After a 16% YoY rise in revenue in 9M, Avalon has upped growth guidance for FY25 to 22-24% from 16-18% earlier. Guidance of doubling revenue in the next three years is also intact.
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Systematix Research Report
Avalon Technologies Ltd.’s healthy uptick in Q3 FY25 Ebitda margin (12.3%, up 462 bps YoY and 137 bps QoQ) for the second quarter in a row provides better confidence in the management guidance given earlier. In Q3, revenue/Ebitda/PAT surged 31%/110% /265% YoY, albeit on a low base.
Overall performance was driven mainly by healthy recovery in the U.S. business (India/US revenue grew 17%/43% YoY and 5%/0% QoQ), as guided by the management. India manufacturing representing 88% of revenue, delivered healthy margins of 15% Ebitda and 10.8% PAT.
Operating leverage benefits and cost optimization programs (mainly in USA as loss reduced to Rs 34 million after a Rs 180 million loss in H1) has led to expansion in margins. Net working capital improved by 11 days to 150 days in Dec-24 from 161 days in March 2024. After a 16% YoY rise in revenue in 9M, management has upped growth guidance for FY25 to 22-24% from 16-18% earlier. Guidance of doubling revenue in the next three years is also intact.
Gross margin guidance has also risen to 34-36% for FY25 (from 33-35% earlier). It aims India revenue mix (42% in Q3) to rise to 50% in coming years and targets return on capital employed to get back to 20%+ in coming years.
After a healthy margin uptick in Q3, we increase our earnings estimates by 31% in FY25 and ~14% in subsequent years on better revenue and margins estimates. We now expect 32%/58%/74% CAGR in revenue/Ebitda/PAT over FY24-27E, with ~22%/24% RoCE/RoIC in FY27E. After the recent correction in stock price, we upgrade rating to Hold (from Sell earlier) with a revised target price of Rs 786 (35x FY27E P/E, earlier Rs 693).
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Also Read: Trent Q3 Results Review: Systematix Maintains 'Hold' On The Stock, Lowers Target Price — Here's Why
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