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Honeywell: Margin dampener
Apr 21, 2011

Honeywell Automation India Ltd (HAIL) has announced first quarter results of financial year 2010-2011 (1QFY11) (December ending company).The company has reported 26.1% YoY and 3.6% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Top line increased by 26.1% YoY during 1QFY11.
  • Operating profits decline 0.3% YoY with margins compressing to 11.6% during 1QFY11.
  • Despite muted performance at the operating level, net profits increase 3.6% YoY due to increase in other income and decline in taxes.

Consolidated financial snapshot
(Rs m)  1QFY10   1QFY11  Change
Sales   2,787 3,515 26.1%
Other operating income            1      15 957.1%
Expenditure   2,376 3,119 31.2%
Operating profit (EBDITA)      412    411 -0.3%
Operating profit margin (%) 14.8% 11.6%  
Other income         16      27 66.7%
Interest           1        -    
Depreciation         30      35 14.2%
Profit before tax 397 403 1.6%
Tax 90 85 -5.5%
Profit after tax/(loss) 307 318 3.6%
Net profit margin (%) 11.0% 9.0%  
No. of shares (m)     8.84  
Basic earnings per share (Rs)   35.98  
P/E ratio (x) *     20.2  
*On a trailing 12-months basis

What has driven performance in 1QFY11?
  • Net sales increased 26.1% YoY in 1QFY11.

  • Operating profits declined 0.3% YoY in 1QFY11 due to overall increase in operating expenses. The overall expenditure as a percentage of sales increased from 85.3% in 1QFY10 to 88.7%in 1QFY11. As a result operating margin declined by 320 bps.

  • Due to lower taxes and increase in other income bottom line registered a growth of 3.6% YoY in 1QFY11.

What to expect?
At the current price of Rs 2,430, the stock trades at 11.4 times our estimated FY13 earnings. We maintain our positive view on the stock from a medium term perspective.

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