Avalon Technologies Ltd. saw its shares surge by nearly 6% in Monday's trading, reaching a high of ₹2,326.20 on the BSE. This significant jump followed the announcement of a strategic joint venture with Germany-based Zollner Elektronik AG, a move that also prompted foreign brokerage Nomura to raise its target price for Avalon's stock.
Strategic Joint Venture Details
The newly formed joint venture will initially see Zollner Elektronik AG holding a 51% stake. However, Avalon Technologies will have the option to acquire an additional 2% stake three years after the commencement of commercial production, subject to certain conditions.
This collaboration is designed to initially cater to the Indian operations of established customers, providing crucial localization support and closer proximity to their supply chains. For Avalon, the JV offers substantial benefits, including access to a global customer base and expansion into European markets. It also facilitates entry into two new high-complexity manufacturing verticals: healthcare and life sciences, and test and measurement, both characterized by long product lifecycles.
Nomura's Positive Outlook
Following the joint venture announcement, Nomura revised its target price for Avalon Technologies shares upwards to ₹2,767 from an earlier ₹2,211, implying a potential upside of 23% from current levels. The brokerage maintained its "Buy" rating on the stock.
Nomura highlighted that the joint venture would significantly expand Avalon's capabilities into complex Electronics Manufacturing Services (EMS), particularly in medical and test instruments, and deepen its involvement in the semiconductor ecosystem. The diversification into the European Union market is also expected to improve Avalon's long-term growth outlook and contribute positively to its margins.
"For Avalon, its capability expands further into complex EMS such as medical and test instruments and goes deeper into the semiconductor ecosystem. Also, the JV should aid diversification into EU. This will improve the long-term growth outlook further and will be margin accretive as well," Nomura stated.
The brokerage estimates a total investment of $30-50 million by the JV. Assuming a midpoint investment of $40 million, an asset turn of 10 times, and EBITDA margins of 15-17%, Nomura projects a 21% boost to Avalon's FY29F Earnings Per Share (EPS). Nomura currently values the stock at 35x FY29F EPS, which it considers attractive given the strong growth prospects.
About Zollner Elektronik AG
Zollner Elektronik AG is a privately held German company with a significant international presence across 17 locations. Nomura's analysis indicates that Zollner specializes in complex EMS builds for critical applications across various sectors, including semiconductors, railways, aerospace, and automotive. The company boasts a roster of leading clients such as BMW, Bosch, Teradyne, Siemens, and National Instruments, reporting revenues of $3.7 billion in 2025.