We look forward to maintain 1:1 debt equity ratio: RM Subramanian, Avalon Technologies

Kunhamed Bicha, CMD, Avalon Technologies says, “We are in the teens and there is scope for improvement in margins and it is primarily as we go into more and more box build and do more mission critical products as Avalon both in India and in the US.”

Let us talk about your projection for the company especially on the margin front. As of now it has been in the lower teens level. Do you see any scope for an improvement in your margins? Also if you could help us understand what are the key drivers or what will be the key drivers for your margins?
Kunhamed Bicha: So what you said is true. We are in the teens and there is scope for improvement in margins and it is primarily as we go into more and more box build and do more mission critical products as Avalon both in India and in the US. We see good prospect to improve that.

You said that via the IPO you should be able to bring down the debt by 50%. What will be the debt to equity ratio and also give us a sense on your working capital cycle?
RM Subramanian: We are raising about Rs 320 crores as primary capital through this IPO and as said in the RHP about Rs 145 crores of that will be used for debt reduction. So today our net debt is about Rs 300 crores that should bring down 50% of it and moving forward we look forward to maintaining a 1:1 debt equity ratio and also we have funding for working capital.

As you know this is a business where working capital intensity is high. Idea is also to make sure we maintain this working capital line and as we move forward our growth is fully funded and we can re-leverage as we move forward that is the idea of making sure the growth is fully funded and Avalon is fully prepared to take on the growth momentum what we are seeing in the industry.

Your material margins have actually been rising over the last couple of years and because of the chip cost and container cost going up have you been able to pass on these costs to your customers also? What is your strategy to navigate through all of this?
RM Subramanian: In terms of material margin we have been hovering about 34 to 36% and it is actually increasing as you rightly said. This is again how we are able to maintain the margins in spite of all the component shortage and COVID period where even container cost did go up. That is again a sign of our operational efficiency and we intend to maintain the same and wherever we are able to save cost we should be able to keep that. There are times where we need to work with our customers and customers’ does support us in terms of if the cost does go up and that is the reason we have been able to maintain the margins and hopefully moving forward we should maintain the same as well.