We believe there are two key growth drivers for Avalon Technologies Ltd. :
an increase in the mix of box build through new orders or increasing the wallet share from existing customers; and
order flows from high-growth/high-margin industries such as Clean Energy and Aerospace.
However, the ongoing slowdown in the U.S. business will have a short-term impact on Avalon’s revenue and profitability.
We estimate Avalon to deliver a compound annual growth rate of 22%/25%/42% in revenue/Ebitda/adjusted profit after tax over FY23-26 on the back of strong order inflows.
Avalon considering the Q2 FY24 performance and a slowdown in the U.S. business resulting in adverse operating leverage, we reduce our earnings estimates for FY24/FY25/FY26 by 9%/8%/6%.
We retain our ‘Buy’ rating on the stock with a target price of Rs 680 (30 times FY26E earning per share).