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Honeywell: Higher taxes take toll
Feb 11, 2011

Honeywell Automation India Ltd (HAIL) has announced 4QFY10 results (December ending company). The company reported 19.2% YoY growth in sales in 4QFY10. However, the bottom line declined 26.4% YoY due to increase in tax provisioning. Here is our analysis of the results.

Performance summary
  • Top line increased by 19.2% YoY during 4QFY10.
  • Operating profits declined 4.1% YoY with margins compressing to 11.9% during 4QFY10.
  • Due to higher provisioning for deferred taxes, net profits declined 26.4% YoY.
  • The company has declared a dividend of Rs 10 per share.


Consolidated financial snapshot
(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Sales 3,191 3,804 19.2% 11,746 13,547 15.3%
Other operating income 2 4 105.3% 8 11 44.0%
Expenditure 2,719 3,354 23.3% 9,869 12,119 22.8%
Operating profit (EBDITA) 473 454 -4.1% 1,884 1,439 -23.6%
Operating profit margin (%) 14.8% 11.9%   16.0% 10.6%
Other income 34 22 -35.8% 61 80 31.7%
Interest 3 - -100.0% 6 1 -86.9%
Depreciation 31 36 18.6% 119 129 8.8%
Profit before tax 474 439 -7.3% 1,820 1,389 -23.7%
Tax 124 182 46.8% 492 339 -31.2%
Profit after tax/(loss) 350 257 -26.4% 1,328 1,051 -20.9%
Net profit margin (%) 11.0% 6.8%   11.3% 7.7%  
No. of shares (m)         8.8  
Basic earnings per share (Rs)         118.8  
P/E ratio (x) *         17.2  
*On a trailing 12-months basis

What has driven performance in 4QCY10?
  • Net sales increased 19.2% YoY in 4QCY10.

  • Operating profits declined 4.1% YoY in 4QCY10 due to increase in operating expenses as a percentage of sales with the company reporting operating margin of 11.9% in 4QCY10, a decline of 290 bps on a YoY basis.

  • Due to higher deferred taxes, bottom line registered 26.4% YoY decline in 4QCY10. As a result of deferred tax provisioning, the effective tax rate increased from 26% in 4QCY09 to 41% in 4QCY10

What to expect?
At the current price of Rs 2048, the stock trades at 9.7 times our estimated CY13 earnings. We maintain our positive view on the stock from a medium term perspective.

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