YES Securities is bullish on Honeywell Automation India has recommended buy rating on the stock with a target price of Rs 36,310 in its research report dated August 06, 2020.
YES Securities' research report on Honeywell Automation India
Honeywell Automation (HWA) reported resilient set of results with beat on all fronts. PAT beat (+54% vs our estimates) led by, 1) Marginal impact of lockdown on execution, 2) Gross margin expansion & 3) Better cost control. Revenues came in at Rs7.4bn, up 4.5% qoq & down 14% yoy. Gross margin was at ~51%, expansion of ~200bps yoy led by better product mix. EBITDA stood at Rs1.3bn, down 24% yoy with EBITDA margin of 17.4% (-231bps yoy). HWA is focusing to offset revenue drop by managing its variable cost structure, rationalization of discretionary spends, productivity drives etc. Lower tax expenses (-45% yoy) negated the impact of decrease in other income (-6% yoy) & increase in depreciation cost (+36% yoy). Tax rate stood at 25.9% vs 35.4% in Q1FY20. PAT came in at Rs980mn, down 14% yoy.
Outlook
However, post FY15, HWA’s valuations got a significant re-rating (traded at average 1-yr forward P/E multiple of 45x) as it had strong profitability growth, free cash flow generation with average adjusted RoE/ Core RoIC of 51%/39% respectively over FY15-FY20. HWA’s continued earnings outperformance among its peers, asset light tech model & robust return ratios justify its premium valuations. Retain ‘BUY’ with TP of Rs36,310 at 50x FY22E EPS.
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