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Honeywell Follow on Offer: Our View

Dec 13, 2012

Delisting Issue: Revisited

Ever since Securities and Exchange Board of India (SEBI) announced the regulation that publically listed companies should have a minimum 25% free float, there were speculations going on with respect to delisting of Honeywell Automation India Ltd (HAIL). The parent held 81% stake in the Indian subsidiary and was also sitting on a huge cash pile. The India listing was also considered to be secondary. Thus, speculations were rife that the Indian counterpart might get delisted.

However, HAIL cleared all those rumors with a public announcement on 21th November 2012, whereby it clearly stated its intentions to increase the free float in due course to comply with the listing norms. While this led to a gradual fall in stock price which had a built in delisting premium, it cleared the air over the delisting matter.

Now let us have a look at the issue details.

Issue Details

The offer for sale (OFS) comprises of 551,333 equity shares of Rs 10 each representing 6.24% of the equity capital of the company. HAIL has fixed the floor price at Rs 2,150 per share. This is at a 10% discount to today's closing of Rs 2,388 per share. The OFS shall take place on a separate window of the stock exchange. It shall commence on 14th December 2012 at 9.15 am and end on 3.30 pm the same day. If fully subscribed, the promoters shall get Rs 18.9 bn through this stake sale.

Our View

Based on the floor price of Rs 2,150, the issue is priced at 22.8 times its trailing twelve month earnings. The company has a strong balance sheet, high return ratios and good operating cash flow generating capability. Based on these factors, we recommend an APPLY to the issue.

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