Summary
Avalon Technologies Limited - Q3 FY 2026 Earnings Call Summary Thursday, February 05, 2026 4:00 PM IST
Event Participants
Executives 5 Bhaskar Srinivasan, Kunhamed Bicha, Shriram Vijayaraghavan, Suresh Veerappan, Venky Venkatesh
Analysts 7 Archit Shah, Avinash Nahata, Jignesh Thakur, Jeetu Panjabi, Karan Sanwal, Sameet Sinha, Santosh Seshadri, Tanay Shah, Vipraw Srivastava
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Order Book | ₹2,016 crores | +26.5% YoY; additional ₹1,183 crores in long-term contracts (15-36 months). |
| Revenue (9M FY26) | ₹1,123 crores | +48.7% YoY; driven by broad-based growth across all key verticals. |
| Revenue (Q3 FY26) | ₹418 crores | +48.7% YoY and +9.2% QoQ; highest ever quarterly revenue in company history. |
| India Mfg. Rev Share | 78% (Q3 FY26) | Contributed by both domestic and export; delivered 16.7% EBITDA margin. |
| U.S. Mfg. Rev Share | 22% (Q3 FY26) | Primarily servicing tariff-sensitive and localized programs like Energy Storage. |
| Box Build Share | 53% (9M FY26) | Up from 49% in FY25; reflects strategic shift toward higher-value complex systems. |
| Gross Margin (9M) | 34.6% | Within 33-35% guided range; 100 bps impact due to tariff pass-through mechanics. |
| EBITDA (9M FY26) | ₹116 crores | +59.2% YoY; margin expansion to 11.5% in Q3 due to operating leverage. |
| PAT (Q3 FY26) | ₹33 crores | +35.9% YoY; reflects scaled operations and stabilizing manpower costs. |
| Net Working Capital | 118 days | -32 days YoY and -13 days QoQ; improvement across inventory and receivables. |
| Asset Turns | 9.5x | Improved from 7.5x in FY25; follows a disciplined capex-light model. |
| ROCE | 18.8% | Improved from 11.3% YoY; driven by better capital efficiency and profitability. |
Geographic & Segment Commentary
- Industrial: Contributed 35% of 9M FY26 revenue with 67% YoY growth. This segment includes semiconductor equipment and power systems, with plans to split semiconductor into a separate vertical upon meaningful scale.
- Mobility (Rail & Aero): Rail grew 70% YoY (16% of revenue), while Aerospace grew 64% YoY (8% of revenue). Aerospace is seeing long-term 15-year contracts for cabin subassemblies and new bids for landing gear components.
- Clean Energy: Accounted for 19% of revenue, growing 35% YoY. Focus remains on Energy Storage Systems (ESS) in the U.S. market, which is seeing a “power super cycle” driven by data center demand.
Company-Specific & Strategic Commentary
- Tariff Management: Managed the 50% U.S. tariff period by recovering 99% of costs from customers. Recent reduction to 18% is expected to accelerate exports from India.
- Dual-Shore Model: Utilizes U.S. facilities for prototyping and localized manufacturing (e.g., BESS), while transitioning mature high-volume programs to India for cost optimization.
- Semiconductor Equipment: Completed project readiness for a global Tier-1 major; volume production expected in FY27. Strategic focus aligns with India Semiconductor Mission (ISM) 2.0.
- New Capability Wins: Foraying into cable commodities for aerospace and advanced metal cockpit assemblies. Bidding on integrated battlefield command system components for the defense sector.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Revenue Growth | ~40% for FY26 | Upwardly revised from 28-30% due to improved visibility and project ramp-ups. |
| Capex | ~₹50 crores/year | Maintenance and incremental capacity capex for the next 2-3 years. |
| Gross Margin | 33% - 35% | Anticipated to remain stable; removal of tariff headwinds may provide 100 bps optical lift. |
| FY27 Outlook | “25-30% and more” | Management expressed confidence in sustaining high growth based on long-term 5-10 year contracts. |
Risks & Constraints
| Risk | Context |
|---|---|
| Geopolitical/Tariff Volatility | While U.S. tariffs dropped to 18%, management notes trade policies can change rapidly. Mitigation includes a dual-shore model and expansion into Southeast Asian markets. |
| Commodity Price Fluctuations | Recent volatility in material costs. Management aims for same-quarter recovery from customers to protect absolute margins. |
| Customer Concentration | Strategic focus on “Fortune 100” types; while providing stability, performance is tied to these majors’ global ramp-up schedules. |
Q&A Highlights
Semiconductor Opportunity
- Question: What is the scale of the semiconductor opportunity and what products are being targeted? (Karan Sanwal)
- Answer: Avalon is manufacturing complex parts of larger $2M-$3M machines rather than the whole equipment. The company has onboarded a global top major and is in talks with a second large customer (Kunhamed Bicha).
U.S. Manufacturing Profitability
- Question: When will the U.S. manufacturing losses (₹7 cr PAT loss) subside? (Tanay Shah)
- Answer: Losses have already narrowed from ₹9 cr to ₹7 cr. Operating leverage from Energy Storage Systems and new business wins are expected to drive better profitability in late FY27 (Suresh Veerappan).
Working Capital Trajectory
- Question: Can the 118-day working capital cycle be improved further? (Avinash Nahata)
- Answer: Current performance is already better than the March 2026 target of 120-130 days. Management aims to maintain and structurally improve this through better inventory and receivable management (Suresh Veerappan / Shriram Vijayaraghavan).
Key Takeaway
Avalon Technologies delivered its sixth consecutive quarter of growth in Q3 FY26, achieving record quarterly revenue of ₹418 crores (+48.7% YoY) and PAT of ₹33 crores. The company significantly improved its capital efficiency, with ROCE rising to 18.8% and net working capital days reducing to 118. Strategic progress was marked by the successful navigation of U.S. tariffs—recovering 99% of impacts—and the upcoming commencement of semiconductor equipment production in FY27. Management has upwardly revised FY26 revenue growth guidance to 40%, supported by a robust ₹2,016 crore order book and a 53% contribution from high-margin box-build systems. While U.S. operations currently remain a drag on consolidated margins, the ramp-up of Energy Storage Systems and a lower tariff regime of 18% (down from 50%) are expected to accelerate export momentum. Avalon enters FY27 with a diversified growth strategy across Industrial, Aero, and Clean Energy segments, backed by a resilient dual-shore manufacturing model.
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