Avalon Tech shares jump 6% on Zollner JV; Nomura ups target price

Avalon Technologies Ltd shares jumped 6 per cent in Monday's trade after foreign brokerage Nomura gave thumbs up to the strategic joint venture with Zollner Elektronik AG for advanced electronics manufacturing in India. The domestic brokerage has revised its target price on the stock to Rs 2,767 from Rs 2,211 earlier, implying 23 per cent potential upside.

Following the development, the stock rose 5.89 per cent to hit a high of Rs 2,326.20 apiece on BSE. Zollner will initially hold 51 per cent in the JV. However, post three years after start of commercial production, Avalon will have an option to acquire an additional 2 per cent stake, subject to certain conditions.

This JV will initially serve the Indian operations of established customers, offer localization support and closer proximity. For Avalon, it will add global customers, expansion into Europe and also aids entry into two new verticals – healthcare and lifesciences, test and measurement, which are high complexity manufacturing and long lifecycle products.

Nomura said while Zollner is a privately held entity headquartered in Germany with presence across 17 international locations, its analysis indicate that it is involved in complex EMS builds for critical applications across semiconductors, railways, aerospace, and automotive. Nomura said Zollner supplies to leading customers like BMW, Bosch, Teradyne, Siemens, National Instruments with revenues of $3.7 billion in 2025.

"For Avalon, its capability expands further into complex EMS such as medical and test instruments and goes deeper into the semiconductor ecosystem. Also, the JV should aid diversification into EU. This will improve the long-term growth outlook further and will be margin accretive as well, in our view. We estimate a total investment of $30-50 million by this JV. Assuming the midpoint of this range ($40 million), asset turn of 10 times, and Ebitda margins of 15-17 per cent, this would boost our FY29F EPS by 21 per cent," Nomura said.

For now, Nomura has maintained its target PE multiple of 45 times but rolled forward our valuation to Dec-27F (Sep-27F earlier) to arrive at our higher target of Rs 2,767, implying 23 per cent upside from current levels. "

The stock is currently trading at 35x FY29F EPS which is attractive given the outlook. We maintain our Buy rating," Nomura said.