Honeywell Automation India - 3QCY2012 Result Update - Angel Broking

Honeywell Automation India Ltd. (HAIL) has reported its 3QCY2012 numbers. The top-line has come in 1.7% lower yoy at Rs.408cr against our estimates of Rs.475cr. The company's EBITDA has come in higher by 5.8% to Rs.29cr, far better than our estimate of Rs.19cr. The operating margin is higher by 50 basis points yoy at 7%. The improvement in EBITDA is mainly on account of a lower raw material cost as a percentage of sales (due to current rupee appreciation) which is at 56.6% compared to 65.1% in the same quarter last year. The net profit for the quarter stood at Rs.21cr vis-à-vis Rs.12cr in 2QCY2012, higher by 80% yoy, on the back of better operating performance coupled with lower tax rate (24% of PBT compared to 38% in 3QCY2011).

Manufacturing growth and lowered billing rates to drive volume

The manufacturing sector is assumed to grow at 13.5% for CY2012 and CY2013. There is therefore an expectation of resumption in investments expenditure by varied sectors like the process industry, construction industry and automation, thereby providing a push to HAIL's volume. HAIL's sales to the parent company, Honeywell International amount to ~30% which are constituted in the exports segment. By lowering the billing rates, the exports volumes too are expected to be driven at a robust pace.

Outlook and valuation

We expect HAIL's revenue to post a CAGR of 14.6% to Rs.2,117cr over CY2011-13E. The EBITDA is to grow at a CAGR of 4.8% to Rs.159cr in CY2013E. The EBITDA margin is expected to dip to 5.5% in CY2012 owing to adverse currency movement but is to revive to 7.5% in CY2013E. The net profit is to grow at a CAGR of 5.7% to Rs.120cr in CY2013E. At the current market price of Rs.2,667, HAIL is trading at a PE of 19.5x and EV/Sales of 1.0x on CY2013E. We remain positive on the stock with an Accumulate rating with a target price of Rs.2,842 based on target PE of 21x for CY2013E and implied EV/Sales of 1.1x.

Source : Equity Bulls

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