Avalon Tech — Q2 FY26 earnings call

Call held 6 Nov 2025

Management summary

Avalon Technologies delivered a strong Q2 FY26, marked by robust revenue and profit growth, leading to an upward revision in full-year revenue guidance. The company demonstrated broad-based growth across geographies and verticals, supported by a healthy order book and improved capital efficiency. Strategic investments in new programs and a dual-shore manufacturing model are positioning Avalon for sustained long-term growth, despite temporarily elevated working capital.

Highlights

  • Revenue for Q2 FY26 stood at ₹382 crore, reflecting a 39% year-over-year increase and 18% sequential growth.

  • H1 FY26 revenue reached ₹706 crore, growing 48.7% over the same period last year.

  • EBITDA for H1 FY26 was ₹68 crore, an increase of 98.5% YoY, with Q2 FY26 EBITDA at ₹39 crore (up 28% YoY).

  • PAT for H1 FY26 was ₹39 crore, an increase of 158.3% YoY, with Q2 FY26 PAT at ₹25 crore (up 42.9% YoY).

  • Gross margin for H1 FY26 was 34.9%, within the guided range of 33-35%.

  • Full-year FY26 revenue growth guidance was revised upwards to 28%-30% from the earlier 23%-25%.

  • Order book as of September 30, 2025, stood at ₹1,863 crore (short-term) plus ₹1,168 crore (long-term), totaling over ₹3,000 crore.

  • Net working capital days improved by 11 days sequentially to 131 days as of September 2025.

Key financials

2 periods

Headline

  • Revenue
    ₹382 Cr
    YoY +39% QoQ +18%
  • EBITDA
    ₹39 Cr
    YoY +28%
  • PAT
    ₹25 Cr
    YoY +42.9%
  • Gross Margin
    34.3%
  • ROCE
    18.4%
  • Asset Turns
    8.7×
  • Net Working Capital Days
    131 days
  • Order Book (Short-term)
    ₹1,863 Cr
    YoY +25.4%
  • Order Book (Long-term)
    ₹1,168 Cr

H1

  • Revenue
    ₹706 Cr
    YoY +48.7%
  • EBITDA
    ₹68 Cr
    YoY +98.5%
  • PAT
    ₹39 Cr
    YoY +158.3%
  • Gross Margin
    34.9%

What they filed

Q1 FY27: revenue up 49.8%, net profit up 150.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue275 281 343 323 382 +39%418 +49%480 +40%484 +50%
EBITDA30 35 41 30 39 +30%48 +37%57 +39%58 +93%
Net profit17 24 24 14 25 +47%33 +38%41 +71%35 +150%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • India Manufacturing Operations
    81% Revenue Contribution14.1% EBITDA Margin10.9% PAT Margin
  • US Manufacturing Operations
    19% Revenue Contribution₹-5 Cr EBITDA (Q2 FY25)₹-13 Cr EBITDA (Q1 FY25)

Guidance & targets

Revenue

  • Full-year revenue growth Revenue · FY26 · High confidence 28%-30%

    Previously 23%-25% → 28%-30%

    Accordingly, we are revising our full-year revenue growth guidance upwards to 28%-30%, from the earlier 23%-25%.

    — Kunhamed Bicha, Chairman and Managing Director

  • Revenue doubling Revenue · 3 years (from '24 to '27, and again from '27) · High confidence Double
    We look at -- how we look at ourselves, which can we double in 3 years, which we are doing. And then can we further double 3 years from '27, okay? That's been our motto rather than looking at quarter-to-quarter.

    — Kunhamed Bicha, Chairman and Managing Director

Working Capital

  • Net working capital days Working Capital · next few quarters · Medium confidence 120-130 days
    We remain focused on improving working capital efficiency and expect to bring it within the 120-130 day range over the next few quarters.

    — Kunhamed Bicha, Chairman and Managing Director

Profitability

  • US operations margin Profitability · latter part of the year / end of FY26 and into FY27 · Medium confidence Improvement
    As US operations scale up further, we expect operating leverage to support margin improvement in the latter part of the year.

    — Kunhamed Bicha, Chairman and Managing Director

Revenue Mix

  • India vs US revenue contribution Revenue Mix · Sooner than expected · Medium confidence 50-50
    I think our goal is always to be 50-50, 50% exports and 50% India. ... But intention is to get to 50%. I think we should get there sooner than we expect, okay?

    — Kunhamed Bicha, Chairman and Managing Director

Risks & concerns

  • Tariff implications and customer acceptance of tariff costs

    medium

    While 99% recovery is achieved, the complexity of 50+ unique tariff rates and the need for a dual-shore strategy highlight this as an ongoing management focus.

    Both acknowledged

  • Temporarily elevated working capital and inventory levels

    medium

    Net working capital at 131 days (Sept 2025) is higher than March 2025 (124 days), but improved sequentially from June 2025 (142 days), explained as strategic investment for growth.

    Management acknowledged

  • Project execution timing uncertainty

    low

    Growth depends on when new programs kick in, which is customer-controlled, but management is confident in overall growth trajectory.

    Management acknowledged

Areas of evasion (2)

  • Specific granular breakdown of cost differential between US and India beyond labor content
  • Precise timing of project cut-ins beyond 'next few quarters'

Q&A highlights

3 direct
US operations, tariff implications, and margin impact Direct
So, we're very positive because we have a solution for customers to come to India because otherwise it is very difficult for customers to see how can I come to India with a 50% tariff, right? So, this dual model helps us a great deal to make that happen.

Addresses a key industry concern (tariffs) and explains Avalon's strategy to mitigate it through a dual-shore model, maintaining high tariff recovery and enabling future India transfers.

Asked by Tanay Shah

Working capital, inventory days, and cash flow from operations Direct
Like what KB had mentioned earlier, some of the new programs are ramping up in Q3 and Q4. So yes, the inventory days as of June '25 was 104 and right now, it is 101. But if you look back at March '25, it was 86. But we have to upfront our investments in people and in inventory before a new large program starts in.

Explains the temporary increase in working capital and inventory as a strategic investment for upcoming large programs, with an expectation of improvement by year-end.

Asked by Vipraw Srivastava

US facility EBITDA loss and path to breakeven Direct
In terms of EBITDA -- percolation to EBITDA, a year ago, if you had looked at it, the EBITDA would have been approximately negative INR13 crores. But right now, that's not the case, where the operating leverage with increasing and increased revenue over there is helping the U.S. operations also, which is what is the hope in the coming quarters to continue there.

Clarifies the financial performance of US operations, showing a reduction in EBITDA loss (from -INR13 crores to -INR5 crores YoY for Q2) and outlining the expectation for operating leverage to drive further improvement towards profitability.

Asked by Debashish

2 min read 5 chapters

Detailed narrative

Strong Q2 FY26 Performance and Upgraded Guidance

Avalon Technologies reported a robust Q2 FY26, with revenues reaching ₹382 crore, marking a 39% year-over-year increase and an 18% sequential growth. For H1 FY26, revenue stood at ₹706 crore, up 48.7% YoY. Profitability also saw significant improvement, with H1 FY26 EBITDA at ₹68 crore (up 98.5% YoY) and PAT at ₹39 crore (up 158.3% YoY). Reflecting this strong momentum and demand visibility, the company upgraded its full-year FY26 revenue growth guidance to 28-30% from the earlier 23-25%.

Diversified Growth Across Geographies and Verticals

The company's growth was broad-based, with India business growing 44% and US business growing 52% in H1 FY26. India manufacturing operations contributed 81% of total revenue in Q2 FY26, delivering healthy EBITDA and PAT margins of 14.1% and 10.9% respectively. The dual presence in the US and India allows Avalon to localize production for customers while leveraging cost-effective manufacturing in India, with a long-term goal of achieving a 50-50 revenue mix between exports and India.

Expanding Order Book and Strategic Programs

As of September 30, 2025, Avalon's order book stood at ₹1,863 crore for the next 14 months, a 25.4% YoY increase, complemented by ₹1,168 crore in long-term contracts (15-36 months). Key growth drivers include energy storage systems, aerospace (H1 FY26 revenue up 59% YoY), and railway (H1 FY26 revenue up 58% YoY) programs. The company is also making progress in the advanced technology segment, with volume ramp-up expected in FY27 for its semiconductor box-build manufacturing partnership.

Working Capital Management and Capital Efficiency

Net working capital days improved sequentially by 11 days to 131 days in September 2025, from 142 days in June 2025. Management attributes temporarily elevated inventory levels to strategic investments for upcoming production and growth, aiming to bring working capital within the 120-130 day range over the next few quarters. Capital efficiency remains strong, with ROCE improving to 18.4% from 8.2% a year ago, and asset turns healthy at 8.7x.

Tariff Management and US Operations Improvement

Avalon has effectively managed tariff implications, recovering over 99% of tariff costs from customers due to its long-standing US presence and strong relationships. The US manufacturing operations, which contributed 19% of Q2 FY26 revenue, are showing signs of improvement, with EBITDA losses reducing from negative ₹13 crore in Q1 FY25 to negative ₹5 crore in Q2 FY25. Operating leverage is expected to further support margin improvement in the US in the latter half of FY26 and into FY27 as volumes ramp up.

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