Detailed narrative
Strong Q1 FY26 Performance and Upward Guidance Revision
Avalon Technologies delivered a robust Q1 FY26, with revenue growing 62.1% year-on-year to INR 323 crores. This growth was broad-based across industry verticals and geographies, with both India and U.S. businesses recording 62% YoY growth. Gross margins improved by 230 basis points to 35.5%, and EBITDA margin expanded by 705 basis points to 9.2%. Profit after tax stood at INR 14 crores, a significant turnaround from a loss of INR 2 crores in Q1 FY25. Reflecting this strong start and encouraging momentum, the company upward revised its full-year FY26 revenue growth guidance to 23-25% from the earlier 18-20%.
Strategic Entry into Semiconductor Equipment Manufacturing
A significant milestone for Avalon is its entry into the semiconductor equipment manufacturing space. The company has partnered with a leading global semiconductor equipment company to provide highly complex Industry 4.0 compliant box-builds. The prototype phase is underway, with production expected to ramp up over the next 4 to 5 quarters. Management views this as a major technological step forward and a strategic entry into a high-potential segment, which could become a meaningful growth driver over the medium term⏳, further strengthening the foundation for decadal growth.
Healthy Order Book and Working Capital Management
As of June 30, 2025, Avalon's order book stood at INR 1,790 crores, representing a 22.5% year-on-year increase, with an average execution period of 14 months. Long-term contracts (15-36 months) also grew by 17.4% YoY to INR 1,157 crores. On the working capital front, net working capital days improved from 163 days in June 2024 to 142 days in June 2025. While inventory levels are currently elevated to support upcoming production and growth, the company remains focused on further improving efficiency to bring net working capital down to the 120-130 day range.
Geographical and Segmental Performance
The geographical revenue split for Q1 FY26 was 40% from India (INR 130 crores) and 60% from the U.S. (INR 193 crores). India plants maintained profitability with an EBITDA margin of 13.2% and a PAT margin of 8.8%. U.S. manufacturing, while contributing 20% of revenue, recorded an EBITDA margin of minus 6.9% and a PAT of minus INR 9 crores, though showing improvement from minus INR 14 crores last year. Segmentally, Communication grew 102% YoY, Rail and Aerospace grew over 100%, Mobility grew 92%, and Industrial grew 86%, demonstrating broad-based demand.
Investments for Future Growth and Margin Outlook
Avalon is front-loading investments in capabilities, manpower, and inventory to stay ahead of expected growth, which has led to some sequential moderation in EBITDA margin. However, management is confident that operating leverage will begin to take effect in the second half of the year, with benefits likely carrying into FY27. The company maintains its gross margin guidance of 33-35% and aims for asset turns between 8x and 10x. Capex for FY26 is projected to be INR 45-55 crores, slightly revised upwards from INR 45-50 crores.
Managing Tariff Dynamics and Global Strategy
The company is closely monitoring tariff-related discussions between the U.S. and India, noting that most products are long-term in nature and tariffs are currently passed through to customers. Avalon's dual presence in the U.S. and India provides strategic flexibility, allowing localization of production in the U.S. to manage tariff exposure while leveraging India's cost-effective manufacturing base. The company's focus remains on 'Make in India' and diversifying across other geographies, with India's customer base growing to nearly 50% from 20% three years ago.