Though FY20 earnings are likely to be impacted by Covid-19, the brokerage expects 40 per cent year on year growth in FY22 earnings.
Yes Securities has given a buy rating to Honeywell Automation India with a target price of Rs 36,310. Rge share price moved down by -0.24% from its previous close of Rs 27306.35. The last traded stock price is Rs 27240.25.
Though FY20 earnings are likely to be impacted by Covid-19, the brokerage expects 40 per cent year on year growth in FY22 earnings as the medium term opex related opportunities (short cycle orders) appear promising. Honeywell’s adjusted ROE (ex-cash)/core RoIC has significantly improved from 16%/12% in CY13 to 83%/58% respectively, resulting in valuation rerating.
Investment Rationale
Honeywell Automation (HWA) has outperformed its peers and delivered a stellar CAGR of 31%/37% in EBITDA/Earnings over FY16-20, led by market share gain, rising exports & healthy margin expansion. The brokerage believes its outperformance will sustain based on 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/productivity.
Honeywell would be able to mitigate the slowdown risk arising out of crude prices volatility through its diversified business exposure. Strong installed base in core sectors would aid higher services sales.
Income Statement
Given the high entry barrier & access to parent’s superior technology, Honeywell will align its margins with parent’s long term target of 24%. Unlevered balance sheet offers a tailwind in the event of any major macro slowdown. The brokerage has initiated a buy rating with a target price of Rs 36,310 at 50 times FY22 EPS. Asset light tech model and robust return ratios justify the premium valuation, says the brokerage.
Financials
For the quarter ended March 31, 2020, the company reported standalone sales of Rs 704.26 Crore, down -21.85 % from last quarter Sales of Rs 901.20 Crore and down -13.08 % from last year's same quarter Sales of Rs 810.27 Crore. The company reported net profit after tax of Rs 111.14 Crore in the latest quarter.
Promoter/FII Holdings
Promoters held 75 per cent stake in the company as of March 31, 2020, while FIIs held 0.68 per cent, DIIs 13.67 per cent and public and others 10.35 per cent.
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