Honeywell Automation India Ltd - Q2 FY21 Result Update - YES Securities

HIGHLIGHTS

- HWA once again reported resilient set of results with beat on EBITDA (+17% vs our est.) with margin at 19% (+80bps yoy)

- Revenues came in at Rs7.6bn, up 3.2% qoq & down 8.2% yoy.

- Gross margin was at ~50.4%, expansion of ~151bps yoy led by better sales mix. HWA continues to focus on rationalization of discretionary spends, productivity drives etc.

- Other income declined by 45% yoy to Rs144mn (-49% vs our est.). However, lower tax expenses (-19% yoy) negated the impact of decrease in other income partially. Tax rate stood at 25.7% vs 27.8% in Q2FY20. PAT marginal beat (+4% vs our estimates) & it came in at Rs1,1bn, down 10% yoy.

Our View

- Domestic revenue CAGR of 13% over FY21E-23E led by, i) Capex on Data Center, Metro, Airport & Smart Infra projects, ii) Focus on double digit connected software growth, iii) Major beneficiary of India's move to build energy security, drive gas-based economy by encouraging digital solutions & iv) Medium term outlook strong for Pharma & Chemical sectors

- Export revenue CAGR of 20% over FY21E-23E driven by, i) Business integration with Parent's entities by leveraging cost efficient services, ii) New portfolios, offerings and geographic expansion supporting Honeywell's global growth agenda & ii) Supply chain localization

- We like HWA based on its ongoing product portfolio upgradation, focus on software industrial business model, faster adoption of automated solutions by domestic market post Covid-19 episode & relentless execution on cost control.

- Average OCF/EBITDA ratio was strong at 0.67x (one of the best in industry) during FY15-20, expect it to ~1x by FY22E.

Valuation

- HWA's continued earnings outperformance among its peers, asset light tech model & robust return ratios (RoE ex-cash/ RoIC at 71%/58% in FY20) justify its valuations. Retain 'BUY' with TP of Rs36,310 at 50x FY22E EPS.

Risk to view  Slowdown in orders from process automation.

Shares of HONEYWELL AUTOMATION INDIA LTD. was last trading in BSE at Rs.29301 as compared to the previous close of Rs. 28886.65. The total number of shares traded during the day was 163 in over 139 trades.

The stock hit an intraday high of Rs. 29590 and intraday low of 28733.25. The net turnover during the day was Rs. 4748771.

Source : Equity Bulls

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