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Honeywell: Margin tumbles

Jul 20, 2012

Honeywell Automation India Ltd. (HAIL) has announced the second quarter results of financial year 2012 (It is a December ending company). The company has reported 11.2% YoY growth in sales. However, net profits have declined 54.5% YoY. Here is our analysis of the results.

Performance summary
  • Top line increased by 11.2% YoY during 2QCY12.
  • Operating profits decline 62.0% YoY with margins compressing to 3.5% during 2QCY12.
  • Poor performance at the operating level impacted bottomline, with the same declining 54.5% YoY.

Consolidated financial snapshot
(Rs m) 2QCY11 2QCY12 Change 1HCY11 1HCY12 Change
Sales 3,477 3,866 11.2% 6,992 7,992 14.3%
Other operating income 1 1 20.0% 1 1 -15.4%
Expenditure 3,117 3,729 19.6% 6,230 7,599 22.0%
Operating profit (EBDITA) 360 137 -62.0% 763 394 -48.3%
Operating profit margin (%) 10.4% 3.5%   10.9% 4.9%
Other income 40 64 58.4% 75 74 -1.3%
Interest 3 1 -81.3% 3 1 -62.5%
Depreciation 37 34 -8.3% 72 69 -4.7%
Profit before tax 360 166 -54.0% 763 398 -47.8%
Tax 102 48 -52.7% 187 115 -38.4%
Profit after tax/(loss) 258 118 -54.5% 576 283 -50.9%
Net profit margin (%) 7.4% 3.0%   8.2% 3.5%  
No. of shares (m)         8.8  
Basic earnings per share (Rs)         32.0  
P/E ratio (x) *         28.1  
*On a trailing 12-months basis

What has driven performance in 2QCY12?
  • Net sales increased 11.2% YoY in 2QCY12 (Company has only one reporting segment automation & control and hence it is under no obligation to provide a complete breakdown of revenues as per Accounting Standard 17).

  • Operating profits decline 62.0% YoY with margins compressing to 3.5% 2QCY12. Increase in cost of raw materials as a percentage of sales resulted in margin erosion. The total raw material cost as a percentage of sales increased from 45.6% in 2QCY11 to 52.3% in 2QCY12. Other expenses, too, increased from 14.0% in 2QCY11 to 15.9% in 2QCY12. It may be noted that other expenditure for the quarter included an amount to the tune of Rs 48.7 m charged in respect of services rendered by the group companies during prior period.

  • Due to muted performance at the operating level, bottom line declined 54.5% YoY.

What to expect?
At the current price of Rs 2,470, the stock trades at 28.1 times its trailing twelve month earnings. The current quarter results were a big disappointment for the company. While the topline growth was respectable operating margins shrank considerably. Nonetheless, taking into consideration the long term growth prospects and delisting opportunity on offer (parent, Honeywell Ltd owns 81% in the Indian subsidiary) we maintain our positive view on the stock.

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Jun 23, 2021 (Close)


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