This Is What Helped Honeywell Automation Defy The Slowdown

The revenue of $130-billion U.S.-based Honeywell International Inc.’s Indian arm rose in double digits for the three months ended December, according to Bloomberg data. Revenue of its peers—ABB India Ltd. and Siemens Ltd.—contracted during the period.

Shares of Honeywell have surged more than 71 percent in the last one year, and have gained 31 percent since Union Budget 2020-21. Siemens rose 46 percent in the past 12 months while ABB India gained 10 percent. Both have fallen since the budget.

To be sure, Honeywell has very low trading volumes because of high promoter holding—which amplifies stock movements.

The provider of automation products and services to industries and buildings stands to gain on the increased outlay to build 100 airports over the next five years under the UDAN regional connectivity scheme and 40 percent higher allocation for Smart Cities. The company has already executed three Smart City projects and seven others are in progress.

As the Indian economy slowed amid falling demand from companies and consumers cutting back on spending, Honeywell was able to defy the slowdown as its entire revenue comes from automation, a business that aids in saving costs and streamlines operations. In comparison, a third of Siemens’ India business and around a fourth of ABB India’s revenue come from the stressed power sector.

Honeywell is banking on the adoption of Internet of Things for asset and fleet management solutions. Smart cities and digital initiatives taken by the government are the key growth drivers for building solutions business, it said in its annual report. Railway modernisation, metro and new airports are also key areas of growth. Its plans to focus on newer segments—such as pharmaceuticals and food and beverages—has aided revival from slowdown, according to the company.

Honeywell’s Financials

• Honeywell has better margins than peers, which aided its financials.
• High margin export business grew at an annualised rate of 24 percent between 2013-14 and 2018-19, while the domestic business turned around growing at a rate of 11 percent in the last two years, according to its filings.
• The company had cash worth Rs 1,347 crore on its books as of quarter ended September and its debt stood at Rs 71 crore.
• It boasts of 20 percent return on equity and return on capital.

According to Dhirendra Tiwari, head of research at Antique Stock Broking, Honeywell Automation’s operational efficiency and access to cutting-edge technology of its parent will help it sustain revenue growth. The company has the ability to outperform even in an adverse macro-economic environment, he wrote in a note.