Honeywell Automation India
Will taste sweet
The company is well poised to capitalise on increasing investments in sectors like energy, airports, retail and metal industries
| Buy | Honeywell Automation India |
| BSE Code | 517174 |
| NSE Code | HONAUT |
| Bloomberg | THW@IN |
| Reuter | TTHO.BO |
| 52-week High/Low | Rs 2250 /Rs 1408 |
| Current Price | Rs 1920 (as on 28th November 2007) |
Honeywell Automation India is 81% subsidiary of Honeywell, US. Honeywell International is a $30 billion diversified technology and manufacturing leader, serving customers worldwide with aerospace products and services; control technologies for buildings, homes and industry; automotive products; turbochargers; and specialty materials. Based in Morris Township, N.J., Honeywell's shares are traded on the New York, London, Chicago and Pacific Stock Exchanges. It is one of the 30 stocks that make up the Dow Jones Industrial Average and is also a component of the Standard & Poor's 500 Index.
Honeywell Automation India has five major divisions viz. Honeywell Process Solutions (HPS), Honeywell Building Solutions (HBS), Environment & Combustion Control (ECC) Products, Sensing & Control (S&C) Products and Global Services (GS).
Large orders to sustain high growth in Process Solutions business
Honeywell Process Solutions (HPS) business serves core industrial sectors of Refining, Oil & Gas exploration and pipelines, Pulp & Paper, Metal and Cement etc. General Industrial growth and increasing investments in power generation, new investments in metals and investments in refineries for expansion as well as Euro 3 and Euro 4 compliance projects are driving growth of this business.
The HPS business has won major contracts from Reliance, Hindustan Petroleum Corporation Ltd., Bongaigaon Refinery and Petrochemicals Ltd., Indian Petroleum Corporation Ltd., Indal, Hindustan Zinc, Steel Authority of India Ltd., Italcementi, Reliance Energy etc. HPS successfully expanded its project operations in Chennai and Jamshedpur to be closer to customer which is delivering results in faster project close outs and higher customer satisfaction.
It is an emerging market and the company has largest market share in this segment. For oil majors like Indian Oil Corporation Ltd., and Hindustan Petroleum Corporation Ltd., it has been undertaking automation of their more than 1200 petrol stations to be completed in 2007. With success and valuable experience for petrol station automation, a new opportunity has opened not only for domestic market but also for looking at many global markets. This business has experienced good growth in last 3 years & is expected to show similar high growth going forward.
Higher margin Building Solutions business will continue to grow at faster rate
Honeywell Building Solutions (HBS) business provides solutions and services for facilities such as airports, Commercial & Industrial Buildings, IT & ITES industry, Hospitals, Hotels, Airports, Mass Rapid Transit (MRT) etc. Solutions include, Fire automation, Security solutions, HVAC control, Integrated Building Management Systems, Energy reduction contracts and many other facility management services.
This business is the fastest growing business and earns the highest profit margins. The major orders won during 2006 include Tata Consultancy Services, Mandke Research, Magus, IBM, Flextronics, Regenesis etc. These orders were bagged across the entire offering range of Solutions, Services and Energy across major verticals of Office Space/IT Space, Healthcare, Hospitality, Drugs & Life Sciences, Retail, Infrastructure and Industrial Complexes. HBS was also recognized across the entire value chain by bagging 6 national level awards during the year from reputed organizations such as the Confederation of Indian Industry, MEDA, Frost & Sullivan and several other recognitions for its market leadership in this business.
This sector is witnessing high demand due to high growth of construction sector as well as increasing use of such modern solution in new upcoming buildings. Good opportunities for building automation are also seen in new investments that are taking place for Airport modernization and SEZ's.
Boom in high-end constriction projects augurs well for ECC products business
Environment & Combustion Control (ECC) Products business provides various products such as thermostats, valves, HVA controllers, etc., that are required for building automation. The ECC business division provides integrated product solutions in heating, ventilation, cooling & refrigeration, air purification, zoning, humidification, air conditioning, switches, sensors and controllers. From home to business, ECC offers a superior and complete portfolio of control products.
High growth of construction industry in India is fuelling growth in this business. The major recent orders received were from Voltas, Prestige Builders and Parle Products. In 2006 NOVAR building management business was integrated successfully in ECC India as part of global acquisition. The company is working actively to add System Integrators for Novar Building Control products to serve a wider market in the rapidly growing construction segment. It has already appointed 10 System Integrators and plans to continue to expand on this program in 2007.
The company expects this business to continue to grow rapidly.
New products to new clients to drive growth of S&C products business
Sensing & Control (S&C) Products business provides various sensors and switches to manufacturing and automobile industry. This business serves primarily OEMs in various manufacturing industries such as auto, medical instrumentation, IT, etc. This business is experiencing good growth due to growth of manufacturing industry as well as increasing use of sensors in various equipments.
During 2006, this business won major orders from Indfoss, Delta Engineer, Terex Vectra, Ashok Leyland and Escorts. Honeywell has started supplying Crank sensors and pressure sensors to Tata Motors. These sensors are installed on the engines and critical parts of the engines. Tata Motors has started using Honeywell sensors in their passenger car.
The company has initiated S&C Transportation as a growth initiative. This initiative has started delivering results and it has won couple of projects, which will bring revenue growth year on year. Some of the major customers are Tata Motors, Escorts, BEML, Action Construction, Caterpillar, Larsen & Tubro Komatsu, Ingersol Rand, Godrej and Voltas etc.
Growing global business
Global Services (GS) business, which offers solutions and services to overseas requirements of Honeywell and other customers, is also showing good growth due to increased flow of work from Honeywell and products exports.
With a complete focus on quality engineering services in the field of Automation and Control, this business division offers solutions such as Basic Design, Functional & Detailed Design and Testing and Plant commissioning to Honeywell affiliates as well as other clients. The workforce includes specialists in industrial, manufacturing and building automation having strong domain knowledge and an innate ability to understand various platforms, processes, software applications, installations and implementations. Global Engineering Services has already exceeded 1 Million hours of engineering services spread across all continents.
The company last year had started activity of providing complete turnkey solutions for some large overseas projects. First major order of this kind was received by the company for a project in South Africa and this activity is picking up well with many more proposals underway.
Secure growth from Security Systems business
The Honeywell Security Group (HSG) is one of the world’s leading and most experienced manufacturers of electronic security systems protecting millions of homes, businesses and government facilities around the world. With over $40 million a year invested in research and development, the division strives to bring out the best and most innovative security products. The best global technologies are leveraged at the Engineering Centre of Excellence in the US, China, India, Scotland and France. New commercial products include: Integrated Digital Video Manager (DVM), Enterprise Network Recorder (NVR), Rapid Eye LT and the LobbyWorks visitor management system. These new products are all designed to drive up revenues while making installations and maintenance easier.
The company started the distribution of Honeywell Security Group (HSG) products in 2005. This initiative will continue to grow along with the synergies that exist with other solutions businesses like HBS and HPS.
Major investments in capacity
HPS has made major investments to expand its manufacturing facilities to cater to the envisaged high growth. These expanded facilities are understood to have recently gone on stream. The project will create 1,70,000 sq. feet of additional space. Currently its manufacturing facilities are spread over 36,000 sq. feet only. This shows the kind of growth the company is expecting in future.
Outlook-All business segments have encouraging outlook
Process solution division of the company hopes to leverage on the global Honeywell acquisitions. Besides, major investments in infrastructure in oil and gas and power verticals will benefit this segment immensely.
Retail automation, part of process solution, will continue to grow at a very rapid pace. The company had 1200 petrol stations automation order from HPCL, which will be completed soon. However, the company expects to do automation of at least 1000 petrol pumps every year till 2010.
Building solution business will grow faster going forward considering the residential and commercial construction boom and SEZ initiatives. Honeywell Automation also supplies various electrical components and security devices for building automation in its product segments. However, it does not manufacture any such products, but imports from the parent company. This division is taking initiatives around Building Management Solutions in Retail Outlets. Also increased play in infrastructure projects require high end solutions (metros and airports), which means large business opportunities for this division.
Sensing & Control (S&C) Products business sees opportunities in localized products for building control, water management products. It also sees huge demand coming from high end passenger vehicles driving censor growth.
For its Global services business, the company sees increased manufacturing exports in process solutions. And it hopes to bank on its expanding footprints in building solution business. Continued focus on third party offshore development center in niche segments would also benefit this division of the company.
FY 0712 was a year of consolidation
The company witnessed over 40% growth in sales in the nine-months ended September 2007 to Rs 632.30 crore. However fall in OPM compared to relatively higher margins earned last year and jump in tax provision due to expiry of certain tax shelters, limited the growth in net profit to 12% to Rs 48 crore. PBT grew 32% to Rs 69.10 crore.
Reasonable valuation
In FY 0712, we expect the company to register EPS of Rs 80.4. This EPS is expected to rise to Rs 109.7 in FY 2008 (ending December). At current price of Rs 1920, P/E on projected FY 0712 EPS is 23.9 and on projected FY 0812 EPS is 17.5, which is attractive considering the growth potential and MNC parentage.
| | 0403 (12) | 0412 (9) | 0512 (12) | 0612 (12) | 0712 (12P) | 0812 (12P) |
| Sales | 330.30 | 280.90 | 493.00 | 643.90 | 905.86 | 1268.20 |
| OPM (%) | 9.5 | 8.8 | 10.2 | 13.3 | 11.7 | 11.2 |
| OP | 31.30 | 24.70 | 50.50 | 85.80 | 105.96 | 142.04 |
| Other inc. | 5.10 | 1.90 | 2.10 | 4.20 | 6.80 | 8.50 |
| PBIDT | 36.40 | 26.60 | 52.60 | 90.00 | 112.76 | 150.54 |
| Interest | 3.70 | 1.80 | 3.50 | 2.20 | 1.70 | 1.50 |
| PBDT | 32.70 | 24.80 | 49.10 | 87.80 | 111.06 | 149.04 |
| Dep. | 9.20 | 7.40 | 11.10 | 10.20 | 9.50 | 10.45 |
| PBT | 23.50 | 17.40 | 38.00 | 77.60 | 101.56 | 138.59 |
| EO | 3.40 | 11.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| PBT after EO | 20.10 | 6.40 | 38.00 | 77.60 | 101.56 | 138.59 |
| Tax | -5.20 | -4.00 | 3.80 | 17.40 | 30.47 | 41.58 |
| PAT | 25.30 | 10.40 | 34.20 | 60.20 | 71.09 | 97.01 |
| PPT | 0.00 | 1.90 | 0.10 | 2.20 | 0.80 | 0.00 |
| PAT after PPT | 25.30 | 8.50 | 34.10 | 58.00 | 70.29 | 97.01 |
| EPS (Rs)* | 26.7 | # | 38.7 | 68.4 | 80.4 | 109.7 |
| * On current equity of Rs 8.80 crore; | ||||||
| Honeywell Automation: Standalone Results |
| | 0709 (3) | 0609 (3) | Var. (%) | 0709 (9) | 0609 (9) | Var. (%) | 0612 (12) | 0512 (12) | Var. (%) |
| Sales | 227.10 | 151.40 | 50 | 632.30 | 448.50 | 41 | 643.90 | 493.00 | 31 |
| Operating Margins (%) | 12.6 | 13.3 | | 11.8 | 13.4 | | 13.3 | 10.2 | |
| Operating Profits | 28.60 | 20.10 | 42 | 74.50 | 60.10 | 24 | 85.80 | 50.50 | 70 |
| Other Income | 1.70 | 0.20 | 750 | 2.60 | 1.40 | 86 | 4.20 | 2.10 | 100 |
| PBIDT | 30.30 | 20.30 | 49 | 77.10 | 61.50 | 25 | 90.00 | 52.60 | 71 |
| Interest | 0.70 | 0.40 | 75 | 1.50 | 2.00 | -25 | 2.20 | 3.50 | -37 |
| PBDT | 29.60 | 19.90 | 49 | 75.60 | 59.50 | 27 | 87.80 | 49.10 | 79 |
| Depreciation | 2.10 | 2.30 | -9 | 6.50 | 7.20 | -10 | 10.20 | 11.10 | -8 |
| PBT | 27.50 | 17.60 | 56 | 69.10 | 52.30 | 32 | 77.60 | 38.00 | 104 |
| EO | 0.00 | 0.00 | | 0.00 | 0.00 | | 0.00 | 0.00 | |
| PBT After EO | 27.50 | 17.60 | 56 | 69.10 | 52.30 | 32 | 77.60 | 38.00 | 104 |
| Tax | 9.20 | 2.60 | 254 | 20.30 | 9.50 | 114 | 17.40 | 3.80 | 358 |
| PAT | 18.30 | 15.00 | 22 | 48.80 | 42.80 | 14 | 60.20 | 34.20 | 76 |
| Tax of Earlier Years | 0.00 | 0.00 | | 0.80 | 0.00 | | 2.20 | 0.10 | 999 |
| Net Profit Reported | 18.30 | 15.00 | 22 | 48.00 | 42.80 | 12 | 58.00 | 34.10 | 70 |
| EPS | # | # | | # | # | | 68.4 | 38.7 | |
| * On current equity of Rs 8.80 crore; | |||||||||
BigGains !!
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