Avalon Technologies Q2 FY27 Earnings Call: Raises FY27 Revenue Growth Guidance To 30%, Order Book At Rs. 2,367 Cr

Strong Quarter with Broad-Based Margin Expansion

• Revenue of Rs.525 crore in Q2 FY 2026-2027 — up 37.4% YoY from Rs.382 crore in Q2 FY 2025-2026 and up 8.5% QoQ; H1 FY 2026-2027 revenue was Rs.1,010 crore, up 43% YoY.
• EBITDA of Rs.66 crore (12.6% margin) — up 71% YoY versus 10.1% in Q2 FY 2025-2026 and 12% in Q1 FY 2026-2027; PAT of Rs.40 crore (7.5% margin) was up 59.5% YoY.
• Gross margin of 34.1% — within the guided 33-35% range; management noted gross margins have stayed stable over the last 6 years despite tariffs, global conflicts, and rising freight and raw material costs.
• H1 FY 2026-2027 EBITDA of Rs.124 crore (12.3% margin, up 257 bps) — with PAT of Rs.75 crore (7.4% margin, up 188 bps).
• Asset turns improved to 10.7x — versus 9.9x in FY26 and 7.5x in FY25; ROCE improved to 24.2% from 20.6% in FY26.
• Net working capital of 120 days — versus 131 days a year earlier and 117 days in Q1 FY 2026-2027, within the guided 120-130 day range; inventory was built for programs ramping in coming quarters.
• Q2 FY 2026-2027 operating cash flow was negative Rs.22 crore — versus positive Rs.32 crore in Q1; H1 operating cash flow was positive Rs.10 crore. Total debt rose to Rs.311 crore from Rs.196 crore at June 30, 2026 to fund working capital; net debt was Rs.122 crore (~0.5x EBITDA).

Rs.2,367 Cr Order Book; Diversified Vertical Growth

• Order book of Rs.2,367 crore at end of Q2 FY 2026-2027 — up 27.1% YoY, with an average execution period of 14 months; long-term contracts of Rs.1,275 crore carry 15-36 month execution timelines, and management said further orders beyond these are not included.
• Q2 FY 2026-2027 order intake of about Rs.684 crore — per CFO Suresh V.R.
• Segment mix in Q2 FY 2026-2027 — Industrial 35% of revenue (up 36%), Clean energy 29% (more than doubled), Mobility 25% (up 27%), within which rail was 17% and aerospace 8% (growing over 40%).
• CFO cited well-diversified Q2 FY 2026-2027 growth — rail grew 39%, aerospace 44%, and industrial 43%; the company averaged 45% growth over the last nine quarters through Q2 FY 2026-2027, with no lumpiness in sales.
• India contributed 29% and exports 61% of Q2 FY 2026-2027 revenue — India manufacturing operations contributed 74% of revenue at a 17.1% EBITDA margin and 11.4% PAT margin; in H1 FY 2026-2027, India accounted for 73% of manufacturing and the US 27%, with customers 40% India and 60% export.
• US operations loss reduced substantially YoY to Rs.4.8 crore in Q2 FY 2026-2027 — with EBITDA at near break-even for a second consecutive quarter per analyst Tanay Shah (Dam Capital).
• Top 10 customers were approximately 64% of 1H FY 2026-2027 revenue — per CFO Suresh V.R.; Chairman Kumar Bicha noted new customer cut-ins are now $20-35 million or $40 million versus $5-10 million five years back, making the base "a little bit top heavy."

Semi-Cap Emerging as a New Vertical

• Semi-cap equipment revenues have started — the first set is now booked, with orders expected to increase in Q4 FY 2026-2027 and in FY 2027-2028; Avalon is working with four or five global semiconductor equipment customers, several in various stages of conversion.
• Semi-cap expected to reach close to 10% of revenue — Chairman Kumar Bicha said the 10% share, referenced as coming "in the next, say, 12 months" (spanning FY 2026-2027 and FY 2027-2028), would come as a new vertical rather than a fixed percentage; management is "very confident" it will happen in the near to mid-term.
• Conversion takes one to two years — for semiconductor equipment customers to gain comfort; Bicha described the addressable market as "just in the tip of an iceberg," with each customer needing different capabilities that take "a few quarters" to build in-house before ramp.
• HVDC work continues with two global leaders — revenue is project-based and depends on how much the customer wins; the next big jump is expected "a couple of quarters from now" (beyond Q2 FY 2026-2027), and Avalon typically gets that business "a year or two later." Bicha declined to give a percentage for the HVDC opportunity or a timeline for its revenue contribution.
• Program updates in Q2 FY 2026-2027 — semiconductor equipment pipeline healthy, rail locomotive engine subsystems progressing, Kavach program on track, and aerospace cabin subassemblies moving into volume production.

Strategic Foundations Laid in Q2

• Zollner Avalon Private Limited JV signed — focused on PCB assembly, box build, and integrated systems in India, with Zollner holding 51% and Avalon 49% at the start; Zollner is a $3 billion revenue group. Avalon has an option, subject to certain conditions, to acquire a further 2% to reach 51%, exercisable beginning 3 years after commencement of commercial production at the JV's manufacturing facility.
• Board approved a preferential issue of warrants of up to Rs.425 crore to Zollner — subject to shareholder approval at the AGM; Zollner will pay 25% of the allotment upfront with the balance due on conversion within 18 months. Proceeds are earmarked for capital expenditure, debt repayment, and general corporate purposes.
• MoU signed with the Tamil Nadu government — for a 25-acre advanced electronics manufacturing campus at SIPCOT Orugadam, with phased development; detailed plans and timelines are being finalized. CFO Suresh V.R. said H1 FY 2026-2027 capex included approximately Rs.53-55 crore for the Oragadam land deal and the Chennai facility.
• Management said the JV is in early days — COO Sriram Vijayragwan said discussions are ongoing with updates to be provided quarter to quarter; Bicha declined to give a specific start timeline, noting customers must approve Avalon facilities and that Zollner may have made the product for about 10 years. When analyst Tanay Shah asked whether Zollner intends to shift a set percentage of manufacturing to India by FY30, Kumar declined to give a number.
• No intention of pursuing ODM business — Bicha said Avalon is not in the IP business and doing its own products could cost it larger customers who provide IP for their products; the JV will handle box assembly and PCB assembly only, while Avalon makes metal or cable assemblies, plastics, and magnetics/transformers. Test and measurement, and medical and life sciences, are identified as the next target segments via the JV.
• All numbers discussed on the call are organic and exclude the JV's contribution — per Chairman Kumar Bicha.

Operating Leverage, India-Centric Manufacturing, Asset-Light Discipline

• Margin gain driven by operating leverage — CFO Suresh V.R. said most expenses below gross margin are fixed or semi-fixed; employee cost was 16.1% of sales in Q2 FY 2026-2027 versus 18.3% a year earlier. From a three-year perspective, management would like to improve margins from current levels.
• India manufacturing's 17.1% EBITDA margin — attributed by Bicha to products that stopped over in the US before coming to India; margins improve as more work moves to India, but Avalon had not moved a lot more into India because customers wanted to stay in the US amid tariffs. Geopolitics changed in the last couple of weeks and more customers may come directly to India, so Avalon will adjust.
• No factories or manufacturing capacity outside India planned — the Atlanta, US facility serves mainly to help customers move production to India; European requirements would be served through Zollner, which has multiple European factories. Labour-intensive work is done in India with only final assembly in the US for customers who request it.
• No heavy automation of Indian labour-intensive manufacturing — because products are high-mix, low-volume, high-value assemblies with significant testing and labour requirements that are mission-critical.
• Capex averaged Rs.55-56 crore a year over the last few years — versus Rs.90 crore in H1 FY 2026-2027; CFO said capex may be slightly higher in FY 2027-2028 and FY 2028-2029 as Avalon expands in Tamil Nadu and through its JVs, with more detailed plans to be shared in coming quarters. Bicha said the land acquisition covers growth needs for the next 5 to 10 years and the company will continue its asset-light model.
• Asset turns targeted at high single digits or higher (period unspecified) — Bicha said asset turns were "a bit higher" in Q2 FY 2026-2027.

Guidance Raised; Measured Optimism on Risks

• FY 2026-2027 revenue growth guidance raised to around 30% — from the earlier 26-30% range; Bicha said the company continues to plan with "measured optimism" given external factors affecting prototype-to-production timing.
• Doubling goals on two horizons — Avalon nearly achieved its goal of doubling revenue over FY 2024-2025 to FY 2026-2027 a year ahead of schedule, and has set a new goal of doubling revenue from FY 2025-2026 to FY 2028-2029.
• Quarterly revenue likely to move up and down — COO Sriram Vijayragwan said complex box-build programs take time to ramp and their kick-in dates are uncertain (plus or minus); he asked investors to take a longer-term view rather than a quarter-to-quarter one.
• On anti-AI sentiment and possible data center slowdowns — Bicha said he did not believe order books were being affected; clients he had spoken with see a good line of sight for the next few years, and countries are building semiconductor manufacturing capacity, with India among them. He described the shift of supply chains toward the Western world and India as strategic diversification, and said "We're just starting off" with billions of dollars at play.
• On clean energy positioning — Bicha said most of Avalon's clean energy business is export-oriented; Avalon is looking at India's clean energy market but will not pursue growth at all costs: "I can have growth at all costs, but I cannot have profitable growth because it's going to get commoditized in India sooner than later."
• No customer stockpiling observed — COO said he would not characterize any customers as stockpiling inventory ahead of supply chain stress, describing component constraints and lead-time movements as routine.
• Small strategic entry into EV charger electronics — Board approved an investment of Rs.11 crore in Revos Autotech PT Limited through convertible notes; Dun & Bradstreet upgraded Avalon's rating to 5A2. Bicha closed citing a healthy order book, a growing customer base, and new foundations built in Q2 FY 2026-2027, with a focus on profitable growth.