Avalon Technologies Shines in Q2 FY26: Strategic Growth and Robust Performance

Avalon Technologies Limited, a prominent player in the Electronic Manufacturing Services (EMS) industry, has once again demonstrated robust financial performance in the second quarter of Fiscal Year 2026. The company reported a significant uplift in its key financial metrics, underscoring its strategic initiatives and operational efficiencies. For Q2 FY26, Avalon's revenue from operations surged by 39.1% year-on-year to INR 382.5 crore, while EBITDA grew by 28.1% to INR 38.6 crore. Profit After Tax (PAT) witnessed an impressive 42.9% increase, reaching INR 25.0 crore. This strong quarterly showing builds on an equally impressive first half, with H1 FY26 revenues climbing 48.7% year-on-year to INR 706 crore, reflecting sustained momentum and effective execution across its diverse business segments.

The company's growth is notably broad-based, spanning various verticals, geographies, and capabilities. In H1 FY26, the India business experienced a substantial 44% growth, complemented by a 52% growth in the US business. This diversified customer profile has consistently supported Avalon's expansion, even amidst an evolving macro environment. The core expertise in box-build and system integration solutions continues to be a significant revenue driver, accounting for 53% of the total revenue. Avalon's strategic dual-shore presence in the US and India provides a unique advantage, enabling localized production and effective management of tariff exposures, while leveraging India's cost-effective and scalable manufacturing base. This geographic flexibility is crucial for adapting to changing trade dynamics and enhancing customer engagement for 'Made in India' products.

Strategic Initiatives Fueling Future Growth

Avalon Technologies is actively pursuing several strategic initiatives that are expected to drive future growth. A key highlight is the company's expansion into the semiconductor equipment manufacturing space. This involves a partnership with a global major to deliver industry 4.0 compliant complex box-build systems, with prototypes already being dispatched and volume ramp-up anticipated in FY27. This move positions Avalon in high-potential, advanced technology segments.

In the mobility sector, the railway Kavach system has successfully completed testing and is on track for commercial production in the second half of next year. Additionally, production for locomotive engine sub-systems is slated to begin in the second half of this year, further strengthening Avalon's presence in the railway business, which saw a 58% year-on-year revenue growth in H1 FY26. The energy storage system program is also progressing well, with production ramp-up underway, particularly for US-based battery storage customers, with substantial ramp-up expected to continue over the next 12 months.

To support its expanding operations and meet rising domestic demand, Avalon is undertaking brownfield expansion in Chennai, with Phase 2 expected to be completed by the end of Q3 FY26. These investments are aimed at ensuring readiness for the next phase of growth and leveraging operating leverage in the latter part of the year. The company also secured AS9100D (Aerospace quality certification for PCBA and chemical processing) during Q2 FY26, enhancing its capabilities for high-precision aerospace segments.

Financial Health and Outlook

Avalon's financial health remains robust, characterized by a capex-lite model, strong asset turns, and improving return on capital employed (ROCE). ROCE improved significantly to 18.4% from 8.2% a year ago, while asset turns remained healthy at 8.7x, indicating continued efficiency in capital utilization. The company's order book stood at INR 1,863 crore as of September 30, 2025, reflecting a 25.4% year-on-year increase, providing strong demand visibility for the next 14 months. Long-term contracts, with execution timelines of 15 to 36 months, further add INR 1,168 crore to the order book.

While net working capital days increased to 131 days (from 124 days in March 2025), primarily due to temporarily elevated inventory levels to support upcoming production and growth, management is focused on improving efficiency and expects to bring it within the 120-130 day range over the next few quarters. Avalon's ability to maintain tariff recoveries of over 99% from customers, despite complex multi-rate structures, highlights its strong customer relationships and deep market understanding. The company's gross margin has consistently remained within its guided range of 33-35%, reflecting disciplined execution and a focus on profitable growth.

Concluding Thoughts: Sustained Growth and Strategic Clarity

Avalon Technologies Limited has commenced FY26 on a strong note, delivering robust revenue growth, solid execution, and continued customer traction across key markets. The upward revision in its full-year revenue growth guidance to 28-30% underscores management's confidence in the business outlook. With a healthy order book, expanding capacities, and a culture rooted in operational discipline, Avalon is well-positioned to capitalize on the vast potential emerging across its end markets. The company's strategic focus on high-potential segments, coupled with its dual-shore manufacturing model, ensures sustained momentum and long-term value creation for its shareholders.