication, Medical, Other) beyond general descriptions.
• Growth Rates for Several Segments: Growth rates cannot be calculated for those segments without specific FY2023 revenue figures.
• Operating Margins: Apart from the 12.7% EBITDA margin for Indian Industrial operations, precise operating margins (EBITDA or otherwise) for other segments are not provided in the summary tables.
• Market Share: The report contains no information on market share for any of its business segments.
• Geographic Presence: The report offers broad geographic information, but lacks specific details on the precise market penetration within each region for various segments.

To obtain a more complete understanding of the segmental performance, a detailed review of the full annual report is necessary. The table above presents the information that was readily available from the summarized data.

Risk Management #

Risk Assessment #

The annual report identifies several key risk factors, but does not explicitly quantify the likelihood or severity of each risk using a standardized scale. This analysis will categorize the risks, describe them, and discuss the mitigation strategies mentioned in the report, while noting the lack of quantified likelihood and impact assessments.

Note: The risk categorization and severity assessments are subjective interpretations based on the information provided in the report.

Trends:

The identified trends suggest a shift from short-term challenges to improved prospects for long-term growth. The macroeconomic headwinds are expected to ease, while internal initiatives targeting cost reduction and supply chain stabilization are underway. The company’s strategic focus on new customer acquisitions and expansion into high-growth market segments should enhance resilience and profitability in future periods. However, geopolitical instability and supply chain vulnerabilities continue to be important factors to be considered.

Strategic Overview #

Management Assessment #

Avalon Technologies’ management highlights several key strategies, competitive advantages, market conditions, challenges, and opportunities in its annual report.

I. Key Strategies:

• Hybrid Manufacturing Model: Leveraging cost-effective manufacturing in India and strategic operations in the US to serve global customers while taking advantage of “Made in India” and “Made in USA” incentives.
• Vertical Integration: Offering end-to-end box-build solutions, encompassing design, manufacturing, testing, and logistics to provide a one-stop shop for customers. This reduces customer reliance on multiple vendors and increases efficiency.
• Focus on High-Growth Segments: Targeting high-value, high-margin segments in clean energy, mobility (aerospace, rail, automotive), communication, and industrials. This allows the company to capture opportunities in rapidly growing sectors.
• Customer Centricity: Prioritizing customer satisfaction through lifecycle engagement, proactive problem-solving, and value-added services to ensure repeat business and loyalty.
• Expansion and Capacity Building: Investing in new manufacturing facilities in India to meet increasing demand from both domestic and export markets. This increases production capacity and strengthens their presence in a key market.
• Talent Acquisition: Strengthening the management team by strategically hiring experienced professionals in key areas such as operations and sales. This will bolster operational efficiency and drive revenue growth.

II. Competitive Advantages:

• Vertical Integration: A significant advantage, offering complete, in-house solutions from design to delivery.
• Hybrid Manufacturing Model: A unique positioning that allows exploitation of cost advantages in India and access to US markets.
• Strong Customer Relationships: Long-standing partnerships with established industry leaders foster loyalty and repeat business.
• Global Footprint: Manufacturing facilities in both India and the US facilitate serving diverse customer needs and accessing multiple markets.
• Expertise in High-Mix, Flexible-Volume Manufacturing: Ability to efficiently handle complex projects with varying volumes, catering to diverse customer requirements.

III. Market Conditions:

• Global Economic Slowdown: The global economy is experiencing a slowdown with challenges in inflation, supply chain disruptions and geopolitical uncertainties. This has resulted in decreased customer spending.
• US Market Inventory Destocking: US customers initially reduced orders due to inventory destocking, although this trend has begun to ease.
• India’s Growing EMS Market: India is emerging as a significant global manufacturing hub, driven by government initiatives such as “Make in India,” attracting global companies and increasing demand for EMS services.
• Growth in Clean Energy and EV Sectors: Strong growth prospects exist in clean energy and electric vehicles, driven by government policies and increasing environmental concerns.
• Technological Advancements: Continuous advancements in electronics, 5G, IoT, and AI are driving demand for sophisticated electronic manufacturing services.

IV. Challenges:

• Macroeconomic Uncertainty: Global economic slowdown, inflation, and geopolitical risks pose significant challenges to the business environment and customer demand.
• Supply Chain Disruptions: Geopolitical tensions and pandemic-related issues continue to disrupt supply chains, impacting costs and lead times.
• Competition: The EMS industry is competitive, requiring ongoing innovation and efficiency improvements to maintain market share.
• Currency Fluctuations: Exchange rate volatility affects profitability, especially given their significant export business.
• US Market Slowdown: Inventory destocking in the US initially impacted revenue, although this trend is shifting to restocking.

V. Opportunities:

• Growth in the Indian Market: The expanding Indian EMS market presents significant opportunities for domestic and export-oriented businesses.
• Clean Energy and EV Revolution: The transition to clean energy and the rise of electric vehicles offer substantial growth potential for Avalon. The Inflation Reduction Act (IRA) in the US is creating substantial new opportunities.
• Expansion into New Technologies: 5G, IoT, AI, and other advancements drive demand for sophisticated EMS services.
• Government Initiatives: Government policies promoting domestic manufacturing in both India and the US (such as the Make in India initiative and the Inflation Reduction Act) create favorable conditions for growth.
• Increased Customer Spend: With the global supply chain beginning to stabilize and the inventory destocking phase coming to an end, the company is expecting a surge in customer spending and consequently a boost in manufacturing.

In summary, Avalon Technologies is pursuing a multi-pronged strategy focusing on vertical integration, a hybrid manufacturing model, and expansion into high-growth market segments. While macroeconomic headwinds and industry competition remain challenges, the company aims to leverage its competitive advantages and capitalize on significant growth opportunities in the Indian and US markets.

ESG Ratings #

The provided annual report does not include ESG ratings from any external rating agencies. While the report contains a Business Responsibility and Sustainability Report (BRSR), this is a self-reported assessment of the company’s ESG performance and does not represent an independent rating from a specialized ESG rating agency. To find ESG ratings, you would need to consult independent rating providers such as MSCI, Sustainalytics, Refinitiv, etc., and search for Avalon Technologies Limited’s rating on their platforms.

ESG Initiatives #

Avalon Technologies’ annual report outlines various environmental, social, and governance (ESG) initiatives, though the level of detail and quantification varies across different areas.

I. Environmental Initiatives:

• Energy Conservation: The company is actively engaged in energy conservation efforts. A significant portion of its lighting is powered by solar energy, and it has implemented energy-saving measures such as LED lighting upgrades and VFDs (Variable Frequency Drives) in air compressors. However, specific energy consumption data and reduction targets are not explicitly stated.
• Renewable Energy: The report mentions using renewable energy sources (solar) for up to 40% of its power needs through the Clean Development Mechanism (CDM). Further details on the implementation and effectiveness of this initiative are not provided.
• Waste Management: Avalon focuses on waste reduction and responsible disposal, including recycling efforts. Specific waste generation data and recycling rates are limited, though the report mentions selling plastic and e-waste to authorized recyclers. Hazardous waste is disposed of through TNPCB-authorized agencies. The company is committed to meeting the Extended Producer Responsibility (EPR) regulations, but registration with the Pollution Control Board is still pending.
• Greenhouse Gas (GHG) Emissions: The report discloses Scope 1 and 2 GHG emissions (25.61 and 1,909.30 metric tonnes of CO2 equivalent, respectively) and their intensity. TÜV SÜD conducted an independent assessment of these emissions, but specific reduction targets are not outlined. Details on the methods used to calculate the emission figures are absent.

II. Carbon Footprint:

Avalon’s reported Scope 1 and 2 GHG emissions in FY2023-24 totaled 1,934.91 metric tonnes of CO2 equivalent. While an independent assessment was conducted, the company does not present specific reduction targets or a detailed climate strategy. The report also does not provide information on Scope 3 emissions (value chain emissions). The intensity of the emissions per unit revenue is provided, but details on the method of calculation are not available.

III. Social Initiatives:

• Employee Well-being: The company invests in employee well-being through initiatives such as health check-ups, insurance coverage (medical, accident, maternity), and various engagement activities (birthday celebrations, team outings, etc.).
• Training and Development: Avalon provides both technical and non-technical training programs to enhance employee skills and knowledge. This includes training programs such as Kaizen, safety training, POSH (Prevention of Sexual Harassment of Women at Workplace) training, and other specialized skill-building initiatives.
• Diversity and Inclusion: The company aims to create an inclusive workplace, though specific DEI (Diversity, Equity, and Inclusion) metrics are missing.
• Community Engagement: The company engages in CSR (Corporate Social Responsibility) activities, but detailed descriptions of specific projects are limited and the impact assessment is not presented.

IV. Governance Practices:

• Board Composition and Committees: Avalon has a diverse board with a mix of executive, non-executive, and independent directors, including a woman director. The company has established several Board committees (Audit, Nomination & Remuneration, Stakeholders’ Relationship, and CSR) to oversee various aspects of governance.
• Transparency and Disclosure: The report demonstrates a commitment to transparency through disclosures on related party transactions, corporate governance practices, and ESG performance (although details and quantification could be improved).
• Risk Management: A Risk Management Committee has been formed during FY2024-25. The company has outlined risk management frameworks for various areas such as financial, operational and strategic risks.

V. Sustainability Goals:

The annual report does not explicitly state comprehensive, measurable sustainability goals. While it mentions various environmental and social initiatives, it lacks specific, quantifiable targets and timelines for achieving them. Further details on the company’s overall sustainability strategy are needed.

Overall:

Avalon Technologies demonstrates some commitment to ESG but needs to enhance the reporting of specific data and set quantifiable targets to showcase its progress effectively. The BRSR is a good starting point, but the company can improve transparency by presenting more detailed data on various metrics, including energy consumption, waste generation, GHG emissions, and social impact initiatives. Setting clear sustainability goals with associated targets and timelines would further improve the quality of their reporting and aid in investor assessments.

Additional Information #

Operational Metrics #

The annual report states that R&D expenditure for the fiscal year 2023-24 was INR 0 Million.

The total employee count (consolidated) as of March 31, 2024, was 2,096. The standalone employee count (only Avalon Technologies Limited) was 880 as of March 31, 2024.

Key Events #

The Avalon Technologies Limited annual report highlights several significant events during FY2023-24:

• IPO Listing: The company successfully completed its Initial Public Offering (IPO) and listed its shares on the National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE) on April 18, 2023. This was a major milestone for the company.

• New Manufacturing Plant: Construction of a new plant dedicated to export operations was completed, and it is expected to commence operations in FY2024-25. This expansion will significantly increase production capacity.

• Brownfield Expansion: Phase 1 of a brownfield expansion project in Chennai was completed, aiming to meet the growing domestic demand.

• Strategic Senior Management Appointments: The company appointed Mr. Shriram Vijayaraghavan as Group Chief Operating Officer and Mr. Venky Venkatesh as Group Chief Sales Officer. These appointments significantly strengthened the management team, bolstering their leadership capabilities.

• Key Customer Wins: Avalon secured several significant new contracts in the US across various sectors, including clean energy, automotive, and industrial. These contracts are expected to significantly boost revenue in the coming years. They also achieved significant wins in India in the rail, aerospace and industrial sectors.

• Product Compliance Certification: A key product compliance certification for a major clean energy customer’s home electrification system was approved, paving the way for commercial rollout and production ramp-up during FY2024-25.

• Risk Management Committee Formation: A Risk Management Committee was formed in June 2024 to enhance the company’s proactive risk management capabilities. This is a significant governance step to address risks and challenges proactively.

• ESOP Allotments: The company allotted 4,20,115 equity shares to employees who exercised their Employee Stock Option Plan (ESOP) options. This incentivizes employees and aligns their interests with the company’s success.

These events represent key milestones in Avalon’s growth journey and demonstrate the company’s progress in expanding its operations, strengthening its management, and securing new business opportunities.

Audit Information #

Auditor’s Opinion:

The independent auditor, Varma & Varma, Chartered Accountants, issued an unmodified (clean) opinion on both the standalone and consolidated financial statements of Avalon Technologies Limited for the fiscal year ended March 31, 2024. This means the auditor found the financial statements to be fairly presented in accordance with Indian Generally Accepted Accounting Principles (GAAP) and Indian Accounting Standards (Ind AS). However, the report notes a key audit matter (impairment assessment of investments in subsidiaries for the standalone financial statements and revenue recognition for the consolidated financial statements), and several matters under the Companies (Auditor’s Report) Order, 2020.

Key Accounting Policies:

The annual report details several key accounting policies followed by Avalon Technologies Limited in preparing its financial statements. These policies are in accordance with Indian Accounting Standards (Ind AS) and the Companies Act, 2013. Some of the key policies include:

• Basis of Preparation: The financial statements are prepared in accordance with Ind AS and the historical cost convention, except for certain financial instruments measured at fair value. The functional currency is the Indian Rupee (INR).

• Property, Plant, and Equipment: Assets are recorded at cost less accumulated depreciation and impairment. Depreciation is calculated using the straight-line method over the asset’s useful life (which can vary based on management’s assessment).

• Intangible Assets: These are recorded at cost less accumulated amortization and impairment. Amortization is calculated using the straight-line method.

• Leases: The company follows Ind AS 16 and recognizes right-of-use assets and lease liabilities for most lease arrangements (except for short-term and low-value leases).

• Inventories: Inventories are valued at the lower of cost and net realizable value. Cost is determined using the weighted average cost method.

• Impairment: The company assesses impairment for assets annually and reverses any impairment loss if necessary.

• Borrowing Costs: Borrowing costs directly attributable to the acquisition of qualifying assets are capitalized; others are expensed.

• Employee Benefits: The company accounts for short-term and long-term employee benefits, including defined contribution plans (Provident Fund, ESI) and a defined benefit plan (Gratuity), using actuarial valuations where necessary.

• Revenue Recognition: Revenue is recognized when control of goods or services is transferred to the customer, in accordance with Ind AS 115.

• Foreign Currency Transactions: Transactions are initially recorded at the exchange rate on the transaction date. Monetary items are retranslated at the year-end rate.

• Taxes: The company recognizes both current and deferred tax liabilities and assets.

• Share-Based Payments: The company uses appropriate valuation models (like the Black-Scholes model) to determine the fair value of equity-settled transactions.

• Related Party Transactions: These are disclosed in accordance with Ind AS 24.

These are only some of the key policies. The full list and details are available in the complete “Notes to the Standalone Financial Statements” and “Notes to the Consolidated Financial Statements” sections of the annual report. It’s important to consult these sections for a comprehensive understanding of Avalon’s accounting methods.