There was a massive euphoria regarding the IPO of Avalon Technologies. The initial public offering (IPO) of Avalon Technologies Limited opened for subscription from 3rd April 2023 till 6th April 2023 worth ₹865 crores. The issue price(the price at which the share was issued via IPO) was Rs 436 and it kicked off at the stock exchange at a listing price of Rs 431. And that is very disappointing for the investors, especially for retail investors like us.
Why did the IPO not perform as expected?
The reasons could be many, but here I am briefly explaining the most important ones. let’s see!
- Less Interest Shown By Retail And High Net Worth Individuals In Avalon Technologies IPO
- Heavy Buying Of Qualified Institutional Investors(QIBs)
- Valuation Of The IPO
- Advice Of Brokers
- Past Performance Of Avalon Technologies
- Is There Hope for the Future?
Less Interest Shown By Retail And High Net Worth Individuals In Avalon Technologies IPO
Retail investors are individual investors who purchase securities, such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs), for their personal investment portfolios like ours. HNIs are High Net Worth Individuals. SEBI has defined HNI investors as individual retail investors who invest a minimum of Rs 200,000 in IPO shares.
Both HNIs and retail investors showed lukewarm responses to the IPO. Retail Investors subscribed 84% of their quota and HNIs subscription of the IPO was just 41% of the allotted quota.
Heavy Buying Of Qualified Institutional Investors(QIBs)
Qualified institutional investors (QIIs) include banks, mutual funds, pension funds, insurance companies, and other large institutional investors who are able to make large investments and take on significant financial risks. They have the knowledge and expertise to participate in certain types of financial transactions that are not available to retail investors.
The QIBs bought 3.57 times their allotted quota and bought mostly on the closing day of the Avalon Technologies IPO. So they are the ones who pumped up the sentiments around the IPO.
Valuation Of The IPO
The upper price band of the IPO was Rs 436 which was valued at a P/E multiple of 55.5x based on annualized earnings on post-issue capital. The valuation of the IPO was quite fairly estimated considering the close peers of Avalon Technologies. Those who have subscribed to the IPO for short-term quick gain are certainly disappointed. You can check the current price including the high and low at BSE
But the long-term investors may not take much seriously the below issue price listing of the stock.
This is because the company is a major player in the electronic manufacturing services supplier to sustainable and green industries like electric vehicles, solar devices, and hydrogen among many others. Moreover, the company has 12 manufacturing facilities in India and the US.
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Advice Of Brokers
Most of the brokers had advised the Investors to subscribe to the stock for long-term benefits. Brokers are bullish on the stock due to :
- Atmanirbhar Bharat promotes import substitution and domestic production and
- Production-linked incentive or PLI scheme of the central government.
These two schemes augur well for the company as it is enjoying benefits from the above two schemes across its various articles.
Past Performance Of Avalon Technologies
The key customer base of Avalon Technologies has increased from 54 in FY20 to 89 in just 8 months in the month of November 2022. Its order book in November 2022 was at Rs 1190 crore, which is 39% more than the FY22 closing.
Is There Hope for the Future?
Avalon Technologies is an end-to-end integrated solutions provider. It provides a one-stop shop for electronics and electro-mechanical design and manufacturing services.
There is a high entry barrier to enter the industry or business of Avalon Technologies. Hence it has a long secure future from facing stiff competition.
IPOs are not always as rosy as they seem. If you have invested in the Avalon Technologies IPO or you are planning to invest it in the secondary market, then you must consider thinking on three points.
First, understand the business and its future prospects.
Second, think about the long-term investment idea. Don’t be impatient.
And third, don’t have blind faith in anyone. It’s your money and you should have full control of it. Learn as much as you can on the stock market. If you are investing then prepared yourself to remain invested for at least 5 years.
Why Avalon Technologies’ share is falling?
As I have discussed above, this is due to the high valuations of the stock
What is the revenue of Avalon Technologies?
The Revenue of Avalon Technologies is Rs 434 crores.
What is the net profit of Avalon Technologies?
As per its profit and loss account, the net profit of Avalon Technologies as of November 30 2022 stands at INR 51.90 million