Avalon Technologies Ltd Q1 FY27 Earnings Call Summary

Event Participants

Executives

4 Kunhamed Bicha, Shriram Vijayaraghavan, Suresh Veerappan, Venky Venkatesh

Analysts

11 Archit Shah, Bala Subrahmanyan, Bhavik Mehta, Mayank Pandey, Praveen Sahay, Santosh Seshadri, Siddharth Bera, Siddharth S., Sumit Sinha, Tanay Shah, Vipraw Srivastava

Financials & KPIs

Geographic & Segment Commentary

• India / Exports: India contributed 41% of revenue (+53% YoY); exports 59% (+48% YoY). India manufacturing operations, serving both domestic and global customers, account for 72% of revenue with healthy profitability (EBITDA 16.7%, PAT 11.1%). US operations contributed remaining 28%, with PAT loss of ~₹4 crores narrowing from ~₹9 crores a year ago and ~₹14 crores two years ago.
• Industrial: Largest vertical at 32% revenue, +52% YoY; order book mix also around 32%; includes semiconductor equipment expansion into new products beyond power box sub-assemblies.
• Mobility: 25% revenue, +36% YoY; Rail ~15% (+37%) with locomotive engine sub-system production underway; Aerospace 8% (+47%) with cabin sub-assemblies moving toward volume and incremental box build secured with a leading aerospace company.
• Clean Energy: 29% revenue contribution; strong YoY growth in Q1, focused on energy storage solutions (not solar panels); subsidy support for storage runs to 2032; lumpy quarter-to-quarter but diversified base.
• Communication: Only vertical to decline in the quarter; management attributes to program timing, not structural.
• New Geographies: Europe and Southeast Asia adding a new dimension; Europe expected to grow "very meaningfully" over next two years; Southeast Asia viewed as a next-level foray.

Company-Specific & Strategic Commentary

• Growth Engines (three, all gaining momentum): Existing business with long product lifecycles and recurring revenues; new program wins (Aerospace cabin sub-assemblies, locomotive engine sub-systems in production, Kavach anti-collision system on track); expanding opportunity pipeline across geographies and verticals.
• Semiconductor Equipment: Increased allocation with one of the world's leading wafer fabrication equipment suppliers, expanding from power box sub-assemblies into other products; revenue has started and will ramp over coming quarters; company expects to benefit from ISM 2.0 scheme (details being studied).
• Manufacturing Footprint: New Chennai plant for domestic demand complete, commercial production from Q2 FY27; acquiring large Chennai land parcel to support growth over next decade; capex executed in modular fashion to preserve capital efficiency.
• Organization Building: Investing in 5-6 VP-level leadership hires across business units and capabilities; focus on process automation, IT systems, and AI-enabled capabilities ahead of growth; CEO/CFO/CSO level already in place.
• Revenue Doubling Targets: FY24→FY27 target (~₹1,734 crores) already crossed on trailing 12-month basis, nearly a year ahead of commitment; next doubling from ₹1,603 crores FY26 to ~₹3,200 crores by FY29.
• US Strategy: US plant serves as beachhead - new customers validate capabilities there before production transitions to India; management targets US contribution to naturally settle at ~20% as India manufacturing scales; US footprint also provided tariff mitigation optionality.

Guidance & Outlook

Risks & Constraints

Q&A Highlights

Gross Margin Outlook and Box Build Mix

• Question: What is the structural impact of newer businesses (semiconductor equipment, power modules, Kavach) on the margin profile at scale - are they inherently higher on the margin curve? (Santosh Seshadri, Avendus Spark)
• Answer: Blended gross margin range of 33-35% remains the guide - some industries have higher margins, some lower; as higher-margin business accelerates, some difference may emerge, but range maintained with a few quarters up or down. (Kunhamed Bicha)

Operating Leverage and Cost Structure

• Question: At what stage do fixed costs become semi-variable, and what is the implication for operating leverage in FY27-28? (Santosh Seshadri, Avendus Spark)
• Answer: 45-50% of below-gross-margin expenses are semi-fixed/fixed; operating leverage will continue to play out with scale - India manufacturing already delivers 16.7% EBITDA consistently; no specific EBITDA margin guidance given. (Suresh Veerappan)

Data Center, HVDC, and Semiconductor Ramp

• Question: Are you in talks with data center customers, and where do you position in the value chain - servers, racks, power management? Where are we in HVDC and semi WFE order-win cycle? (Santosh Seshadri, Avendus Spark / Siddharth Bera, Nomura)
• Answer: Power super-cycle underway; production started with couple of HVDC leaders; working with multiple customers supplying off-grid power into data centers; rack and cooling systems under pursuit (not yet won); no server boards as of now; semiconductor equipment revenue has started this quarter and will ramp gradually across multiple systems. (Kunhamed Bicha)

US Operations - Losses, Split, and Break-Even

• Question: What is the US loss this quarter, and what minimum revenue run-rate is needed for break-even? (Siddharth Bera, Nomura / Bala Subrahmanyan, Arihant Capital)
• Answer: PAT loss of ~₹4 crores in Q1 FY27, narrowed from ~₹9 crores a year ago and ~₹14 crores two years ago; EBITDA break-even targeted by end of this fiscal year, then PAT break-even; US is a beachhead - customers validate there, then production transitions to India; US contribution expected to settle at ~20%; most significant growth over next 2-3 years will be made in India. (Suresh Veerappan / Kunhamed Bicha)

Leadership Hiring for Next Phase

• Question: What leadership positions are you hiring for as you scale? (Sumit Sinha, Macquarie)
• Answer: C-level (CEO, CFO, CSO) in place; adding 5-6 VP-level candidates to lead business units or capabilities; not rushing - candidate quality is critical; investment spans people, processes, and automation in parallel. (Kunhamed Bicha / Shriram Vijayaraghavan)

Product Expansion Strategy

• Question: Do you see opportunity to enter new product categories, or stick with PCBAs and box builds? (Sumit Sinha, Macquarie)
• Answer: Vertically integrating further - box build already moved from 44.5% to 59.9%; one new area to be announced in next two quarters, well within existing capability and additive to box build; also expanding into newer industrial verticals and geographies like Europe and Southeast Asia. (Kunhamed Bicha / Suresh Veerappan)

Guidance Philosophy and Conservatism

• Question: With 50% Q1 growth, why not raise guidance to 30%+ - is 26-30% a worst-case floor? (Sumit Sinha, Macquarie / Bhavik Mehta, JP Morgan)
• Answer: Deliberately conservative - new program cut-ins can shift between February and April, moving revenue between fiscal years; business managed on a 3-year horizon; TTM already crossed the FY24→FY27 doubling target nearly a year early; pipeline/prototypes in SE Asia and Europe are exciting but not yet in P&L; "in 25 years, I've not seen this level of possibilities." (Kunhamed Bicha / Suresh Veerappan)

Capex, Asset Turns, and ROCE

• Question: At ~₹50-60 cr annual capex and ~10x asset turns, is ₹500-600 cr incremental revenue per year the right read-through? What is the ceiling on asset turns? (Bala Subrahmanyan, Arihant Capital / Mayank Pandey, MK Global)
• Answer: FY26 capex ₹56 cr, Q1 ₹16 cr; new Chennai land/plant will involve additional capex done in modular fashion; every new asset takes time to reach optimal utilization; committed asset turns band remains 8-10x; ROCE goal is to improve beyond 23.4%. (Suresh Veerappan / Kunhamed Bicha)

Working Capital Efficiency

• Question: With strong order book and revenue growth, how did NWC improve from 142 to 117 days despite inventory builds for new programs? (Bala Subrahmanyan, Arihant Capital)
• Answer: Two-three years of continuous effort across all three buckets - inventory down to 94 days from 104, receivables to 74 from 87, payables to 51 from 49; new programs may temporarily carry higher NWC, but guided range of 120-130 days maintained. (Suresh Veerappan)

Clean Energy / IRA Incentive Sustainability

• Question: With solar IRA incentives ending Dec 2027, will clean energy growth continue in FY27-28? (Vipraw Srivastava, PhillipCapital)
• Answer: Company is in energy storage solutions, not solar panels; storage subsidies supported until 2032; growth is well diversified - Industrial +52%, Aero +47%, Rail +37%, Medical +15% - so no single-vertical dependence. (Shriram Vijayaraghavan / Suresh Veerappan)

Key Takeaway

Q1 FY27 marked Avalon's eighth consecutive quarter of improving performance, with revenue up 50% YoY to ₹484 crores (marginally above Q4's ₹480 crores) and both India (+53%) and exports (+48%) contributing. Management raised FY27 revenue growth guidance to 26-30% from 24-27%, underpinned by a ₹2,208-crore order book (+23.4% YoY), 59.9% box build contribution, and all three growth engines - existing annuity business, new program wins (semiconductor equipment allocation increased, locomotive sub-systems in production, Kavach on track), and an expanding pipeline in Europe and Southeast Asia - gaining momentum together. PAT margin improved to 7.2% (₹35 crores), ROCE reached 23.4%, and NWC compressed 25 days to 117 days, leaving net debt at just ₹24 crores. Management targets ~₹3,200 crores revenue by FY29 (from ₹1,603 crores FY26), with US contribution capping at ~20% and US EBITDA break-even guided by FY27 end. Key watchpoints: US PAT loss still ₹4 crores, program timing risks between fiscal years, and supply-chain pressure on PCB commodities.

All figures in ₹ crores unless otherwise stated. Forward-looking statements reflect management's views as of August 5, 2026.